GM eyes North America job cuts to lift profit margins, report says

GM eyes North America job cuts to lift profit margins, report says

Automotive News | December 21, 2011 – 11:22 am EST

DETROIT (Bloomberg) — General Motors Co. has hired management consultant Hackett Group to help identify areas to cut an undetermined number of white-collar jobs, said two people familiar with the matter.

Hackett Group, based in Miami, will help identify opportunities for cuts and efficiency improvements at headquarters and elsewhere in North America, said the people, who asked not to be identified revealing private plans.

GM has been trimming engineers and other white-collar staff, said Jay Cooney, a spokesman, who declined to comment on whether the automaker had hired Hackett Group.

GM CEO Dan Akerson has been wringing out costs in recent months as he pushes the automaker to improve margins. The goal is to beat Ford Motor Co.’s forecasted earnings before interest and taxes of 7 percent of sales and target Hyundai Motor Co.’s 10 percent.

GM won’t use mass cuts or buyouts as it did before its 2009 bankruptcy, Cooney said.

“We are streamlining our business, looking for efficiencies, and to this extent, there will be some headcount reductions and it will be on a global basis,” Cooney said. “GM is continually seeking ways to improve our operating performance and reduce complexity to deliver a world- class cost structure and profit margins.”

Gary Baker, a spokesman for Hackett Group, said he couldn’t comment on whether the company is working for GM.

GM rose 2 percent to $20.08 at 10:46 a.m. New York time, after sliding 47 percent this year through yesterday. Hackett Group slipped 2 percent to $3.86.

Akerson’s push

Akerson and Chief Financial Officer Dan Ammann have made presentations to staff at GM offices in recent months, making the case that GM’s 6 percent margins need to at least match Ford, if not reach Hyundai. To get there, GM has been trimming its white-collar staff, scrutinizing costs and reviewing options to restructure its European business.

“The No. 1 challenge has been margins,” Peter Nesvold, an analyst at Jefferies & Co. in New York, said in a phone interview. “Margins peaked in 2010. It has been down ever since because of vehicle launches and rising materials costs.”

GM is measuring margins using a forecast of this year’s earnings before interest and tax relative to revenue from Morgan Stanley Investment Banking. Based on $150 billion in annual revenue, GM would increase its EBIT by 1 point for every $1.5 billion in savings.

GM is reassigning some engineers who work on product development or processes and reassigning them to vehicles or parts. In some cases, jobs are eliminated.

Global contest

GM, which is poised to take back the global sales crown from Toyota Motor Corp., wants to beat Ford’s and Volkswagen AG’s 7 percent forecasted EBIT margins, said Jim Cain, a spokesman.

Ammann has been talking about Hyundai’s 10 percent forecasted margin as a stretch goal, Cain said.

“The way we talk about Hyundai is more of a proof point that we need a sense of urgency,” he said in a phone interview.

In the first nine months of this year, GM posted an operating margin of 5 percent, compared with 6.7 percent for Ford, 7.7 percent for Volkswagen and 10 percent for Hyundai, according to data compiled by Bloomberg.

Boosting margins just with white-collar cuts and efficiency improvements will be difficult, especially if the comparison is Hyundai, said Adam Jonas, a New York-based analyst at Morgan Stanley. Hyundai benefits from the weak won and because the company builds many different vehicles on just a few car platforms, he said.

“White-collar cost is almost a rounding error for GM,” Jonas said in a phone interview. “Hyundai has a currency advantage and great global platform sharing. Making white-collar staffing cuts is not going to get it done.”

GM has 141,000 hourly employees and 69,000 salaried employees. At the end of 2008, it had 170,000 hourly workers and 73,000 salaried workers, according to company filings.

GM is working to cut vehicle architectures to 14 from 30 by 2018.

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