GM anticipates paying $1 billion in Q1 charges for the buyout of 5,000 salaried workers

General Motors announced last month that approximately 5,000 employees would participate in a buyout program to reduce its global headcount and fixed costs.

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Paul Jacobson, the CFO at General Motors, announced Tuesday that the automaker expects to incur a charge of about $1 billion as a result of the program during the first quarter. This reduction in headcount is part of the company's broader plans to cut $2 billion in structural costs by the end of 2024 as part of its cost-cutting efforts.

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He added that the opt-in rate for the "Voluntary Separation Program," or VSP, was in line with the company's expectations, and put the company "in a position" to avoid layoffs in the future.

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“At this point in time, I think we are in a position where we are going to be able to do that,” Jacobson said Tuesday during a conference hosted by BofA Securities.

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An official at General Motors said that he expects the majority of employees who took part in the program to leave the company by June 30, according to the company's spokesperson.

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Mary Barra, GM's CEO, said in a statement last month that if not enough employees participate in the program, involuntary actions will be taken against them.

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In all, 58,000 U.S. white-collar employees were offered buyouts by the company, which is a percentage of its total workforce. For salaried employees of the company to qualify for the program, they must have worked at the company for a minimum of five years as of June 30 of this year. The qualification for executive-level employees was two years of experience in the field.

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“With this tool, we were able to really speed up the attrition curve; and we got a really quick payback from it,” Jacobson said.

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A $2 billion cost-cutting program was announced in January by General Motors, stating that the savings were expected to range from 30% to 50% during the course of 2023. According to the executives at the time, they were thinking of reducing the number of employees through attrition rather than through layoffs.

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On Tuesday, Jacobson said that GM is likely now to come in on the "higher end" of the range for the percentages it will have to invest in 2023. "We feel like we've got off to a really good start on it so far," he said. "It's been a really exciting start."

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There has been speculation that General Motors may take a pretax charge of up to $1.5 billion related to the buyouts, according to a public filing the company made last month. In accordance with the company's statement, the majority of the charges are expected to be cash-based and to occur during the first half of this year.

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The cost of these charges could spill over into the second quarter, Jacobson said, and GM is in the process of figuring out the full extent of them.

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During the company's first-quarter earnings call on April 25, Jacobson said the company will provide more information about the buyout program.

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In mid-morning trade, the share price of the company was down by about 2%.