General Motors has raised its annual cost-savings target by US$1bn to $8bn.
Go deeper with GlobalData
In its annual 10-K filing with the Securities and Exchange Commission, cited by Dow Jones, the company also said that it expects spending on health care to fall about 8% to $5bn in 2006.
GM, which posted a loss of $10.6bn last year, also said it plans to increase capital expenditures on product development this year to $8.7bn from $8bn.
Many analysts have criticized the company for not pumping enough money into fresh and innovative products, the news agency noted, adding that, in January, GM chief financial officer Frederick “Fritz Henderson indicated GM’s capital spending on product development would be about flat or a little more than last year’s levels.
The health care savings come on the heels of significant announcements in recent months concerning reductions in benefits, spokesman Jerry Dubrowski told Dow Jones. He said the company expects deep health-care concessions from the United Auto Workers to take effect in the near future once a court approves the measure. The savings, expected to be worth hundreds of millions of dollars, will combine with cuts in health-care benefits for salaried workers to lower the company’s health care tab.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataDow Jones added that GM had said recently that it pegs health-care-cost inflation to be about 10% in 2006, which means GM could have spent nearly $6bn without measures to reduce the tab.
“GM’s health-care costs for employees and retirees have been rising significantly over the past few years,” the company reportedly said in its 10-K filing. “Controlling our health-care liabilities and expenses, particularly with respect to our hourly employees and retirees, is a critical element of our GM North America turnaround initiatives.”
Next year, the health-care savings could be even deeper as the UAW concessions – estimated to be worth about $1bn in cash savings annually – impact an entire calendar year. Additional savings could be realised due to GM’s new cap on salaried retiree health care effective in January 2007, the report said.
GM also plans to significantly reduce its retiree health-care, or OPEB, liabilities for 2006. The company reportedly said its US pre-tax OPEB expense, which was $5.3bn for 2005, is expected to decrease to an estimated $4.0bn in 2006.
Dow Jones said medical-related cost cuts will be a major component of GM’s overall target of $8bn in annual cost cuts on a running-rate basis. The move is coupled with GM’s drive to cut its North American blue-collar ranks by 30,000 workers and close 12 manufacturing facilities by 2008.
The news agency said that, prior to Tuesday’s filing, GM had been saying it anticipated $7bn in annual savings, including $6bn in structural cost reductions and $1bn in costs related to spending on materials, such as steel and plastic components purchased from suppliers. GM now expects to cut $7bn in structural costs this year, while maintaining its $1bn material cost target.
