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Sat, Jan 28, 2006 - Page 6 News List

GM, Ford stressing the positive despite massive layoffs


After having posted multi-billion dollar losses and announced plans to layoff thousands of workers this week, General Motors Corp and the Ford Motor Co have said they are on the road to recovery.

Neither, however, would forecast how long it would take to return their struggling North American units to profitability, and many analysts are warning there is more trouble ahead.

GM's US$8.6 billion loss last year was significantly larger than expected and prompted Moody's Investors Service to warn on Thursday that it could downgrade the world's largest automaker's credit rating even deeper into junk status.

"Cost cutting efforts, health care concessions, and restructuring should help GM narrow [North American] losses in 2006, but they will remain substantial," warned Merrill Lynch analyst John Murphy in a research note.

"We believe things are going to get worse before they get better."

While Ford managed to surprise investors with better-than-expected financial results -- it posted a US$2 billion profit last year despite a US$1.6 billion loss in its North American automotive unit -- the lack of detail in a restructuring plan announced on Monday raised questions about the likelihood of its success.

"We do not believe the restructuring will meet all of Ford's objectives and we think that not all benefits will accrue to the bottom line," said Efraim Levy of Standard and Poor's Equity Research.

Two main issues dog the automakers: lifting lagging sales of their increasingly unpopular products and obtaining concessions from their union in order to reduce costs.

Both GM and Ford are expected to show a further decline in market share to Asian automakers when sales figures for this month are announced next week and because of the time it takes to get new models to the market, neither is expected to see a big boost in sales until at least the middle of this year.

While GM and Ford have neglected their small cars for years, the trouble really hit when gas prices spiked and consumers shied away from the highly profitable sport utility vehicles (SUVs).

The two automakers were also slow to come to market with hybrids and the increasingly popular car-based crossover SUVs introduced by Asian competitors.

Both Ford and GM have recently obtained major concessions from the United Auto Workers union to reduce their health-care obligations. But it is unlikely they will see any savings from their plans to lay off a combined 60,000 workers until their contracts are renegotiated with the union in the fall of next year.

Workers who are laid off under the current contract enter a job retraining facility where they are paid 90 percent of their wages and receive full benefits.

On Thursday, GM said it had taken a US$800 million charge in the fourth quarter to cover that cost. And since the union has said it intends to "rigorously enforce those programs," it is likely Ford will take a similar charge.

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