General Motors Co. is following Ford Motor Co.’s lead, temporarily cutting the pay of high-ranking executives and salaried employees as part of the company effort to conserve cash during the sharp economic downturn created by the spread of deadly COVID-19 virus.
Auto sales are down sharply all across the country and analyst are predicting that sales of new vehicles could slide by as much as a third from the 17 million units sold in 2019. Even the most optimistic forecasts now call for industry-wide sales to drop by anywhere from 2 million to 3 million vehicles in 2020.
The U.S. auto industry is no stranger to economic downturns and carmakers like GM and Ford are scrambling to cut expenses in an effort to conserve resources.
“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,” GM said in a statement.
As part of this shared sacrifice, executives will take a 25% pay cut while the senior leadership, among them Chairman and CEO Mary Barra 30% and President Mark Reuss. GM’s Board of Directors will take a 20% cut in compensation.
GM said globally, all GM salaried employees will have 20% of their cash compensation deferred beginning April 1. The deferment will be repaid in a lump sum no later than March 15, 2021, GM said. Health-care benefits are not impacted.
At the end 2019, GM had approximately 69,000 salaried employees or 42% of its global workforce. The cash savings will be “significant” from the deferrals, but GM declined to offer a range.
GM also will get a cash infusion from the federal government for maintaining their payroll during the financial crisis unfolding right along with the COVID-19 epidemic.
About 6,500 salaried employees in the U.S. will participate in the company’s salaried downtime paid absence program, or SDPA, in lieu of the salaried deferral program. Other countries are evaluating the appropriate use of similar programs.
These salaried employees will receive 75% of their pay while on SDPA. This reduced salary is intended to be in lieu of unemployment compensation benefits. Most affected employees are in salaried Manufacturing or Engineering roles and are not able to work from since their jobs require their day-to-day presence in a GM facility.
At Ford, CEO Jim Hackett said a letter to employees Thursday that the company would freeze executive pay and stall employee merit raises as part of the effort bolster Ford’s financial position. The letter follows a decision by Standard and Poor’s to reduce Ford’s credit rating to junk status.
“We have taken significant actions to reduce costs and to fortify our balance sheet and cash position in this unprecedented situation. These include suspending the dividend paid to shareholders and accessing our credit lines for more than $15 billion in additional cash,” Hackett said in an e-mail to employees in which he noted Ford Executive Chairman Bill Ford Jr. had given up his annual salary.
FCA also has started taking steps to reduce its spending by halting major construction projects in Michigan and idling more than 2,000 contractors employed on various projects important to FCA.