General Motors has announced improved earnings and said it would increase its capital spending to between $US8.5bn and $9bn in the next two years, from under $8bn in 2005 and 2006.
The increased spending will go towards “product excellence”, particularly in North America, which is considered central to the company’s turnaround in the region.
GM chairman and CEO Rick Wagoner told securities analysts yesterday that GM has made considerable progress. “GM’s North America turnaround plan moved faster and further than people expected a year ago,” he said.
Wagoner noted that to the end of the third quarter last year, GM’s adjusted net income had improved by $4.2bn to $1.9bn, with most of the improvement coming in North America. The gain was also aided by positive results outside North America, particularly in China. In addition, liquidity remained strong with over $20bn cash to hand at the end of Q3.
Structural cost was an important area of improvement for the automaker in 2006 . It far exceeded its $6bn reduction target in North America on an annual running-rate basis, achieving $9bn of cost cuts on a running-rate basis by the end of 2006.
“We expect to reflect at least $6bn of these savings in our 2006 financial results, and then realise the full $9 bn savings in 2007,” Wagoner said. “This represents a major first step in achieving our aggressive global target of reducing structural costs to 25% of revenue by 2010.”
GM said it had reduced its global automotive structural costs from 34% of revenue in 2005, to between 29 and 30% of global revenue in 2006, and expects to further improve on that figure this year.
Wagoner said GM has five key priorities for 2007:
- Stay focused on the North America turnaround
- Continue to drive aggressively in emerging markets, such as China , Brazil , Russia and India
- Maximize the benefits of running the business globally
- Build on GM’s comprehensive advanced propulsion strategy
- Continue to improve business results, especially improved earnings and cash flow
In global terms, the GM chairman and CEO noted that 55% of the company’s unit sales were outside the United States in 2006, and that this trend likely would continue. To capitalise on this opportunity, Wagoner said, GM would continue to push hard and build on its already strong position in emerging markets.
This worldwide sales growth will be aided by GM’s continued efforts to run its business globally, particularly in product development, manufacturing, purchasing and powertrain.
“This move to run the business in a globally integrated manner is, in fact, probably the most profound change that is going on in the company today,” Wagoner said. “In 2007, we’ll drive to accelerate the value we realise from global integration of GM.”
Maximising use of its global resources is also a key element of GM’s drive to achieve energy diversity and environmental leadership, as evidenced by the introduction this week of the Chevrolet Volt concept car, an extended-range electric vehicle based on new E-Flex technology, a family of electrically driven propulsion systems for future small and midsize vehicles, and a potential “game-changer” for GM and the auto industry, Wagoner said.
The final 2007 priority for GM is clear: continue to improve business results.
“The rate of improvement in our financials through three quarters of 2006 was significant, and it needed to be,” Wagoner said, “But no one at GM believes that hitting break-even in North America, or making a couple of billion in corporate net income is ‘winning’. We know we need to move to steady revenue growth, solid earnings, consistent positive cash flow, and a stronger balance sheet.
“We plan to make another significant step in the right direction on these metrics in 2007,” he said.
GM will post its fourth quarter results at the end of the month.