Interesting article in Chicago Trib on GM. Last few lines suggest if there is a shake-up Lutz might gain more power over there...
Link: (might require subscription)Ride gets bumpy for GM leaders
Automaker's Big 3 executives likely to face directors' ire after forecast of an $850 million quarterly loss
By Rick Popely and Jim Mateja
Tribune staff reporters
Published March 18, 2005
General Motors, the world's largest automaker, is now one of the industry's biggest management headaches.
Faced with sliding market share, idled factories and rising health-care costs, GM slashed its earnings forecast Wednesday, saying it expects to lose about $850 million in the first quarter.
The news sent GM's stock into a tailspin and immediately put Chairman and Chief Executive Rick Wagoner on the hot seat, along with Bob Lutz, his charismatic vice chairman and product czar, and Gary Cowger, president of the struggling North American operations.
GM had forecast a $500 million profit this year for North America in January but said Wednesday it now expects a "significant loss."
The carmaker's stunning news raises numerous questions about how GM intends to fix its problems and whether it can do so with current management. The carmaker would not make any of the executives available for interviews, but a person close to GM's hierarchy said the company's directors could force changes at the top.
"It's pretty serious when financials deteriorate as fast as they have, and the board may ask someone to resign or retire to show they are alarmed over what's happening and that they want change," the source said.
"The board has to ask why wasn't management in tune with the market that led to the production downturn," the source said. "You can expect a lot more scrutiny from the outside directors, which has become the norm of late."
Who's likely to get blamed?
"It's hard to pinpoint scapegoats, though that's not to say the board won't find some because in this business you are only as good as your last quarterly report," the person said.
Independent analyst Maryann Keller points the finger at Wagoner and Lutz.
"I'm not sure they're going to lose their jobs, but the board of directors must be asking for a plan that will turn GM around," said Keller, author of the 1989 book, "Rude Awakening: The Rise, Fall and Struggle to Recover at General Motors."
Wagoner, 52, became chief executive in 2000, the year after GM posted record operating income of $5.7 billion. He became chairman three years later.
Keller says Wagoner inherited a streamlined production process, put in place by Cowger, which has made GM the most efficient of the domestic Big Three and helped keep it profitable.
After the Sept. 11 terrorist attacks crippled auto sales in 2001, GM jump-started the industry with "Keep America Rolling," the zero-percent financing program that has become a fixture of GM's marketing.
"In the early days Wagoner was seen as somebody in charge, and with `Keep America Rolling' he looked like a visionary," Keller said. "Like others who have led GM, he's not dealing with the structural issues and what might go wrong. To date, it has not been a brilliant five years."
GM cites soaring health-care costs, estimated at $5.6 billion this year, for part of its problems. Yet Keller points out that the biggest concession it extracted from the United Auto Workers union in 2003 contract negotiations was a higher co-payment for prescription drugs.
Jim Hossack, vice president of industry forecaster Auto Pacific argues: "Management gave in to the last UAW contract, but if they didn't they would have suffered substantial losses" if the union went on strike.
"GM has a good executive team; the core problem is things they can't control like legacy [retiree] costs, the UAW and especially lack of empathy from the U.S. government," Hossack said. "This isn't a GM problem, it's a problem of national importance because the welfare of U.S. manufacturing is on the table."
As health-care costs rise, sales of GM's big sport-utility vehicles, among its most profitable models, are slumping, forcing the idling of factories and workers, who collect 95 percent of their base wages.
The company contends sales are down because the vehicles are near the end of their life cycles, but Keller says GM ignored warnings about fuel economy and shifting buyer tastes. Attempting to adapt to trends, Ford Motor Co., for example, has reduced capacity to build large and midsize SUVs and shifted to car-based crossover models.
"They remained far too dependent on big SUVs for their profit and dismissed hybrids as a viable technology. Those are certainly mistakes he made," Keller said of Wagoner.
GM is counting on new large SUVs due a year from now to revive sales. But Keller has doubts.
"They're not going to boost sales unless gasoline gets real cheap," she said. "They've deluded themselves into thinking that people who spend $50,000 on an SUV don't care about the price of gasoline. Nobody wants to burn up money."
Lutz, 73, was hired as head of product development in September 2001 to add sparkle to a lackluster lineup, but Keller says he has yet to deliver.
"He has had plenty of time to turn things around and was pretty much given carte blanche on new products. They aren't working," she said.
New car models such as the Chevrolet Cobalt, Pontiac G6 and Buick LaCrosse have gotten off to slow starts, and Keller thinks they're too expensive and uninspired.
Consumer automotive Web site Edmunds.com says that in February dealers discounted their selling prices on the G6 by $4,813 on average, 20 percent below the sticker price. That was the most among new models for 2005 and unusually high for a car on the market five months. The average discount on the Buick LaCrosse was $4,010, 15 percent of retail and second highest among new models.
"If you're trying to win back market share, you have to have great products that are priced below the competition. The whole product positioning and marketing isn't working," Keller said.
But the person close to GM management said Lutz has been able to only tweak cars because of the long incubation period for new vehicles. The first model of his creation, the Pontiac Solstice roadster, is due later this year.
"Roll back the clock and you see many of the same problems at DaimlerChrysler only a short time ago, yet all it took was a couple hot products--the [Chrysler] 300C and [Dodge] Magnum--and they are right back in it," the source said.
In fact, David Cole, president of the Center for Automotive Research, says Lutz could acquire more power if there is a management shuffle.
"I don't see the board executing anyone, but I think the board may decide it needs someone with a tough-guy image to bring about some changes," Cole said. "The man who could do that is Bob Lutz because he's a short-termer."