General Motors on Friday said it is moving ahead with structural and material cost-cutting this year in a move to staunch losses in North America as quickly as possible.
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Reuters said GM expects to realise about US$4bn in savings in 2006 of the previously identified targeted savings of $7bn – comprised of $6bn in structural costs and $1bn in material costs.
“Our primary focus in North America this year is to fully and rapidly implement our turnaround plan, which focuses on the areas that can quickly improve our results and …fundamentally enhance our long-term competitiveness,” chief executive Rick Wagoner told analysts in Dearborn, Michigan, according to the report.
“We expect to see improved results in 2006 and further progress in 2007,” he added.
An adviser to Kirk Kerkorian, GM’s largest investor, reportedly said this week the automaker needs to operate in “crisis mode.” Jerome York urged GM to cut its dividend in half, reduce executive pay and shed “non-core” brands Saab and Hummer.
Reuters said that Wagoner on Friday repeated that GM is operating with urgency to turn around its money-losing North American operations.
As part of the next phase of cost-cutting, GM said it is now aiming to lower its global structural costs as a percentage of revenue to 25% in 2010 from the current level of about 34%.
The company reportedly said it would not provide a 2006 financial forecast, citing the ongoing talks between the United Auto Workers union, Delphi and GM; the timing of implementing the health care agreement with the union; and the potential actions related to its financing arm, General Motors Acceptance Corp. (GMAC).
According to Reuters, GM said it expects another record year for global vehicle sales in 2006, driven by growth in Asia Pacific.
GM reportedly said new products will also help its turnaround. About 29% of GM’s North American sales volume this year is expected to come from recently launched cars and trucks, as well as upcoming new models.
By 2007, GM, which introduced a new pricing strategy this week in a move to reduce its reliance on incentives, said it expects more than 30% of its sales volume to come from the new vehicles, Reuters added.
The news agency added that GMAC on Friday said it would take a charge of about $450m after partially writing down assets bought in 1999.
The report added that GM expects GMAC, which had about $20bn in cash at the end of last year, to post “solid” results in both 2005 and 2006.
The automaker also reportedly said it continues to explore the possible sale of a controlling interest in GMAC to a strategic partner with the goal of restoring the business’s investment-grade credit rating.
GM also said its US hourly and salaried pension plans were about $6bn over-funded at the end of 2005, due largely to preliminary asset returns of 13% in 2005, Reuters added. For this year, GM’s assumed rate of return on assets remains unchanged at 9%, the news agency said.
