Once again: GM and its cost reduction

Filed in archive Market Overview on January 27, 2006

I was nearly shocked by GM results in 2005 because the company did good in 2004, specially in China it was the most efficient car maker. In 2004, company made profit of around 2.4 billion dollars. So the question that comes to the mind is what happened to the company in 2005? From reviewing the company's major losses it is clearly obvious that the north american market was the nightmare for GM. The company has some cost reduction plans for 2006:

Chairman and Chief Executive Officer Rick Wagoner says the top priority for the company is to return GM's North American operations to profitability and positive cash flow as quickly as possible.

"We continue to explore ways to strengthen our liquidity, and we know the most obvious way is to get our North American automotive operations back to generating positive cash flow," Wagoner said. "And we will continue to pursue other opportunities as well."

GM is aggressively reorganising its supply chain. Beyond the $6 billion in cost reductions planned for 2006, GM have announced a strategy aimed at driving down global automotive structural costs.

GM is now targeting to reduce structural costs as a percent of revenue to 25 percent in 2010 from the current level of about 34 percent on a global basis.

"This would significantly enhance GM's earnings power and financial flexibility, and reduce our business risk," Wagoner says.

Let's wait and see what Big GM will do this year. At least current situation is not worse than 1992 that the company lost more than 20 billion dollars...