Following a slew of labor problems including the American Axle strike that cost an estimated $2 billion, General Motors is restructuring to accommodate the declining U.S. auto market. Following the lead of Ford and Chrysler, the move will likely include further cost cutting and layoffs, as production of thirsty truck and sport-utility vehicles is wound down to make room for more fuel efficient vehicles. Information is sketchy at this stage, but plan on learning the details when the restructuring is officially announced at the company's annual meeting on June 3. With its stock closing Tuesday at its lowest level in more than two decades and thousands of jobs at stake, GM had better get this next move right.
Perhaps 'fired' is the wrong word, as that does imply that these white collar workers did something wrong. The only thing some 12% of Ford's salaried workforce did wrong is get hired by a company that dug itself into a hole relying on strong truck and SUV sales during the 1990s. Now, with consumers avoiding gas-hungry vehicles, the restructuring effort faltering amidst high gas prices, and news that the company has abandoned its goal of returning to profitability in 2009... cutting more salaried workers was inevitable.
Ford CEO Alan Mulally told reporters last week that sales of big trucks and SUVs crashed once gas hit $3.50 per gallon. In April, full-sized pickups accounted for 11 percent of sales. By the second week of May, the number had fallen to just 9 percent. "I don't think we've ever seen a decline week over week like this," Mulally said. "It was clear to us it was time to act." And act they did. While details have not been finalized, Ford expects to eliminate up to 12 percent of its salaried work force (with about 24,300 white-collar workers in the States, this means more than 2,000 positions will be gone). Ford Vice President Jim Farley couldn't sugar-coat the news, but he did try to spread the doom around when he spoke to his employees on Friday, saying "I would expect other car companies to make similar announcements... they have the same issues that we do -- even Toyota."
Two days ago we told you about Cerberus head Stephen Feinberg's rather sanguine thoughts on Chrysler. Cerberus' other big auto investment, GMAC, is having a few issues of its own. Last year GMAC's auto lending division posted a profit of $1.77 billion, but losses in the mortgage loan division turned that into a $2.33 billion for the entire company. So, GMAC is doing what companies often do in these situations: positioning itself "with a more competitive cost structure and greater operational flexibility for future growth." Which is done by firing people, shutting down offices, and consolidating what's left over.
From 20 North American offices, the company will trim down to five regional centers in the U.S. and Canada, and get rid of 930 workers, representing 15-percent of the workforce. After GM takes the charge for restructuring, the move will provide $175 million in savings.
And as with Chrysler, Cerberus isn't sweating the current state of things. Feinberg, in that letter to investors, said of GMAC, "The good news is that we bought GMAC cheaply enough so that even with all the bad news in the mortgage market and credit markets, we are still in reasonable shape with our overall investment. However, if the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty." Still, doomsday appears to be a ways off: GMAC expects to be profitable again in 2008.
Delphi, the UAW, and GM have come to an accord. Pending approval by UAW members and federal bankruptcy court, it would mean that Delphi can focus on the other pressing matters in front of it after spending two years in bankruptcy.
The deal would require a one-time payout from GM, in return for which Delphi could pay lower wages and trim its business operations in line with its current condition. No amount has been given yet for the payout, but wages would be capped at $18.50 an hour, down from $27 per hour now. The agreement also gives Delphi the go-ahead to close plants -- it wants to shutter 21 of its 29 US factories -- shed 4/5 of its hourly work force and thousands of salaried employees, and eliminate some of its business operations.
Now what remains pressing for Delphi is to get the new capital it needs. Talks continue for a $3.4 billion infusion from Appaloosa Management LP and other banking partners. GM estimates that during the Delphi crisis, it has been hit with an estimated $7 billion bill for Delphi's restructuring.
In a filing with the Securities and Exchange Commission that surfaced yesterday, Ford estimated that it the accelerated restructuring plan announced last September will cost $11.2 billion when the books are finally balanced. In other words, it will cost Ford$11.2 billion to let go of 38,000 hourly and 10,000 salaried workers. The estimate includes ongoing costs for health care for any workers that didn't take the lump-sum buyout. Who knew it was that expensive to reduce your workforce?
If there is any good news here, it's that Ford has already accounted for $10 billion of that cost in 2006. The rest of the associated costs of the restructuring plan will be billed to the first quarter of 2007. Nothing like pulling the Band-Aid off quickly.
Project X has now officially been renamed the Recovery and Transformation plan by the Chrysler Group, which plans to reduce its workforce by 13,000 people between now and 2009. About 11,000 employees will be hourly workers, while 2,000 will be salaried employees. In addition, total production capacity for the Chrysler Group will be reduced by 400,000 units per year, aided by the immediate elimination of shifts at its Newark Assembly Plant and Warren Truck Plant, along with cancelling a shift at its St. Louis South Assembly Plant in 2008. In 2009, the Newark Assembly Plant will be completely idled. There's also the standard restructuring moves you'd expect in the plan, like reducing the number of dealers, selling less to fleets, and offering retirement and attrition packages to current workers not affected by the layoffs.
Chrysler Group hopes the R&T plan will return the company to profitability as early as 2008. It's main weapon is cost reduction by the aforementioned layoffs and plant closings. The idea seems to be that if the company can reduce costs enough, its operating profit can offset the quarterly losses it will be facing in the near term.
It's not all slash and cut though, as Chrysler also announced a $3 billion investment in new engines, transmissions and axles that will focus on producing more fuel efficient power and drivetrains. One such product will be a dual-clutch transmission it's commissioned Getrag to produce and a new V6 engine dubbed "Phoenix". There's a slew of BLUETEC diesel vehicles on the horizon, and the 2008 Dodge Durango will host the company's first two-mode hybrid, as well.
