GM Talks Up Cost Cuts

CEO Rick Wagoner says the automaker is moving quickly to implement its turnaround plan.
Author:
Publish date:

Updated from 10:06 a.m. EST

General Motors

(GM) - Get Report

Chairman and Chief Executive Rick Wagoner told analysts Friday that the company is moving expeditiously to carry out its North American turnaround in order to better its financial performance in 2006.

Wagoner said GM's top priority is to return its domestic operations to profitability and positive cash flow as soon as possible.

"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, just as important, fundamentally enhance our long-term competitiveness," he said in a statement posted on the company's Web site. "We expect to see improved results in 2006 and further progress in 2007."

The Detroit-based company said, however, that considering "several key uncertainties that GM is currently addressing, including

Delphi

(DPHIQ)

matters, the potential sale of an equity stake in

General Motors Acceptance Corp. and the timing of implementing the landmark health-care agreement with the UAW, GM is not providing 2006 financial guidance at this time."

Delphi, an auto-parts maker that used to be a wholly owned unit of GM, filed for bankruptcy last year.

On average, analysts surveyed by Thomson First Call estimate GM lost $4.17 a share in 2005 and had revenue of $158.6 billion. For 2006, Wall Street is looking for a profit of 91 cents and a top line of $160.8 billion.

Shares of GM were lately losing 54 cents, or 2.6%, to $20.42.

The world's biggest automaker has been the subject of concerns that it might be a bankruptcy candidate in the near future if it doesn't get its costs under control and strengthen its liquidity.

GM said it was "moving aggressively" to make good on its goal of reducing annual structural costs by $6 billion by the end of 2006 and to further cut material costs by $1 billion. GM expects to realize around $4 billion in savings this year. The company is now aiming to lower structural costs to 25% of revenue in 2010 from the current level of about 34%.

Earlier this week, Kirk Kerkorian's firm

Tracinda

said GM should slash dividend payments to shareholders and adopt an "equality of sacrifice" plan to revitalize its business.

The firm said Jerome York, its adviser, presented a plan for GM at the Society of Automotive Analysts that included cutting the dividend by 50% and a "substantial" reduction in payments and salaries for the company's top executives.

Kerkorian bought a 9.9% stake in GM in May through a $31-a-share tender offer, but that investment took a big hit by the time 2005 came to a close, as the carmaker's stock lost almost 50% of its value last year.

Additionally, GM forecast a record year for global auto industry sales in 2006, driven by growth in the Asia-Pacific region. GM sold 9.17 million cars and trucks around the world last year, up 2% from 8.99 million in 2004, the second time in its history it surpassed the 9 million mark. Also, the company said its U.S. hourly and salaried pension plans were overfunded by about $6 billion at the end of 2005.

GMAC, the carmaker's financing division, should post solid results in both 2005 and 2006, GM said. GMAC had around $20 billion in cash at the end of 2005. GM added that it's continuing to explore the possible sale of a controlling interest in GMAC.

Separately, GMAC said in a regulatory filing that it will record a noncash charge of about $450 million, mainly for the impairment of goodwill at its commercial finance division. GMAC expects its net income for 2005 to be relatively consistent with its targets, in the $2.5 billion range, including the impairment charges, but ahead of the forecast if the costs were excluded.