GM: Turnaround Is Working

March 25, 2006

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Final sales figures for March aren’t due until next week, but General Motors is launching a pre-emptive strike this week in an effort to put a forward spin on a story — the success of its new products — that it believes has been overlooked in the seeming endless waves of grim news about finances and downsizing.


GM has scheduled a full-scale briefing this week to tell its side of the story ahead of the sales numbers. Those numbers are, according to an interim report on March sales activity put together by J.D. Power and Associates, rather humdrum. GM’s PR offensive will argue that the new pricing strategy is working.

Steve Harris, GM vice president of communications, said GM believes some of the very positive aspects of the GM turnaround story have been overlooked in recent weeks as news organizations focused on the negative reports that swirled around the company.


Even now, rumors of a new round of deep cuts in GM’s salaried ranks continue to percolate around Detroit . Robert Herta, GM spokesman, declined to comment on the various reports detailing the impending cuts that are scheduled for what some employees have already apparently labeled “Black Tuesday.” The reports are speculation, said Herta, as he refused to confirm that cuts are planned this week. Herta added that the company’s policy was the same as it was in November when GM chairman and chief executive Richard Wagoner said that GM planned to reduce its salaried ranks of about 36,000 by seven percent, mostly through attrition and retirements.


The reports of new, deep cuts in the company’s engineering ranks were circulating Friday as GM’s Human Resources personnel tacked up signs on conference room doors at key GM engineering centers around Detroit, saying they needed the rooms for special meetings on Tuesday.

Cuts in the making


At the same time, GM’s labor relations staff is scrambling to start making buyout offers to GM’s 113,000 blue-collar workers as soon as this week under the terms of the special agreement negotiated with the United Auto Workers. No one knows for sure how many of GM’s workers will actually accept the buyout. Many of the company’s workers are clearly demoralized by the constant pressure for cuts and would like to leave but at the same time many workers are fearful that the promises from the GM and the UAW, particularly on healthcare benefits, will prove empty in the years to come, workers said last week.

The buyouts, however, are only one part of GM’s ongoing restructuring. GM is still struggling with the sale of its stake in GMAC, which company officials insist is still on the agenda. However, last week’s sale of GMAC’s commercial mortgage business was instructive. The deal was first announced in August 2005 but it took more than seven months to put together and GM wound up giving away an even bigger stake to the buyers, who also slapped a new name on the company that doesn’t even offer a hint that it was once connected to the automaker.

The deal for GMAC as a whole is even more complicated because it is more acute. The downgrades last spring that reduced GM’s credit rating to junk have put enormous pressure on GMAC and it could certainly use the credit-rating upgrade promised by a deal with outside investors. However, issues from the name of the reorganized company to GM’s continuing role in policy-making and liabilities should GM go bankrupt all have to be resolved. 


In addition, GM’s residential mortgage business, ResCap, has been hit by accounting snafus that forced GM to delay the filing of its 10K annual report with the Securities Exchange Commission.

Given the schedule used for the commercial mortgage spinoff, it seems likely the sale of GMAC might not be completed until some time next summer if it all.

The delays in the GMAC spin-offs raise new issues about the speed of GM’s transformation. Wagoner’s critics maintain he has not gone fast enough or far enough in shaking up the company. Thus, the speculation that Wagoner could be forced out has intensified in recent weeks, particularly now that Jerry York, Kirk Kerkorian’s man, is now on the GM board.

Replacing Wagoner, however, is not simple. In many ways it would be very similar to changing administrations in Washington. After Jac Nasser was forced out at Ford, more than 600 executives, managers and professionals left the company, notes Sean McAlinden, chief economist for the Center For Automotive Research in Ann Arbor, Mich.

GM’s Harris adds that those criticizing Wagoner haven’t bothered to look at the larger picture. “They’re not looking at all the things we’ve done,” Harris said, noting the agreement with the UAW on healthcare, the development of the restructuring plan and the sale of stakes in Suzuki and Fuji Heavy/Subaru as emblematic of GM’s aggressive efforts to fix itself sooner rather than later.

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