General Motors announced plans on Tuesday to cut 25,000 US jobs by 2008 as part of a major overhaul of North American operations that aims to reverse the fortunes of the world's biggest automaker.
Chairman and chief executive Rick Wagoner told the company's annual shareholder meeting in Delaware that the overhaul will include the closing of a number of assembly and component plants and save US$2.5 billion annually.
"The most challenging and important operating issue we face is getting GM North America, our biggest business unit, turned around and back into a profitable position," he said.
GM lost US$1.1 billion in the first quarter of this year, with the North American division posting a US$1.3 billion loss.
The announcement suggested a new push by GM to streamline operations in the US in the face of high costs and a steady decline in market share, mainly to Asian-based automakers.
Wagoner acknowledged that GM has been pressured by the rising costs of materials and health care and also by the "weaker sales mix" resulting from waning interest in high-profit sport utility vehicles.
Wagoner said GM will raise its capital expenditures by nearly US$1 billion, mostly in North America. He said he expects to hold this higher level of spending through next year.
Another focus will also be on surging US health care costs, which have been a highly publicized drag on GM's earnings.
"Our US$1,500-per-unit health care expense represents a significant disadvantage versus our foreign-based competitors," Wagoner said.
The chief executive said GM would continue talks with the United Auto Workers in an effort to trim these costs.
"We have not reached an agreement at this time, and, to be honest, I'm not 100 percent certain that we will, but all parties are working hard on it," he said.
Another part of the plan includes "clarifying and focusing" the role of each of GM's eight brands, which will mean "fewer but strong entries" from Pontiac and Buick, Wagoner said.
GM shares rebounded 1 percent to close at US$30.73 on the prospect for a turnaround in the automaker's performance.
"The market certainly doesn't consider this as a cure-all, but this is certainly a step in the right direction," said Art Hogan, market analyst at Jefferies and Co.
"The key will be how they refresh their vehicles" to adapt to changing consumer preferences and higher fuel costs, said Efraim Levy, senior automotive analyst at Standard and Poor's.
John Challenger, CEO of consulting group Challenger, Gray and Christmas, said that the GM action was the largest single job-cut announcement of the year and the largest since January 2003, when Kmart announced plans to cut 37,000 jobs.
"The massive job cut will, of course, have a rippling effect, as plant closings adversely impact surrounding communities, suppliers and other businesses that depend on these facilities for sustenance," he said.
"This may not be the last major job cut announcement we see this year, as other companies, including the other American automakers, struggle to make a profit amid escalating health care costs ... Unless companies can reduce these expenditures, they will have no choice but to make tough decisions such as the one just announced by GM's chief executive," Challenger said.
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