It's usually better to judge a company's management by its actions than by its words. But it takes time to put actions into, well, action. In the meantime, listen to the words.
GM CEO Rick Wagoner summed up two reasons for the layoffs. First, Wagoner advised that GM intends to "prioritize meeting consumer demand." Second, the company's negotiations with its largely unionized workforce aim at "providing greater security and good benefits for our employees."
Let's take those one at a time. In slashing 25,000 jobs from its payroll, GM aims to cut costs by $2.5 billion annually by 2008. Not all of that will drop to the bottom line, however -- nor should it. GM needs to reinvent itself to cease its slide in market share. To that end, GM will boost capital expenditures by $1 billion this year and in 2006. The additional cash infusion should help the company in its newfound mission to make the kinds of cars that people actually want to buy -- namely, "crossover" vehicles and fuel-efficient hybrids -- as opposed to the company's formerly profitable, but recently unpopular, mega-SUVs.
Second, whether the company's employee unions wish to admit it or not, GM is making the right decision. Wages cost money. Pensions cost money. Health benefits cost money. Unless GM starts producing and selling more things that people want, there won't be any money to pay those expenses. GM has to cut costs and invest in manufacturing popular products now, to look forward to any kind of future.
The unions have two choices in this case: (1) demand superb benefits that undermine GM's profitability, or (2) accept lesser benefits that strengthen the company's prospects -- and the prospect that GM can afford to pay those benefits. The solution may sting in the short term, but years down the road, GM employees, shareholders, and management will be better off.
For more generally Foolish coverage of General Motors, read:
- Everyone's a GM Employee This Month!
- Auto-pocalypse Now
- The Promise That Haunts GM
- GM: An Accident in the Making
Fool contributor Rich Smith owns a Chevy S-10, but he does not own GM shares.