GM Temporarily Cuts Wages by 20% to Save Cash

GM Temporarily Cuts Wages by 20% to Save Cash

  • GM announced a 20% reduction in salaries in a bid to save money amid the coronavirus crisis
  • The cuts will be repaid to the 69,000 affected employees including a 6% interest no later than March 15 next year
  • The company said it will delay the new-vehicle programs

General Motors (NYSE:GM) announced on Thursday it will cut 20% in salaries of all 69,000 employees as the company struggles to save money amidst the coronavirus crisis. The board will take 10% in wages, in addition to a 20% decrease in cash compensation.

The reduction will take effect on Wednesday and it will be repaid in a lump sum including interest no later than March 15, 2021., the carmaker said.

Around 6,500 of GM’s staff in the United States that cannot go to work will go on paid leave and will receive 75% of their wages as well as retain seniority and health benefits.

“GM’s business and its balance sheet was very strong before the COVID-19 outbreak and the steps we are taking now will help ensure that we can regain our momentum as quickly as possible after this crisis is over,” the carmaker wrote in an emailed statement.

The company managed to prop up its balance sheet lately after temporarily shutting down its US plants last week and hopes the new cost-saving measures will help save a substantial amount of cash. Earlier this week, the carmaker withdrew $16 billion from its credit facilities to nearly double its cash.

GM’s vehicles that are in the stage of development will be delayed due to the ongoing crisis, while cars that are close to launching like the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade large SUVs will become available for sale later this year.

Also, GM’s electric Cadillac SUV and the driverless Cruise Origin will not be impacted by the delays, said the company’s spokesperson.

Apart from saving cash, these measures will also help the carmaker avoid redundancies amid a questionable economic outlook. The company said it will pay a 6% interest in addition to the owed compensation.

While the adopted measures may slow down the demand, Morningstar analyst David Whinston thinks that reducing costs is a smart move.

“They have to plan in case things get worse. If things get really bad, it’s about survival and survival means cash.”

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.

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