General Motors to axe 25,000 jobs and shut US car plants

General Motors will cut 25,000 American workers from its factory floors in the next three years as the world's largest car maker struggles to slim down to match declining demand for its vehicles.

General Motors will cut 25,000 American workers from its factory floors in the next three years as the world's largest car maker struggles to slim down to match declining demand for its vehicles.

As well as the headcount reduction, by 14 per cent of its North American workforce, GM will close several under-employed plants. The retrenchment could create $2.5bn (£1.36bn) in annual savings, Rick Wagoner, the chief executive and chairman, told thousands of shareholders yesterday at its annual meeting in Wilmington, Delaware.

Shares in the ailing car giant firmed in New York on signs that Mr Wagoner had finally outlined a plan to deal with GM's unwieldy costs and declining revenues. GM's shares have also been given a boost in recent weeks by a surprise offer by the billionaire investor Kirk Kerkorian to buy 28 million shares, or an 8.8 per cent stake, in the company. That offer expired last night.

Mr Wagoner's rescue plan comes after repeated warnings in recent months that GM's healthcare and pension bill for current and past employees will grow by almost a quarter to $5.7bn this year. GM wants the powerful United Auto Workers union to agree to reduce those benefits, as well as to redundancies at several plants that are producing cars and trucks at well below their capacity because customers do not want to buy them. If the UAW does not agree to the redundancy programme, GM will have to pay workers it lays off almost 100 per cent of their salaries until 2007, when the collective contract with the UAW can be renegotiated.

Mr Wagoner refused to discuss options such as pushing GM into bankruptcy protection or taking GM's case to court if the UAW refused to discuss changes before 2007, saying his "strongly preferred approach" was to reach an agreement with the union.

The programme of cuts is the latest attempt by GM to address its waning share of the US and international car market. In both areas GM and its main rival Ford have been outmanoeuvred by low-cost and nimbler Asian manufacturers such as Japan's Toyota.

GM has cut 80,000 employees, including many thousands in Europe, since Mr Wagoner became chief executive in June 2000. GM's US market share slipped to 25.7 per cent in the first five months of this year, from 27.2 per cent a year earlier. Mr Wagoner, 52, has attracted severe criticism, partly because as head of GM's American business before becoming chief executive he oversaw a decline in market share. Unions also attacked management for being quick to put the blame on its high fixed costs of employees rather than on mistakes or late judgements over market trends, such as the explosion of sports utility vehicles in the 1990s and, conversely, their lack of popularity in the past few years.

Jim Dollinger, a private shareholder at the meeting, said of GM's management: "They're arrogant, they're isolated and they don't listen." GM is trying to counter that image, and has promised to increase investment by $1bn to develop new cars and trucks. "We know that you can't turn around, or be successful in our business, without great cars and trucks," Mr Wagoner said.

Robert Hinchliffe at UBS said the headcount reduction was unimpressive. "The 25,000 figure is similar to their 5 per cent annual attrition. It sounds like they want to ride the attrition and do little other than that," Mr Hinchliffe said.

GM announced its biggest quarterly loss in 13 years in April and a 6.7 per cent drop in US sales this year. And $200bn of its corporate debt was downgraded to junk status by the major ratings agencies. It cut North American production 12 per cent in the first quarter and plans a 10 per cent drop this quarter. Another 9 per cent cut is slated in the third quarter.