Wagoner: 1 down, 5 to go on to-do list

[Northstar]

By Jamie LaReau
Automotive News / October 24, 2005

General Motors CEO Rick Wagoner doubtless sighed with relief last week after announcing a deal with the UAW to reduce GM's health care costs.

The UAW's rank and file is expected to ratify the plan to shift some health insurance and prescription drug costs onto retirees and active workers. If so, GM's after-tax savings would total $1 billion a year.

That's not chump change, but it won't be enough to restore GM's profits. Last week, the automaker announced that its North American automotive operation lost $1.6 billion in the third quarter.

Restive investors (read: Kirk Kerkorian) are demanding a quick turnaround. Over the next year or so, here's what Wagoner must do to save his job:

1. Close assembly plants and eliminate jobs.

According to PwC Automotive Institute, GM's North American assembly plants are operating at only 74 percent of production capacity. That's pretty dismal. To operate at 100 percent of capacity, GM would have to close six plants.

Last week, Wagoner confirmed that GM is negotiating future plant shutdowns with the UAW. Wagoner also has vowed to eliminate 25,000 hourly jobs over the next three years. He can achieve that through attrition.

2. Adopt value pricing without a huge loss of market share.

You've heard the old joke: "The operation was successful, but the patient died."

That may be the case with value pricing.

This fall, GM adopted a value pricing strategy that requires it to set sticker prices close to the transaction price paid by the consumer. No more big incentives.

Sure enough, incentives declined -- and sales plunged.

According to Edmunds.com, GM spent $2,973 per vehicle on incentives in September, down from the $4,593 a year earlier. But GM's September sales were off 24 percent compared with the same period a year earlier.

October sales look dismal, too. GM isn't panicking yet, but it can't sit still much longer.

3. Sell all or part of GMAC.

The sale of GM's financing unit would improve the unit's credit rating.

GMAC might have to pay higher interest rates if GM's shaky credit rating continues to decline.

If it cannot borrow money cheaply, GMAC cannot loan money to consumers and dealers at competitive rates. A spinoff would preserve its credit rating and profits.

Moreover, the sale of a controlling interest in GMAC would allow GM to pocket $12 billion to $14 billion.

4. Fix Pontiac-Buick-GMC.

Wagoner appears determined to maintain all eight GM brands.

To do so, he must coax dealers to combine Pontiac, Buick and GMC franchises into single stores. That would allow GM to eliminate overlapping products.

Wagoner is making progress. Presently, GM has about 800 superstores that sell all three brands.

Those dealerships generate 56 percent of those brands' unit sales, boasts Mark LaNeve, GM's vice president of vehicle sales, service and marketing.

5. Ensure a flawless launch of full-sized trucks.

In January, GM will launch its redesigned full-sized SUVs. The next generation of big pickups debut late next year.

With profits that have ranged up to $15,000 per vehicle, these trucks are essential for GM's success.

Wagoner must make sure these products are launched on time with no quality glitches.

But Wagoner can't control gasoline prices.

With gasoline ranging up to $3 a gallon, and with industrywide sales of full-sized SUVs down 16.3 percent through September, GM's profits could suffer accordingly.

More: http://www.autonews.com/news.cms?newsId=13636

[pontiaccrest]

Gas was $2.49 this morning,some good signs.

[Clownzilla]

Gas was $2.49 this morning,some good signs.

[post="33770"]<{POST_SNAPBACK}>[/post]

$2.19 where I live. Good in the truck heavy midwest.

