GM Deal Misses Fundamental Problems Analysts Say

A landmark deal General Motors and Delphi struck with autoworkers may fall short of rescuing the struggling automaker or averting a strike at its largest parts supplier, analysts said. While the generous buyout packages offered to more than 125,000 workers will help GM and its bankrupt former subsidiary achieve much-needed workforce reductions, it does not address what will become of Delphi's remaining workers.

Delphi has been seeking to slash wages by as much as 62% and has until March 30 to reach an agreement with the UAW before it asks a bankruptcy court to void its current contract. The agreement has resolved the issue of mass layoffs. GM will hire 5,000 Delphi workers and pay $35,000 to up to 13,000 employees who agree to retire.

However, it "likely falls short of what is needed to avoid a strike," wrote Goldman Sachs analyst Robert Barry in a research note.

Some analysts said the buyout packages may not be rich enough to tempt GM workers to give up their high-paying and jobs. Under the terms of the current labor contract, laid-off GM workers are eligible for company-sponsored training while they receive nearly full pay and benefits. Those jobs banks currently house an estimated 8,000 workers and GM will need 43,000 employees to accept the buyouts if it hopes to clear out the job banks while also shuttering 12 facilities and laying off 30,000 workers by 2008.

George Magliano, an analyst with Global Insight, predicts less than 25% of those eligible to take the buyouts will do so, in part because those with less than 27 years at the company would end up losing their health-care benefits. "A lot of the workers won't take it and what will happen is you will get something a little sweeter," he said.

GM said the offer will become valid as soon as Delphi receives approval from a bankruptcy judge. Union members will then have 52 days to decide if they want to accept it.

The layoffs are also not sufficient to address GM's more fundamental problems, Merrill Lynch analyst John Murphy wrote in a research note. "The accelerated retirements at GM may result in a lower active headcount, but further exacerbates GM's already heavy burden of 2.5 retirees to active worker," Murphy wrote.

"Furthermore, GM continues to structurally shrink as it loses market share in the U.S., which means that a smaller company is supporting more retirees. Until GM stabilizes market share, rationalizes capacity at every point in the value chain, and invests heavily in product, its restructuring actions will only allow it to tread water at best."

Copyright Agence France-Presse, 2006

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