What's a Wagner to Do?

DETROIT April 10, 2005; Michael Ellis writing for Reuters reported that General Motors Corp. CEO Rick Wagoner, facing the automaker's biggest challenge since it nearly went bankrupt in 1992, has often spoken about the ends that await failed GM executives.

The head of the world's largest automaker frequently refers to GM founder Billy Durant, who lost his fortune speculating on the stock market in the 1920s and ended up running a bowling alley in Flint, Michigan -- a fate that he says "has haunted GM chairmen ever since."

Failure has been rare for Wagoner, who quickly rose through the ranks and joined the executive suite as chief financial officer following a 1992 boardroom coup.

But Wagoner put his job on the line last week, analysts said, when he took day-to-day control of GM's North American car operations from two deputies, aiming to turn around the money-losing business.

The challenges facing GM -- which analysts say could lose its ranking as the world's top-selling automaker to Toyota Motor Corp. (Tokyo:7203.T - News) within a few years -- have already spurred credit rating agencies to cut the company's debt to one step from "junk" status.

Wagoner will need all his reserves of humor and quick thinking as GM struggles with wall-to-wall challenges: falling U.S. market share, mounting health-care costs, and even tougher competition from its foreign competitors.

"I don't think there's a question that it's a tough job," a former GM corporate officer who asked not to be identified told Reuters in an interview. "Is he up to challenge? Yes. He doesn't sit back and ponder."

HEALTH CARE HURTS

The 52-year-old Wagoner, who in 2000 became the youngest head of GM since Alfred Sloan took over in 1923, will depend on his hand-picked management team, including two vice chairmen with experience at other automakers. But he must also secure cooperation from the powerful, entrenched United Auto Workers union, suppliers, dealers and perhaps even from the U.S. government to attack the mountain of fixed costs that has put GM at a competitive disadvantage, analysts said.

"I think he needs to get the suppliers and dealers behind him," Thomas Stallkamp, the former president of Chrysler, told Reuters.

Stallkamp, author of the recently released book, "Score!: A Better Way to do Busine$$: Moving from Conflict to Collaboration" said: "The (GM) organization has been brought up in this command and control philosophy and they need to modify that approach."

The largest single private U.S. provider of health care, GM estimates that its U.S. health-care costs for more than 1 million current and retired workers and their families will grow to $5.6 billion this year from $5.2 billion in 2004.

Those costs, and other contractual obligations to the UAW, cost GM about $2,500 per car sold in the United States, a burden not shared by foreign competitors, said David Cole, director of the Center for Automotive Research in Ann Arbor, Michigan.

Japan's Toyota and Nissan Motor Co. Ltd. and other foreign automakers have a mostly nonunion North American work force and also relatively few retirees to support.

For now, Wagoner's taking control of North America sends a signal to Wall Street and to GM's partners that he will take serious steps to make GM competitive, said Efraim Levy, an automotive equity analyst with Standard & Poor's.

"They're trying to show its importance; it's something they want to deal with it," he said.

MORE CUTS?

So far, GM has not revealed any detailed plans for a turnaround strategy. GM has high hopes for its new full-size SUVs, which are key to profitability, but they won't arrive until next year. Last month, GM said it no longer expects a first-quarter profit but looks for its steepest quarterly loss since 1992 due to slowing U.S. sales and rising costs.

Drastic cost cuts, such as closing some U.S. plants or reducing benefits for hourly workers, may have to wait until union negotiations in the fall of 2007.

Vice Chairman Bob Lutz told analysts last month that two of GM's eight brands -- Pontiac and Buick -- are "damaged" and the automaker could eliminate one brand if sales failed to meet projections. But GM officials quickly added -- hoping to reassure nervous GM dealers -- that the automaker is heavily investing in its brands and there is no plan to phase one out.

Lutz had been chairman of GM North America and Gary Cowger the unit's president before they were both assigned to global responsibilities on April 4, as Wagoner took over day-to-day control of North American car operations.

But with GM's once-dominant U.S. market share falling to about 25 percent so far this year, down from 32 percent 10 years ago, GM can no longer support eight brands in the United States, a top marketing executive at a rival automaker said.

"When you've got too many flowers in the garden, none of them are going to grow," the executive said. "They have the double-edged sword of having to make money and stabilize their share and volume," he added.

While the fate of William Durant might haunt Wagoner, the GM CEO can also look to history for some comfort, said Jeffrey Liker, the author of "The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer."

"Right now, at the moment, Toyota seems unstoppable. But 10 or 15 years ago, Japan Inc. seemed unstoppable, and we were all going to work for the Japanese," Liker said.