AUTOS : GM Sees Profit in N. American Division in ’94
General Motors Corp. on Tuesday predicted that its North American auto operations will make money next year, a feat that would emphatically trumpet the industrial giant’s turnaround.
“The target is to run in the black,” GM Chief Executive John F. Smith said at a news conference in Rye Brook, N.Y., where the company’s top officials met with financial analysts.
Separately, GM and Toyota officials confirmed that they are in talks about selling right-hand-drive GM cars under the Toyota name in Japan. Although such alliances are common elsewhere in the world auto industry, this would be the first time a U.S. vehicle was sold by a Japanese partner.
GM, the nation’s No. 1 auto maker, has lost $18 billion in North America since 1990, its operations hampered by recession and strong competition. But deep cost cutting and restructuring are beginning to pay off.
While GM will lose money in North America this year, it will show an improvement of $4.5 billion from a year ago. And the auto unit will break even before interest, taxes and retiree health costs for 1993, GM said.
GM has earned $1.3 billion so far in 1993, largely from the profits of its subsidiaries.
The company projects a 5% increase in U.S. auto sales in 1994 to 14.8 million vehicles, on top of a 7% increase this year. Smith said GM’s profitability is not dependent on higher sales.
“The target is the target,” he said. “No excuses.”
The upbeat statements came a day after GM announced a complex plan to reduce its $24-billion unfunded-pension liability. The program involves shifting 185 million shares of GM’s Electronic Data Services subsidiary, worth about $5.7 billion, to its pension fund for union workers.
Wall Street seemed to like the plan. GM shares moved up $1.25 to $52.75 in trading on the New York Stock Exchange. EDS stock, traded as GM Class E, closed at $29, down $2.
Duff & Phelps, a Chicago-based credit rating agency, said the proposal both reduces GM’s pension debt and “demonstrates management’s commitment to finding opportunities to repair the company’s overall financial condition.”
At Tuesday’s news conference, GM officials outlined several of the firm’s cost-containment efforts.
G. Richard Wagoner, chief financial officer, said purchasing costs have been reduced by $4 billion in the last two years.
Gerald Knechtel, GM’s chief labor negotiator, said the company has substantially improved manufacturing efficiency. GM reduced the time it takes to assemble a car by 12% this year, he said.
Still, GM lags its competitors in assembly costs, and the latest contract with the United Auto Workers union will not help reduce the gap much. Smith said the contract “is more expensive than we would have liked.”
Efforts to trim the hourly work force are continuing. Knechtel said the work force would be reduced by attrition and early retirements to 245,000 by mid-1994. That is slightly below target levels set last year.
There has been widespread speculation that the company wants to reduce the work force to 200,000 by 1996 to become more competitive. But GM officials denied they had any new targets.
“We are not focused on number of employees,” Knechtel said. “We are focused on productivity gains.”
GM is also looking to integrate some of its U.S. and overseas models and components. For instance, Smith said the Opel Omega, built in Europe, could be used as the basis for several U.S. products.
