DETROIT -- In the wake of its financial disaster in 2005, General Motors is cutting its 2006 national marketing budget by more than $200 million, sources close to GM say.

The cuts come in a year of crucial product launches and renewed attempts to promote GM's new price strategy.

GM's national ad budget will be about $1.3 billion this year, sources say. Older vehicles and brands such as Buick and Pontiac will suffer as GM concentrates its spending on product launches, including the critical full-sized SUVs and pickups.

The cuts are aimed at improving profits after an $8.55 billion net loss in 2005, says an informed source who asked not to be named.

In a Jan. 20 interview, Mark La-Neve, GM's vice president of vehicle sales, service and marketing, declined to disclose GM's marketing budget. He acknowledged, "We're trying to get costs down throughout the company. I would say one of the last places that we cut is marketing expenses, but we're trying to push down costs in the entire company."

As is normal at GM, LaNeve said advertising support will be based on the potential for revenue from the various vehicles. "So we're spending more on the (full-sized trucks) than we would on the (Pontiac) Solstice launch," LaNeve said.

GM executives say marketing for its redesigned full-sized SUVs and pickups remains substantial. A separate source familiar with GM's advertising strategy says GM's major divisions face varying prospects:



Saturn will get a budget boost. This year, Saturn will launch the Sky roadster, the Aura mid-sized car and the Outlook crossover.


Pontiac and Buick will get marketing budget trims.


Cadillac and Chevrolet marketing budgets remain flat compared with last year.




More money?
GM is launching full-sized SUVs now. (See related story, Page 4.) If sales of those vehicles soar, GM might allocate more marketing money at midyear. But if the vehicles perform poorly, expect more cuts, the second source says. The source spoke on the condition of anonymity to avoid angering GM.

The source says GM spent about $2.5 billion last year in total advertising, including $1.5 billion on national advertising and $1 billion on regional and local marketing. The source was not aware of this year's regional budget.

According to TNS Media Intelligence/CMR, GM spent $1.44 billion in total advertising in measured media during the first six months of 2005, far outdistancing runner-up Ford Motor Co. at $757.5 million. Full-year estimates are not yet available.

TNS says GM spent $2.5 billion for 2004 in total advertising, up more than 18 percent over 2003 ad spending of $2.12 billion.

Automotive News edits raw data from TNS to remove noncore spending such as dealer expenditures, ads for recreational vehicles and ads by captive lenders such as GMAC.


Still 'biggest player'
Historically, GM has led media spending among automakers. It will continue to be "the biggest player on the block" this year, says Brent Dewar, GM's vice president of marketing and advertising. Dewar declined to confirm any budget changes.

Dewar says GM has more than enough money to cover vehicle launches. The automaker is taking a nontraditional approach to advertising and will do more "creative things" to stretch ad dollars.

For example, some brands will shift from traditional media such as magazines and TV toward alternative media, such as digital media and events.

The budget cut comes after GM consolidated its media planning and buying under one roof last year in an efficiency move. The new media planning and buying organization is called GM Planworks. Planworks existed before, but it now does media buying as well as planning.

Although GM is sending a "strong message that everyone's got to tighten the belt," the second source says, it will still spend $100 million to advertise during the Winter Olympics, which start Feb. 10.

GM spent about $30 million in January on advertising its new lower pricing strategy for Chevrolet, says the source.

The source says that while Pontiac's budget is lower this year than last, GM is dedicated to advertising the launch of the new G6 convertible. That advertising is scheduled to start during the NCAA basketball tournament in March.

As is normal at GM, LaNeve said advertising support will be based on the potential for revenue from the various vehicles. "So we're spending more on the (full-sized trucks) than we would on the (Pontiac) Solstice launch," LaNeve said.

General Motors Corp.'s board was meeting Monday and was likely to consider the company's dividend and its turnaround plans after massive losses in 2005.

GM spokesman Jerry Dubrowski wouldn't say where the board was meeting or what it was discussing. But GM's dividend is on the board's agenda every February, and the company's restructuring plan will likely be the subject of debate after the company reported full-year losses of $8.6 billion in 2005.

GM is under pressure from billionaire investor Kirk Kerkorian to cut its generous dividend. In a speech last month, Kerkorian aide Jerome York said GM should halve its $2 per share annual dividend to save $566 million a year. Kerkorian owns 9.9 percent of GM's shares.

"I believe the shareholders will support reducing the dividend as part of an equality-of-sacrifice plan that can increase the value of their shares over time," York said in a speech to the Society of Automotive Analysts.

GM Chairman and CEO Rick Wagoner responded that a dividend cut is the board's decision. GM last cut its dividend in 1992, when the company lost a record $23.5 billion, partly as a result of accounting changes. GM has been paying a quarterly dividend of 50 cents per share since March 1997.

