For example, GMAC, the vehicle- and home-loan financier in which it retains the 49% stake, owns deeply troubled Residential Capital, a mortgage lender. ResCap is trying to get a new $3.5 billion credit line from GMAC. GM and Cerberus Capital Management, the private-equity group that owns the rest of GMAC (as well as most of Chrysler), could finalize a guarantee of $750 million of that as early as this week. GM is also exposed to Delphi (DPHIQ), a parts supplier it spun off in 1999, which is trying to exit bankruptcy. The car maker already has written off $8.3 billion for Delphi, and has agreed to advance it up to $650 million this year as the supplier battles back from insolvency.

Meanwhile, GM faces higher costs for steel, plastic and other materials. In addition, it has been hit by sporadic local strikes, including one at a Kansas plant that makes the Malibu, and a longer, more serious walkout at key supplier American Axle & Manufacturing (AXL), which GM says cost it about $800 million in North American operating profits in the first quarter. GM agreed to provide up to $215 million to help end the American Axle strike, which will bash its results by an estimated $1.8 billion this quarter. Both labor disputes have ended, and the lower costs that American Axle will have under its new contract ultimately will help GM trim its own outlays.

AT THE SAME TIME, the U.S. economic slowdown isn't helping anyone. April's industry numbers suggest that U.S. light-vehicle sales will be as low as 14.4 million this year -- which would be the worst level since 1995. Still, "you've got to look beyond the recession, beyond the next 18 months," says Stephen Simmons, director of research for institutional investor Flippin, Bruce & Porter, which has been buying GM shares during the downdraft and now owns 1.8 million. Though the big labor-cost reduction won't come until 2010, GM has the wherewithal to get to the other side of the recession, he maintains, and the stock "is a compelling story that's nowhere near reflected in the price."

Simmons also declares that "GM is relevant again for consumers, thanks to the new models out over the past two years, and their high design quality....Between the (lower) cost structure and improving products, the margins are bottoming and will start moving up."

The buyout and retirement offers that GM said last week had been accepted by 19,000 employees -- about 25% of its full-pay UAW workforce -- will result in a huge one-time charge that Wagoner is likely to disclose at the annual meeting. But they also will result in lasting cost reductions of perhaps $2 billion annually, beginning next year. A JPMorgan report estimates that the financial benefits may begin phasing in as soon as this August, and that 15,000 of the positions won't be filled and that the other 4,000 will go to tier-2 employees.

The program will also significantly trim the average age of GM's workforce for the first time in many years.
General Motors says that its spending on pension and health care will drop to $1 billion annually in 2010 from an average $7 billion over the past 15 years.

The UAW agreement allows the car maker to transfer about $46.7 billion in its future retiree health-care liabilities -- a huge albatross -- from its balance sheet to an independent GM-funded trust on Jan. 1, 2010. (There are legal challenges to this, but they're unlikely to prevail.)

This should provide $3 billion of the annual savings GM foresees. (The car maker long ago cut the costs of its white-collar workforce.) The rest will come from the more than 50% reduction in hourly wages and benefits for new hires in positions not directly related to manufacturing, such as cleaning factory floors.
Hourly wages and benefits for most of these "Tier-2" employees will be in the mid-$20s, versus up to $78 for traditional UAW workers. This should trim GM's across-the-board hourly labor average to about $55 from about $72 now, says Trust Company of the West analyst Carol Moreno. "Lower labor costs are probably the biggest advantage foreign-car companies have," she adds. "The labor deal is transformational." TCW has fattened its GM stake as the stock has slid. As of March 31, it had about 16 million shares.

The deal would narrow the gap with Toyota, whose hourly labor costs average about $47.50 to $55. Over all, it could save GM up to roughly $1,540 per vehicle, estimates Sean McAlinden, an economist for the nonprofit Center for Automotive Research in Ann Arbor, Mich.
What do these future cost cuts mean for profits and GM's stock valuation?

Not all of the savings will drop to the bottom line, of course, but Trust Company of the West analyst Moreno figures they're worth about $2.50-$3 a share. (GM has 566 million shares outstanding.) If the industry environment in 2010 is better than the current one, net could hit $5-to-$6 a share.
Flippin's Simmons has a $5-to-$7-a-share estimate for GM when the North American unit hits break-even, which is likely by 2010. Applying an eight multiple to $6, his estimate's midpoint, he sees the stock going as high as $45.

Both Moreno's and Simmons' forecasts are higher than the Wall Street consensus of $4 a share for 2010. Based on the consensus figure, GM's two-year forward price-earnings ratio is about four; an eight multiple is more typical for car makers. If GM makes it over the bridge of troubles to 2010, investors are likely to award it a traditional multiple, boosting its stock to $30.
GENERAL MOTORS IS mounting an engineering turnaround, too. As noted, the company intends to launch the Volt in late 2010 and is increasing its roster of conventional hybrids. In fact, contends R. Brent Byrne, CEO of Divi-Vest Advisors in Wayne, Pa., an improving "green" image is "the No. 1 reason to own GM." Says Byrne: "No other car company is running down the green highway as fast as GM."
With its popular Prius hybrid, Toyota leads the pack in its ability to make at least some money from relatively eco-friendly cars. But if the Volt succeeds -- and, yes, Wagoner's stated delivery deadline won't be easy to meet -- GM will steal a march on its big Japanese competitor.

Table: GM's Hopes
And, says Elizabeth Lowery, GM's vice president of environment, energy and safety policy: "The Volt is just a piece of it." She says that the company is launching eight hybrids this year -- more than any other company -- and 16 over the next four years.
If the Volt works as advertised, that could be a coup for a company that hasn't had one in a while. Consumers, particularly young ones, "want to get off fossil fuels," Divi-Vest's Byrne observes, arguing that a green image could raise GM's revenues substantially. Byrne has been buying GM stock as the price has fallen.