GM Says Turnaround Gaining

April 1, 2006

Delphi Asks Court to Toss Contracts by Joseph Szczesny (4/2/2006)
Supplier plots new course — and asks the judge to turn it that way.







At the very end of last week, General Motors Corp. finally got a bit of good news as a federal judge inDetroit ruled that it could go ahead with changes to healthcare plans for employees and retirees that it had negotiated last year with the United Auto Workers.

The announcement capped off another week of reports and pronouncements that underscored the depth of GM’s problems, from the disclosure the automaker has lost another point of market share in the first quarter to the news that GM is now facing a widening investigation by the Securities Exchange Commission.


GM also confirmed it was planning to sell off its stake in Isuzu as part of its continuing effort to raise cash, and that it had been forced to reduce its spending on research and development. Another part of GM’s turnaround plan, the sale of a controlling interest in General Motors Acceptance Corp., is also nearly in place, pending the completion of very detailed contracts, according to a report in the Wall Street Journal.

Nevertheless, the changes to employee healthcare plans are considered one of pillars of chairman and chief executive officer Richard Wagoner's efforts to revive GM. The welcome court ruling on healthcare cuts allowed Richard Wagoner, GM’s embattled chief executive officer, a chance to take a swipe at his critics, both in the media and in the investment community.

“This approval allows us to fulfill those important objectives as we continue to rapidly implement all aspects of our North American turnaround plan,” Wagoner noted in statement released late Friday.

The plan reduces GM’s retiree healthcare liabilities by about $15 billion, or 25 percent of the company’s hourly healthcare liability. It also reduces GM’s annual employee healthcare expenses by about $3 billion on a pre-tax basis and will yield about $1 billion in cash savings.

GM also has announced plans for an accelerated attrition program and has altered the pension plan of salaried employees in the U.S. by freezing the accrued benefits in the current plan at the end of 2006, and implementing a new benefit structure for subsequent accruals. 
Wagoner added the various initiatives, when fully implemented, are expected to significantly reduce GM’s structural costs. The cost-reduction actions in U.S. salaried retiree healthcare and U.S. salaried employee pension benefits alone will cut structural costs in North America by about $7 billion on a running-rate basis by the end of 2006, Wagoner said. Approximately $4 billion of the structural cost reduction is expected to be realized during calendar year 2006, giving GM a real boost towards achieving its objective of reducing global structural costs to 25 percent of revenue by 2010, he added.

“In addition to the progress we are making to reduce costs, we also are firmly committed to the revenue-enhancement elements in our huge cost-reduction initiatives of our turnaround plan, specifically product excellence and revitalizing our sales and marketing strategy,” Wagoner said.

Wagoner also said GM expects to increase its capital spending in 2006 to $8.7 billion as it launches its new sport-utility vehicles.

“It’s easy to announce stuff. It’s not so easy to do stuff, particularly if you can’t do it yourself, if you’ve got to do it in cooperation or in conflict with unions, if you do it with Delphi, if you need partners to consider a partial sale of GMAC,” noted Wagoner in an interview published in Newsweek. “What has been done in the last six months borders on unprecedented accomplishments and advances. This stuff didn’t happen because someone decided on Jan. 15, why don’t we do stuff? This stuff happens because we’re working on it, we’re ready to do it, we’re talking to people, and when we have it ready, we announce it.”

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