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GM cuts costs by $11 billion, Effort meant to put automaker in black in 2010

Published: February 21, 2010 3:00 a.m.

GM cuts costs by $11 billion

Effort meant to put automaker in black in 2010

David Welch
Bloomberg News
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SOUTHFIELD, Mich. – General Motors said it has slashed $10.7 billion from annual costs, freeing up money for marketing and vehicle upgrades while boosting CEO Ed Whitacre’s push for a 2010 profit.

 

The expense cuts include reduced interest payments from the elimination of debt, the offloading of union retiree bills and $6.7 billion from steps such as chopping jobs, getting rid of plants and dropping half of GM’s U.S. brands, according to company documents and Randy Arickx, a spokesman.

 

The estimate is the first public tally of GM’s savings from a new labor accord and its 2009 bankruptcy compared with the previous year. Uses for the proceeds include spending more on a redesign of the Chevrolet Silverado and GMC Sierra pickups that may cost as much as $1 billion, an executive directly involved with the plan said.

 

GM’s Allen County assembly plant produces both pickup models.

 

“GM has come to the realization that customers are more perceptive than the old GM used to think,” said Eric Noble, president of CarLab, an Orange, Calif.-based automotive consultant that specializes in product planning. “The only way to win is to gain an advantage in product quality.”

 

New models might not be enough to meet Whitacre’s goal of keeping U.S. market share about 20 percent. Detroit-based GM will have to make up lost sales from shedding four of eight domestic brands, overcome a history of 20 declines in U.S. market share in 23 years and erase any stigma in buyers’ minds from last year’s federal bailout.

 

The biggest U.S. automaker also faces cash needs such as its Feb. 9 pledge to invest $15 billion at Germany’s Opel by 2014. GM provided $884 million in fresh Opel funding in January through accelerated payments for engineering work.

 

Losses at GM totaled about $88 billion through last year’s first quarter from the end of 2004, spurring the effort in the automaker’s U.S.-backed restructuring to shrink operations to help return to profit.

 

In addition to the $6.7 billion in savings from chopping structural costs, GM reaped $1 billion more by shedding debt, with annual interest costs this year of about $1.5 billion compared with $2.5 billion in 2008, Arickx said.

 

A United Auto Workers contract provision that took effect Dec. 31 saved about $3 billion more by shifting retirees’ health costs to a UAW-run trust.

 

Diverting some of the $10.7 billion in savings to refresh GM’s vehicle lineup and lure new buyers is intended to support the strategy set by Whitacre, 68, who added the CEO’s title to his chairman’s duties Dec. 1.

 

Investors and U.S. officials are watching because Whitacre has said he wants to repay $5.7 billion in outstanding federal loans by June and that GM might sell stock this year. On Jan. 6, he said he expects “positive net income” in 2010, accelerating predecessor Fritz Henderson’s timeline for a 2011 profit.

 

“I’m pretty bullish on GM,” said John Wolkonowicz, an analyst at Lexington, Mass.-based IHS Global Insight. “They have taken a lot of cost out and they are improving their products.”

 

GM more than doubled its budget for the large-truck program, in part because of the automaker’s savings, said the executive involved with the project, who asked not to be identified because the details aren’t public.

 

The Sierra and Silverado, along with the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade sport utility vehicles, will receive new styling, more-efficient engines and lighter materials to improve fuel economy, two executives said. The trucks and SUVs originally were supposed to get only cosmetic improvements.

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