DETROIT (AP) -- General Motors Corp. says its new contract with the United Auto Workers will help cut its annual U.S. labor costs by $5 billion between now and 2011, but company leaders know that cost cuts alone won't make GM profitable in North America.þþSpeaking to the Automotive Securities Analysts conference in the Detroit suburb of Dearborn, Chairman and Chief Executive Rick Wagoner and Chief Financial Officer Fritz Henderson predicted a U.S. economic slowdown in 2008, but not a recession.þþThey touted the benefits of the labor contract and other cost reductions the company has implemented since a disastrous 2005 in which it lost more than $10 billion, and said GM is well positioned to weather a downturn.þþThe executives cautioned that high fuel prices, tightening consumer credit, shaky consumer confidence and high raw materials costs could be headwinds to a recovery plan they said was well under way.þþ''We're delivering on the turnaround plan we established in 2005, and have exceeded expectations on virtually all counts,'' Wagoner said in a statement prepared for the analysts. ''We've set a strong foundation that we can truly build on.''þþWagoner said a good chunk of the cost reductions will come from the new contract agreement reached last year with the United Auto Workers.þþThe four-year pact, which expires in September of 2011, shifts the obligation for about $46.7 billion in retired UAW worker health care from the company to the union, with the company pouring about $26.5 billion into a trust fund run by the union. The trust, called a voluntary employees beneficiary association, takes over the health care obligation in 2010.þþGM also anticipates that its spending on U.S. hourly and salaried pension and health care will drop from an average of $7 billion per year over the last 15 years to around $1 billion per year starting in 2010.þþWith the additional cuts, the company will have reduced costs ''over an eight-year period, something like $12 billion, $13 billion,'' Wagoner told the analysts.þþBoth executives pointed to GM's product renaissance as a key to the strategy to return to profitability in North America, which has been a drag on earnings for several years.þþThe cuts, while positioning the company well to weather a possible economic downturn in 2008, are not the key to making money, Henderson said.þþ''It's not going to drive us to profitability. We've got to win on both revenue and costs to do that,'' he said.þþGM is forecasting total U.S. vehicle sales in the low 16 million range for 2008, down slightly from 2007, and it plans to have negative operating cash flow in North America this year. GM has planned for a steeper than expected downturn to sales of 15.4 million, and it has enough liquidity to handle such a downturn, Henderson said.þþHe said GM expects to have $27 billion in liquidity at the end of 2007, up from $20.4 billion at the end of 2005.þþWagoner said calls for an economic stimulus package from the White House and Federal Reserve Chairman Ben Bernanke are positive signs that could boost consumer sentiment. GM's 2008 sales prediction did not include such a package, Wagoner said.þþOther highlights of the two-hour presentation to the analysts:þþ-- Wagoner said upcoming contract bargaining with the Canadian Auto Workers union ''presents an opportunity for us to improve our competitiveness in Canada.''þþ-- GM has made progress toward its global goal of reducing automotive structural costs to 25 percent of revenue by 2010. It's now below 30 percent, down from 34 percent in 2005, with a target of 23 percent by 2012.þþ-- The company expects a global sales increase to grow earnings in its Asia-Pacific and Latin America divisions to help offset any downturn in North America. It also sees slightly above break-even adjusted earnings in Europe.þþ-- GM expects its former financial arm, GMAC Financial Services, to be profitable this year despite subprime loan problems in its ResCap mortgage division. GMAC expects ResCap to meet its year-end 2007 financial covenants. GM sold 51 percent of the business to Cerberus Capital Management LLC and other investors, but maintains a 49 percent stake. GM doesn't expect any further cash injections into GMAC by its owners and believes the company is adequately capitalized.þþ-- GM expects to significantly improve earnings and cash flow during the next two to three years with labor cost savings kicking in as well as savings from globalization of its vehicles, higher transaction prices from consumers because of better vehicles and stronger brands, and increased profitability in emerging markets worldwide.þþGM shares fell 1 cent, or 0.04 percent, to $22.84, in Thursday trading.þþ
Source: NY Times
