Every week there are stories involving workers voluntarily, or involuntarily involved in pay cuts. Kicking this week off, General Motors Said to Plan Pay Cuts for Salaried Employees.
General Motors Corp., racing to meet U.S. conditions to keep $13.4 billion in government loans, will include pay cuts for salaried employees in a restructuring plan to be submitted Feb. 17, people familiar with the plan said.
The pay cuts will be in addition to firings of thousands of salaried workers required to cut expenses as the largest U.S.- based automaker tries to win concessions from bondholders, labor unions and dealers, the people said, who asked not to be identified because the plans haven’t been announced.
In related news, GM, Chrysler May Face Bankruptcy to Protect U.S. Debt.
General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them.
U.S. taxpayers currently take a backseat to prior creditors, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to loan agreements posted on the U.S. Treasury’s Web site. The government has hired a law firm to help establish its place at the front of the line for repayment, two people involved in the work said last week.
If federal officials fail to get a consensual agreement to change their position regarding repayment, they have the option to force the companies into bankruptcy as a condition of more bailout aid. The government would finance the bankruptcy with a so-called “debtor in possession” or DIP loan, a lender status that gives the U.S. priority over other creditors, said Don Workman, a partner at Baker & Hostetler LLP.
“They are negotiating to see if they can reach an agreement,” said Workman, a bankruptcy lawyer based in Washington. “If not, they are saying ‘We are pretty darn sure that a bankruptcy judge will allow us’” to be first in line for repayment.
As it stands, the government loans fall below existing debt secured by most assets for Auburn Hills, Michigan-based Chrysler and Detroit-based GM. Prior lenders have first position on some assets. The government has first position on assets not already pledged.
Other Pay Cuts
FedEx (FDX), Timber giant Weyerhaeuser (WY), and Alcoa (AA) cut or froze wages. See 2009: Already Looking Bleak for details.
San Diego is asking for cuts in pay and wages. See Sharing The Pain In California for details.
On January 29, 2009 Arizona State Faculty Announced Face 12% Pay Cut by June 30.
Arizona’s public universities on Tuesday unveiled their offers to make cuts in their budgets this year, saying they would strip thousands of employees of weeks of pay and eliminate jobs and some programs. …
[T]he proposal would require employees, including tenured professors, to take time off as unpaid leave. … ASU’s portion of the proposed $100 million cut is $45.3 million. Much of it would come from employees, who could lose 12% percent of their remaining pay before July.
On February 6, 2009 Contemporary Media employees take pay cut
Employees at Contemporary Media Inc., publisher of The Memphis Flyer , Memphis magazine, Memphis Parent and Memphis Business Quarterly , have taken pay cuts of at least 4 percent, with some taking pay cuts as high as 8 percent.
The company’s 401(k) matching program was also suspended. The cuts will last at least until the end of June.
Those salary cuts span many industries. We have not seen broad based wages cuts like this since the great depression. Expect to see a lot more in the weeks ahead. This is deflation in action.
Mike “Mish” Shedlock
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