Bloomberg
General Motors Co. said it has slashed $10.7 billion from annual costs, freeing up money for marketing and vehicle upgrades while boosting Chief Executive Officer Ed Whitacre’s push for a 2010 profit.
The expense cuts include reduced interest payments from the elimination of debt, the offloading of union retiree bills and $6.7 billion from steps such as chopping jobs, getting rid of plants and dropping half of GM’s U.S. brands, according to company documents and Randy Arickx, a spokesman.
The estimate is the first public tally of GM’s savings from a new labor accord and its 2009 bankruptcy compared with the previous year. Uses for the proceeds include spending more on a redesign of the Chevrolet Silverado and GMC Sierra pickups that may cost as much as $1 billion, an executive directly involved with the plan said.
“GM has come to the realization that customers are more perceptive than the old GM used to think,” said Eric Noble, president of CarLab, an Orange, California-based automotive consultant that specializes in product planning. “The only way to win is to gain an advantage in product quality.”
New models still may not be enough to meet Whitacre’s goal of keeping U.S. market share at about 20 percent. Detroit-based GM will have to make up lost sales from shedding 4 of 8 domestic brands, overcome a history of 20 declines in U.S. market share in 23 years and erase any stigma in buyers’ minds from last year’s federal bailout.
Opel Cash
The biggest U.S. automaker also faces cash needs such as its Feb. 9 pledge to invest 11 billion euros ($15 billion) at Germany’s Opel by 2014. GM provided 650 million euros in fresh Opel funding in January through accelerated payments for engineering work.
Losses at GM totaled about $88 billion through last year’s first quarter from the end of 2004, spurring the effort in the automaker’s U.S.-backed restructuring to shrink operations to help return to profit.
“A new and better balance sheet” is driving the increases in spending on products and marketing, Vice Chairman Bob Lutz said in an interview, without giving figures. “You couldn’t exist in this business cutting marketing budgets to near zero.”
In addition to the $6.7 billion in savings from chopping so-called structural costs, GM reaped $1 billion more by shedding debt, with annual interest costs this year of about $1.5 billion compared with $2.5 billion in 2008, Arickx said.
A United Auto Workers contract provision that took effect Dec. 31 saved about $3 billion more by shifting retirees’ health costs to a UAW-run trust.
Whitacre Strategy
Diverting some of the $10.7 billion in savings to refresh GM’s vehicle lineup and lure new buyers is intended to support the strategy set by Whitacre, 68, who added the CEO’s title to his chairman’s duties on Dec. 1.
Investors and U.S. officials are watching because Whitacre has said he wants to repay $5.7 billion in outstanding federal loans by June and that GM may sell stock this year. On Jan. 6, he said he expects “positive net income” in 2010, accelerating predecessor Fritz Henderson’s timeline for a 2011 profit.
“I’m pretty bullish on GM,” said John Wolkonowicz, an analyst at Lexington, Massachusetts-based IHS Global Insight. “They have taken a lot of cost out and they are improving their products.”
GM’s 8.375 percent notes due in July 2033 rose 0.31 cent to 28.25 cents on the dollar at 3:50 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
GM more than doubled its budget for the large-truck program, in part because of the automaker’s savings, said the executive involved with the project, who asked not to be identified because the details aren’t public.
Truck Upgrades
The Sierra and Silverado, along with the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade sport-utility vehicles, will receive new styling, more-efficient engines and lighter- materials to improve fuel economy, two executives said. Last updated for the 2007 model year, the trucks and SUVs originally were supposed to get only cosmetic improvements, one of them said.
A spokesman, Pat Morrissey, declined to comment about GM’s plans for truck changes.
GM’s additional resources also will help pay for developing new products such as the Cadillac XTS Platinum concept car, a large luxury sedan that may reach showrooms in 2013 and is intended to compete with models such as Bayerische Motoren Werke AG’s 7-Series.
The XTS probably will include a plug-in hybrid version, said one of the executives.
A refreshed vehicle roster may allow GM to take advantage of the recalls that have spurred a U.S. sales freeze for eight models from Toyota Motor Corp., which seized the global sales crown in 2008. Adding production to meet any market-share gains or stronger industry demand would increase labor costs, said Renee Rashid-Merem, a GM spokeswoman.
Trimming Debt
GM had $46 billion in debt in 2008. Borrowings ballooned to $94.7 billion when the company was in bankruptcy last year, GM said on Nov. 14. The debt has been cut to $17 billion, half what Ford Motor Co. owed on Dec. 31.
As part of its restructuring, GM pushed through a plan to cut manufacturing plants to 34 at the end of this year from 47 in 2008. Dealerships were targeted to fall to 3,600 from 6,000 with the dumping of the Saab, Pontiac, Hummer and Saturn brands to focus on Chevrolet, Cadillac, Buick and GMC.
The savings in structural costs more than doubled the $5.1 billion reduction by Ford, the only major U.S. automaker to avoid bankruptcy last year.
Most of the savings for GM came in North America, the company’s Arickx said. Based on projected production in the region of 2.8 million vehicles, the benefit would equal about $3,800 for each car and light truck.
“A lot of the structural cost improvements were things that they left behind, like plants and brands that they didn’t need,” said Maryann Keller, president of Maryann Keller & Associates in Stamford, Connecticut. “That’s what bankruptcy is supposed to do.”
