General Motors to axe 70% of American workforce

General Motors, the world's largest car maker, said yesterday it was planning to make 74,000 US workers redundant after it made a $38.7bn (£19.7bn) loss in 2007.

The drastic cuts will see almost seven out of 10 of the company's US employees offered early retirement in a scheme that could cost billions of dollars. The company, which only just fought off Toyota last year to keep its position as the world's No 1 car maker, said the deal with the United Auto Workers union would generate big savings. GM employs 110,000 workers in the US.

Fritz Henderson, chief financial officer, said the company was prepared to cut further capacity in North America if economic conditions warranted. GM, which makes Chevrolet, Saab and Vauxhall cars, among others, said worldwide vehicle sales had risen to 9.4m in 2007, the second best performance in the company's 100-year history. But its part-owned finance operation was caught up in the fallout from the sub-prime lending crisis.

Sixty per cent of sales were outside the US last year with record demand from markets in eastern Europe, Latin America and the Asia Pacific region. General Motors Europe sales, which include the UK, rose almost 9% to a record 2.2 m. However the automotive business in North America continued to battle a softer market, high commodity prices and lower unit sales.

Rick Wagoner, GM chairman and chief executive officer, said efforts to turn round the North American operation remained on track. "The actions we have taken to further reduce structural costs and strengthen our product lineup ... are fundamentally improving our ability to compete in the US and around the world."

GM said that GMAC, its former finance arm, in which it retains a 49% holding, had been hard hit by the disruption in the US mortgage, housing and capital markets. GMAC's Residential Capital LLC operation is the second largest independent mortgage lender in the US. GM said it believed GMAC remained adequately capitalised.

Commenting on the results, which were hit by a special $38.3bn charge taken in the third quarter relating to the valuation allowance against deferred tax assets, Wagoner said 2007 had been another important year of progress. "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, but we have more work to do to achieve acceptable profitability and positive cash flow."

GM shares rose after the release of the figures on hopes the deal with the UAW would bring in cost savings more quickly.

Analysts remained cautious. "Given GM's performance in the past quarter, we remain comfortable with our expectation of a large operating loss in North America in 2008," Lehman Brothers said.