GM to Slash Dividend, Jobs, Ask Suppliers to Cut Prices : Autos: Firm faces $1.4-billion loss in quarter, its worst ever. 15,000 white-collar positions will be eliminated.
Struggling with an unexpectedly steep drop-off in sales and production and a river of red ink, General Motors Corp. on Monday announced that it will swing a multibillion-dollar ax through its ranks of shareholders, white-collar workers and suppliers.
GM said it was slashing its common-stock dividend by 47%, eliminating 15,000 salaried jobs over three years, demanding $2 billion in price cuts from suppliers and carving $500 million a year out of its capital spending.
Another retrenchment at GM--its second in just three months--had been widely expected as the recession deepened and car and truck sales tumbled. But the dividend cut was sooner and deeper than some expected, and the cut in capital spending raised eyebrows on Wall Street.
GM, the world’s largest industrial company, is expected to report a $1.4-billion loss for the fourth quarter of 1990, its worst operating result ever. Although GM has major competitive problems, the chief culprit appears to be the condition of the U.S. economy.
Ford Motor Co., which surprised some analysts recently by deciding against a dividend cut, is expected to report a fourth-quarter loss in the $500-million range. Chrysler Corp. is expected to post a smaller loss. Red ink is continuing to flow this quarter as the recession and the Persian Gulf War cut car sales.
Although analysts describe the auto financial crisis as centered on Detroit, the recession has spread beyond the Big Three U.S. firms and is now causing cutbacks among major Japanese and European manufacturers. Honda last week announced modest production cutbacks, and Toyota intends to cut costs by 10%. There is also a spreading sales slump in Europe, which is affecting not only European-based auto firms but the overseas operations of GM, Ford and some Japanese makers.
GM, although it raised the dividend for a separate category of stock tied to its computer-services subsidiary, said it would reduce its quarterly dividend on common stock to 40 cents from 75 cents a share. That would save GM about $843 million a year.
It was the first reduction in GM’s dividend since 1980 and the latest in a string of actions in Detroit this winter to recall the wrenching cutbacks that the domestic auto industry went through early in the last decade.
Spreading the misery among suppliers, shareholders and employees was the rule among domestic auto makers in the early 1980s, a period that saw the U.S. industry shrink by about one-third.
“It’s kind of a share-the-sacrifice approach that seems to be Stempel’s style,” said auto analyst David Healy of Barclays de Zoete Wedd in New York, referring to Robert C. Stempel, GM’s cost-conscious new chairman and chief executive.
For GM executives, the sacrifice will take the form of the withholding of most bonuses for 1990, the company said. Among the 4,000 employees eligible for bonuses, members of top management could see their total compensation decline by more than half compared to 1989, leaving them with only salaries, a spokesman said.
In contrast, former Chairman Roger B. Smith’s $2.4 million in salary and stock awards last year included only $1 million in salary, the spokesman said.
GM’s unionized hourly work force has yet to be asked to sacrifice, as it did in the early 1980s with wage and benefit concessions. But the new labor agreement signed by GM and the United Auto Workers in September is drawing heavy blame for GM’s financial deterioration.
The reason is that the contract significantly broadened the company’s layoff benefits in return for giving GM flexibility in closing plants. With layoffs growing, so is the drain on GM, analysts say. Ford Motor Co. and Chrysler Corp. signed similar labor pacts, which pay about 95% of regular wages during layoffs.
Joseph S. Phillippi, analyst at Shearson Lehman Bros. in New York, questioned GM’s demand for price cuts from suppliers “when they’re the guys who signed an overly expensive labor agreement.”
However, the signing of that agreement cleared the way for a massive retrenchment on Oct. 31, when GM announced that it would take a $2-billion charge against earnings to pay for padlocking up to nine assembly plants. Some analysts say GM has to close still more plants to bring its capacity in line with its shrunken share of the U.S. car market.
GM’s share of all U.S. car sales fell to about 35% from 45% during the 1980s, with most of the difference being captured by Japanese-based auto firms that have established assembly plants in this country.
GM said Monday that it intends to reduce its non-union North American work force by 15%, or 15,000, by the end of 1993. About 6,000 of those will be gone by the end of this year. The reductions will be made by retirement and attrition “to the greatest extent possible,” GM said.
The company said also that it will cut capital spending by $500 million a year, to $7 billion, each year through 1994. Some “ancillary” new vehicle programs will be delayed, “but I’m not aware of any being cut,” a spokesman said.
In a statement released after the close of the New York Stock Exchange, Stempel said that GM’s board “felt it was imperative at this time to recognize the economic impact that the turmoil in the Middle East and the recession have had on consumer confidence and on the highly competitive automotive markets, particularly in North America.”
“Hopefully, this situation will be short-lived, but, in the interim, we can’t afford to be tentative,” Stempel said. “While we expect the U.S. economy to start a gradual economic recovery at some point during 1991, we cannot rely on an eventual economic turnaround alone to secure an adequate financial return for our stockholders over the longer term.”
GM’s vast network of thousands of suppliers will be asked to cut their prices annually, with the aim of lowering GM’s material costs by $2 billion a year by 1993. The auto company said it would lend suppliers engineering and other resources to help them cut their own costs.
