DETROIT – General Motors Corp. (GM) halved its dividend on Tuesday, its first cut in more than 13 years, and slashed executive pay in a move to reduce costs and gain union support for sweeping, long-term changes in its labor contracts.
The board of directors — which had been under pressure to make the moves from billionaire investor Kirk Kerkorian, GM's largest single shareholder — cut the dividend to an annual rate of $1 a share, reducing the payout by $565 million a year.
The salary of GM Chairman and Chief Executive Rick Wagoner will be halved, while Vice Chairmen John Devine, Robert Lutz and Fritz Henderson will see their salaries cut by 30 percent.
The world's largest automaker lost $8.6 billion in 2005 as it struggled with high labor and raw material costs, loss of U.S. market share to foreign rivals, and sluggish sales of sport utility vehicles, its biggest generator of profits.
"Cuts like this were important to negotiations with the unions for similar types of cuts in unionized pay structure." said Tim Ghriskey, chief investment officer of Solaris Asset Management.
The announcement follows Monday's appointment of Jerome York, Kerkorian's chief adviser, to GM's board.
Last month, York called on GM to cut its dividend as part of a turnaround. He also urged shedding "noncore" brands such as Saab and Hummer, and reducing senior management pay.
Kerkorian increased his stake in GM to 9.9 percent in January and said he might buy 12 million additional shares if GM met his demands.
GM's 2005 loss was its largest since 1992, when it last cut the dividend. Before the latest cut, GM shares carried the highest dividend yield — 8.3 percent — among the stocks in the Dow Jones industrial average.
Standard and Poor's said the company's cost-cutting steps would have no immediate effect on its debt ratings or outlook.
GM said the cash savings from the steps would rise to $200 million within five years and continue rising after that.
GM shares were down 72 cents, or 3 percent, to $22.62 in afternoon trade on the New York Stock Exchange.
PAY CUTS, BENEFIT CAPS
GM did not specify what the 2006 salaries of its top executive would be. In 2004, the latest year for which figures are available, Wagoner received a salary of $2.2 million and a bonus of $2.46 million, plus stock options worth $5.14 million. Lutz received total compensation of $6.46 million, and Devine $6.28 million, including salaries of $1.55 million and bonuses of $1.4 million.
In December, GM set Henderson's annual base salary at $1.55 million. Henderson succeeded Devine as chief financial officer on Jan. 1.
The automaker will cap its contributions to salaried retiree health care at the level of its 2006 expenditures, effective Jan. 1, 2007. Wagoner said specific changes to salaried employees' pension benefits would also be announced next month.
Many analysts said the cuts send a message to the union about "equality of sacrifice."
"By forcing a health-care inflation cap for salaried workers, GM is bringing forth the issue of similar caps for hourly workers, which our talks with (GM) management suggest is a top priority," JP Morgan analyst Himanshu Patel wrote in a research note. The union contract expires in 2007.
But Wagoner told a press conference in Detroit, "There is no message to the UAW there."
He said the steps were necessary. "It's a message that the company is going to take the steps necessary to address the losses of last year and get profitable." he said.
The automaker is constantly in talks with the union, he said. "We will continue to sit down with the UAW on areas where we need to improve our competitiveness that they are directly involved in," he said.
The company said it would cut pretax health-care expenses by $900 million annually and reduce health-care liabilities by $4.8 billion by capping its contribution to salaried retirees' health-care coverage at 2006 levels.
GM salaried employees hired after Jan. 1, 1993, are not eligible for retiree health care. The automaker has about 40,000 salaried workers and about 100,000 salaried retirees, a spokesman said.
GMAC, DELPHI UPDATES
GM is trying to sell a majority stake in its finance arm — General Motors Acceptance Corp. — to restore the unit's investment-grade credit rating and get access to cheaper financing.
The automaker is also in talks with bankrupt Delphi Corp.
and the union about possible wage and job cuts. GM, which spun off Delphi Corp. in 1999, is responsible for some GM hourly employees who transferred to Delphi.
Wagoner on Tuesday said GM would soon update investors on talks on the sale of a stake in GMAC, and on the negotiations with Delphi.
"GMAC and Delphi are getting the highest level of attention," Wagoner said. "We would be commenting to you hopefully soon — as soon as we get some sort of clarity on the future direction."
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