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GM offers buyouts to 18,000 workers amid strong profits

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As General Motors reported a healthy $3.29 billion third-quarter profit, the Detroit automaker ramped up its cost-cutting efforts by offering buyouts to 18,000 white-collar workers in both the United States and Canada.

The company, while acknowledging it’s in good shape now, said Wednesday it needs to be smaller to prepare for tougher times that might be ahead as it continues to get ready for a future of electric and autonomous vehicles.

“Even with the progress we’ve made, we are taking proactive steps to get ahead of the curve by accelerating our efforts to address overall business performance,” GM said in a statement. “We are doing this while our company and economy are strong.”

The earnings and buyout news drove GM shares higher in Wednesday afternoon trading. The stock was up 8.6 per cent to $47.94, after mostly falling since June.

Buyout offers were made Wednesday to salaried workers in North America with 12 or more years of service.

Eligible employees will have until Nov. 19 to decide if they want to take the voluntary severance, said Jennifer Wright, communications director for General Motors Canada in an email to CBC News.

GM spokesperson Patrick Morrissey wouldn’t say whether the company has a target number for employee reductions, nor would he say if there will be layoffs if too few employees take the buyouts.

“We will evaluate the need to implement after we see the results of the voluntary program and other cost reduction efforts,” he said.

The company has 50,000 salaried workers in North America.

The offers came as GM’s earnings surprised Wall Street by riding strong prices for much of its model lineup across the globe, especially in the U.S. where it rolled out redesigned versions of its Chevrolet Silverado and GMC Sierra pickups.

Vehicle prices up

“Our discipline came through this quarter,” chief financial officer Dhivya Suryadevara said, adding that she believes strong prices are sustainable as GM builds inventory of light-duty pickups and rolls out heavy-duty versions.

The average sale price of a GM vehicle in the U.S. reached $36,000 US, $800 US more than a year ago and a third-quarter record.

Even as auto sales started to ebb in the U.S., China and elsewhere, GM said it earned $2.30 per share. Excluding one-time items, the company made $2.46, far exceeding analyst projections of $1.64 per share, according to a survey by FactSet.

Revenue jumped 6.4 per cent to $47.11 billion, also topping forecasts. The company was resilient in a declining Chinese market, where it posted record third-quarter income of $865.88 million from July through September. And its pretax profit in North America, its most lucrative market, rose 33 per cent to $3.68 billion with a profit margin of 10.2 per cent.

GM also gave a more optimistic forecast for the full year, saying it expects pretax profits at the high end of its previous guidance of $7.63 to $8.16 per share as it rolls out the new pickups and does its best to battle higher commodity costs.

Vehicles are seen in a parking lot at the General Motors Oshawa Assembly Plant in Oshawa, Ont., June 20, 2018. The company made the offer Wednesday to salaried workers with 12 or more years of service. (Tijana Martin/Canadian Press)

GM’s global retail sales to individuals, on the other hand, dropped 15 per cent during the quarter, to 1.98 million vehicles. But sales to dealers, the point at which GM books revenue, rose 4.5 per cent, to 1.13 million.

GM was hit once again by costs associated with its giant recall for faulty ignition switches. The company posted a $579.02 million charge as it updated estimated costs for legal claims.

A year ago, GM posted a $3.95 billion net loss due to a $7.11 billion charge for selling Opel and Vauxhall to France’s PSA Group.

The strong quarter is a result of GM executing well on its game plan, said Edward Jones industrials analyst Jeff Windau.

“If you’re selling vehicles that have higher price points, you’re able to offset some of those negative headwinds from the commodity prices,” he said.

Windau was cautious about GM’s prospects in the long term, rating the company’s shares “hold” due to the risk of rising interest rates, higher commodity prices and the potential that rising gas prices could cut into pickup truck sales.

Suryadevara said GM expects tariff-driven commodity price increases to cost the company $1.32 billion this year, $526.39 million in the third quarter alone. The Trump administration has imposed 10 per cent tariffs on imported aluminum and 25 per cent on steel.

Autonomous vehicle spending

GM reported that its Cruise Automation autonomous vehicle unit spent $263.19 million during the quarter and said spending likely will rise as the unit heads toward rolling out a self-driving ride-hailing service sometime in 2019.

The company’s surprising performance contrasts with crosstown rival Ford, which saw profits plunge 37 per cent during the quarter to $1.3 billion on falling U.S. and Chinese sales.

