GM execs put brakes on labor-savings hopes

Top execs say they expect more cost savings in '07 labor deal, but not to look for deep job cuts, retiree health savings.

By Chris Isidore, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- Top executives at General Motors say they are looking for additional cost savings in upcoming negotiations with the United Auto Workers union, but they cautioned analysts Thursday not to look for another round of deep job cuts or perhaps even the level of savings already seen in recent labor agreements.

The union's current contract with the UAW ends in September, as do contracts between the union and Ford Motor (Charts) and DaimlerChrysler's (Charts) Chrysler Group.

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During a meeting with analysts Thursday, GM (Charts) officials said further cost savings are crucial to its previously-stated goal reducing structural costs to 25 percent of revenue by 2010.

Thanks to agreements with the union to change health-care coverage for active and retired employees, coupled with a package of buyouts and retirement offers, structural costs declined to 29 percent to 30 percent of revenue in 2006, down from 34 percent in 2005.

The buyout and retirement deals led more than 34,000 hourly workers to leave the company last year.

But more than 50 percent of hourly staff agreed to leave Ford Motor Co. under a similar agreement with the union. When asked whether GM needed further staff reductions to match, GM North America president Troy Clarke said it does not.

"There are no current discussions (with the UAW)," he said. "And we currently don't have a plan for another attrition program."

Clarke said that while normal attrition is likely to be lower this year as employees await the contract negotiations, he expects normal attrition will pick up again in 2008, providing GM with some savings even without a formal buyout program. He added that despite last year's retirement departures, the average age of a GM hourly employee changed very little.

The executives agreed that further changes in its labor deal would be crucial to being competitive with nonunion automakers such as Toyota Motor (Charts), Honda Motor (Charts) and Nissan (Charts). Still, GM Chairman and CEO Rick Wagoner cautioned analysts not to believe that the savings will match the billions in annual savings already achieved in talks with the UAW.

"Everybody is all excited about what are you going to get in the contract," said Wagoner. "The fact that most of the $9 billion in (annual) cost reduction is directly labor-related....I would just caution everyone from trying to make the '07 contract negotiation the be-all and end-all."

But retiree health-care costs, which are greater than health-care spending on active employees, will not be addressed in this year's negotiations because the deal on that issue reached in 2005 runs through 2011.

"That's an agreement we intend to respect," Clark said.

Clarke also cautioned investors that the so-called jobs bank, in which hourly employees who are laid-off continue to receive near full pay while not working, might not be eliminated in the upcoming contract.

"The jobs bank is an important element for review in the agreement," said Clarke. "Truthfully, I don't want to box myself in by saying the jobs bank has to go, because there's probably other alternatives. But I will tell you we want all of our people productively employed. That's the right thing for us."

GM executives still would not say when they expect their core North American auto operations to return to profitability. The company stopped giving guidance when it was hit by financial woes in early 2005. But they did say they expect better financial results in 2007 than in 2006.

In the company's most recent financial report, GM North America lost $914 million excluding special items, although that was down from a loss of $4.4 billion on that basis during the same period of 2005.

Clarke said that GM is expecting continued improvement on average transaction prices for U.S. sales this year, with a higher percentage of the company's sales being newly designed vehicles. A newly designed full-size pickup, such as the Chevrolet Silverado, came out in the fall and are key to company sales performance this year.

GM also expects to get a full year's benefit from cost savings phased in during 2006. Any savings that are achieved in the 2007 labor deal are likely to first be seen in 2008 results, he cautioned.

The company will increase capital expenditures to between $8.5 billion to $9 billion this year and in 2008, after being below $8 billion in 2005 and 2006. The increase was attributed to continued investment in new product and in overseas expansion.

Chief Financial Officer Fritz Hendersson acknowledged that despite the progress the company has made in the last year, it still has a lot more to do.

"You can say we've improved a lot, but it's not at all acceptable," he said.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.