DETROIT, Michigan, Jan 14: General Motors said on Friday it expects improved financial performance in 2006 as the struggling automaker progresses on its plan to reduce overall operating costs.

During a presentation to analysts, GM Chairman Rick Wagoner said he expects the automaker to achieve four billion dollars in cost reductions in 2006, a big step toward his plan to cut annual costs by seven billion dollars.

We’ll drive off the rest of the seven billion dollars by the early part of ‘07, Wagoner said.

After having posted a 3.8 billion-dollar-loss in the first nine months of 2005, the world’s biggest automaker announced a massive restructuring plan in November that would shutter 12 facilities and eliminate 30,000 jobs by 2008.

It also reached an agreement with its union to cut health care costs by some 25 per cent.

The majority of GM’s 2006 savings — three billion dollars — will be generated from reductions in its hourly workforce health care expenses while $1.5 billion will be saved through plant closings, early retirement programs and productivity improvements, Wagoner said.

Our engineering spending will be down at a time when the engineering workload will be among its highest level, Wagoner said.

Wagoner also said GM plans to reduce its structural costs as a percentage of revenue to 25 per cent in 2010, from the current level of approximately 34 per cent on a global basis.

He said it’s time GM viewed its cost structure as a “global” issue and not as a regional concern, as it had done in the past.

This would significantly enhance GM’s earnings power and financial flexibility, and reduce our business risk, Wagoner said.

Key initiatives to achieving this objective include the further globalization of product development and other key functions, achieving full capacity utilization, leveraging global vehicle architectures and powertrains, and achieving further progress in our legacy cost disadvantage.

Looking beyond 2006, Wagoner said he expects GM to be positioned to “move further in the right direction” in 2007, when the automaker will fully benefit from lower structure costs and a revitalized product lineup in North America.

GM expects 29 per cent of its North American sales volume in 2006 to come from its new and more profitable models, with new products accounting for more than 30 per cent of total volume in 2007.

We fully expect 2006 will be better than 2005 and we expect better results in 2007 than in 2006.

Wagoner admitted GM is still plagued by the “overhang” of the Delphi bankruptcy, but expects to have a better feel of the likely fall of the woes of its former parts division within the next few months.

He also took time to credit the leadership of the United Auto Workers union, who he said acted “responsibly” in crafting a deal with GM to reduce its health care expenses.

They deserve some credit and I think people will continue to appreciate that, he said.—AFP