GM cutbacks portend tougher road ahead

The automaker announced layoffs for 30,000 workers and nine plant closings Monday.

By announcing plans to cut 30,000 workers and close multiple US factories, General Motors Monday sent a warning that ripples beyond the automotive industry: Working-class jobs with generous benefits are slipping away.

In many ways, the current woes of GM and other automakers merely follow a pattern long visible in other old-line industries, from steel to airlines. When overseas or nonunion competition rises, the result is cutbacks in jobs, pay, and benefits.

But this time, the company at issue is General Motors, which for much of the past century epitomized the ability of US industrial prowess to lift assembly workers into middle-class lifestyles. And this time, the larger-than-expected job cuts come even as the larger threat of possible bankruptcy lingers in the background.

The challenge facing GM is competition from Asian carmakers with lower manufacturing costs plus the burden of past promises to fund pensions and healthcare to legions of now-retired workers.

It's a problem many large employers share, and some experts say it may be one they can't solve entirely by themselves.

"No individual company can solve these problems on its own," says Thomas Kochan of the Massachusetts Institute of Technology's Sloan School of Business. "We're just breaking the social contract again."

Last month, GM announced plans to cut medical benefits for current retirees by about $3 billion a year.

In Monday's announcement, CEO Rick Wagoner said the company will close assembly plants in Oklahoma City, Lansing, Mich., Spring Hill, Tenn., Doraville, Ga., and Oshawa, Canada. GM will also close other sites for parts, including an engine plant in Flint, Mich. The goal is to cut costs $7 billion by the end of next year.

These moves at GM come alongside a closely watched battle at Delphi, one of the major makers of auto parts in the US. The company recently filed for bankruptcy, announced plans to lay off two-thirds of its production workforce, and asked employees to take large cuts in wages and benefits. Delphi's workforce, part of the United Auto Workers union, may strike next month.

"It's not that these employers are mean-spirited. They're facing an enormous problem," says Dr. Kochan.

Part of the answer is internal restructuring at companies like GM. But in a new book, Kochan argues that another part must be some national solution to the growing burden of healthcare costs on American employers and families.

The auto industry's challenges have built gradually, but are coming to the fore partly because gasoline prices have dented demand for a GM lineup that emphasizes larger cars, SUVs, and light trucks.

"It seems almost unimaginable" for GM to face such deep trouble, says Gary Burtless, a labor expert at the Brookings Institution in Washington. The company has posted steep losses in recent months.

Yet such difficulties are common for industries with generous union contracts. "The main response of American capitalism is that new firms do not offer these benefits," Mr. Burtless says. "And old firms are getting out of providing them."

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