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News18 » Auto
4-min read

GM Offers Buyouts to 18,000 Workers After Posting Strong Profit

Even as auto sales started to ebb in the U.S., China and elsewhere, GM said it earned $1.75 per share.


Updated:November 1, 2018, 5:32 PM IST
GM Offers Buyouts to 18,000 Workers After Posting Strong Profit
The GM logo is seen at the General Motors Assembly Plant in Ramos Arizpe, in Coahuila state, Mexico November 25, 2017. (Photo: Reuters)

As General Motors reported a healthy $2.5 billion third-quarter profit, the Detroit automaker ramped up its cost-cutting efforts by offering buyouts to 18,000 white-collar workers. The company, while acknowledging it's in good shape now, said it needs to be smaller to prepare for tougher times that might be ahead as it continues to get ready for a future of electric and autonomous vehicles.

"Even with the progress we've made, we are taking proactive steps to get ahead of the curve by accelerating our efforts to address overall business performance," GM said in a statement. "We are doing this while our company and economy are strong." The earnings and buyout news drove GM shares higher. The stock was up 8.6 percent to $36.43, after mostly falling since June.

Buyout offers were made to salaried workers in North America with 12 or more years of service. GM spokesman Patrick Morrissey wouldn't say whether the company has a target number for employee reductions, nor would he say if there will be layoffs if too few employees take the buyouts.

"We will evaluate the need to implement after we see the results of the voluntary program and other cost reduction efforts," he said. Workers have until November 19 to make a decision, and they would leave the company by the end of the year, GM said. The company has 50,000 salaried workers in North America.

The offers came as GM's earnings surprised Wall Street by riding strong prices for much of its model lineup across the globe, especially in the U.S. where it rolled out redesigned versions of its Chevrolet Silverado and GMC Sierra pickups.

"Our discipline came through this quarter," Chief Financial Officer Dhivya Suryadevara said, adding that she believes strong prices are sustainable as GM builds inventory of light-duty pickups and rolls out heavy-duty versions.

The average sale price of a GM vehicle in the U.S. reached $36,000, $800 more than a year ago and a third-quarter record. Even as auto sales started to ebb in the U.S., China and elsewhere, GM said it earned $1.75 per share. Excluding one-time items, the company made $1.87, far exceeding analyst projections of $1.25 per share, according to a survey by FactSet.

Revenue jumped 6.4 percent to $35.8 billion, also topping forecasts. The company was resilient in a declining Chinese market, where it posted record third-quarter income of $500 million from July through September. And its pretax profit in North America, its most lucrative market, rose 33 percent to $2.8 billion with a profit margin of 10.2 percent.

GM also gave a more optimistic forecast for the full year, saying it expects pretax profits at the high end of its previous guidance of $5.80 to $6.20 per share as it rolls out the new pickups and does its best to battle higher commodity costs.

GM's global retail sales to individuals, on the other hand, dropped 15 percent during the quarter, to 1.98 million vehicles. But sales to dealers, the point at which GM books revenue, rose 4.5 percent, to 1.13 million.

GM was hit once again by costs associated with its giant recall for faulty ignition switches. The company posted a $440 million charge as it updated estimated costs for legal claims. A year ago, GM posted a $3 billion net loss due to a $5.4 billion charge for selling Opel and Vauxhall to France's PSA Group. The strong quarter is a result of GM executing well on its game plan, said Edward Jones Industrials Analyst Jeff Windau.

"If you're selling vehicles that have higher price points, you're able to offset some of those negative headwinds from the commodity prices," he said. Windau was cautious about GM's prospects in the long term, rating the company's shares "hold" due to the risk of rising interest rates, higher commodity prices and the potential that rising gas prices could cut into pickup truck sales.

Suryadevara said GM expects tariff-driven commodity price increases to cost the company $1 billion this year, $400 million in the third quarter alone. The Trump administration has imposed 10 percent tariffs on imported aluminum and 25 percent on steel.

GM reported that its Cruise Automation autonomous vehicle unit spent $200 million during the quarter and said spending likely will rise as the unit heads toward rolling out a self-driving ride-hailing service sometime in 2019.

The company's surprising performance contrasts with crosstown rival Ford, which saw profits plunge 37 percent during the quarter to $991 million on falling U.S. and Chinese sales. GM has long talked about reducing costs in preparation for an economic downturn. The company is close to delivering on a promise to reduce structural costs by $6.5 billion annually by year's end.

Retired Chief Financial Officer Chuck Stevens hinted at white-collar cutbacks in April of 2017 when he told analysts that GM is looking for cuts as it simplifies its business after its exit from Europe. Simplification "will allow us to take significant structure out of the business, whether it's corporate staff, whether it's engineering staff," he said.

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| Edited by: Abhinav Jakhar
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