GM has long talked about reducing costs in preparation for an economic downturn. The company is close to delivering on a promise to reduce structural costs by $8.55 billion annually by year’s end.

Retired Chief Financial Officer Chuck Stevens hinted at white-collar cutbacks in April of 2017 when he told analysts that GM is looking for cuts as it simplifies its business after its exit from Europe. Simplification “will allow us to take significant structure out of the business, whether it’s corporate staff, whether it’s engineering staff,” he said.

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Mortgage insurance vs. life insurance: What you need to know

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Your home is likely the biggest asset you’ll ever own. So how can you protect it in case something were to happen to you? To start, homeowners have a few options to choose from. You can either:

  • ensure you have mortgage protection with a life insurance policy from an insurance company or
  • get mortgage insurance from a bank or mortgage lender.

Mortgage insurance vs. life insurance: How do they each work?  

The first thing to know is that life insurance can be a great way to make sure you and your family have mortgage protection.

The money from a life insurance policy usually goes right into the hands of your beneficiaries – not the bank or mortgage lender. Your beneficiaries are whoever you choose to receive the benefit or money from your policy after you die.

Life insurance policies, like term life insurance, come with a death benefit. A death benefit is the amount of money given to your beneficiaries after you die. The exact amount they’ll receive depends on the policy you buy.

With term life insurance, you’re covered for a set period, such as 10, 15, 20 or 30 years. The premium – that’s the monthly or annual fee you pay for insurance – is usually low for the first term.

If you die while you’re coved by your life insurance policy, your beneficiaries will receive a tax-free death benefit. They can then use this money to help pay off the mortgage or for any other reason. So not only is your mortgage protected, but your family will also have funds to cover other expenses that they relied on you to pay.

Mortgage insurance works by paying off the outstanding principal balance of your mortgage, up to a certain amount, if you die.

With mortgage insurance, the money goes directly to the bank or lender to pay off the mortgage – and that’s it. There’s no extra money to cover other expenses, and you don’t get to leave any cash behind to your beneficiaries.

What’s the difference between mortgage insurance and life insurance?

The main difference is that mortgage insurance covers only your outstanding mortgage balance. And, that money goes directly to the bank or mortgage lender, not your beneficiary. This means that there’s no cash, payout or benefit given to your beneficiary. 

With life insurance, however, you get mortgage protection and more. Here’s how it works: every life insurance policy provides a tax-free amount of money (the death benefit) to the beneficiary. The payment can cover more than just the mortgage. The beneficiary may then use the money for any purpose. For example, apart from paying off the mortgage, they can also use the funds from the death benefit to cover:

  • any of your remaining debts,
  • the cost of child care,
  • funeral costs,
  • the cost of child care, and
  • any other living expenses. 

But before you decide between life insurance and mortgage insurance, here are some other important differences to keep in mind:

Who gets the money?

With life insurance, the money goes to whomever you name as your beneficiary.

With mortgage insurance, the money goes entirely to the bank.

Can you move your policy?

With life insurance, your policy stays with you even if you transfer your mortgage to another company. There’s no need to re-apply or prove your health is good enough to be insured.

With mortgage insurance, however, your policy doesn’t automatically move with you if you change mortgage providers. If you move your mortgage to another bank, you’ll have to prove that your health is still good.

Which offers more flexibility, life insurance or mortgage insurance?

With life insurance, your beneficiaries have the flexibility to cover the mortgage balance and more after you die. As the policy owner, you can choose how much insurance coverage you want and how long you need it. And, the coverage doesn’t decline unless you want it to.

With mortgage insurance through a bank, you don’t have the flexibility to change your coverage. In this case, you’re only protecting the outstanding balance on your mortgage.

Do you need a medical exam to qualify? 

With a term life insurance policy from Sun Life, you may have to answer some medical questions or take a medical exam before you’re approved for coverage. Once you’re approved, Sun Life won’t ask for any additional medical information later on.

With mortgage insurance, a bank or mortgage lender may ask some medical questions when you apply. However, if you make a claim after you’re approved, your bank may ask for additional medical information.* At that point, they may discover some conditions that disqualify you from receiving payment on a claim.

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5 common mistakes Canadians make with their mortgages

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This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Since COVID-19 dragged interest rates to historic lows last year, Canadians have been diving into the real estate market with unprecedented verve.

