11/21/2005

GM to Cut Costs Through Layoffs

GM has announced that it will eliminate 30,000 manufacturing jobs this month in hopes to eliminate costs and avoid bankruptcy. The layoff represents 27 percent of the companies manufacturing jobs in the U.S. and will achieve $7 billion in costs reductions by the end of 2006. GM has been crippled by high labor, pension, health care and materials costs as well as by sagging demand for sport utility vehicles, its longtime cash cows, and by bloated plant capacity. Its market share has been eroded by competition from Asian automakers led by Toyota Motor Corp. GM lost nearly $4 billion in the first nine months of this year. Downsizing in this manner can have both positive and negative impacts. These decisions negatively affect the company’s employees and the communities in which they live and work. This is a good example of a business decision that while hurting some people will result in large benefits in the long-run.

2 comments:

Connor said...

I agree that this is a decision that will definitely hurt some people in the here and now, but I am not sure if it will produce large benefits in the long-run. Granted GM has a ton of cash on hand, but the thing that is hurting it and may be the death of it, is the large number of employees of which it cannot fire due to limitations placed on it by the workers union. I believe this major lay-off is a good thing, but collectively GM has got to get a grip on its outflows. Right now they are at the union's mercy, but an adequate panel of lawyers should be able to get some of its current expenditures corrected through the court system. I believe that is a route they should consider.

Dr. Tufte said...

-1 on Connor's comment for grammatical errors.

There is also a strategic game here that has gone badly wrong. The GM of the past played a strategy that would only work if the GM of the future was still dominant in the market: that was to promise workers current compensation out of revenues that had yet to be earned. That choice backfired.