GM to pursue turnaround plan vigorously, to achieve $4 bn in cost savings

GM to pursue turnaround plan vigorously, to achieve $4 bn in cost savings

	Published : Sat, 14 Jan 2006 14:05 By : Phil Bateman Print this Story

DETROIT: General Motors Corporation hopes to save $4 billion this year under a turnaround plan for its North American operations, which its chief executive Rick Wagoner hopes will improve earnings this year and next.

Outlining the plan at an analysts' meeting, Wagoner admitted the company faced too many problems. It lost $3.8 billion in the first three quarters of 2005 and had stopped providing earnings guidance in April.

"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," Wagoner said.

He said the company expects to achieve about $300 million in cost cuts this quarter, $800 million in the second, $1.4 billion in the third and $1.5 billion in the fourth. The company had formulated a plan sometime back to achieve $7 billion in savings through 2008 -- $6 billion in structural costs and $1 billion in material costs -- and bulk of this will be realised in 2006. One of the thrust areas will be health care and pensions.

Wagoner said the company will also reduce its salaried employees by 6 per cent to 7 per cent this year. The company has already cut its salaried work force by about one third since 2000 and only in November last, it had announced a plan to cut 30,000 hourly jobs and close 12 facilities by 2008.

The company is in negotiations with Delphi, its former spare parts division, which has filed for bankruptcy protection. It can seek several billions of dollars from the company, which will ultimately have an impact on the bottom lines.

Wagoner said the company is planning to sell its controlling stake in its finance division, General Motors Acceptance Corp. so that the latter could get back its investment grade ratings. GMAC, which shares credit ratings with its parent, has been downgraded several times in the past year, making borrowing more costly.

General Motors has proposed a new health care agreement with its retired autoworkers that envisages the retired workers to pay more for the scheme. It has received preliminary approval from the federal courts and the company hopes to implement it from 1 April.

Wagoner did not respond to questions on whether the company's board will consider reducing dividends in the light of its extreme financial condition.

The company has come out with new models like a redesigned sport utility vehicle Chevrolet Tahoe and a redesigned sedan Chevy Impala. It has also cut prices of its vehicles in the U.S. market last week.

The company's shares lost 2 per cent to $20.57 on Friday.