In a note to investors last week, Morgan Stanley auto analyst Jonathan Steinmetz said he thinks it's likely the board will cut GM's dividend in half. Steinmetz said a dividend cut would help placate the United Auto Workers, which recently agreed to help GM by making auto workers pay more for their health care.

"An argument could be made for outright elimination of the dividend, though we view that as unlikely," Steinmetz said.

The board also may consider Kerkorian's request to get a seat on GM's board for York, a former Chrysler Corp. chief financial officer who worked closely with Kerkorian on a failed takeover bid of Chrysler in 1995. Kerkorian first requested a seat for York last year, but GM and Kerkorian announced in December that they had failed to agree.

Board members will review GM's turnaround strategy, including its plan to sell part of General Motors Acceptance Corp., its financial arm. GMAC's debt was lowered to "junk" status last spring, making it harder for the division to borrow money, and GM is considering the sale to shore up GMAC's credit rating. Steinmetz estimated GMAC is valued between $11 billion and $12 billion.

GM shares rose 39 cents, or about 1.7 percent, to $23.54 in midday trading on the New York Stock Exchange.

DETROIT (AP) -- General Motors Corp., under shareholder pressure to return to profitability, announced Tuesday it is cutting in half its yearly dividend to $1 a share and reducing the salaries of its chairman and senior leadership team.

The cut in its dividend will reduce GM's yearly cash payout by about $565 million. The automaker also plans to cut health benefits for salaried retirees and evaluate ways to restructure its pension plan for salaried U.S. workers, reducing costs to balance out billions of dollars of losses in its North American automaking operations.

The announcements came a day after a top aide to billionaire investor Kirk Kerkorian was elected to GM's board. Last month, Jerome York outlined tough measures to bring the company back to profitability, including halving GM's dividend, cutting executive pay and setting profitability goals.

"These are difficult decisions that involve sacrifices by our employees, stockholders, retirees and the senior leadership team," GM Chairman and CEO Rick Wagoner said in a statement.

"However, we are confronting a dramatic change in our industry and in the global competitive environment, and that requires us to look for additional ways to reduce financial risk and improve our competitiveness for the long term."

Although some of GM's actions mirrored York's suggestions, Wagoner said the company has long been working on issues such as health care and pension costs. And he said GM didn't plan to release profitability goals.

Wagoner said the new actions support the company's ongoing North American turnaround plan.

As part of the changes, Wagoner will take a 50 percent pay cut. Vice Chairmen John Devine, Bob Lutz and Fritz Henderson will see their salaries reduced by 30 percent, and Executive Vice President and General Counsel Thomas Gottschalk will take a 10 percent cut.

In addition, there will be no annual or long-term cash bonuses paid to GM's global executives for 2005 performance.

The board of directors also reduced its own compensation by 50 percent, the company said. Non-employee directors will forgo cash compensation but will keep some of the stock portion of their annual retainer.

GM said it would cap its health-care contributions for salaried retirees at 2006 levels. The change, which affects retirees hired before 1993, surviving spouses and eligible dependents, will reduce GM's annual health-care expense by almost $900 million before taxes, the company said.

The automaker said it was evaluating ways to restructure its pension plan for salaried workers. GM said it would freeze accruals under the current plan and implement a new plan for future accruals, possibly a defined-contribution or cash-balance plan.

GM said its quarterly dividend would be 25 cents a share, compared with 50 cents, where it has stood since the first quarter of 1997.

The company last cut its dividend in 1992, when it lost a record $23.5 billion, partly as a result of accounting changes.

The world's largest automaker lost $8.6 billion in 2005 and is suffering from declining U.S. market share and rising health-care and pension costs. In November, GM announced plans to shed 30,000 jobs and close 12 facilities by 2008, but York has suggested that's not enough.

Most of the plant closures and job cuts must be negotiated with the United Auto Workers in 2007, when automakers and the union write a new contract. The UAW already agreed last year to require hourly workers and retirees at GM and Ford Motor Co. to pay more for their health care.

Wagoner said GM continues to work with the union on addressing competitiveness issues, but said Tuesday's announcement was not intended to send a message to the union.

"In my experience, we make the most progress in sitting down and working face-to-face," he said during a morning news conference at GM's headquarters in Detroit.

UAW spokesman Paul Krell, who was attending a conference in Washington, said he had no immediate comment on the GM announcement.

York, whose tenure on the board was to begin Tuesday, is a consultant to Tracinda Corp., Kerkorian's private equity firm. Tracinda owns 9.9 percent of GM's common stock and is GM's third-largest shareholder.

Shares of GM fell 25 cents, or 1 percent, to $23.09 in morning trading on the New York Stock Exchange.

