General Motors steps up job cuts as it suffers $39bn loss

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The Independent Online

General Motors, which lost its claim to be the world's biggest car maker in 2007, is planning a new wave of voluntary redundancies in a bid to cut costs in its loss-making US business.

An agreement with the United Auto Workers union (UAW) on redundancy packages for its 74,000 members was reached yesterday, just in time to mitigate news of another sharp downturn in the North American market.

General Motors (GM) posted a $38.7bn (£19.7bn) loss for 2007, its worst on record, in a set of results filled with restructuring charges, accounting adjustments and one-off tax gains.

Analysts looked through the figures, though, to focus on the latest results for its core North American vehicle manufacturing operation, where a $1.3bn loss on continuing businesses in the final three months of the year compared to a $30m loss the year before. The deterioration swamped improvements in GM's overseas businesses, where it is adding sales and improving profitability, particularly in Latin America and eastern Europe.

Mark Warnsman, analyst at Calyon Securities in New York, said that high legacy costs and cheap deals are crimping GM's ability to make money even as it finally stabilises its market share in the US.

"Despite the apparent enthusiasm surrounding the company's new product offerings, the quarter highlighted the fact that higher unit sales do not necessarily translate into higher profitability for the company.

"In the near term, we are left asking at what cost has GM earned those new customers."

Rick Wagoner, GM's chief executive, said the company would maintain its relentless downward pressure on costs in the US, where it blames the pension and healthcare costs of its retired employees for its problems competing with foreign rivals in recent years.

After cutting more than 30,000 employees in the last round of restructuring, GM is now offering buy-outs to all 74,000 staff.

It will replace many of them with new workers on lower rates – a practice that was allowed for the first time under a new contract signed with UAW last autumn. Arch rival Ford has also unveiled a similar voluntary redundancy plan to its workers in recent weeks.

"We're pleased with the positive improvement trend in our automotive results, especially given the challenging conditions in important markets like the US and Germany," GM's Mr Wagoner said.

"But we have more work to do to achieve acceptable profitability and positive cash flow," he added. GM shares fell 1.9 per cent yesterday, having earlier risen on hopes that its plan would help the company cut labour costs more aggressively than budgeted, offsetting weakness in consumer demand due to the economic slowdown.

The company's chief financial officer said it was ready to cut US production and shut factories if demand dropped steeply.