General Motors, Toyota Heading Further Apart
The yawning gap between the world’s two biggest automakers widened Tuesday as Toyota Motor Corp. posted record fiscal third-quarter profit while General Motors Corp. introduced a new round of cost-cutting to help halt its mounting losses.
“It’s a case of the rich getting richer and the poor getting poorer,” said analyst Shelly Lombard at GimmeCredit, a New York corporate bond research firm.
GM, under pressure from billionaire investor Kirk Kerkorian to accelerate its turnaround efforts, announced that it would halve its annual dividend to $1 a share, cut Chief Executive Rick Wagoner’s salary by 50%, trim the pay of several other top executives by 30% and freeze retired salaried workers’ health benefits.
The cuts follow the appointment Monday of Jerome York, Kerkorian’s advisor and a GM critic, to the Detroit automaker’s board. Last year, GM lost $8.6 billion amid a steady decline in its U.S. auto sales.
Meanwhile, in Tokyo upbeat Toyota executives said the company’s quarterly earnings soared 34%, largely on the strength of its booming U.S. and Asian auto sales, to 397.5 billion yen, or $3.4 billion, up from 296.5 billion yen a year earlier. Revenue for the quarter that ended Dec. 31 hit a record 5.33 trillion yen, or $45.6 billion, a 15% increase from 4.64 trillion yen.
“This underscores that the auto business isn’t a terrible one, just that some companies have mismanaged while others, like Toyota, have done well,” said corporate credit analyst Sean Egan of Egan-Jones Ratings in Philadelphia.
The Japanese automaker sold 1.98 million cars and trucks worldwide last quarter as vehicle sales rose 12% in North America and 11% in Asia.
Demand in the U.S. continued to be strong for Toyota’s Prius gasoline-electric hybrid, Avalon sedan, full-size Tundra pickup and new Scion brand aimed at younger buyers.
Toyota is expected to surpass GM within a few years as the world’s biggest automaker.
Last year GM’s sales slumped as gasoline prices rose because of the automaker’s reliance on big sport utility vehicles. Wagoner hopes to win back customers with redesigned SUVs and a revamped Chevy Impala sedan, but most analysts expect GM’s sales in the U.S. to slide again this year.
GM has announced plans to close 12 assembly plants and facilities in the U.S. and Canada and eliminate 30,000 manufacturing jobs over the next three years, while Toyota is building factories in Texas and Ontario, Canada.
“It’s what’s going to keep happening,” said George Magliano, chief auto analyst for economic consulting firm Global Insight. “We expect continued good earnings and growth from Toyota, and we’re waiting for more from GM on more cost-cutting.”
On Tuesday, Wagoner said GM would cap its contribution to salaried retirees’ healthcare coverage at 2006 levels and would cut its pretax healthcare expenses by about $900 million.
The cash savings will be about $200 million within five years and increase after that, GM said. The retiree healthcare cuts will affect about 100,000 retired workers and 26,000 active salaried employees.
GM also said it would revise its pension plan for current salaried workers. Details of the new plan will be announced in March.
On the pay front, GM will cut salaries by 30% for Vice Chairmen Bob Lutz and John Devine and Chief Financial Officer Fritz Henderson and by 10% for general counsel Thomas Gottschalk. All 11 outside directors, including Kerkorian advisor York, will see their $200,000 annual stipends cut by 50%.
GM’s cost-cutting steps “clearly follow Jerry York’s playbook calling for an ‘equality of sacrifice,’ indirectly aimed at extracting [United Auto Worker] concessions,” Merrill Lynch analyst John Murphy wrote in a research note.
But UAW President Ron Gettelfinger said Tuesday that GM’s latest moves would not persuade the union to renegotiate the carmaker’s current contract.
“We’ve done our share. We’re ready to move forward,” he told Reuters.
GM is expected to ask the UAW for a number of concessions when talks begin next year on a new labor contract. The company doesn’t want the UAW to be able to complain that it is being asked to shoulder the entire burden of GM’s decline, analysts say.
Although many analysts were cheered by GM’s efforts, some still suggested that the company wasn’t doing enough.
Tuesday’s changes “will modestly improve GM’s balance sheet ... but the near-term cash impact appears to us to be minimal,” Standard & Poor’s auto equity analyst Efraim Levy wrote in a note to investors.
GM shares fell 53 cents to $22.81, while Toyota’s shares rose $1.38 to $104.29. Toyota’s total stock value is now $188 billion, 14 times higher than that of GM.
