How Will GM's Restructuring Affect Employees?
June 1, 2009
Patricia Marroquin--HispanicBusiness.com
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Now that General Motors has followed on the heels of Chrysler into bankruptcy, and with the federal government agreeing to take on 60 percent ownership of the smaller corporation that will emerge, what will this mean for GM's employees?
GM is reorganizing under Chapter 11 of the U.S. Bankruptcy Code. The company will be allowed under the act to rid itself of assets and contracts, restructure debt and shut some of its operations. Chapter 11 allows the company to stay alive and pay its creditors over time. By contrast, under Chapter 7, a company ceases operations completely, a trustee sells its assets and the proceeds are distributed to creditors.
If GM emerges from the process smoothly, the automaker won't have to produce as many automobiles in order to make a profit, McClatchy Newspapers reported. It has been a struggle for the company to manufacture and sell 16 million vehicles to make a profit, the news service said. But that break-even point will fall to 10 million under the post-Chapter 11 GM.
A senior administration official, who spoke with McClatchy and other media on condition of anonymity, said: "We hope by reducing this break-even point GM will be able to endure a period of difficult car sales before, hopefully, we will see a recovery, and this will, of course, allow GM to become profitable at a much lower level of car sales than has been the case before."
Still, to reach the lower break-even point, the company must make a number of painful cuts.
According to published reports, GM plans to eliminate 21,000 jobs, about 34 percent of its workforce, and cut 2,600 dealers. GM reportedly is completing a deal to sell its Hummer brand; plans for the Saturn are expected to be announced soon.
Employees who are not members of a union will not have any job security. Under Chapter 11, the automaker can ask a judge for pay cuts, effective immediately, for its salaried workers. Contracts for members of the United Automobile Workers union and other unions will remain in effect. But the company could seek to have a judge void them.
In the bankruptcy process, GM could ask for contracts to be ended and replaced with more advantageous terms. The unions would be able to respond in court, and talks would occur before any changes were made. However, such a process could take many months.
In a new GM, employees' pensions and health care benefits would transfer over and remain in effect. Under bankruptcy law, companies can request a termination of their pension plans. A judge would hold a trial, listening to both sides. If pensions were ended, employees would still get about a third of their benefits through federal pension agency financing. The company can also terminate health care coverage for non-union workers. If that occurred, those individuals would be covered under Medicare.
The Treasury Department said in a fact sheet that General Motors won't terminate the pension plans of its hourly or salaried workers. Also, GM reportedly asked permission to continue making its payroll, which is an estimated $110.2 million a month.
(A list of planned GM plant closures and other changes can be seen here.)
Amid the bankruptcy proceedings, GM announced Friday that it intends to manufacture a new small car at an unidentified plant in the United States, according to Edmunds.com. Edmunds speculated that the car in question is the Chevrolet Spark, currently a Europe-only vehicle.
Source: HispanicBusiness.com (c) 2009. All rights reserved.
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