MSN write up on CEO Wagoner

[BB_454]

GM's CEO pulls off a trick

The automaker's improved performance during the third quarter and the stock’s 79% gain this year are the blue smoke and mirrors that make CEO Rick Wagoner one of corporate America’s top illusionists.

It's hard to believe, but Rick Wagoner may just pull a Harry Houdini and escape the General Motors (GM, news, msgs) mess with his CEO job.

But is that any good for GM's shareholders?

Less than a year after the automaker posted a loss of nearly $11 billion, prompting one of the largest restructurings in corporate history, Wagoner may be able to relax. Today, GM reported that its third-quarter loss narrowed to $115 million, from $1.7 billion a year ago. Excluding one-time charges, it had a profit of 93 cents a share, 54 cents more than Wall Street expected. Revenue rose to $48.8 billion from $47.2 billion, the third straight quarter of year-over-year gains.

The surprising performance was fueled by an improvement in the beleaguered North American auto group, which saw its loss fall by $1.3 billion to $367 million. The fact that GM’s improvement in North America came despite production of nearly 96,000 fewer units shows the amount of progress. GM expects cost savings of about $9 billion this year -- nearly $6 billion from slashing structural costs.

A brighter outlook

Operating results in Europe, GM’s other sore spot, also improved. Combined with better results in Asia and Latin America, GM’s outlook seems brighter than it has in years.

Maybe that’s why Wagoner and his team felt emboldened to scuttle talks with Nissan (NSANY, news, msgs) and Renault regarding a potential global alliance -- a deal pushed hard by Kirk Kerkorian, a top GM shareholder. Wagoner recognized that such a deal would represent a significant threat to his power, and after doing just enough to (hopefully) placate investors, he pulled the plug.

Unfortunately, a global alliance with Nissan and Renault might have been the best long-term option for GM and its shareholders. Despite the modest jump in sales and the smaller quarterly loss, GM still saw its share of the global auto market decline by a half percentage point to 13.9%. The downward trend is unlikely to be reversed as GM slashes production and continues rolling out gas-guzzling trucks and SUVs.

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GM management may have dodged a bullet over the short-term but the company is far from healthy. It has done nothing to improve its bloated product mix or solve its styling and quality issues.

Harder tasks ahead

The cost-cutting program is hard on blue-collar employees, but it’s relatively easy for management. What’s difficult is developing a differentiated line of products that consistently resonate with consumers. It’s a task that still eludes Wagoner.

Not so for Carlos Ghosn, the CEO of Nissan. Ghosn helped turn around Nissan, and it was hoped that, as leader of a global alliance, he could have done the same for GM. He won’t get that chance thanks to the sleight of hand by Wagoner.

While there were no guarantees that an alliance with Renault and Nissan would have been a long-term winner for GM, it’s almost certain that retaining Wagoner for another year or more will only delay a recovery.

More results from restructuring?

He has already squeezed about as much juice out of the restructuring lemon as he’s going to get. (He might get lucky because the cost to GM of the Delphi bankruptcy, once feared to be over $10 billion, now looks to be closer to $6 to $7 billion.) When GM unloads a majority stake in its profitable financing unit later this year and the initial benefits from the restructuring effort seem less impressive, management will still be faced with the singular task of consistently improving global sales. And there's no evidence to suggest that they can do it.

This quarter’s improved performance and the stock’s year-to-date gain of 79% are the blue smoke and mirrors that make Wagoner one of corporate America’s top illusionists. But the only trick he has perfected -- aside from saving his own job -- is the incredible shrinking of a once-great company. Until the magician is exposed, the risks of owning shares of GM, which continues to burn through cash and trades just off its 52-week high, remain way too high for my liking.

Robert Walberg is a financial writer based in Chicago and a regular guest on CNN's "Moneyline." He was formerly chief equity analyst at Briefing.com and ran for Congress in Illinois in 1994.

At the time of publication, Walberg did not own or control shares of any companies mentioned in this article.

I think this guy is out there. He says GM is turing around quicker than most experts expected, than next thing you know he's saying Rick is slowing GM down from making a recovery.