[cmattson]

Gas is actually $2.21 here (Mpls/St. Paul).. but back to this author's main points. I don't think you can measure with the black and white, success or failure benchmark. GM will achieve degrees of success/failure in each of his five areas:
1. Close assembly plants and eliminate jobs.
Comment: GM will clost plants and the UAW will back off; while they won't like it and they'll scream a bit, even they know GM's current situation. As long as GM doesn't ask something drastic (hello Delphi CEO: "We need a 62% wage cut from our rank and file"), the UAW will be willing to listen and bargain. GM may not get everything they want, but they'll get something.. and every little bit helps

2. Adopt value pricing without a huge loss of market share.
The author is quick to note sales stats--but those stats are faulty! GM had more than it's share of "pull-ahead" sales; which easily contribute to the dismall Sept/Oct stats this author wishes to share. Nobody said the transition would be quick or easy. Nobody said that GM wouldn't lose sales along the way (and marketshare with it). The key thing is this: while sales in MY 2005, MY 2006, or MY2007 are important, the bigger picture is this: how are GM sales going to be over the next decade? The next 2 decades? The simple fact that escapes this author is that GM doesn't need to just look out for sales this month, or this year, it needs to look after it's sales outlook/corporate health into the distant future. GM will have far better, stronger brands 5-10 years from now if it depresses sales today and transitions itself away from it's giveaway campaigns. You want to build GM's brands? You need to start addressing it's issues; one of which is resale; which is *directly* affected by the sales promotions. GM's strategy is the right one on this.

3. Sell all or part of GMAC.
This appears to be all but a foregone conclusion. While I'd like GM to have the diversity (and cashflow) of GMAC in it's backpocket, I think it's reached a point where GMAC is more valuable to GM is GM owns just a minority stake in the company.

4. Fix Pontiac-Buick-GMC.
This is on the way. I haven't heard much feedback on this -- which I'm reading to be a good sign. If dealers were fighting this, I'm sure we would've heard about it by now. I actually like the strategy -- it certainly beats closing one of the brands - ala Oldsmobile. I'm curious to see the future product for these brands. GM needs to produce a few home-runs and right now, it appears only the Solstice has reached that mark. What about Buick? GMC? What about a mainstream, non-niche Pontiac? Only time will tell what product GM's got in store for these brands

5. Ensure a flawless launch of full-sized trucks.
I don't think this is as much of an issue as the author is making it out to be, primarily for one reason: GM's current GMT800's are class-leading for gas mileage, while offering best-in-class or near-best-in class performance. The GMT900's only increase that standing, with hybrid models right on it's heels. There is a market for full-size trucks and suv's. There is a large segment of the population that needs vehicles of this capacity. While the market may shrink, GM's market-share should increase.

[FUTURE_OF_GM]

1. Close assembly plants and eliminate jobs.

According to PwC Automotive Institute, GM's North American assembly plants are operating at only 74 percent of production capacity. That's pretty dismal. To operate at 100 percent of capacity, GM would have to close six plants.

a.k.a. Keep downsizing so that when we the media say that Toyota is actually investing more in American workers than GM and thus is more American, it'll actually be true and will justify the mass exodus.

In reality: I don't see Wagoner being able to accomplish the plant closings simply because the UAW won't have it (Since they're living in the 70s and all)

3. Sell all or part of GMAC.

The sale of GM's financing unit would improve the unit's credit rating.

GMAC might have to pay higher interest rates if GM's shaky credit rating continues to decline.

If it cannot borrow money cheaply, GMAC cannot loan money to consumers and dealers at competitive rates. A spinoff would preserve its credit rating and profits.

Moreover, the sale of a controlling interest in GMAC would allow GM to pocket $12 billion to $14 billion.

This will be the death blow to GM if they bow to the pressure (Why is the media pressuring GM to sell it's only profittable operation anyway????)

Maybe GM should sell a stake in GMAC, but not the whole company.

4. Fix Pontiac-Buick-GMC.

GMC doesn't need to be fixed.... I'm tired of this "guilt by association" assumption by the media... They do it with "The big 3" as well. If Ford's quality is down then GM's must be too, etc. etc.

The author is quick to note sales stats--but those stats are faulty! GM had more than it's share of "pull-ahead" sales; which easily contribute to the dismall Sept/Oct stats this author wishes to share. Nobody said the transition would be quick or easy. Nobody said that GM wouldn't lose sales along the way (and marketshare with it). The key thing is this: while sales in MY 2005, MY 2006, or MY2007 are important, the bigger picture is this: how are GM sales going to be over the next decade? The next 2 decades? The simple fact that escapes this author is that GM doesn't need to just look out for sales this month, or this year, it needs to look after it's sales outlook/corporate health into the distant future. GM will have far better, stronger brands 5-10 years from now if it depresses sales today and transitions itself away from it's giveaway campaigns. You want to build GM's brands? You need to start addressing it's issues; one of which is resale; which is *directly* affected by the sales promotions. GM's strategy is the right one on this.

