GM Chairman to Take Over Day-to-Day Operations

From Detroit Free Press

DETROIT — With troubles at the General Motors Corp.’s mammoth North American car and truck business dragging GM stock to 10-year lows, Chairman and CEO Rick Wagoner surprised investors and insiders alike by announcing he was taking over the day-to-day operations himself.

The move, announced Monday, frees up Vice Chairman Bob Lutz to concentrate on global product development and Group Vice President Gary Cowger to focus on global manufacturing and labor. Those two men had been responsible for GM North America, while they also oversaw their global disciplines.

GM warned last month that the North American automotive business was in far worse shape than the company thought at the start of the year. The stock plunged, and Wall Street analysts were privately asking when Wagoner or someone high up at GM would — or should — be fired.

But Monday’s moves show that GM’s board of directors hasn’t given up on Wagoner.

Not yet.

And Wagoner said that GM needs Cowger and Lutz for their expertise in areas of crucial importance to GM’s long-term health.

“As we look at our global business, it’s clear that the two areas most critical to our future success are achieving excellence in every product we develop, and doing it with the most competitive manufacturing system,” Wagoner said in a statement. “And Bob and Gary are our two executives most experienced and skilled in these key areas.”

Among his many duties over the years, Wagoner ran North American automotive operations from 1994 to 1998. So he knows the ropes, and in the current crisis mode, most tactical decisions were running through him anyway.

“Given the challenges we face in North America, it makes sense for me to assume control of GMNA’s day-to-day operations and shorten the lines of communication and decision-making,” Wagoner said in a statement.

He told employees in a video that the company needs improved performance in sales with good marketing and holding the line on costs, such as retiree health care.

“Those are the areas, I think, that need the most attention right now, and I plan to lead our efforts and look forward to everybody pitching in in those areas,” he said.

He also pointed out that other regional operations — and the GMAC financing arm — are doing even better than expected.

But the board of directors is pushing him for a long-term, strategic plan for North America, where GM sells three of every five cars and trucks it makes, said David Cole, Director of the Center for Automotive Research in Ann Arbor, Mich., and a longtime GM watcher.

“His neck is in the noose on North America, no doubt about it,” he said.

Lutz has taken a beating for GM’s market-share slide and the fact that its car lineup has not yet caught fire like he and other executives said it would.

Asked at last month’s New York auto show what had happened to the Lutz magic, he scoffed: “It’s not Lutz magic; it’s team magic.”

But clearly he wanted to be focused on the product-development team he was hired to lead in 2000.

The free-speaking executive — who caused a stir by discussing the remote possibility that another struggling brand could be killed — admitted to Wall Street that GM was just starting to do many of the things it had long talked about, such as avoiding unprofitable fleet sales.

Now GM, which for years has been selling investors on the idea that it operates as one global company, is truly starting to do things the same way all around the world, he said.

Last month, the company announced a series of changes to the executive lineup, including naming global heads for engineering, sales and marketing and product planning, which now reports to Lutz.

“It is only now, with the global engineering structure … that we don’t have to negotiate similarities between architectures,” he said.

The moves would appear to be hardest on Cowger, but no one seems to blame him for the inconsistent marketing and consumers’ ability to extract bigger and bigger discounts from GM.

Cowger’s return to a focus on manufacturing and labor relations was not a case of him failing to strike a chord with dealers, said Lynn Thompson, of Springfield, Mo., the former head of GM’s National Dealer Council.

“I always appreciated Gary for his straightforwardness and willingness to listen to dealers,” Thompson said.

Fact is, those are the very characteristics that make him a deft union negotiator — a role he has been pulled into again and again.

Cowger was sent to run GM’s European operations in 1998. But less than a year later, he was called back to help settle the costly strike at two Flint parts plants that cost the automaker $1.5 billion.

Since he has returned to Detroit, GM has become the most efficient, highest-quality automaker in Detroit, according to the most-watched studies.

But it is his labor-relations prowess that is again being tapped to find creative ways to deal with soaring health-care costs — especially for UAW retirees — that doesn’t destroy relations with the union.

“I think having someone like Gary to focus more of his time on this manufacturing structural cost issue, including health care, is going to help us out,” Wagoner told employees.

Those who advise investors on what stocks to buy and sell mostly saw Monday’s news as a reinforcement of existing opinions.

Last month, GM said it expects to lose as much as $1 billion in the first quarter of the year, and cut its earnings expectation for the year by $1.7 billion. The company cited challenges in the massive and important North American market, such as lower prices, consumer tastes shifting from trucks to cars, which are less profitable, and overall lower production and sales.

GM stock has fallen to 10-year lows — below $30 a share — and the automaker’s debt is rated just barely above junk status.

GM’s stock held on for most of the day before dropping at the end. The shares closed down 33 cents, or 1.1 percent, at $29.05.

Ronald Tadross of Banc of America Securities reiterated his “sell” rating on the company, but cautioned that Wagoner may have too much on his plate and no more ability to fix the business.

“We do not see what the CEO can do now that he could not have done previously,” Tadross said in a note to clients.

But Christopher Ceraso of Credit Suisse First Boston, who rates the stock “outperform” or buy, called the executive moves “surprisingly aggressive.”

“The move by Mr. Wagoner is a clear signal of just how important it is for the company to right the ship in North America, and also how badly the operations are struggling,” Ceraso said.

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