GM Expects Improved 2006, 2007

From Contra Costa Times

DETROIT — General Motors Corp. Chief Executive Officer Rick Wagoner said Friday that he expects the company to report better financial results this year and in 2007, as cost cuts and the launch of new full-size SUVs help the automaker recover from a disastrous 2005.

However, Wagoner did not predict when the automaker might return to profitability or give any earnings guidance, citing uncertain factors such as the possible costs of a deal to help automotive supplier Delphi Corp., currently in bankruptcy, and the possible sale of its GMAC financial services unit.

“We expect to see improved results in 2006 and further progress in 2007,” he said at the Lehman Brothers automotive analysts conference in Dearborn, MI. “There’s certainly a lot of uncertainty how our earnings will play out.”

GM lost $3.9 billion through the first nine months of 2005. The automaker is expected to report results for the full year Jan. 26.

Wagoner said GM expects cost cuts — including plans to stop production at the Lansing Craft Centre and the Oklahoma City vehicle assembly plants early this year — will help turn around results.

GM said on Friday that production will stop at the Lansing Craft Centre, where GM builds the slow-selling Chevrolet SSR sporty pickup truck, by about March 17, resulting in the layoff of 370 hourly workers. GM had great hopes for the convertible two-seater when it went on sale in September 2003 but its high price and small interior hurt sales.

The Lansing Craft Centre was one of 12 plants or facilities in North America that GM targeted to stop production by the end of 2008. The plant cutbacks and a deal reached last October with the UAW to shift some health care costs onto workers and retirees will allow GM to cut costs by $6 billion annually by the end of this year.

But because GM will phase in the plant cutbacks, and the health care cuts aren’t expected to go into effect until the third quarter, GM will realize savings totaling about $4 billion this year.

“Cost-reduction targets sound good on paper, but achieving many of them will require UAW cooperation,” said automotive analyst Jonathan Steinmetz of Morgan Stanley.

Wagoner said the UAW has acted “quite responsibly in addressing tough, fundamental issues.”

“We have literally by the day, a growing degree of confidence that we have this nailed down. Certainly some of it does depend on ongoing cooperation with the UAW,” Wagoner said.

GM is aiming to cut its global structural costs from 34 percent of revenues currently to 25 percent of revenues by 2010. To achieve that target, GM will cut costs further in other regions such as Australia and Brazil.

GM’s shares closed down 59 cents at $20.37 on the New York Stock Exchange. GM’s shares fell about 50 percent in 2005.

Wagoner said U.S. sales across the industry should decline this year, and GM’s efforts to cut back on lower-profit sales to rental-car agencies could hurt its results.

Automakers will also be pressured to cut vehicle prices further this year, Wagoner said. Earlier this week, GM announced plans to cut sticker prices across the board, to better match the price consumers pay after incentives with the advertised price. For example, on Friday, GM said the all-new GMC Yukon will have a manufacturer’s suggested retail price of $34,690, $3,290 less than the recently repriced model it replaces.

“We should expect continued pricing battles in the marketplace,” Wagoner said.

Last year, GM’s U.S. sales fell 4 percent and its U.S. market share dropped by 1.3 percentage points to 25.9 percent.

But the success of GM’s new vehicles, including the Chevrolet HHR, the Pontiac G6 and the Buick Lucerne is some reason for optimism, said Mark LaNeve, GM vice president of vehicle sales, service and marketing. This year, 29 percent of GM’s lineup will be vehicles that are new within the past 18 months, up from 13 percent in 2003.

Also strengthening GM’s balance sheet, the fund for its hourly and salaried pension funds ended 2005 overfunded by about $6 billion, thanks to a 13 percent return on its investment last year.

“I think it’s safe to say just about everyone at GM is happy to have 2005 behind us,” Wagoner said.

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