GM's and Ford's Strides With Buyouts Might Ease Financial Crunch
By JEFFREY MCCRACKEN and LEE HAWKINS , JR.
June 17, 2006
DETROIT -- Auto makers Ford Motor Co. and General Motors Corp. have made significant strides in their efforts to pare down their hourly work forces through early-retirement and buyout offers, developments that have the potential to ease each company's financial crunch this year.
Ford now expects 10,000 to 11,000 of its unionized work force will this year accept early-retirement offers or some other buyout package, up from the its original expectation of roughly 6,000 a year over the next five years. The auto maker also eliminated the equivalent of about 4,000 salaried positions in the first quarter of the year, a figure that includes cuts to contract and agency workers.
"That's pretty good progress," Ford North American President Mark Fields said in an interview Friday.
On Thursday, the United Auto Workers said about 25,000 employees have agreed to accept cash and other incentives to voluntarily leave GM, putting the auto maker near its goal of shedding 30,000 workers. A GM spokeswoman said the company isn't releasing the number of workers who have accepted buyouts before the June 23 deadline for signing up. But she said the figures cited by the UAW are "in the ballpark." An additional 8,500 workers at Delphi Corp., GM's former parts unit, have also signed up for buyout offers, the UAW said.
At Ford, Mr. Fields was brought in last year to turn around the company's ailing North American operations. His "Way Forward" restructuring plan calls for closing 10 or more plants. The plan has come under growing scrutiny from investors, credit-rating agencies and industry analysts as Ford vehicle sales drop this year. Even key products like the Ford F-series pickup truck have seen sales flatten. Ford's North American operation lost $457 million in the first quarter.
Mr. Fields said the sales year has gone largely as he expected, except for a faster consumer swing away from trucks and SUVs and toward cars. Nevertheless, Mr. Fields said the company is "exactly where I expect us to be" five months into the turnaround plan.
Wall Street analysts reacted particularly favorably to the GM buyout figures. "This is a significant acceleration of the plan they announced in November," said John Murphy, a Merrill Lynch analyst.
GM had previously forecast it would save about $3 billion by the end of 2008, but as a result of the updated figures, Mr. Murphy now estimates that the buyouts can save GM about $2.5 billion of that $3 billion by early 2007. He added that GM could start to see some related savings in the second half of 2006, as some workers may choose to leave GM before then.
As a result, the accelerated cuts could help GM improve its earnings as early as this year. "I think this alone will be one of the major drivers of an earnings improvement from 2006 to 2007," Mr. Murphy said, adding that he estimates that GM will save a total of about $3 billion in pretax costs in all of 2007.
With more GM workers taking the buyout, analysts are fixated more than ever on whether GM can make similarly swift progress on its talks with Delphi and the UAW. Mr. Murphy said it is unclear if the accelerated buyouts will also relieve some of GM's costs relative to the JOBS bank program, which provides pay and benefits to idled workers. "There could be quite a few takers as of now out of the JOBS bank, but as of right now, this does not technically eliminate the JOBS bank," Mr. Murphy said. He said the JOBS bank will be a critical issue in the 2007 labor negotiations.
GM's talks with Delphi and the future of the JOBS bank are likely to also be closely watched by the credit ratings agencies in the coming months. Standard & Poor's, which has GM rated at "B" credit watch with negative implications (several notches below investment grade), said the Delphi situation is still its chief concern. "The higher buyout number won't lead to us resolving the credit watch any sooner because that depends largely on what happens to Delphi," said S&P analyst Robert Schulz.
Earlier this week, S&P said that because the Delphi court hearings were adjourned until Aug. 11, it would keep GM's rating on credit watch for the next few months. In the interim, the talks between Delphi, GM and UAW are expected to continue. At the end of March, GM had about $21.6 billion on its balance sheet.
Together the Ford, GM and Delphi buyout plans mean nearly 45,000 unionized workers are deciding to leave the traditional auto industry just this year. This sweeping reduction of the unionized auto industry comes at the same time Asian auto makers open nonunion plants, such as the Toyota Motor Corp. operation in San Antonio, Texas, which will open later this year.
