General Motors Corp. (GM) plans to eliminate 25,000 jobs in the United States in the next few years by closing additional plants, as it battles high costs and shrinking market share, the company's chief executive said Tuesday part.
Speaking to shareholders at GM's 96th annual shareholder meeting in Delaware Tuesday morning, Chairman and Chief Executive Rick Wagoner (search) said the capacity and job cuts will generate annual savings of roughly $2.5 billion.
Wagoner said at least 25,000 U.S. jobs would likely be cut in the period 2005-2008, from an hourly work force that stood at 111,000 at the end of 2004.
The world's largest automaker has been closing and idling plants over the past four years, reducing its annual assembly capacity from six million vehicles in 2002 to five million by the end of this year.
GM shares gained 31 cents to close at $30.73 on the New York Stock Exchange (search) after rising as high as $31.16 earlier in the session. GM's shares have tumbled to their lowest price in more than a decade, and Fitch Ratings and Standard and Poor's Ratings Services both reduced the company's bond rating to "junk" status last month.
The GM job cut announcement was the biggest in the United States since Kmart (search) unveiled plans to cut 37,000 jobs in January 2003, according to John Challenger of outplacement firm Challenger, Gray and Christmas Inc.
"This may not be the last major job cut announcement we see this year as other companies, including other American automakers, struggle to make a profit amid escalating health-care costs, not to mention the cost of providing ongoing health benefits to growing ranks of retirees," Challenger said in a statement.
Analyst Michael Bruynesteyn of Prudential Equity Group said eliminating 25,000 or more hourly jobs through 2008 would only be in line with the normal 5 percent annual retirement or attrition rate at GM.
"These plans are not surprising given market share losses and efficiency gains but we do not think they should be viewed as a new strategy," added Goldman Sachs analyst Robert Barry.
"If market share continues to fall over time, as we expect, then GM is really just treading water with such actions, not boosting profitability."
Wagoner focused on priorities for clarifying the role of each of GM's eight brands, intensifying efforts to reduce cost and improve quality and continuing to search for ways to reduce skyrocketing health care costs.
He noted that the company's current $1,500 per worker health-care expense puts GM at a "significant disadvantage versus foreign-based competitors," and said GM has conducted "intense discussions" with the unions about how to reduce health-care costs.
Billionaire investor Kirk Kerkorian's (search) offer to purchase 28 million GM shares at $31 apiece, boosting his stake to about 9 percent from 4 percent, expires later today.
It was not immediately known which GM plants would be closed. GM has already closed several facilities this year. The company shut a factory in Linden, N.J., in April and a factory in Baltimore in May, affecting around 2,000 employees. The company also closed two plants in Lansing, Mich., last month, although those 3,500 employees are expected to find work at other GM facilities in the city.
"Let me say up front that our absolute top priority is to get our largest business unit back to profitability as soon as possible," Wagoner said.
Part of that bid involves negotiating with the United Auto Workers (search) and other unions, discussions that are ongoing.
Wagoner said the talks, which he described as intense, have focused on a cooperative approach to significantly reduce GM's health care costs. GM's health care tab for its 1.1 million current and former workers and their families is more than $5 billion a year and rising.
"We have not reached an agreement at this time, and to be honest, I'm not 100 percent that we will," Wagoner said of the ongoing talks with its unions. "But all parties are working hard on it, in the spirit of addressing a huge risk to our collective futures while providing greater security and good benefits for our employees."
To date, the UAW has indicated it won't reopen its contract, which expires in 2007, and agree to pick up a larger share of soaring health care costs.
Aside from growing health care and pension costs, GM has had lackluster sales lately of its highly profitable trucks and sport utility vehicles, which have been hurt by high fuel prices.
GM's sales were down 5 percent in the first five months of the year, and the automaker reported a $1.1 billion loss in the first quarter.
Reuters and the Associated Press contributed to this report.