One item of note in the press release issued is DaimlerChrysler CEO Dieter Zetsche's statement that, "we do not exclude any option in order to find the best solution for both the Chrysler Group and DaimlerChrysler," which some analysts have taken to mean that selling off the Chrysler Group wholesale is still on the table as a viable option.
Check out the Chrysler Group's full press release after the jump for all the nitty gritty details, and let us know in the comments whether or not you think the Recovery and Transformation plan has what it takes to turn Chrysler around.
We have more details on the rumored restructuring plan that the Chrysler Group is expected to announce on February 14th. First, it's dubbed internally as "Project X", which must mean it involves chimpanzees and large doses of radiation. In addition to radiated chimps (we're kidding, click the link for the punchline), Automotive News is reporting that the plan will likely involve cutting 10,000 factory jobs and closing the Newark Assembly Plant that builds the Dodge Durango and Chrysler Aspen, as well as the an engine plant in Detroit that we believe makes the 4.7L V8 motor for Jeep and Dodge. The ultimate goal is reportedly to make the Chrysler Group smaller, more efficient and more closely alligned with Daimler-Chrysler and Mercedes-Benz. The restructuring plan sounds similar to those currently being implemented by General Motors and Ford, though smaller in scale. For its part, Ford learned a valuable lesson not cutting deep enough the first time around, so we're eager to see if the Chrysler Group comes back for a second round of cuts, as well.
Changes are coming to the family as the Fiat automotive empire alters its structure to give several of its divisions more autonomy. While the Lancia, Alfa Romeo, Fiat auto and Fiat light commercial vehicles have all been divisions within the same corporate hierarchy (not unlike the structure at its one-time potential partners at General Motors), each of those brands is now being spun off and individually incorporated.
The result is the creation of four new companies: Lancia Automobiles SpA, Alfa Romeo Automobiles SpA, Fiat Automobiles SpA and Fiat Light Commercial Vehicles SpA. This also means that the executives who were simply brand managers before are getting promoted to chief executive officer of their new corporations. All four will still be fully owned by the parent company, which is changing its name from Fiat Auto to Fiat Group Automobiles SpA. For those Tifosi left wondering, Fiat's precious baby Ferrari remains unaffected by the restructuring since it was already separately incorporated and is partially owned by Fiat with some shares owned by other interests.
What practical implication does this have? None to the American market where, until Alfa Romeo returns to the US, none of these brands are sold. Meanwhile, Fiat insists the restructuring will actually enable each unit to cooperate with the others more effectively. We'd bet this gives each of the brands the freedom to make independent strategic decisions, including the Fiat brand itself. The move comes shortly after Fiat Group head Sergio Marchionne stepped down as chief of the Fiat brand to concentrate on managing the group. With sales up and its financial health looking better than ever, the Fiat empire -- or whatever you want to call it -- looks poised to continue its climb upward.
Chrysler Group CEO Tom LaSorda travelled to DaimlerChrysler's headquarters in Stuttgart, Germany, last Wednesday to present a restructuring plan to the company's management board. The Detroit News reports that the plan will involve job cuts and and the closing of at least two plants in the U.S. The plan will be reviewed by the DCX management board and likely announced in February when the company reveals its performance numbers for 2006, which analysts expect to be billions in the red.
Just like Ford with its Way Forward restructuring plan, Chrysler needs to trim down the production side of its business to meet lower demand for its vehicles that led to a loss of $1.5 billion in Q3 of 2006. In addition to shrinking its production capacity, any analyst will tell you that Chrysler also needs more small cars in its lineup, which at the moment is overrun with trucks, minivans and SUVs.
Though the Chrysler Group is still run by Tom LaSorda, many are speculating that Dieter Zetsche wants to bring back his guy pal Wolfgang Bernhard, current head of the Volkswagen brand, to run the stumbling automaker. Other initiatives that are already happening include bringing in executives from Mercedes-Benz to the Chrysler Group reduce the cost of each vehicle it produces by $1,000. Clearly DaimlerChrysler is putting effort into fixing what's broken at the Chrysler Group, though some analysts speculate that the restructuring plan announced in February will be its last attempt before selling off the automaker it had "merged" with back in 1998.
Ford Motor announced Monday that it will make its planned buyout package available to all of its 75,000 hourly workers starting October 16.
The company-wide plan follows previous efforts to cut jobs on a plant-by-plant basis, as the company shoots for its goal of cutting 30,000 hourly jobs by the end of 2008. Both salaried and blue collar jobs are on the block, as the company starts briefing employees next Tuesday on a variety of buyout packages that start taking effect next year.
Ford plans to close 16 factories as it restructures to adapt to the realities of decreasing market share and a stagnant Morth American auto market.
Following a slew of labor problems including the American Axle strike that cost an estimated $2 billion, General Motors is restructuring to accommodate the declining U.S. auto market. Following the lead of Ford and Chrysler, the move will likely include further cost cutting and layoffs, as production of thirsty truck and sport-utility vehicles is wound down to make room for more fuel efficient vehicles. Information is sketchy at this stage, but plan on learning the details when the restructuring is officially announced at the company's annual meeting on June 3. With its stock closing Tuesday at its lowest level in more than two decades and thousands of jobs at stake, GM had better get this next move right.
Ford Motor announced Monday that it will make its planned buyout package available to all of its 75,000 hourly workers starting October 16.
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