GM to Outsource $15B in IT Work

DETROIT – General Motors Corp. (GM) said on Thursday it would outsource up to $15 billion of information technology work as it tries to cut costs and restructure operations.

Five-year contracts were given to Electronic Data Systems Corp. (EDS), Hewlett-Packard Co. (HP), International Business Machines Corp. (IBM), France's Cap Gemini, the Compuware Covisint unit of Compuware Corp., and India's Wipro Ltd.

About half of the $15 billion in five-year contracts were awarded on Thursday, GM said.

The world's largest automaker said the initiative was driven by the end of a deal with EDS that expired in June, 10 years after EDS was spun off from the No. 1 automaker.

GM said EDS would have less business with its former parent. Plano, Texas-based EDS said it had won about $3.8 billion in contracts over five years.

EDS said it expected its total revenue from GM, including other business that had not been up for review, to be near $1.2 billion to $1.4 billion on an annualized basis.

Hewlett-Packard and Cap Gemini will increase their existing business with GM, the automaker said.

HP estimated that it had won over $700 million in business over five years. Wipro said its share of the business was worth an estimated $300 million.

GM declined to disclose how much the automaker, which is struggling to cut costs and shed excess capacity, would save through the outsourcing of information technology work.

"There will be savings for GM as a result of increased efficiencies gained through this process," Ralph Szygenda, chief information officer at GM, said on a conference call.

He said GM had not made its awards on the basis of projected savings alone, although cost cutting remains a key priority for Chief Executive Rick Wagoner.

"The winners today (won) because they had the best capability," said Szygenda, who joined GM at the time of the EDS spinoff. "We didn't let the lowest cost drive us. We didn't let payment terms drive us."

Moors & Cabot analyst Cindy Shaw noted that EDS could retain more than the $1.2 billion to $1.3 billion in annual revenue that some investors had been expecting.

"It sounds like the fallout for EDS might not be as pronounced as some people had expected," Shaw said.

In 2004, EDS brought in some $2 billion in revenue from GM, down from $2.2 billion in 2003 and $2.5 billion in 2002.

The GM announcement follows a two-year review and is expected to cap one of the largest-ever technology outsourcing efforts by a single corporation.

The outsourcing work will include computing operations and application support for areas such as automotive product development, manufacturing and supply chain, as well as GMAC financial services.

GM said it would separately award telecommunications contracts later in the year.