$2B cost cutting drive launched by Buyouts

General Motors (GM) is offering buyouts to its US salaried workforce in a bid to cut $2bn in expenses by the end of 2023. CEO Mary Barra announced the “voluntary separation program”, which will come into effect in June, to help reduce staff numbers. Barra said the plan would not involve any involuntary job losses. GM has enjoyed record pre-tax earnings in 2022, but Barra wants to manage overheads and maintain margins despite the financial flexibility available to GM. The company employs approximately 58,000 salaried US workers and 46,000 hourly workers, with both groups represented by the United Auto Workers (UAW) union.

GM attaches conditions to its buyout offer that include a deadline of 24 March for a response and a minimum service period. The scheme includes one month pay for each year worked up to a limit of 12 months, performance-related bonuses and outplacement assistance. Executives are entitled to get additional incentives compared to other employees. The buyouts are expected to cost the carmaker up to $1.5bn, which comprises a cash-based severance amounting to up to $1.2bn and up to $300m in non-cash pension curtailment charges. The final actual cost will depend upon the number of staff members who agree to leave.

GM is among the legacy carmakers who are steering their businesses towards electric vehicles (EVs) and software-equipped vehicles, with an accompanying need to recruit employees with skills suited to this new and rapidly evolving sector. Although there are expectations that hourly compensation costs will be higher during the forthcoming negotiations related to contracts that the UAW and Canada’s Unifor union have with the Detroit 3, Barra said GM would reach its cost-cutting targets without having to resort to making layoffs. Instead, cost savings would come from natural attrition and simplifying vehicles.

Other legacy manufacturers have also been cutting back on costs and jobs. For example, Ford announced an increase in its savings target to greater than the $3bn planned by 2026 due to declining sales of certain models. Ford reduced staff numbers globally by 3,000 last year, and additional job cuts for Europe are expected. With extreme competition in the EV sector, carmakers must limit their expenses to remain competitive, as well as developing proprietary technology and operating complex new production techniques. However, as the US automotive industry bounces back from the pandemic, there are pressures, particularly from the UAW, for carmakers to continue to raise worker pay rates.

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