GM eyes labor cost cuts, improved earnings
DETROIT (Reuters) - General Motors Corp (GM.N) said on Thursday it sees significantly improved operating earnings and cash flow in the next two to three years, but expects high fuel prices and declining consumer confidence to be a drag on U.S. sales this year.
GM said in a presentation to Wall Street analysts that it plans to reduce its annual U.S. labor costs by about $5 billion by 2011, mainly through the labor agreement reached with the United Auto Workers union last year.
The new UAW contract allows the U.S. automaker to shift hourly retiree health-care liabilities to a union-run trust fund and hire new workers at lower pay.
GM said it expects to cut U.S. hourly and salaried pension and health-care spending to an average of $1 billion a year from 2010, down from $7 billion a year over the last 15 years.
GM also said it aims to reduce structural costs as a percentage of revenue beyond 2010, with a target of 23 percent by 2012. GM said structural costs are below 30 percent, compared with 34 percent in 2005.
GM has cut $9 billion in annual structural costs from 2005 through 2007.
Chief Executive Rick Wagoner said GM would face challenges in 2008, including weak U.S. auto industry sales, high fuel prices, high commodity and steel prices, and mounting regulatory requirements.
"This has been a turnaround so far without any tailwind from the industry," Wagoner told analysts in Dearborn, Michigan.
"In fact, the U.S. industry importantly is running at a million units lower than when we started the turnaround and frankly the outlook for '08 is uncertain and a lot of people view it negatively," Wagoner said.
GM Chief Financial Office Fritz Henderson said the automaker had adequate liquidity through 2008 to sustain operations, capital spending and employee buyouts even under a downside scenario on U.S. industry vehicle sales.
GM estimated its liquidity at the end of 2007 was more than $27 billion.
GM expects U.S. industry sales to come in slightly above 16 million this year, while it projects global industry volume to grow to a record 73 million vehicles, up 2 million from 2007.
MORE CAPACITY CUTS POSSIBLE
Despite this year's projected weakness, GM expects to increase revenue in all of its regions in 2008 and "sees the probability of a stronger U.S. industry in 2009 and beyond."
A return of U.S. auto sales to historical trends in 2010 to about the 17 million mark, for example, would be worth $1 billion to $1.5 billion in additional pretax income, GM said. Continued...
