The Association of U S West Retirees



GM spreads sacrifices to try to reverse big losses
General Motors halved its dividend and made pension, salary and health care cuts. Top executives also agreed to pay reductions.
By Micheline Maynard, New York Times
Mpls Star Tribune
Wednesday, February 8, 2006

DETROIT - General Motors Corp., under pressure to show its blue-collar workers that investors and executives are prepared to sacrifice to help overcome the company's deepest losses in more than a decade, said Tuesday that it would reduce pay for top officials and cut its stock dividend in half.  GM also announced changes in the pension and health care plans for its retired salaried workers as it struggles to turn around its operations and avoid a potential bankruptcy.

The executive pay cuts -- from 50 percent for GM's chairman to 10 percent for a few other senior executives along with the elimination of management bonuses this year -- affect only a small number of people and save relatively little compared with the dividend and health care contributions cuts.

But even as executives played down their intent, the moves are important symbolically to go along with the givebacks GM has won from its union workers and to set the stage for more concessions it intends to seek from the United Automobile Workers in talks next year.  UAW leaders said that union workers have given enough and that they will not discuss more concessions ahead of those talks.

Tuesday's moves eventually are expected to reduce the company's annual structural costs by more than $900 million, with the dividend cut helping to preserve $565 million in cash each year.  Overall, the company is aiming at annual cost cuts of about $7 billion.

But two steps that have been widely anticipated were not part of the announcement.  GM did not disclose any developments in the long-awaited sale of its GMAC finance unit.  Nor did it disclose an agreement concerning the UAW and Delphi Corp., GM's former parts unit, which is operating in bankruptcy.

As a result, many analysts said the troubles at GM, which lost $8.6 billion in 2005, are far from over.

"We believe that there is more to come," John Murphy, an analyst with Merrill Lynch, wrote in a research note.  "Ultimately, we believe that an active downsizing of the company to a defensible market share will be necessary."

GM stock fell 53 cents, to $22.81 a share.

Along with its losses, GM's U.S. market share fell to just over 26 percent last year, its lowest since 1925.  In November, GM said it would close all or part of 12 plants and eliminate 30,000 jobs.

Yet, its biggest shareholder, Kirk Kerkorian, wants the company to do more -- and GM is at least partially listening.  Its latest moves were announced a day after the company gave a seat on its board to Jerome York, a Kerkorian ally.

York had called for many of Tuesday's steps in a Jan. 10 speech in Detroit, saying the company needed to move more swiftly on the turnaround effort that began late last year.  But the company rejected several of York's recommendations, including broader cuts in executive pay and paring back on its car and truck divisions.

Moreover, CEO Rick Wagoner declined Tuesday to predict when GM would return to profitability, resisting York's call for the company to set clear financial goals.

Wagoner, who received $2.2 million in 2005, will take a 50 percent pay cut to $1.1 million.  Vice Chairman Robert Lutz, who earns $1.55 million a year, will take a 30 percent cut, as will Vice Chairman John Devine and Chief Financial Officer Frederick Henderson.

But York called for a sliding scale of cuts affecting executives, managers and salaried employees.  Such steps have taken place at bankrupt airlines such as Northwest.

Last year, union members voted to accept a plan that would require them to pay for part of their health care coverage, which had been virtually free.