Pension Deficit Forces General Motors To Undergo Aggressive Cost Cutting

Autoparts Report, Oct 18, 2002

GM's chief financial officer John Devine said that rising pension expenses will force the company to take aggressive cost cutting measures in North America next year. GM said that falling returns from its U.S. pension fund assets will cause its pension expenses to rise by roughly $1 billion or $1.80 per share next year (see related story on page 1).

"North America is now working on their (2003) business plan...they're going to be very aggressive on cost reductions. The size of this pension will really require us to have an increase in structural cost next year for North America," Devine said on a conference call.

Devine also said that a change in ownership control of Italy's Fiat SpA would negate a put option that goes into effect in 2004 which could force GM to take control of Fiat's automotive unit.

"If there's a change in control of Fiat SpA, then the put is automatically eliminated," Devine said.

General Motors is reportedly trying to get its 2003 pricing agreements in place with suppliers this month, well before the usual winter-into-spring timetable it has used in the past.

Automotive News reported that GM's head of purchasing, Bo Andersson, already talked with GM's top twenty suppliers in Russelsheim, Germany, in September. GM reportedly is looking for an average four to six percent price cut from suppliers, which is not a big change from the deals reached for 2002. T

The publication cites Andersson's goal as varying among suppliers from two to ten percent and quotes him as saying price is "the only real issue this year" between the automaker and suppliers.