Tuesday, November 22, 2005

Why insist on further increasing a company's losses?

I've been laid off before, so I know it's not pleasant nor easy. But when a business is losing money and can't afford to keep you, why should you expect to stay around?
GM to Ax 30,000 Jobs, Close 12 Facilities

DETROIT - General Motors Corp., pounded by declining sales and rising health care costs, said Monday it will cut more than a quarter of its North American manufacturing jobs and close 12 facilities by 2008. The United Auto Workers called the plan "devastating" and warned it will make negotiations more difficult, but some Wall Street analysts said GM's actions may not go far enough.

To get production in line with demand, GM will cut 30,000 jobs, which represent 17 percent of GM's North American hourly and salaried work force of 173,000, and will close nine assembly, stamping and powertrain plants and three parts facilities. GM's U.S. market share fell to 26.2 percent in the first 10 months of this year compared with 33 percent a decade ago, the result of increasing competition from Asian rivals. GM lost almost $4 billion in the first nine months of this year.

"The decisions we are announcing today were very difficult to reach because of their impact on our employees and the communities where we live and work," GM Chairman and Chief Executive Rick Wagoner said. "But these actions are necessary for GM to get its costs in line with our major global competitors." ...

Wagoner said the job cuts will come primarily through attrition and early-retirement packages to mitigate the impact on workers. GM has an annual attrition rate of about 7 percent, Wagoner said. The average hourly worker is around 49 years old, he said.

Some workers who don't choose to retire could go into jobs banks, which pay laid-off workers their salary and benefits. Wagoner said details about layoffs and early-retirement packages still need to be worked out with the UAW, the Canadian Auto Workers and other unions....

"Workers have no control over GM's capital investment, product development, design, marketing and advertising decisions. But, unfortunately, it is workers, their families and our communities that are being forced to suffer because of the failures of others," UAW President Ron Gettelfinger and Vice President Richard Shoemaker said in a joint statement.
No one wants to see workers receive pay cuts or fewer benefits, or lose their jobs (which aren't outright layoffs because of the contract requirements). However, GM simply isn't making money, and it's unrealistic for the unions to expect GM to keep employing them. The workers are asking the shareholders -- the owners of the company -- to be philanthropists instead of investors. That's not how you run a business. Similarly, it's unrealistic for people to pay a little into pension funds and expect big returns regardless of the business' performance, as I've discussed before.

The unions are right to criticize GM's management, but that's not offering a solution. Actually, the union leaders can do something: let them formulate their own plan on how to turn GM around, and present that to the shareholders. If it's sound, the shareholders and directors should listen; if they don't, then they deserve to lose their investment.

Barring that, the union leaders should advise their at-risk members to start applying at Toyota.

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