DETROIT: General Motors Co on Wednesday stepped up efforts to cut costs in response to tariff and market pressures, even as it reported third-quarter profit that blew past Wall Street expectations.
The No. 1 US automaker said on Wednesday it is offering buyouts to salaried employees with 12 or more years of service, as Chief Executive Mary Barra told them in an e-mail: “Our structural costs are not aligned with the market realities.”
GM shares jumped more than 8 per cent to $36.34, their highest in almost six weeks.
The Detroit automaker had previously promised investors it would cut $6.5 billion in costs this year, and the buyouts would add to that total, a company spokesman said on Wednesday.
The company said in a separate statement that it would consider layoffs after it sees the impact of the buyouts and other cost cutting efforts.
About 18,000 of the company’s 50,000 salaried employees in North America are eligible for the buyouts, the company spokesman said. They do not affect the hourly workers on GM’s production lines.
GM’s move to cut staff stood in contrast to an upbeat profit outlook and its recent success in raising prices, which boosted profit before tax by $1 billion overall in the quarter, mostly in North America.
In her email to employees, Barra focused on the fact that GM has burned through $300 million in cash in its automotive operations during the first nine months of 2018. She also noted that the company’s stock price is still stuck near the $33 a share price at which it debuted in 2010 after a bankruptcy restructuring.
For Detroit’s automakers, rising materials costs caused by new tariffs on foreign metals imposed by the Trump administration are converging with a slowly deflating US market and a sharper falloff in China, the world’s largest auto market.
GM and rivals Ford Motor Co and Fiat Chrysler Automobiles NV have all in recent weeks forecast substantial hits from steel and aluminium costs driven by tariffs.
In the third quarter, GM said it was able to raise prices by $900 million in North America, in part because it is launching a new generation of its large pickup trucks, the Chevrolet Silverado and GMC Sierra. Ford, however, has an older product line, and said its net pricing in North America fell by $318 million in the third quarter.
The pricing gains are “absolutely sustainable,” GM Chief Financial Officer Dhivya Suryadevara said.
GM said it still sees a full-year profit in the range of $5.80 to $6.20 a share, but said it now expected to finish at the high end of the range with potential to finish even higher. It cited a favourable tax rate and its strong performance. — Reuters
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