GM Outlines Plans for Spending Cuts
General Motors Corp., the only U.S. auto maker to turn a profit in 2001, plans to reduce spending by at least $4.3 billion this year to boost earnings as vehicle prices fall and health-care costs rise.
The largest auto maker will reduce about $1 billion from capital spending, $2 billion from its North American material costs and $1.3billion from manufacturing, engineering and health-care budgets, executives said. The company may sell some unspecified operations outside its main auto business, Chief Financial Officer John Devine said.
General Motors is trying to boost profit even as vehicle prices decline an average 1% a year. The company is contending with higher retiree health-care costs and has said it will have to inject $2 billion into its pension plan next year.
“All of these efforts will help us meet our goal of earning $10 a share mid-decade,” said Gary Cowger, president of North American operations.
The Detroit-based company’s shares fell 28 cents to $60.83 on the New York Stock Exchange and have risen 25% this year.
The company will reduce its capital spending by $1 billion to $7.1 billion without cutting any new products, Devine said. He said the company isn’t yet ready to discuss businesses it may sell.
General Motors will trim unscheduled overtime, review its health-care plan and cut waste in its engineering division to reduce costs, Cowger told analysts.
Cowger said he wants to reduce vehicle operations costs by about $300 million, mostly by reducing unscheduled overtime that occurs when there’s a problem on an assembly line. Last year, the company cut about $250 million in unscheduled overtime.
The auto maker plans to reduce its $58 billion in annual material spending by 3.5% by cutting content from vehicles, asking suppliers for price reductions and trimming parts engineering costs, said Bo Andersson, vice president of worldwide purchasing.
General Motors will hold suppliers, engineers and vehicle-line executives responsible for bottom-line costs, instead of separating costs into categories such as engineering and materials that are measured separately.