During a time of extraordinary financial disruption, more than 551,000 properties sold last year — a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the country’s gasping economy.

Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, MoneyWise asked four of the country’s sharpest mortgage minds to share what they feel are the mistakes Canadians most frequently make when securing a home loan.

Mistake 1: Not having your documents ready

One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.

But “borrowers often don’t have these documents on hand,” says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. “And even when they do provide these documents, they may not be the correct documentation required.”

Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:

  • Not including a name or other relevant details on key pieces of information.
  • Providing old bank or pay statements instead of those dated within the last 30 days.
  • Sending only a partial document package. If a lender asks for six pages to support your loan, don’t send two. If you’re asked for four months’ worth of bank statements, don’t provide only one.
  • Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.

If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.

Mistake 2: Blinded by the rate

Ask any mortgage broker and they’ll tell you that the question they’re asked most frequently is: “What’s your lowest rate?”

The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve slipped on your house-hunter hat.

Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to lock a low rate now, so you can hold onto it for up to 120 days.

But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.

“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous,” Kolinski says. “That opens a conversation about needs and wants.”

Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.

Mistake 3: Not reading the fine print

Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for.”

Most borrowers don’t expect they’ll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.

It’s critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.

She has seen too borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.

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Canadian mortgage rules: What you should know

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If you’re a new homebuyer seeking a mortgage, or an existing homeowner looking to switch or refinance, it’s important that you’re up-to-date on the new mortgage rules in Canada. Here are some of the top things you should keep in mind if you’re looking for a new home. 

The Canadian Mortgage Stress test in 2021

The stress test was introduced on January 1, 2018, as a way to protect Canadian homeowners by requiring banks to check that a borrower can still make their payment at a rate that’s higher than they will actually pay.  The purpose of the stress test is to evaluate if a borrower (a.k.a. the potential homeowner) can handle a possible increase in their mortgage rate.

For Canadians to qualify for a federally regulated bank loan, they need to pass the stress test. To do this, homebuyers need to prove that they can afford a mortgage at a qualifying rate. For homebuyers who have a down payment of 20% or more, currently the qualifying rate is determined using the Bank of Canada’s five-year benchmark or the interest rate offered by the lender plus 2%, whichever is higher. For homebuyers who have a down payment of less than 20%, the qualifying rate is the higher of the Bank of Canada five-year benchmark rate and the interest rate offered by the lender.

This stress test is also performed with homeowners looking to refinance, take out a secured line of credit, or change mortgage lenders. Those who renew with the same lender will not have to undergo the stress test.

Other new mortgage rules in Canada

As of July 2020, a number of changes were implemented for all high-ratio mortgages to be insured by the Canada Mortgage and Housing Corporation (CMHC).

A high-ratio mortgage is one where the borrower has a minimum down payment of less than 20% of the purchase price of the home. A high-ratio mortgage is also referred to as a default insured mortgage. Let’s break down what recent changes have been made.

Qualification rate

The new CMHC rules will lower the amount of debt that borrowers with a default insured mortgage can carry. Mortgage applicants will be limited to spending a maximum of 35% of their gross income on housing and can only borrow up to 42% of their gross income once other loans are included. This is down from the previous 39% and 44%.

Credit score

The new rules also require the borrower to have a minimum credit score of 680 (good score). If you are purchasing a home with your partner, one of you must have a score of 680. This is up from the previous minimum score of 600 (fair score).

Down payment

Homebuyers are now required to use their own money for a down payment instead of borrowed funds. This means homebuyers are no longer able to use unsecured personal loans, unsecured lines of credit or credit cards to fund their down payment.

Homebuyers with a down payment of less than 20% of the purchase price are required to purchase mortgage default insurance. Properties costing $1 million or more are not eligible for mortgage default insurance.

CMHC and CREA projections

Due to the pandemic, job loss, business closures, and a drop in immigration, CMHC predicted a 9% to 18% decrease in housing prices from June 2020 to June 2021.* However, this prediction hasn’t come to fruition.

Instead, 2020 ended up being a record year for Canadian resale housing activity, according to Costa Poulopoulos, the Chair of the Canadian Real Estate Association (CREA).**

The CREA predicts that all provinces except Ontario will see an increase in sales activity into 2021 as a result of low-interest rates and an improving economy. As for the CMHC, they stand by their original prediction.

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