The expense cuts include reduced interest payments from the elimination of debt, the offloading of union retiree bills and $6.7 billion from steps such as chopping jobs, getting rid of plants and dropping half of GM’s U.S. brands, according to company documents and Randy Arickx, a spokesman.
The estimate is the first public tally of GM’s savings from a new labor accord and its 2009 bankruptcy compared with the previous year. Uses for the proceeds include spending more on a redesign of the Chevrolet Silverado and GMC Sierra pickups that may cost as much as $1 billion, an executive directly involved with the plan said.
“GM has come to the realization that customers are more perceptive than the old GM used to think,” said Eric Noble, president of CarLab, an Orange, California-based automotive consultant that specializes in product planning. “The only way to win is to gain an advantage in product quality.”
New models still may not be enough to meet Whitacre’s goal of keeping U.S. market share at about 20 percent. Detroit-based GM will have to make up lost sales from shedding 4 of 8 domestic brands, overcome a history of 20 declines in U.S. market share in 23 years and erase any stigma in buyers’ minds from last year’s federal bailout.
Opel Cash
The biggest U.S. automaker also faces cash needs such as its Feb. 9 pledge to invest 11 billion euros ($15 billion) at Germany’s Opel by 2014. GM provided 650 million euros in fresh Opel funding in January through accelerated payments for engineering work.
Losses at GM totaled about $88 billion through last year’s first quarter from the end of 2004, spurring the effort in the automaker’s U.S.-backed restructuring to shrink operations to help return to profit.
“A new and better balance sheet” is driving the increases in spending on products and marketing, Vice Chairman Bob Lutz said in an interview, without giving figures. “You couldn’t exist in this business cutting marketing budgets to near zero.”
In addition to the $6.7 billion in savings from chopping so-called structural costs, GM reaped $1 billion more by shedding debt, with annual interest costs this year of about $1.5 billion compared with $2.5 billion in 2008, Arickx said.
A United Auto Workers contract provision that took effect Dec. 31 saved about $3 billion more by shifting retirees’ health costs to a UAW-run trust.
Whitacre Strategy
Diverting some of the $10.7 billion in savings to refresh GM’s vehicle lineup and lure new buyers is intended to support the strategy set by Whitacre, 68, who added the CEO’s title to his chairman’s duties on Dec. 1.
Investors and U.S. officials are watching because Whitacre has said he wants to repay $5.7 billion in outstanding federal loans by June and that GM may sell stock this year. On Jan. 6, he said he expects “positive net income” in 2010, accelerating predecessor Fritz Henderson’s timeline for a 2011 profit.
“I’m pretty bullish on GM,” said John Wolkonowicz, an analyst at Lexington, Massachusetts-based IHS Global Insight. “They have taken a lot of cost out and they are improving their products.”
GM’s 8.375 percent notes due in July 2033 rose 0.31 cent to 28.25 cents on the dollar at 3:50 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
GM more than doubled its budget for the large-truck program, in part because of the automaker’s savings, said the executive involved with the project, who asked not to be identified because the details aren’t public.
Truck Upgrades
The Sierra and Silverado, along with the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade sport-utility vehicles, will receive new styling, more-efficient engines and lighter- materials to improve fuel economy, two executives said. Last updated for the 2007 model year, the trucks and SUVs originally were supposed to get only cosmetic improvements, one of them said.
A spokesman, Pat Morrissey, declined to comment about GM’s plans for truck changes.
GM’s additional resources also will help pay for developing new products such as the Cadillac XTS Platinum concept car, a large luxury sedan that may reach showrooms in 2013 and is intended to compete with models such as Bayerische Motoren Werke AG’s 7-Series.
The XTS probably will include a plug-in hybrid version, said one of the executives.
A refreshed vehicle roster may allow GM to take advantage of the recalls that have spurred a U.S. sales freeze for eight models from Toyota Motor Corp., which seized the global sales crown in 2008. Adding production to meet any market-share gains or stronger industry demand would increase labor costs, said Renee Rashid-Merem, a GM spokeswoman.
Trimming Debt
GM had $46 billion in debt in 2008. Borrowings ballooned to $94.7 billion when the company was in bankruptcy last year, GM said on Nov. 14. The debt has been cut to $17 billion, half what Ford Motor Co. owed on Dec. 31.
As part of its restructuring, GM pushed through a plan to cut manufacturing plants to 34 at the end of this year from 47 in 2008. Dealerships were targeted to fall to 3,600 from 6,000 with the dumping of the Saab, Pontiac, Hummer and Saturn brands to focus on Chevrolet, Cadillac, Buick and GMC.
The savings in structural costs more than doubled the $5.1 billion reduction by Ford, the only major U.S. automaker to avoid bankruptcy last year.
Most of the savings for GM came in North America, the company’s Arickx said. Based on projected production in the region of 2.8 million vehicles, the benefit would equal about $3,800 for each car and light truck.
“A lot of the structural cost improvements were things that they left behind, like plants and brands that they didn’t need,” said Maryann Keller, president of Maryann Keller & Associates in Stamford, Connecticut. “That’s what bankruptcy is supposed to do.”
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