I agree.... GM expected payback and inventories were low as well.

As far as gas prices are concerned... Must be nice guys, we've hovered and are still hovering at $2.63 a gallon even with oil being down yesterday. Price gouging at it's finest

[Derek77]

The damage has been done when it comes to gas prices. It will take years for people to forget the quick jump in gas prices this summer.

[G. David Felt]

Sad :( Seattle is still at 2.79, 2.89 and 2.99 for all three grades. Diesel is 3.29. What gives with that. <_< Sucks we have such high gas tax and the roads still suck. Down with I 912. :P Edited October 25, 2005 by dfelt

[sciguy_0504]

FOG, should GM start hiring even more unneeded workers just so it can continue to say it hires more Americans than Toyota? Please, GM is losing money because it has too many employees and too many plants. No car company will no longer have a 30% marketshare, there is too much competition. GM needs to downsize in order to stay competitive, it needs to focus on maintaining a 20-25% marketshare to remain profitable.

[turbo200]

Damn, Los Angeles is at $2.90 still...

[VenSeattle]

Sad :(  Seattle is still at 2.79, 2.89 and 2.99 for all three grades.  Diesel is 3.29.  What gives with that.  <_< Sucks we have such high gas tax and the roads still suck.  Down with I 912.  :P

[post="33946"]<{POST_SNAPBACK}>[/post]

You're voting NO on I-912? So am I. We need the road improvements that the tax is going to pay for. We've absorbed a $1 hike in gas costs with no benefit. We're now going to complain about a few cents?

[Robert Hall]

Sad :(  Seattle is still at 2.79, 2.89 and 2.99 for all three grades.  Diesel is 3.29.  What gives with that.  <_< Sucks we have such high gas tax and the roads still suck.  Down with I 912.  :P

Similar numbers here in the Mile High City....$2.85, 2.95, and 3.05 for 85,87,91.

[goblue1999]

The damage has been done when it comes to gas prices. It will take years for people to forget the quick jump in gas prices this summer.

[post="33808"]<{POST_SNAPBACK}>[/post]

You may not have lived through the last "oil crisis". There was no crisis then, there is none now. There is no shortage of oil, the price spikes are driven by political influences and weather. Gas will be back down $1.50 by next summer. In case you haven't noticed, Americans have VERY short memories.

[goblue1999]

Similar numbers here in the Mile High City....$2.85, 2.95, and 3.05 for 85,87,91.

[post="34109"]<{POST_SNAPBACK}>[/post]

Of course you are much too intelligent to waste your money on high octane fuel.

[Polish_Kris]

FOG, should GM start hiring even more unneeded workers just so it can continue to say it hires more Americans than Toyota?  Please, GM is losing money because it has too many employees and too many plants.  No car company will no longer have a 30% marketshare, there is too much competition.  GM needs to downsize in order to stay competitive, it needs to focus on maintaining a 20-25% marketshare to remain profitable.

[post="33954"]<{POST_SNAPBACK}>[/post]

I know, GM is just too big, ten years ago they were laughing, they owned over 50% of the market, however this is not the case anymore. And as for FOG, you are too quick to jump the gun and accuse Toyota or the media as soon as something bad is said about GM, I notice you do that allot, relax a bit.
:cheers:

[FUTURE_OF_GM]

I know, GM is just too big, ten years ago they were laughing, they owned over 50% of the market, however this is not the case anymore.  And as for FOG, you are too quick to jump the gun and accuse Toyota or the media as soon as something bad is said about GM, I notice you do that allot, relax a bit. 
:cheers:

[post="34428"]<{POST_SNAPBACK}>[/post]

I was being sarcastic about the employee bit, sorry I guess I should've noted that.

I do tend to be on edge a lot, but I'm really tired of all the negativity.