Someone besides the working stiff a hit!

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DETROIT -- General Motors Corp., in an unprecedented show of shared sacrifice to UAW leaders, dug deep Tuesday by cutting its dividend in half, capping health care benefits for salaried retirees, and slashing the pay of Chairman Rick Wagoner and other top executives and directors.

The moves were the latest in a series of dramatic initiatives to save money at the world's largest automaker, which lost $8.6 billion last year amid further declines in its share of the U.S. market.

With its North American automotive operations awash in red ink and bankruptcy fears mounting, Wagoner said Tuesday's actions were vital to the success of GM's turnaround efforts.

"This is a painful and difficult move because it affects real people out there," Wagoner said at a news conference in Detroit. "The message is that this company is going to take the steps necessary to address the losses in the last year and get profitable."

The moves send a clear signal to the United Auto Workers that investors, salaried workers, senior executives and others will share in the cutbacks needed to get GM on track.

In addition to the cuts announced, GM also expects to freeze pension benefits for thousands of U.S. salaried workers.

Industry analysts had expected GM's decision to halve its yearly dividend to $1 a share, but the scope of the cost reductions surprised some skeptics on Wall Street.

"They're starting to act like a company that burned through $7 billion in cash last year," said David Healy of Burnham Securities.

Two major issues for GM remain unresolved, though. The automaker did not provide any new information on its efforts to sell a controlling interest in its GMAC finance unit. And the company has yet to reach a long-awaited deal with former parts subsidiary Delphi Corp. and UAW that could avert a potentially crippling strike against the supplier.

GM previously had announced actions to reduce its North American costs by $6 billion annually, including the elimination of 30,000 manufacturing jobs and the closure of six assembly plants and other facilities by 2008.

But Tuesday's barrage of cuts was unparalleled in GM's recent history. By slicing into pensions, salaried health care, executive salaries and dividend checks, the automaker is spreading the sacrifice to all its constituent groups. "I think you could say the whole family is participating in the effort to turn the business around," Wagoner said.

'We've done our share'

Last fall, UAW members and retirees took cuts in their health care plans that will save GM an estimated $1 billion a year. Since then, UAW President Ron Gettelfinger has repeatedly said that other stakeholders -- from Wagoner on down -- should share the pain of its historic belt-tightening.

"We said it had to be all in, so it just appears that that's what they've done," Gettelfinger told the Associated Press on Tuesday at a UAW conference in Washington.

But, he added that GM should not expect further concessions from the union. "Absolutely not," Gettelfinger said. "We've done our share. We're ready to move forward."

Gettelfinger, who is up for re-election this summer, is under pressure to protect UAW members' pay and benefits at a time of industrywide cost-cutting. Rank-and-file UAW members are growing increasingly hostile toward givebacks, setting the stage for difficult contract talks in 2007.

GM's cutbacks came on the same day that Jerry York, a top aide to billionaire investor Kirk Kerkorian, joined the GM board of directors.

York, the former chief financial officer of Chrysler Corp. and IBM Corp., had urged GM to cut its dividend and executive pay in a speech last month at the North American International Auto Show.

York also said GM should consider cutting the pay of all white-collar workers and eliminating its Hummer and Saab brands, moves GM has not made.

Wagoner said Tuesday's actions were under consideration long before York's speech, particularly the decision to cap health benefits for about 100,000 U.S. salaried retirees.

"We wouldn't make a decision about radically changing health care benefits in three weeks for 100,000 people," he said.

GM said it will cap its contributions to salaried retiree health care at their 2006 levels, beginning next year. That means that any increases in prescription drugs, deductibles or monthly contributions will be passed on directly to the retirees.

The move affects only retirees hired before Jan. 1, 1993. Retirees hired after that date are not eligible for health care benefits. Instead, they receive contributions from GM into a 401(k) plan.

The adjustments will reduce GM's health care liabilities by $4.8 billion, and cut its annual retiree health expenses by about $900 million annually. Cash savings will be limited at first, but could reach $200 million a year by 2010.

Salaried retirees said the sacrifices will be difficult. "It's going to be tough on a lot of people, but the corporation is obviously not doing very well," said Tom Lynch, a GM retiree in Middleburg Heights, Ohio.

Dividend cut to save $565M

By chopping the dividend in half, GM expects to save about $565 million a year. It was the first dividend reduction since 1992, when the company lost a record $23.5 billion.

"This is another step in a long journey," said analyst Joe Phillippi of AutoTrends in Short Hills, N.J.

The cuts in compensation for GM's senior leadership also underscore the theme of "equality of sacrifice" put forth by Gettelfinger as well as Kerkorian, GM's largest individual shareholder with a 9.9-percent ownership stake.

Wagoner's base salary will be cut 50 percent to $1.1 million a year, based on figures published in GM's 2005 proxy statement.

The salaries of GM's three vice chairmen -- John Devine, Bob Lutz and Fritz Henderson -- will be reduced 30 percent, and general counsel, Thomas Gottschalk, will take a 10-percent pay cut.

York was catalyst for pay cuts?

In addition, GM's board of directors took a 50-percent pay reduction to $100,000 a year. Wagoner also said that GM's global executive team received no annual or long-term cash incentive awards for the company's dismal performance in 2005.

The appointment of York to the GM board appeared to be the catalyst for the executive pay cuts.

"Jerry York's public presence on this may have sped up the process a bit," said Healy, of Burnham Securities.

While Wagoner said GM will "substantially alter" pension benefits for U.S. salaried workers, the extent of those changes won't be made public until March. He said GM plans to freeze accrued benefits in its current plan, and may require employee contributions to help fund pensions going forward.

Despite the breadth of the cuts, Wall Street hardly rewarded GM's stock price. In trading Tuesday on the New York Stock Exchange, GM stock closed at $22.81, down 53 cents.

Fitch Ratings -- the credit rating firm that has GM on a "negative" watch -- said the automaker needs "deeper structural cost reductions" to reverse its losses.

Moody's Investors Service said the moves unveiled Tuesday were not "of significant magnitude" to offset ongoing concerns about GM.

GM's 52-year-old chairman said the automaker is moving "as fast as we can" to address the structural problems that are dragging down GM's bottom line.

To underscore the challenges ahead for GM, rival Toyota Motor Corp. continues to make money almost as rapidly as GM loses it. Toyota said Tuesday that its net income soared 34 percent to $3.3 billion in the last quarter of 2005.

Wagoner said GM has to keep cutting costs that its competitors aren't burdened with -- namely health care and pensions for its legions of retirees and surviving spouses.

"We are trying to fix problems, not make headlines," he said. "We really are trying."


From MSN auto.

 

Good start GM.


-Matt-