Some Experts Say Employee Buyout Plan Will Not Save GM

Barry Wood
March 23, 2006
Washington, D.C.

General Motors, the largest U.S. based automaker, this week reached an agreement with its principal union that offers generous cash offers to workers who agree to leave the company.

General Motors lost over $10 billion in 2005. The early retirement and employee buyout plans are part of a strategy to reduce costs and make the company smaller. Over 100,000 U.S. workers at GM are eligible for buyouts that could cost the company several billion dollars. In addition, GM has agreed to finance worker buyouts at Delphi, the bankrupt auto parts company that until 1999 was a GM subsidiary. Delphi's bankruptcy last October was the largest ever in the United States.

Before GM's buyout plan was announced, the United Auto Workers union had threatened a strike at Delphi, which says it must slash wages and benefits to avoid liquidation. Rebecca Lindland is an auto industry analyst at Global Insight, an economic consulting firm in Massachusetts. She tells Bloomberg News that GM faces more challenges in the future.

"How many plants do they need to close? How much are they going to pay the left-over workers? Who is left at the plants? How much will they have to pay? Also, you have the collective bargaining [talks] with the union coming up in September 2007," said Rebecca Lindland.

Peter Morici, a business professor at the University of Maryland and a long-time critic of General Motors management, dismisses the buyout agreement as business as usual. He is more convinced than ever that General Motors will eventually go out business. GM's chief executive, Rick Wagoner, Morici says, has failed and should resign.

"Mr. Wagoner doesn't seem to have the sense of urgency he should about realigning General Motors brands, about putting out better products, about improving quality," said Peter Morici. "They continue to sing the song that the products are better than they are and blame their problems on their critics."

General Motors has steadily lost market share in the United States to foreign companies, particularly Toyota. Because of generous pay and benefit agreements, cars produced by non-union labor at foreign-owned companies in the United States have at least a $7,000 cost advantage over GM and Ford vehicles.