March 23, 2006
Some Sense at GM
Looks like someone at GM is finally waking up:
G.M., staggering under the weight of $10.6 billion in losses last year, said it would offer buyouts and early-retirement packages ranging from $35,000 to $140,000 to every one of its 113,000 unionized workers in the United States who agreed to leave the company.
At the same time, Delphi, the nation's biggest automotive parts maker and a unit of G.M. until seven years ago, will offer buyouts of $35,000 to 13,000 U.A.W. members, of 24,000 on its factory floors.
If the business is to survive at all it simply has to get its labour costs under control. Quite how insane they currently are is shown here:
On average, U.A.W. members at G.M and Delphi cost the equivalent of $67 an hour, including pay of about $27 an hour plus pensions and health care expenses.
Better financial market minds than mine might be interested in looking at what happens to GM’s bond and share prices. Analysts should have already priced the costs of these into those prices. If the GM prices fall as a result of this announcement then perhaps they hadn’t realised how much the costs were. If they rise, then perhaps GM is offering the workers a bad deal....ie, the cost to GM of the deal is less than already implicit in the prices. And if the prices don’t move at all then we have both an efficient market (ie, everything already in the prices) and a reasonable deal for both sides.
Or maybe the prices will just carry on in some random walk.
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Here in Detroit, GM is still known as 'Generous Motors' for its long and storied legacy of simply throwing money at its workers. Even in the UAW (my place of work is non-automotive but unionized) it's understood that the huge burden of anticipated retirement and other benefits is dragging the corporation down and ultimately threatens jobs.
I talked with a GM guy from the Proving Grounds at the gun club last night - he's been told to consider a separation offer of $135,000 in cash plus x months of income support. The sheer size of the kinds of separation offers being made speaks volumes about the huge burdens that GM anticipates as a result of having to keep these workers, and I can't see but how the effect on their share and bond prices can be anything but positive if the workforce can be considerably reduced. The alternatives are more plant closings and more massive layoffs, and you would think that even the most blinkered GM line worker could see the writing on the wall.
Posted by: llamas | Mar 23, 2006 11:10:14 AM