GM moving closer to turnaround, CEO says

updated 6:17 p.m. ET Feb. 7, 2006

DETROIT - Piece by piece, General Motors Corp. Chairman and Chief Executive Rick Wagoner says the world’s largest automaker is moving closer to a turnaround of its North American automaking business.

On Tuesday, GM announced plans to rein in white-collar pension and health care expenses, slash the dividend and trim executive salaries — moves some analysts say suggest it might seek benefit cuts from union workers.

In November, GM’s hourly workers agreed to a proposal that would increase the amount retirees and active workers must pay for their health care in a deal to cut GM’s annual health care expenses. Later that month, GM announced plans to shed 30,000 hourly jobs and close 12 facilities by 2008 as part of an attempt to bring its production capacity back in line with the demand for its cars and trucks.

“We are confronting a dramatic change in our industry and in the global competitive environment, and that requires us to look for additional ways to reduce financial risk and improve our competitiveness for the long term,” Wagoner said.

Now, he says, the company continues to look for ways to cut costs as it faces two more challenges: an attempt to shed a majority stake in financing arm General Motors Acceptance Corp. and talks on the future of Delphi Corp., GM’s former parts division, which filed for bankruptcy last fall.

“Those are certainly two big issues,” Wagoner told reporters after a press conference at GM’s headquarters in Detroit. “They’re obviously big and have a chance to impact our earnings.”

Wagoner said the company had nothing to announce Tuesday regarding either. But the United Auto Workers said Tuesday that little progress had been made in negotiations on the restructuring of Delphi, and Moody’s Investors Service said GM may have encountered difficulty in selling a stake in GMAC.

GM has been under pressure from one of its largest shareholders, billionaire investor Kirk Kerkorian, to take more aggressive steps to revive profitability.

The automaker, which is suffering from declining U.S. market share at the hands of its Asian competitors, lost $8.6 billion in 2005 amid high health, pension, labor and materials costs. GM is counting on its new lineup of SUVs to boost sales this year, and is trying to wean itself from the use of costly, confusing incentives.

The cut in its dividend alone will reduce GM’s yearly cash payout by about $565 million. Cash savings from the health care changes will grow to about $200 million within five years, GM said, and then continue to increase after that.

Analysts said Tuesday’s cuts could help provide leverage for GM in contract talks next year with the UAW. And it could help GM in talks with the union on a possible bailout for hourly workers of Delphi.

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