General Motors offered early retirement and severance packages to all of its 113,000 US blue-collar workers on Wednesday. The move is part of a deal to reduce labour costs at GM and Delphi, the bankrupt auto parts supplier.
Tens of thousands of workers are expected to accept the offers, which include buy-outs of up to $140,000 each.
The buy-outs are GM’s boldest move towards tackling its uncompetitive cost structure and could defuse the threat of a potentially crippling strike at Delphi. Nevertheless, according to Standard & Poors, declining market share, losses and recent financial reporting problems, among other issues, “add to the likelihood that GM’s ratings could ultimately be lowered”.
The agreement follows a week of intensive talks in Detroit, involving GM, Delphi and the United Auto Workers union. GM shares closed fractionally up at $22.01 on Wednesday night.
The carmaker has set a goal of cutting 30,000 jobs by 2008 as part of a radical restructuring to avert bankruptcy. Delphi, spun off by GM in 1999 and still its biggest parts supplier, is seeking to curb labour costs under a court-supervised restructuring expected to include the closure or sale of many of its 44 US plants.
Delphi said that unless the unions reached a deal on pay and benefit cuts by March 30, it would ask the bankruptcy court to tear up its labour contracts.
But Rodney O’Neal, Delphi’s president, said Wednesday’s deal would “help enable the transformation of our US manufacturing and support operations into a much more competitive cost base”. The UAW said it disagreed strongly with “a number of contentions, conclusions and representations” that Delphi made in a court filing setting out the agreement.
The buy-outs may result in extra costs to GM beyond a $1.7bn after-tax restructuring charge announced as part of its 2005 loss of $10.6bn. This charge applied to workers at 12 assembly and parts plants due to close in the next three years.
The buy-out offers will force agonising decisions for GM workers, who must weigh the benefits of immediate cash payments against the chances of a new job with similar benefits. Delphi thinks 13,000 UAW members will be eligible for buy-outs of $35,000 each. Up to 5,000 Delphi workers will “flow back” to GM.