Management Turnover as Change Agent

Thursday, June 26, 2008

CEO Watch List - Rick Wagoner, GM, Update 5

As the American Automobile Industry flirts with a serious financial contraction or possibly worse, General Motors GM (NYSE) continues to lead the pack downward.  Earlier today Goldman Sachs listed GM as a sell.  According to a story today by Kevin Krolicki of Reuters
Shares of General Motors Corp hit their lowest level since 1955 and dragged down the auto sector on Thursday after Goldman Sachs cut the struggling U.S. industry's largest manufacturer to a "sell" rating and warned it would have to raise capital.
... With the Thursday price fall, GM's market cap fell to less than $6.5 billion. The company has the smallest market cap in the Dow Jones industrial average .DJI, of which it has been a component since 1925.
As I have been discussing for some time now, Richard Wagoner, GM's CEO, remains on the hot seat.  He was recently interviewed by Smart Money Magazine's, Reshma Kapadia.  I have excerpted below two of the interview's Q and A's to give you a flavor for Wagoner's problems and how he views them.
A lot of people are talking about a U.S. recession. Can the great American automaker still turn things around?

Sure. There are a number of things that will play out over the next couple of years that should improve our earnings. When we complete the 2007 labor agreement, we will get $4 billion to $5 billion in savings, a half billion when our supplier Delphi gets out of bankruptcy, and if the U.S. industry gets back to average sales, that will be $1 billion to $1.5 billion, conservatively. We don't have the profitability we want, but we are improving our cash flow. So even in a very difficult U.S. environment, help is on its way. But we're not waiting for help to get here. We are coming up with other ways to improve our cost structure, including a buyout offer for U.S. hourly employees.

What do you say to those shareholders who are fed up with the stock price?

I'm a big shareholder myself; I share the frustration. I'm confident that as the market psychology turns and assumes some of these issues are behind us, we'll be well positioned. I talk to major investors regularly, and of course they would love to see a higher stock price. But they say, "Keep going and do the right stuff for the future." So that's what we are trying to do.
The real question I am thinking -- is it now too late to make a change at the top of GM right now as gas, inflation, the economy, SUVs, Hummers and trucks all conspire to complicate the problems facing General Motors? 

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