GM Buyouts 47,000 buyouts - $4.8 billion

GM Math: 47,000 Employee buyouts = $4.8 Billion Cost = $8 Billion/year in Cost Savings
Nay Nay says Farago

More figures are coming in regarding the General Motors employee buyout program. GM is expecting 35,000 of its own workers, plus 12,000 Delphi workers to take the buyouts This is significantly more than General Motors initially projected, but welcome news nevertheless. Here is the Detroit News article on the buyout. General Motors says that the higher buyout level puts the restructuring plan two years ahead of schedule and results in annual savings of $8 billion instead of $7 billion.

GM Critic Robert Farago, in another segment of his his GM Deathwatch series on thetruthaboutcars.com makes a strong argument that the emperor (or the general in this case) has no clothes. First, he points out that of the 35,000 to 47,000 workers (depending on whether you count Delphi), only 4,600 of them will be abandoning GM health care. So General Motors' $1,500 per car disadvantage for health insurance costs will not be materially reduced. Farago's most compelling argument is that the magnitude and the timing of the savings aren't enough in the face of declining market share.

GMÂ?s earnings situation is both dire and deadly. In a note to his clients, Deutsche Bank analyst Rod Lache estimated that every point of market share GM surrenders to its competitors equals roughly $1.3 billion in lost [pretax] earnings. In May, the worldÂ?s largest automakerÂ?s US market share fell three percentage points to 22.5%. Using LacheÂ?s calculations, if GMÂ?s market share doesnÂ?t recover, the worldÂ?s largest automaker is looking at $3.9b in lost income AND $3.8b for its worker buyouts. No wonder theyÂ?ve announced a fire sale.

In laymans' terms: GM,a company that started the year losing money at the annual pace of $10 billion per year, started the year with $20 billion in cash. It still faces the same market realities that it faced last year but has suffered further declines in market share this year to the tune of $4 billion or so, and it will pay $4-5 billion in buyouts while still looking into the maw of a potentially crippling Delphi strike. If that ain't enough, health care expenses are still going and gas prices are still high. Let's start with 20 billion in cash. Subtract losses equal to last year, 10 billion. That leaves us with 10 billion. Subtract 4 billion for further market share loss. That leaves us with 6 billion. Subtract 4 billion for worker buyouts. That leaves us with $2 billion. Subtract $2 billion for increased health care cost. That leaves us with nothing but a technically bankrupt General Motors by the end of 20006. That's with no surprises and no Delphi strike. When was that turn-around supposed to happen again?