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Last Updated: Tuesday, 7 June, 2005, 21:52 GMT 22:52 UK
GM plans to cut 25,000 jobs in US
Chevrolet at a US car showroom
GM is losing ground in the home market
General Motors is planning to cut 25,000 jobs in the US as it tries to recover from poor performance there.

The US car giant is to shut down parts and assembly plants in an attempt to save $2.5bn (1.4bn) a year.

The cutbacks were announced by chief executive Rick Wagoner as part of a four-step plan to return the firm to financial health.

The carmaker, the biggest in the US domestic market, made a loss of $1.3bn for the first three months of 2005.

The loss would have been even larger without healthy profits on GM's financial services arm.

The company has already announced plans to cut 12,000 jobs from its European units, including Saab and Opel.

Tuesday's announcement saw GM shares gain 1% to $30.73.

SUV shortfall

In a "state of the business" speech to investors, Mr Wagoner said his plans could see more than 25,000 jobs disappear by 2008.

The firm's most recent performance had seen GM fall short of its expectations for market share, he acknowledged.

In addition, sales of lucrative sports utility vehicles (SUVs) were flagging in favour of smaller cars on which the firm earns slimmer profits, as high fuel costs hit home

GM Chairman and Chief Executive Rick Wagoner

To recover, he said, GM needed to slim down and strengthen its eight brands with better quality and lower costs.

'Intense discussions'

The plan calls for North American manufacturing capacity to fall from six million units a year to five million.

It also sees a focus in North America on Chevrolet and Cadillac, with the other six marques - GMC, Pontiac, Buick, Saturn, Saab and Hummer - focused on targeted niche markets.

Mr Wagoner also noted GM's high historic healthcare costs - as much as $1,500 per vehicle produced.

GM had been in "intense discussions" with unions for weeks in the hope of reaching a deal on health costs.

Although he warned that the discussions could yet fall apart, he promised to do everything possible - including extending the time devoted to talks - to avoid a breakdown.

Michael Bruynesteyn, an analyst at Prudential Equity Group, said that GM's rate of retirement or natural attrition - when people decide to leave the company - was about 5% annually.

Cutting 25,000 or more blue-collar jobs would be in line with that 5% rate, Mr Bruynesteyn said.

GM's hourly US workforce totalled 111,000 at the end of 2004.

Big move

Despite signs that the US economy is improving, many companies are facing tough times and analysts said there was the threat of further redundancies.

"This may not be the last major job cut announcement we see this year as other companies, including other American automakers, struggle to make a profit," said John Challenger of employment firm Challenger, Gray and Christmas.

Mr Challenger said that the biggest problems facing firms at present were the "escalating health-care costs" and "the cost of providing ongoing health benefits to growing ranks of retirees".

Healthcare, pension and retirement obligations are expected to cost GM as much as $5.6bn this year.

The job cuts at GM would be the biggest since retailer Kmart said it was getting rid of 37,000 jobs in January 2003, according to John Challenger of outplacement firm Challenger, Gray and Christmas.

Mr Wagoner has been under increasing pressure from shareholders and the Reuters news agency reported that there were calls for his resignation during meeting with investors earlier on Tuesday.

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