Special Employee Broadcast on Manufacturing Restructuring Actions
Rick Wagoner
GM Chairman and CEO
Renaissance Conference Center
Welcome and thanks to everyone for being with us for today’s special broadcast. I want to share with all of you some important next steps in our ongoing efforts to turn around our North American business.
At our Annual Shareholders Meeting in June, I laid out the four key elements of our turnaround plan. They are: (1) product excellence; (2) a revitalized sales and marketing strategy; (3) significantly reducing our cost base and continuing to improve quality and (4) addressing our huge health care cost disadvantage.
In mid-October, we announced that we had reached a tentative agreement in cooperation with the UAW which will help significantly to address the fourth item, health care costs. The UAW advised us about ten days ago that this agreement has been ratified, and we are now pursuing court approvals in line with our plan. When implemented during 2006, this agreement will result in an approximate $15 billion, or 25%, reduction in our hourly post retirement health care obligation; a reduction in our health care expense by $3 billion on an annualized basis; and annualized cash flow savings of $1 billion. This is an historic step; going forward, we’ll need to continue to work proactively on further measures to control the health care cost inflation that affects all of us.
At the June Annual Meeting, I also indicated that central to the third element of our plan -- significant cost reduction -- was the need to achieve 100% capacity utilization, due to the extremely high cost of excess capacity here in North America. As background, we have previously announced and implemented plans to reduce our assembly capacity here by one million units over the 2002 to 2005 period.
Today, we are announcing further reduction of an additional one million units of capacity by 2008, involving six assembly sites. When you factor in additional capacity from our new Lansing (MI) Delta Township facility slated to begin production next year, the overall net result will be GMNA assembly capacity of 4.2 million units, on a two-shift basis, by the end of 2008. While down 30% in total since 2002, this capacity level will still provide ample flexibility to meet market demand, but in a much more cost-efficient manner.
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. But these actions are necessary for GM to get its costs in line with our major global competitors. In short, they are an essential part of our plan to return our North American operations to profitability as soon as possible.
In total, five assembly plants will cease production by 2008:
Oklahoma City in early 2006.
Lansing Craft Centre in mid 2006.
Spring Hill Line 1 in late 2006.
Doraville at the end of its current product life-cycle in 2008.
And in Oshawa, Canada : the third shift will be removed at Car Plant No. 1 in the second half of 2006. Subsequently, Oshawa Car Plant No. 2 will cease operations after the current product line runs out in 2008.
In addition, the third shift will be removed at our Moraine facility during 2006, with specific timing dependent on market demand.
These assembly capacity reductions were determined based on comprehensive and detailed consideration of all the relevant factors, including product life cycles, age and state of facilities, market volumes, and others.
In addition, we are announcing today the cessation of operations at two stamping, two powertrain and several service parts operations facilities, as shown here on the chart. [See related press release for details]
Employees at all of the affected assembly and other facilities were notified this morning by their respective plant management.
At the Annual Meeting in June, I indicated that we would have a reduction in manufacturing employment levels of 25,000 or more by 2008. With the plans I’ve just outlined, we estimate in fact that the reductions will now total 30,000 manufacturing jobs over the same time frame.
I regret the impact that today’s actions will have on many of our employees and their families and communities. We will work our hardest to mitigate that impact.
To that end, given the demographics of our workforce, we plan to achieve much of this reduction via attrition and early retirement programs. We will need to work this with the leadership of our unions, as any early retirement programs would need to be mutually agreed upon. We are hopeful that we can reach an agreement on such a plan as soon as possible.
As we finalize our 2006 budgets, we have been pursuing all areas to reduce cost in GM North America. Based on this work, plus the capacity actions announced today and the recent health care agreement, we plan to raise the previously indicated $5 billion running rate structural cost reduction target in North America to $6 billion by the end of next year. In addition, we continue to finalize our previously announced plans for a $1 billion in net material cost savings. In total then, we plan to achieve $7 billion of cost reductions on a running rate basis by the end of 2006 -- $1 billion above the target indicated during the third quarter earnings broadcast.
There will be a significant restructuring charge in conjunction with today’s capacity announcement, and also with any related early retirement programs. The details of these charges will be provided when available.
I want to emphasize that besides the cost cutting aspects of our turnaround plan, we remain equally committed to the revenue drivers -- introducing great cars and trucks, and executing our revitalized sales and marketing strategy.
We are very encouraged that our newest products -- the Chevy Impala, Cobalt and HHR; Hummer H3; the Cadillac DTS; the Pontiac Solstice; and the Buick Lucerne, among others -- are being very well received by customers and media alike. And our new full-size SUVs, starting with the Chevy Tahoe, will be available in dealerships in January. Our overriding message here is that for GMNA to be successful, we need to keep working both sides of our four-point turnaround plan -- cost and revenue. You’ll hear more about our revenue initiatives, and especially new products, at the Detroit Auto Show early next year.
In addition, we are continuing to explore the sale of a controlling interest in GMAC, in order to restore GMAC’s investment grade rating, and renew its access to low-cost funding. We are also working to minimize any negative effects of the Delphi bankruptcy. We will update you on these important items when we have news to report.
Finally, I would like to acknowledge and thank all of you for your support, commitment and high quality work during this challenging time. This has been a difficult period for all of us at General Motors, but I am confident that by continuing to work together, we can and will get through this.
Our collective goal remains the same: to return our North American operations to sustained profitability as soon as possible, thereby helping to ensure a strong General Motors for the future.
Thank you.
AUTO SPIES PERSPECTIVE: I've been watching this spin for over 30 years and it is absolutely so unecessary.
Plain and simple, your products sucked then and they suck now.
Build the right products and this thing goes away.
Rick, how can you stay at GM with a clear conscience?
Your executive teams decisions are wrecking honest people's lives!
Dude, you are SOOOOOO not right for your job. In the words of Snoop Dog...'You got to go!'