GM getting its priorities straight for 2007
Now Chairman Rick Wagoner has outlined the automaker's priorities for the next two years in a speech to securities analysts. Since the company is actually profitable again, having turned a third quarter profit of $1.9 billion, Wagoner wants to make sure that the company stays focused on executing their turnaround and improving their earnings and cash flow. The company also needs to grow in emerging markets like China and India, and take advantage of low cost production around the world. They also have to emphasize their advanced drive-train technologies like the upcoming two-mode hybrids, and the E-Flex platform in the Volt concept. Wagoner stated that product excellence, is the key to turning around the company, which is a pretty remarkable thing to hear from a GM boss, especially compared to the dark days of Roger Smith, when automation was seen as the key to everything. Without having great vehicles that people want to buy and drive, low costs won't mean anything. In order to help achieve these goals the company is increasing their capital spending by almost $1 billion this year and next.
The press release from GM is after the jump.
GM Outlines Company Priorities for 2007
Improved Automotive Earnings and Cash Flow Versus 2006
Increased Capital Spending to $8.5-$9 Billion in 2007 and 2008
DETROIT – General Motors Chairman and CEO Rick Wagoner told securities analysts today that GM has made considerable progress in its North America turnaround, and outlined 2007 priorities for the automaker's ongoing transformation.
"GM's North America turnaround plan moved faster and further than people expected a year ago," Wagoner said. "To be direct, 2006 needed to be a huge year for us – and it was."
Wagoner noted that through the third quarter of last year, GM's adjusted net income had improved by $4.2 billion to a profit of $1.9 billion, with most of the improvement coming in North America. GM's improvement was also aided by strong financials and positive results outside North America , particularly in China. In addition, liquidity remained strong with over $20 billion cash on hand at the end of the third quarter.
An important area of improvement for GM in 2006 was in structural cost. The company far exceeded its reduction target of $6 billion in North America on an annual running-rate basis, achieving $9 billion of cost reduction on a running-rate basis by year-end 2006.
"We expect to reflect at least $6 billion of these savings in our 2006 financials, and then realize the full $9 billion savings in 2007," Wagoner said. "This represents a major first step in achieving our aggressive global target of reducing structural costs to 25 percent of revenue by 2010."
In fact, GM reduced its global automotive structural costs from 34 percent of revenue in 2005, to between 29 and 30 percent of global revenue in 2006, and expects to further improve on that figure during 2007.
GM also made big moves on the revenue side of its turnaround plan in 2006, especially in terms of its sales and marketing strategy. Thanks to a disciplined approach that included reduced prices, lower incentives and a renewed focus on products and brands, GM achieved its U.S. retail sales target of 3 million units. The other big move, Wagoner noted, came with GM's introduction last September of the best powertrain warranty of any full-line manufacturer – five years or 100,000 miles on every 2007 model year GM car and light-duty truck.
"Overall, 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," he added.
Wagoner said GM has five key priorities for 2007:
* Stay focused on the North America turnaround;
* Continue to drive aggressively in emerging markets, such as China , Brazil , Russia and India ;
* Maximize the benefits of running the business globally;
* Build on GM's comprehensive advanced propulsion strategy; and
* Continue to improve business results, especially improved earnings and cash flow.
For the North American turnaround, Wagoner pointed out that product excellence was the most important element of the strategy, and "will continue to remain our absolute number-one focus." To that end, he announced that GM's global capital spending would increase from under $8 billion in 2005 and 2006, to between $8.5 and $9 billion in 2007 and 2008.
"We have had a very positive reaction to our newest vehicles, including the Chevy Tahoe, GMC Yukon, and Cadillac Escalade full-size utilities, and the Saturn Outlook, GMC Acadia and Buick Enclave midsize crossovers," Wagoner said.
"We also swept the car and truck of the year awards at the North American International Auto Show in Detroit with the Saturn Aura and Chevrolet Silverado.
"The progress in the execution of our new cars and trucks around the world is a credit to the men and women of General Motors. And we're going to continue raising the bar in future product, with a particular focus on outstanding design and technology leadership," he added.
In terms of the global marketplace, the GM Chairman and CEO noted that 55 percent of the company's unit sales were outside the United States in 2006, and that this trend would likely continue. To capitalize on this opportunity, Wagoner said GM would continue to push hard and build on its already strong position in emerging markets.
This worldwide sales growth will be aided by GM's continued efforts to run its business globally, particularly in product development, manufacturing, purchasing and powertrain.
"This move to run the business in a globally integrated manner is, in fact, probably the most profound change that is going on in the company today," Wagoner explained. "In 2007, we'll drive to accelerate the value we realize from global integration of GM."
GM's leveraging of global resources is also a key element of the company's drive to achieve energy diversity and environmental leadership, as evidenced by the introduction this week of the Chevrolet Volt concept car, an extended-range electric vehicle based on GM's all-new E-Flex technology. E-Flex is a family of electrically driven propulsion systems for future small and midsize GM vehicles, and a potential "game-changer" for GM and the auto industry, Wagoner said.
The final 2007 priority for GM is very clear: continue to improve business results.
"The rate of improvement in our financials through three quarters of 2006 was significant, and it needed to be," Wagoner said, "But no one at GM believes that hitting breakeven in North America, or making a couple of billion in corporate net income is 'winning.' We know we need to move to steady revenue growth, solid earnings, consistent positive cash flow, and a stronger balance sheet.
"We plan to make another significant step in the right direction on these metrics in 2007," he said.
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