By JEFFREY MCCRACKEN and LEE HAWKINS , JR.
June 17, 2006
DETROIT -- Auto makers Ford Motor Co. and General Motors Corp. have made significant strides in their efforts to pare down their hourly work forces through early-retirement and buyout offers, developments that have the potential to ease each company's financial crunch this year.
Ford now expects 10,000 to 11,000 of its unionized work force will this year accept early-retirement offers or some other buyout package, up from the its original expectation of roughly 6,000 a year over the next five years. The auto maker also eliminated the equivalent of about 4,000 salaried positions in the first quarter of the year, a figure that includes cuts to contract and agency workers.
"That's pretty good progress," Ford North American President Mark Fields said in an interview Friday.
On Thursday, the United Auto Workers said about 25,000 employees have agreed to accept cash and other incentives to voluntarily leave GM, putting the auto maker near its goal of shedding 30,000 workers. A GM spokeswoman said the company isn't releasing the number of workers who have accepted buyouts before the June 23 deadline for signing up. But she said the figures cited by the UAW are "in the ballpark." An additional 8,500 workers at Delphi Corp., GM's former parts unit, have also signed up for buyout offers, the UAW said.
At Ford, Mr. Fields was brought in last year to turn around the company's ailing North American operations. His "Way Forward" restructuring plan calls for closing 10 or more plants. The plan has come under growing scrutiny from investors, credit-rating agencies and industry analysts as Ford vehicle sales drop this year. Even key products like the Ford F-series pickup truck have seen sales flatten. Ford's North American operation lost $457 million in the first quarter.
Mr. Fields said the sales year has gone largely as he expected, except for a faster consumer swing away from trucks and SUVs and toward cars. Nevertheless, Mr. Fields said the company is "exactly where I expect us to be" five months into the turnaround plan.
Wall Street analysts reacted particularly favorably to the GM buyout figures. "This is a significant acceleration of the plan they announced in November," said John Murphy, a Merrill Lynch analyst.
GM had previously forecast it would save about $3 billion by the end of 2008, but as a result of the updated figures, Mr. Murphy now estimates that the buyouts can save GM about $2.5 billion of that $3 billion by early 2007. He added that GM could start to see some related savings in the second half of 2006, as some workers may choose to leave GM before then.
As a result, the accelerated cuts could help GM improve its earnings as early as this year. "I think this alone will be one of the major drivers of an earnings improvement from 2006 to 2007," Mr. Murphy said, adding that he estimates that GM will save a total of about $3 billion in pretax costs in all of 2007.
With more GM workers taking the buyout, analysts are fixated more than ever on whether GM can make similarly swift progress on its talks with Delphi and the UAW. Mr. Murphy said it is unclear if the accelerated buyouts will also relieve some of GM's costs relative to the JOBS bank program, which provides pay and benefits to idled workers. "There could be quite a few takers as of now out of the JOBS bank, but as of right now, this does not technically eliminate the JOBS bank," Mr. Murphy said. He said the JOBS bank will be a critical issue in the 2007 labor negotiations.
GM's talks with Delphi and the future of the JOBS bank are likely to also be closely watched by the credit ratings agencies in the coming months. Standard & Poor's, which has GM rated at "B" credit watch with negative implications (several notches below investment grade), said the Delphi situation is still its chief concern. "The higher buyout number won't lead to us resolving the credit watch any sooner because that depends largely on what happens to Delphi," said S&P analyst Robert Schulz.
Earlier this week, S&P said that because the Delphi court hearings were adjourned until Aug. 11, it would keep GM's rating on credit watch for the next few months. In the interim, the talks between Delphi, GM and UAW are expected to continue. At the end of March, GM had about $21.6 billion on its balance sheet.
Together the Ford, GM and Delphi buyout plans mean nearly 45,000 unionized workers are deciding to leave the traditional auto industry just this year. This sweeping reduction of the unionized auto industry comes at the same time Asian auto makers open nonunion plants, such as the Toyota Motor Corp. operation in San Antonio, Texas, which will open later this year.
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