'07 looking up for GM
Friday, January 12, 2007
'07 looking up for GM
Automaker will pump another $1B into products as cost cutting continues
Sharon Terlep / The Detroit News
The upbeat picture General Motors Corp. executives painted for Wall Street on Thursday is a far cry from a year ago when company leaders were scrambling to explain a disastrous $10.6 billion loss.
If predictions for 2007 prove true, the world's largest automaker will shave losses, bolster spending on new products and grab market share in competitive world markets.
But the heat is far from off GM, which lost $91 million in the third quarter of 2006 and expects to lose money again in 2007. Toyota Motor Co. is poised to take GM's spot as the No. 1 global automaker this year, and many of the problems that dogged the automaker last year -- soaring health care costs, falling market share and increased competition from foreign rivals -- aren't going away.
"2006 needed to be a huge year for us -- and it was," Chairman and CEO Rick Wagoner said at the company's annual meeting with analysts in Dearborn. "No one at GM believes that hitting breakeven in North America or making a couple of billion in corporate net income is winning. There is a lot more work to do, but we stand today in a much more favorable position than we did just 12 months ago."
GM cut $9 billion in operating costs in 2006, more than the $6 billion initially predicted. It reduced structural costs to between 29 percent and 30 percent of global revenue from 34 percent in 2005. The ultimate goal is to get that number down to 25 percent.
For GM, show a success
Meanwhile, GM generated some much-needed hype with a collection of well-received products, from the Saturn Aura sedan to the made-over Chevrolet Silverado pickup and stabilized its share of retail sales.
And GM continues to grow in vital markets outside the United States.
"I've sort of done a 180 on Rick Wagoner," analyst Brad Rubin of BNP Paribas said after the presentation. "He finally stepped up to the plate and decided that GM does have serious problems and finally started the process of making GM a healthy company."
Some of the good cheer that flowed through GM during its showing this week at the North American International Auto Show, where the automaker swept the car- and truck-of-the-year awards, carried over into Thursday's meeting, in which executives were upbeat and even cracked a few jokes.
'We win with new products'
In 2007, GM will bank on a new product assault to drive up sales, while increasing capital spending by up to $1 billion this year. Much of that money will go toward improving powertrains and increasing capacity in emerging foreign markets.
"This is a global business, we've got to play the game globally," said Fritz Henderson, GM's chief financial officer. "And we win with new products."
GM has increased capital spending by about $1.5 billion over the past two years to just under $8 billion. The goal is to spend from $8.5 billion to $9 billion in 2007 and 2008.
The spending increase backs up GM's latest mantra: that cost-cutting won't help unless the company starts turning out more popular and profitable products. The goal is to have newly introduced vehicles account for nearly 40 percent of showroom sales this year as it rolls out products designed to revive its brands and image.
"We're going to continue raising the bar in future product, with a particular focus on outstanding design and technology leadership," GM Chairman and CEO Rick Wagoner said.
It's growing outside U.S.
Growing markets outside the United States, namely China, Brazil, Russia and India, provide opportunities for GM to boost its world market share, Wagoner said, promising to "drive aggressively" into those emerging markets. About 55 percent of the company's sales in 2006 were outside the United States, a trend expected to continue, he said.
Many of the strategies employed throughout 2006 will continue this year, including a concerted effort to scale back incentive spending and sales of less-profitable fleet vehicles.
Despite the gains last year, 2007 promises to be tough.
Vehicle sales industrywide in the United States are expected to remain flat for the year at about 17 million units. Volatile gas prices, a sour housing market and trade imbalances with other countries will continue to weigh on automakers.
Toyota is expected to continue plowing into the market share of Detroit's Big Three, each of which face hurdles in improving their image among U.S. consumers.
Analysts see progress
Much of the early reaction to GM's presentation was positive, though many noted that much of the news was expected and in line with what the company said it would do.
"I think it's realistic," auto analyst David Healy at Burnham Securities said of GM's predictions for 2007. "They've demonstrated they have had a dramatic improvement in their results. Anyone who's spent any time looking at the actual results during the course of the year will be a believer that they will do better."
Adding to the good news, General Motors Corp.'s risk of filing for bankruptcy was at the lowest since March 2005, credit-default swap prices show. Credit-default swaps based on $10 million of GM bonds fell to $371,400 Thursday, according to CMA Datavision in London. That's down from a high of $1.35 million at the end of 2005.
Not all analysts were impressed, however. Citigroup's Jon Rogers, restated his "sell" rating for GM stock on Thursday.
BNP's Rubin said he was dismayed at GM's approach to negotiations this year with the United Auto Workers union. Executives said not to expect deep job cuts, and that savings in the next contract may be less than what GM gained in recent labor talks.
GM's contract with the UAW ends in September, along with contracts between the union and Ford Motor Co. and DaimlerChrysler AG's Chrysler Group.
"They tried to downplay the seriousness of all of it and basically said it is no different that any other year," he said. "I don't agree with that."
GM will post its fourth-quarter results at the end of the month. Analysts polled by Thompson First Call said they're expecting a profit of $1.14 a share on revenue of $42.5 billion. GM shares closed Thursday up 25 cents at $30.86.
You can reach Sharon Terlep at (313) 223-4686 or sterlep@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
GM's 2007 goals
Increase capital spending from less than $8 billion to between $8.5 billion and $9 billion.
Further reduce operating costs.
Address health care/retiree costs and reach a new labor agreement with the UAW.
Cut back on incentives and fleet sales and maintain high transaction prices on vehicles.
