Question:
In 1996 General Motors announced that it was preparing to invest $850 million to update its metal-stamping operations. The new metal-stamping operations would be more flexible and less labor intensive than current equipment. GM's Metal Fabricating Division expected to reduce employment of hourly workers by 30,000 and salaried workers by 4,000. Much of the new investment would be spent on modern transfer presses. Unlike some of GM's older presses, such units accept different dies, or forms for shaping sheet metal. As Japanese automakers proved, such flexible machinery is much more efficient, because it allows an auto maker to alter its production mix to match what's selling and to compensate for breakdowns.
a. Assume that the only justification for upgrading the metal-stamping machinery is the labor costs to be saved; also, assume the average pay of the 34,000 workers to be displaced by the upgraded machinery is $25,000. Compute the payback period for the upgrade project (ignore tax).
b. The two major financial dimensions of the upgrade project mentioned in the news article were the initial cost of $850 million and the labor cost savings. Prepare a brief oral report in which you identify other cost saving sand other costs of the upgrade project.