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Wagoner Rumors Start to Swirl

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Wagoner Rumors Start to Swirl

Will GM lose its CEO to financial churn?

by Joseph Szczesny (2006-03-06)

For General Motors' Rick Wagoner, March ought to be a good if not a great month. His beloved Duke Blue Devils are an odds-on favorite to sweep through the NCAA Tournament, and GM's retail sales are showing signs of moving in a positive direction after two years of enormous difficulty.

However, while no one is predicting that GM's board of directors has asked Wagoner to prepare a resignation letter, the gossip around Detroit is that he could be reaching the end of his tenure as GM's chairman and chief executive officer.

Until recently, Wagoner had been viewed as GM's one indispensable executive. He was the one guy who could keep everyone inside the company focused on the key objectives of turning around the struggling giant and fend off the challenge from Toyota, which is threatening to take away GM's crown as the world's top automaker.

Wagoner's also taken on some of the toughest jobs over the past year such as overhauling GM's marketing effort and meeting directly with union officials to explain the need for concessions.

Over the years, Wagoner's career was the very definition of American corporate success, starting with his days at Duke to the Harvard Business School and the fast-track at GM that brought him a senior management position back in the early 1990s even before he had turned 40.

The mere existence of gossip, which includes speculation that Kirk Kerkorian's car guy Jerry York might step in as chairman, suggests just how far GM's situation has crumbled over the past year. "GM really needs another agreement with the UAW," suggested one analyst who asked not to be identified.

Clicking products

The positive spin from inside GM at the moment is that company is on the verge of a breakthrough agreement with the United Auto Workers that will eliminate the potential for a meltdown at the bankrupt Delphi, while the new products are beginning to click with consumers.

In fact, Paul Ballew, GM's executive director of market and industry analysis, said last week that overall GM's February sales performance was very promising. GM's incentive spending dropped by $1,000 per vehicle from February 2005, while sales to corporate and government fleets declined to 25 percent of the company's total sales, compared with 30 percent only a year ago, according to one survey. Himanshu Patel, JPMorgan auto analyst, also said that GM's results looked healthier than in recent months because of the drop in fleet sales.

Wagoner has declined to offer any financial guidance for the rest of the year, and some observers suggest this actually a pretty shrewd move on the GM CEO's part because it sets the stage for a positive upside surprise later in the year.

Meanwhile, GM finally could manage to break even in Europe and build on its strong position in China, while moving ever closer to the magic day in late 2008 or 2009 when the actuaries are predicting that the company's legacy costs will begin to drop in North America.

"What is going to be key this year is if we can continue the successes in new model launches and improving the bottom line of results in GM Europe," Wagoner said during an appearance at the Geneva Motor Show. "Almost two months into the year, results are encouraging, but are too early to draw any conclusions although progress is pleasing and it is all going to plan."

However, Wagoner also has far less control over what goes on at GM than he did only two years ago. The revolt by investment fund managers has undermined GM's credit rating, forcing the automaker to try and auction off GMAC, one of its most prized assets. Too, the drive to revise GM's labor contracts has been moving slowly and there are few signs of progress.

Darren S. Kimball of Lehman Brothers said in a research note that potential work stoppages Delphi Corp. and Tower Automotive Inc. could have a significant impact on GM, Ford, and Chrysler. "Sliding sales may prove not to be the biggest problem that the domestics have," Kimball wrote in a note to investors.

The bankruptcy of Dana Corp. is also likely "to further unsettle investor sentiment toward the sector," Kimball said in his note.

GM's market share, despite the positive signs in February, is now hovering around 23 percent. GM does expect to lose some U.S. market share as it pulls back on sales to rental car agencies. But GM needs to decrease its rental sales in order to improve the value equation for retail customers.

Rental cars when they are resold can depress the value of the typical consumer's used GM model, making it harder for them to trade for another. The limited trade-in value of domestic brands has been a major factor in the growing popularity of Japanese brands such as Toyota and Honda.

Link: http://www.thecarconnection.com/Auto_News/...175.A10110.html

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I don't think there's any merit in this. If York is calling for much less change now that he has access to all the information, that would make me think that Wagoner's doing a good job. I cannot see a board coup at this time.

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