'07 looking up for GM
Automaker will pump another $1B into products as cost cutting continues
Sharon Terlep / The Detroit News
The upbeat picture General Motors Corp. executives painted for Wall Street on Thursday is a far cry from a year ago when company leaders were scrambling to explain a disastrous $10.6 billion loss.
If predictions for 2007 prove true, the world's largest automaker will shave losses, bolster spending on new products and grab market share in competitive world markets.
But the heat is far from off GM, which lost $91 million in the third quarter of 2006 and expects to lose money again in 2007. Toyota Motor Co. is poised to take GM's spot as the No. 1 global automaker this year, and many of the problems that dogged the automaker last year -- soaring health care costs, falling market share and increased competition from foreign rivals -- aren't going away.
"2006 needed to be a huge year for us -- and it was," Chairman and CEO Rick Wagoner said at the company's annual meeting with analysts in Dearborn. "No one at GM believes that hitting breakeven in North America or making a couple of billion in corporate net income is winning. There is a lot more work to do, but we stand today in a much more favorable position than we did just 12 months ago."
GM cut $9 billion in operating costs in 2006, more than the $6 billion initially predicted. It reduced structural costs to between 29 percent and 30 percent of global revenue from 34 percent in 2005. The ultimate goal is to get that number down to 25 percent.
For GM, show a success
Meanwhile, GM generated some much-needed hype with a collection of well-received products, from the Saturn Aura sedan to the made-over Chevrolet Silverado pickup and stabilized its share of retail sales.
And GM continues to grow in vital markets outside the United States.
"I've sort of done a 180 on Rick Wagoner," analyst Brad Rubin of BNP Paribas said after the presentation. "He finally stepped up to the plate and decided that GM does have serious problems and finally started the process of making GM a healthy company."
Some of the good cheer that flowed through GM during its showing this week at the North American International Auto Show, where the automaker swept the car- and truck-of-the-year awards, carried over into Thursday's meeting, in which executives were upbeat and even cracked a few jokes.
'We win with new products'
In 2007, GM will bank on a new product assault to drive up sales, while increasing capital spending by up to $1 billion this year. Much of that money will go toward improving powertrains and increasing capacity in emerging foreign markets.
"This is a global business, we've got to play the game globally," said Fritz Henderson, GM's chief financial officer. "And we win with new products."
GM has increased capital spending by about $1.5 billion over the past two years to just under $8 billion. The goal is to spend from $8.5 billion to $9 billion in 2007 and 2008.
The spending increase backs up GM's latest mantra: that cost-cutting won't help unless the company starts turning out more popular and profitable products. The goal is to have newly introduced vehicles account for nearly 40 percent of showroom sales this year as it rolls out products designed to revive its brands and image.
"We're going to continue raising the bar in future product, with a particular focus on outstanding design and technology leadership," GM Chairman and CEO Rick Wagoner said.
It's growing outside U.S.
Growing markets outside the United States, namely China, Brazil, Russia and India, provide opportunities for GM to boost its world market share, Wagoner said, promising to "drive aggressively" into those emerging markets. About 55 percent of the company's sales in 2006 were outside the United States, a trend expected to continue, he said.
Many of the strategies employed throughout 2006 will continue this year, including a concerted effort to scale back incentive spending and sales of less-profitable fleet vehicles.
Despite the gains last year, 2007 promises to be tough.
Vehicle sales industrywide in the United States are expected to remain flat for the year at about 17 million units. Volatile gas prices, a sour housing market and trade imbalances with other countries will continue to weigh on automakers.
Toyota is expected to continue plowing into the market share of Detroit's Big Three, each of which face hurdles in improving their image among U.S. consumers.
Analysts see progress
Much of the early reaction to GM's presentation was positive, though many noted that much of the news was expected and in line with what the company said it would do.
"I think it's realistic," auto analyst David Healy at Burnham Securities said of GM's predictions for 2007. "They've demonstrated they have had a dramatic improvement in their results. Anyone who's spent any time looking at the actual results during the course of the year will be a believer that they will do better."
Adding to the good news, General Motors Corp.'s risk of filing for bankruptcy was at the lowest since March 2005, credit-default swap prices show. Credit-default swaps based on $10 million of GM bonds fell to $371,400 Thursday, according to CMA Datavision in London. That's down from a high of $1.35 million at the end of 2005.
Not all analysts were impressed, however. Citigroup's Jon Rogers, restated his "sell" rating for GM stock on Thursday.
BNP's Rubin said he was dismayed at GM's approach to negotiations this year with the United Auto Workers union. Executives said not to expect deep job cuts, and that savings in the next contract may be less than what GM gained in recent labor talks.
GM's contract with the UAW ends in September, along with contracts between the union and Ford Motor Co. and DaimlerChrysler AG's Chrysler Group.
"They tried to downplay the seriousness of all of it and basically said it is no different that any other year," he said. "I don't agree with that."
GM will post its fourth-quarter results at the end of the month. Analysts polled by Thompson First Call said they're expecting a profit of $1.14 a share on revenue of $42.5 billion. GM shares closed Thursday up 25 cents at $30.86.
You can reach Sharon Terlep at (313) 223-4686 or sterlep@detnews.com.
© Copyright 2007 The Detroit News. All rights reserved.
GM's 2007 goals
Increase capital spending from less than $8 billion to between $8.5 billion and $9 billion.
Further reduce operating costs.
Address health care/retiree costs and reach a new labor agreement with the UAW.
Cut back on incentives and fleet sales and maintain high transaction prices on vehicles.
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