GM Digs In Amid Hints That It Might Shut Some Plants
General Motors Corp., digging in for long strikes, began Thursday to implement broad steps to conserve cash, including cutting back advertising, reducing discretionary spending and mothballing idled plants.
A top GM official also told employees that the company is reassessing its product programs, hinting that if the two current strikes persist, the auto maker could permanently close marginal plants and kill unprofitable car lines.
Taken together, the developments show an increased resolve by GM to stand firm against the United Auto Workers even as its operations grind to a standstill and chances grow that the dispute will last well into the summer.
GM has also opened a legal front in its battle with the UAW. It filed a grievance Tuesday with the union’s leadership, alleging that the strikes violate the national contract and seeking expedited arbitration on the issue.
The actions come in the wake of UAW warnings this week that labor strife could erupt at other GM plants later this summer. UAW locals in Dayton, Ohio, and Indianapolis are seeking strike approval from members.
The escalating confrontation stems from walkouts by 9,200 hourly workers at two parts plants in Flint, Mich. The dispute, which enters its fourth week today with no prospect of settlement soon, centers on work rules, job security and factory conditions. Talks were scheduled to resume today at the Flint plants.
The strikes have already cost GM about $1 billion in second-quarter profit, analysts said, and have virtually shut down its vehicle production in the United States, Mexico and Canada. Parts shortages resulting from the strikes have forced GM to close 26 of its 29 assembly plants and to lay off about 148,000 workers.
“They [GM] are playing hardball,” said Joseph Phillippi, analyst for Lehman Bros. in New York. “It will get worse before it gets better.”
GM, which earned $6.7 billion last year, has amassed about $13 billion in excess cash. But the company said it is already facing a serious cash drain and needs to take steps to trim expenses.
Richard Wagoner, president of GM’s North American operations, sent a memo earlier this week to 1,800 top executives ordering a reduction of expenditures that do not affect product launches. Managers are expected to reduce by 50% all nonessential expenses, such as consultant fees and business travel.
Donald Hackworth, vice president of GM’s North American car operations, told employees in a taped message Wednesday that the company was assessing and prioritizing all product programs.
“If the strike persists, they too could be in jeopardy,” he said.
Analysts and labor experts saw that as a veiled threat that GM might close some inefficient plants and eliminate unprofitable car lines. A GM spokesman Thursday confirmed that such moves were possible.
UAW President Stephen Yokich, however, told reporters in Las Vegas that the threats were just public relations blather. “It’s all PR,” he said from the site of the union’s national convention.
Another memo circulated this week from GM’s top manufacturing managers ordered plants--except a few involved in key product launches--to shut down completely. Normally, the company keeps skeleton crews in plants to maintain and repair facilities and equipment.
GM confirmed Thursday that it is cutting back on ad spending for the next six weeks. The auto maker, which spent $2.2 billion on advertising last year, would not quantify the dollar amount of the cutbacks.
GM also increased pressure on the UAW by demanding arbitration of its claim that the strikes are illegal. Union locals called the strikes on the basis of alleged contract violations, including health and safety grievances. GM, however, alleges that the strike issues are “contrived” and part of a larger national union strategy.
Frank Burk, a labor-management attorney in Cleveland, said that the arbitration request was unusual but that if a finding were made in GM’s favor, the union could be held liable for hefty damages.
“It is something the union should be concerned about,” he said.
GM also said it will challenge the awarding of state unemployment benefits to laid-off workers. The payments, which the company is billed for, in effect have the company subsidizing strikes against itself. GM opposed unemployment pay during a similar strike two years ago but was rebuffed in court.
Workers, who normally make more than $900 a week with overtime, are eligible for about $300 in unemployment. Normally when laid off they also get supplemental payments from GM that restore their pay to 95% of normal, but that does not kick in during strike situations.
GM shares rose 6 cents to close at $67.88 on the New York Stock Exchange. The stock has fallen 10% since the first strike began June 5.
