GM looks at beefing up buyout deals
General Motors Corp., negotiating a buyout deal with the United Auto Workers to clear out thousands of veteran employees, may sweeten cash payouts to encourage the most senior to retire, sources familiar with the talks said.
The move is being discussed in the face of Ford Motor Co.'s decision last week to increase retirement incentives by as much as $20,000 from deals offered two years ago. It also comes as pressure intensifies on GM to get a deal so it can begin moving out veteran workers and replacing them with lower-paid new hires.
A landmark cost-cutting labor contract inked three months ago between GM and the UAW gave the automaker leeway to buy out workers and create a second tier of wages -- major wins for GM.
The company initially expected to offer buyout packages similar to those made available in 2006, when retirement-ready workers could take $35,000 to leave the company. A first round of incentives, extended last week to
5,200 workers, mirrored the 2006 deals almost exactly.But the two sides have yet to strike a deal on offers for the rest of GM's work force, about 75,000 workers in all. GM and the union are still negotiating how much cash employees should get to leave and how many workers need to go.
Deals richer than the 2006 offers are among the options being discussed as the two sides negotiate an incentive package and try to reach agreement on which jobs fall into the lower level of pay.
Ford increased its incentives from $35,000 to $50,000 for retirement-ready production workers and from $50,000 to $70,000 for skilled trade workers. The Dearborn automaker will extend some form of buyout to all 54,000 Ford UAW workers; nonretirement packages are unchanged from the previous offers.
Chrysler LLC is offering workers the same options it extended last year, when thousands of workers left the automaker.
Industry analysts have said Detroit's Big Three could have a tough time enticing enough workers to leave the companies now after the mass exodus created by the last round of buyouts; in total, more than 80,000 workers left in 2006 and 2007.
Even after 34,000 workers left GM in 2006, about 21,500 remain with 30 years of service.
Many workers are eager to hear what GM's going to offer, said Pat Sweeney president of Local 5960, which represent's workers at GM's Orion plant.
"After they hear what Chrysler and Ford rolled out, they ask if they're going to match," Sweeney said. "I tell them, 'I don't know.' "
GM, the No. 1 U.S. automaker, stands to save billions in labor costs once that second tier of workers is in place.
In the meantime, losses are mounting in North America and U.S. auto sales could fall to a 10-year low this year, further threatening the company's bottom line.
The automaker's share price is down more than 30 percent from a mid-October peak just after the new labor deal was ratified. Shares closed Thursday at $28.21.
"We hope to have an agreement in place, but we can't speculate on timing," GM spokesman Dan Flores said on Thursday about the pending buyouts.
GM CEO Rick Wagoner is under pressure from Wall Street to get those savings under way. Wagoner last month told Wall Street analysts that the company planned to extend buyout or early retirement offers in February to the entire work force.
The labor deal could eventually save GM $5 billion a year in labor costs. A key aspect of the deal, a plan to shift retiree health costs to the union in the form of a company-funded trust, won't kick in until at least 2010. In the meantime, most of the savings will come from hiring thousands of workers at second-tier wages to work jobs not central to building cars and trucks. They will make about $14 an hour, compared to about $28 for a veteran worker in a core vehicle-making job.
Even with those savings, Wagoner said, GM may have to further reduce its capacity in the face of a sluggish U.S. economy.
Wagoner's comments elicited an angry reaction from UAW President Ron Gettelfinger, who said hours later that there was no February goal for the buyout offers.
"Eventually there will be a buyout," Gettelfinger said at the time. "But I'm not going to put a time frame on it."
GM doesn't have to match the Ford deal; a number of differences already exist among the labor deals struck by the UAW and each of the Big Three.
But GM needs the offers to be attractive enough to entice workers without spending so much that the cost savings are negated.
The union also stands to benefit from the buyouts because hiring second-tier workers could bolster its declining ranks.
"The union's reputation is going to depend on how they negotiate here," said Michigan State University labor Professor John Revitte. "At some point they risk looking weak to potential members. They're walking a fine line."