More GM (GM) Lay-Offs: The 16 Million Car Utopia

It has not been expected, but GM (GM) may have to cut a large number of workers again. The AP reports that the company "is close to an agreement with the United Auto Workers on another round of buyout and early retirement offers to cut the number of workers in jobs banks."

Ford’s (F) CEO Alan Mulally said that there is no limit to the cuts that company will make to match production to sales. The union may have something to say about that, but the point is clear enough. Facing an Arctic winter of sales in the US this year, the big car companies are preparing to do everything they can to offset operating loses. That may mean tens of thousands of laid-off or idle workers at the Big Three, as they once were known.

While most analysts think that US vehicle sales will be about 15.5 million this year, down from 16.1 million in 2007, GM chief Rick Wagoner is still holding onto hope that the market will support 16 million. He reasoning is that sales could improve in the second half if credit and housing issues begin to get resolved. It is a desperate hope based on little more than the most wishful of thinking.

Detroit is faced with one of the worst sets of circumstances an industry can be in. It has cut its costs substantially to what it believed was a worst case–a year when only 16 million vehicles were sold in the US. GM cut $9 billion in annual costs and Ford shaved $5 billion. Both based UAW contracts on the number.

Now, the number is wrong. The companies got as small as they thought they could, and it was not small enough.

Almost no one believes that the US can support 16 million vehicles sales this year, and there is not any reason to believe in a 2009 recovery.

In other words, the Utopia of the 16 million unit year only exist in the imagination of Detroit’s management.

Douglas A. McIntyre