[-Camaro-]

Yeah quite a contradiction!

[ellives]

Again, those who can, do. Those who can't, write about it.

I love how he writes about Ghosn saving Nissan. While he did save them from bankrupcy, Nissan still has plenty of their own challenges and serious lack of inspiring new product. I find it seriously doubtful the Renault thing would have been anything more than a distraction. I'd love to see Walberg explain why and how he thinks Ghosn would save GM.

[regfootball]

writers don't know squat, that's why they write. plus they are stubbornly wed to the notion of their own thoughts being 100% right all the time. armchair QB's is what they are, mostly. egotistical ones.

[CARBIZ]

I am very suspicious about any further alliances. What did the $2billion dollar kiss-off to Fiat gain?

[ellives]

I am very suspicious about any further alliances. What did the $2billion dollar kiss-off to Fiat gain?

Further to this I question the value of the Toyota partnership from years back with the Geo product. Personally I think this helped Toyota more than it did GM. Toyota ended up with the product volume and GM ended up killing the Geo brand. This goes to everything that is outsourced these days. It might be a short term solution to profitability but you'd better keep tight reigns on your engineering and product development functions otherwise you'll find yourself working for the outsourcers in pretty short order.

[turbo200]

Nissan does at least have relevant car products that are turning the sales chart around. Look at Altima and how it has turned around completely from where it used to be--this generation of that car will only help maintain and improve on that position. The new Sentra seems to be at least a dramatic improvement from before, and stylistically it makes a statement, more than can be said of Cobalt and Malibu. The truck side for GM has always been gangbusters, but the car side needs to prove its worth too, outside of CTS. Cars must be sold without incentives, and have less reliance on fleet sales, and be an attractive proposition to the majority of the market, like the Aura and Malibu are shaping out to be. Small cars need a gigantic rethinking, as thier fuel economy seriously lags, along with perceived quality issues, and of course styling that looks fit for the late 1990's.

[Croc]

The first thing I do when I see a writer mention Renault helping GM is I look for a "how" to explain the assertion. I've yet to find one.

[ellives]

Nissan does at least have relevant car products that are turning the sales chart around. Look at Altima and how it has turned around completely from where it used to be--this generation of that car will only help maintain and improve on that position. The new Sentra seems to be at least a dramatic improvement from before, and stylistically it makes a statement, more than can be said of Cobalt and Malibu. The truck side for GM has always been gangbusters, but the car side needs to prove its worth too, outside of CTS. Cars must be sold without incentives, and have less reliance on fleet sales, and be an attractive proposition to the majority of the market, like the Aura and Malibu are shaping out to be. Small cars need a gigantic rethinking, as thier fuel economy seriously lags, along with perceived quality issues, and of course styling that looks fit for the late 1990's.

Nissan did a good job with the Altima but it's aging and ready for a replacement. They also suffer from quality issues from what I hear although apparently not enough to make buyers switch brands. I have no idea what's happening with the Sentra. It's never been an inspiring car, and certainly nothing like what the Altima was when it came out.

I shudder when you use the Cobalt and the Malibu in the same sentence. To me they are worlds apart, specifically in the styling area. I see the Cobalt as a perfectly viable product in it's market category whereas I see the current Malibu as a complete failure aesthetically. It's simply ugly and the kind of car no one wants to be seen in.

It seems most of us know GM needs to work the car side of their business. I don't think they needed to plunk down a pile of money to entice Ghosn to come over with the Renault team nor would they help in any tangible way. At least none that I've seen written down. I think from a design perspective, GM got the message and they're responding. To me the biggest challenge they have is whether they can address your last sentence when you mention "perceived quality." You simply can't buy perception as it has to be earned and Toyota is masterful at managing perception. Even when they aren't strong in a particularly area, they always manage the perception to make them appear strong.

[Croc]

The Altima just got redesigned.

[evok]

I have seen better analysis from BM or at The Truth About Cars - This is just bunk journalism.

[ellives]

The Altima just got redesigned.

Yes, for '07 but it's not the spectacular change the last body style brought. The current redesign is more evolutionary style-wise and more focus was put on the internal technology improvments.