Associated Press Writers Sarah Karush in Detroit and Ken Thomas in Washington contributed to this report.

General Motors Corp.'s turnaround effort may pick up speed with the appointment Monday of Jerry York, a key aide to billionaire investor Kirk Kerkorian, to the automaker's board of directors.

The move gives Kerkorian, owner of a 9.9 percent stake in GM, a powerful ally in the boardroom as the No. 1. U.S. automaker struggles to cut costs and restructure operations in the wake of an $8.6 billion loss last year.

GM said the board elected York as a director on Monday, but would not say whether directors agreed to cut the automaker's $2-a-share annual dividend. A person familiar with the situation said cuts to the dividend and a reduction in pay for senior executives were on the board's agenda and an announcement could come as early as today.

Both cost-cutting actions were among the recommendations that York put forth for GM in a speech last month at the North American International Auto Show.

York, the 67-year-old former chief financial officer at Chrysler Corp. and IBM Corp., is known as a ferocious cost-cutter and an advocate of shrinking GM's operations to match the reality of its declining U.S. market share.

"There are very few people that carry the credibility and insight into this industry that Jerry York does," said Jon Rogers, senior industry analyst with Citigroup Investment Research. "They got an all-star."

York formally joins the GM board today. In announcing the decision, GM Chairman Rick Wagoner also said that the board had accepted the resignation of another outside director, Merrill Lynch & Co. Chairman Stanley O'Neal.

"Jerry brings years of business experience and knowledge of the automotive industry to the GM board," Wagoner said in a statement. York was not available for comment Monday. However, in his speech to auto analysts on Jan. 10 in Detroit, he said that GM was at a "fork in the road" that will prove critical to its future.

"The right fork is the one that assumes that not only are better products and capacity realignments required, but all of the old ways of doing business have to be scrutinized," he said.

York was an advisor to Kerkorian's Tracinda Corp. investment firm in the mid-1990s, when Kerkorian was the largest individual shareholder in Chrysler. After Kerkorian mounted an unsuccessful takeover of Chrysler in 1995, York helped negotiate a stock repurchase plan favored by the billionaire investor.

Last April, York rejoined Tracinda as a consultant on Kerkorian's GM investment. However, York is technically joining GM's board as an independent director, and not as a representative of Tracinda.

While York remains a consultant to Tracinda, he is prohibited from sharing confidential GM information with Kerkorian. But the arrangement also allows Kerkorian to buy and sell GM shares without the restrictions put on directors and executives with access to inside information.

A GM spokesperson said York has the same deal as any other outside director. "There's no special agreement between GM and Jerry," said Toni Simonetti of GM. "He is going to serve under the same terms and conditions as all other outside directors."

In a federal filing Monday, Tracinda said its consulting agreement with York was amended "to clarify that Mr. York will not share with Tracinda any confidential information…which Mr. York may obtain in his capacity as a director."

Currently, there are 11 outsiders on GM's board and one inside executive, Wagoner. With O'Neal's departure, the addition of York will not increase the size of the board.

O'Neal had served on the GM board for five years, but said "increased time demands" and potential conflicts of interest prompted him to step down

The presence of York on the board has broad ramifications for GM. The automaker is faced with several daunting challenges in the months ahead, including the elimination of 30,000 manufacturing jobs and negotiations on pension obligations owed to former GM workers now employed by bankrupt Delphi Corp.

With more than 30 years in the auto industry, including stretches at GM, Ford Motor Co. and Chrysler, York brings vast experience to a board with minimal background in the business. York is also a veteran of two dramatic corporate turnarounds, at Chrysler in the 1980s and later at IBM in the 1990s.

"Jerry is a very competent guy and somebody who has very deep knowledge in the business," said David Cole, director of the Center for Automotive Transportation in Ann Arbor. "He could be exactly the kind of board member GM needs."

Wagoner and his management team have been under heavy pressure from investors and Wall Street to move faster and harder to fix GM's problems. However, he needs to deal with the United Auto Workers on the crucial matters of downsizing jobs and facilities.

"Rick has to walk a fine line of doing what needs to be done, but doing it in a positive, collaborative way with the union," said Cole. "Jerry could be very helpful in accelerating some of those changes."

But York may have trouble pushing through deep changes at GM in a short period of time.

"There are well-documented structural impediments to moving quickly in this industry," Rogers said, citing inflexible labor agreements and huge health care and retiree obligations.

In his speech last month, York pointedly agreed with UAW President Ron Gettelfinger that there must be an "equality of sacrifice" at GM that includes executives, directors and salaried employees as well as blue-collar workers.

The sacrifice should also extend to shareholders, York said. In trading Monday on the New York Stock Exchange, GM shares closed at $23.34, up 19 cents.