Ford and GM announce production cutbacks

Holden revealed a couple of months ago that it would cut back its workforce and production output -- in response to diminishing demand for large cars and tougher market conditions -- and now Ford and General Motors in the US have announced their intention to do the same.

General Motors CEO Rick Wagoner said the company plans to cut 30,000 jobs, shut down four assembly plants and four stamping and powertrain plants and trim production at several other plants by the end of 2008, according to respected industry journal Automotive News. Wagoner says these initiatives will boost GM's cost saving to about $9.5 billion.

The world's No1 car maker has had a forgettable year, in which it has racked up losses of nearly $5.5 billion. GM's dire predicament prompted the initiation earlier this year of an employee-discounts-for-everyone incentive scheme, which Holden has now replicated locally. US sources indicate the program worked for GM in the short term, but sales dropped dramatically as soon as the campaign ended.

Industry observers say the biggest obstacles facing GM are high health-care costs, loss of market share to imported opposition and slumping sales of the SUVs that have proved so lucrative for the company in recent years.

Some analysts have questioned whether the proposed cutbacks will backfire on GM, as they say early retirement and employee relocation costs alone could add up to $2.7 billion.

Although GM is clearly wounded, its rival in the blue corner appears just as bruised and battered. Ford US recently announced a restructuring plan dubbed "Way Forward" that involves cutting loose 4000 employees -- or 10 per cent of its white-collar workforce.

Facing an uphill battle ever since the Explorer rollover fiasco a few years ago, Ford posted a loss of $386 million in the third quarter of 2005, and US sources suggest Ford's North American vehicle operations have lost more than $1.9 billion so far this year.

The company's plight has been reflected by a drop in share value of 40 per cent since the end of 2004, and -- like GM -- its credit rating has been relegated to "junk" status.

Ford's bid to return to profitability in the US saw it sell its Hertz rental car unit, and the company says it plans to jump on the hybrid bandwagon by producing 250,000 petrol-electric vehicles annually.