Reports Say GM China President Philip Murtaugh Quits

March 30, 2005; Tian Ying writing for Bloomberg reported that Philip Murtaugh, who set up General Motors Corp.'s most profitable overseas venture, quit as chairman of the company's China unit after less than five years in the job, according to four people familiar with his resignation.

Murtaugh, 50, resigned for undisclosed ``personal reasons,'' said the four people, who declined to give their names. Troy Clarke, 49, GM's Shanghai-based Asia-Pacific president, will oversee the carmaker's four manufacturing ventures in China with the country's largest carmaker, Shanghai Automotive Industry Corp., until a replacement is found, they said.

The departure comes as GM, the world's largest automaker, faces slowing sales in China, falling market share in North America and rising debt costs as its credit rating hovers near non- investment grade. Rick Wagoner, GM's chief executive, this month said the company would post its biggest quarterly loss in 13 years and forecast full-year profit to fall by more than half.

``China is still a profitable market for GM, but it's been cooling off, for them as well as for everyone else,'' Burnham Securities analyst David Healy in New York said today. ``I don't know whether his departure is a black eye for them, since the company is already pretty black and blue.'' Healy doesn't own any GM shares.

Advanced Talks

The company is in advanced talks with a group of investors to sell a stake in its commercial mortgage unit to raise cash for the business. GM's debt ratings may be cut to below investment-grade status by ratings companies including Standard & Poor's and Fitch Ratings, which are reviewing the company's finances.

During Murtaugh's tenure, China overtook Germany to become the world's third-largest auto market behind the U.S. and Japan, with 5 million cars, trucks and vans purchased in 2004. Recent government efforts to prevent the market from overheating have slowed auto sales from an annual growth pace of 70 percent in the past few years to about 10 percent currently, Healy said.

Detroit-based GM, with more than $2 billion invested in China since 1997, has chipped away at Volkswagen AG's domination of the country's auto market. GM had 10 percent of Chinese car sales last year, while Volkswagen's market share fell to 26 percent from 54 percent in 2000.

`Result Oriented'

``Murtaugh is very open-minded, result-oriented, and is the kind of executive Chinese officials are happy to work with,'' said Zhang Xin, an analyst at Guotai Junan Securities Co. in Beijing. The impact of his ``resignation on GM's business and cooperation with Shanghai Auto depends on whether his successor'' shares those characteristics, Zhang said.

Murtaugh didn't answer phone calls to his home and office. GM's Shanghai-based spokeswoman Daphne Zheng and Rob Leggat, GM's Seoul-based Asia-Pacific spokesman, both declined to comment. Clarke could not be reached to comment in Shanghai. Tom Kowaleski, a GM spokesman in Detroit, also declined to comment.

Shanghai GM's shares aren't publicly traded. Shares of Shanghai Automotive Co., which owns a stake in the venture, fell 0.7 percent to 4.47 yuan Tuesday in Shanghai. GM shares rose 24 cents to $28.61 at 4:01 p.m. in New York Stock Exchange composite trading. They have fallen 39 percent in the past 12 months.

Murtaugh began his career at GM began in 1973. He graduated in engineering from the General Motors Institute in Detroit and obtained a master's degree in industrial management from Stanford University. He is married and has four children.

Positions

He worked at various positions at GM's Detroit headquarters before being assigned in 1990 to Japan's Isuzu Motors Ltd., in which GM owns an 8.6 percent stake. He led negotiations in 1996 with Shanghai Auto to set up GM's China venture. GM makes vehicles in three Chinese cities, producing Buick sedans, Chevrolet Spark minicars and Cadillac cars, the first time the luxury brand has been assembled outside North America and Europe.

``Nobody likes to lose senior people who are well regarded,'' said economist Donald Straszheim, president of Straszheim Global Advisors LLC in Los Angeles. ``That always hurts in the short run. GM has thought a lot about China for a long time, and I think they've probably got several other very solid managers there.''

Shanghai General Motors, GM's venture with Shanghai Auto, was China's most profitable carmaker in 2003, with net income of 7.99 billion yuan ($965 million). GM's half share of the profit from China was $483 million, or almost 13 percent of its $3.82 billion of global profit in 2003.

The venture sold a record 252,869 vehicles last year in China, up 26 percent from a year earlier, the company said in January.

Contribution

``Murtaugh has contributed a lot to GM's expansion in China,'' said Guotai Junan analyst Zhang. ``GM's profit margin is still on top of all other carmakers'' in China, he said.

Profit in China contributed about 25 percent of GM's total earnings in 2004, according to an estimate by Burnham's Healy.

Volkswagen's venture with Shanghai Auto, which makes Santana cars, earned 7.34 billion yuan in the same period. A second venture by Volkswagen making Bora and Audi cars in northeastern China earned 6.16 billion yuan.

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