General Motors Slumping Business, Rising Costs Raises Questions About Leadership

DETROIT March 18, 2005; Dee-Ann Durbin writing for the AP reported that five years ago, when Rick Wagoner became president and chief executive of General Motors Corp., he said he hoped the world's largest automaker would soon see its U.S. market share top 30 percent and annual revenue grow by as much as 8 percent.

Instead, though quality and productivity have risen, Wagoner's term has been marked by eroding U.S. market share -- down to 26.7 percent in 2004 -- and, of late, disappointing automotive earnings.

This week, Wagoner announced more bad news: GM expects to earn $1 or $2 per share in 2005, less than half its previous guidance, because of slumping North American business and rising health care costs, among other factors.

After falling to prices not seen in more than a decade, GM shares edged up 27 cents to close at $28.62 in Friday trading on the New York Stock Exchange.

Some of the world's top executives have lost their jobs over less.

And although some analysts believe Wagoner's position is secure, others say that GM's management should be put under the microscope for the company's shortcomings.

Sean Egan, an analyst with Egan-Jones Ratings Co., said Wagoner's position "should be in jeopardy," though he hasn't heard talk of a management shake-up. Egan said Wagoner ultimately is responsible for GM's financial success.

One matter Egan said Wagoner helped bungle was GM's costly relationship with Fiat SpA. Last month, GM agreed to pay the Italian automaker $2 billion to dissolve their partnership.

"The normal course is to take a hard look at the executives," Egan said. "GM is a more insular company than many, many others, so we'll see."

Wagoner, 52, who began his career with GM in 1977 and became chairman in 2003, defended his leadership Wednesday when asked why the company's board should continue to have confidence in him.

"The board is well informed on our strategy and very supportive of it," he said. "Our focus is on executing the plan."

One factor in his favor, said David Cole, chairman of the Center for Automotive Research in Ann Arbor, is the perception that many of GM's current obstacles are largely out of Wagoner's control, such as high health care costs, the rising cost of steel and other materials and expensive labor agreements.

Cole said Wagoner has made big strides improving GM's productivity and quality. GM got the highest score of any domestic automaker in a survey of dependability released last year by J.D. Power and Associates, and the company also is doing more with fewer employees. Globally, GM's employment has fallen by more than 65,000 since Wagoner became CEO.

"I would be very, very surprised if the board chose to beat up management," Cole said. "That would be a really basic mistake. ... Where do you go from there?"

Cole said Wagoner's test comes now, when he must make changes to reverse the company's fortunes. Cole said those steps could include reopening contract talks with the United Auto Workers union and tackling the health care industry.

"It really takes a period like this, where you get an elevated sense of urgency, to address some of these structural issues," Cole said, noting that all auto companies, not just GM, were blind-sided by skyrocketing health care costs and high prices for raw materials.

Egan disputed that, pointing out that competitors such Toyota Motor Co. are enjoying healthy U.S. sales and increased market share -- though Toyota faces none of the U.S. legacy costs GM must shoulder for its hundreds of thousands of employees and retirees. Egan said GM's products haven't been as appealing to consumers, particularly its aging trucks, and he faults management.

"They should have been preparing for this over the last five years," he said.

Wagoner said GM will continue its strategy of launching solid products and marketing them effectively.

"Product remains the first and most important element of this strategy to get North America back on track," he said.

General Motors, http://www.gm.com