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GM Board Shows Faith in Wagoner
By Michael Ellis,Detroit Free Press
Apr. 4--Amid mounting criticism of Rick Wagoner's running of General Motors Corp., the automaker's board of directors gave the chief executive and his leadership team a vote of confidence on Monday.
The move came as Wagoner trumpeted the $14-billion sale of a majority stake in financial services firm GMAC, another critical step in his efforts to reshape the 98-year-old automaker. But showing the challenges that the struggling automaker faces, after GM shares increased in the morning for the GMAC sale, they dropped later when GM posted a sharp drop in car and truck sales for March.
Coming off a year of $10.6 billion in losses and with Toyota about to overtake GM as the world's largest automaker, Wagoner hailed the GMAC sale and other recent moves to cut costs as part of a bold strategy to return the automaker to profitability.
"In the context of history, the last six months have been pivotal in basically restructuring the business so we can have a viable future going forward," Wagoner said. "Not just getting to profits for a quarter or two, but getting a robust business model."
Since last October, GM has secured a deal with the UAW to cut health care costs; offered buyouts to all its 113,000 U.S. hourly workers in an effort to cut 30,000 jobs; cut white-collar jobs and benefits; announced plans to idle a dozen North American plants and facilities, and sharply cut new vehicle prices in order to reduce sales incentives.
The GMAC sale and the additional steps spurred the GM board of directors to publicly issue support for Wagoner.
"This transaction, along with other progress GM has been making on its turnaround plan, is an important milestone," GM presiding director George Fisher, the former chairman and chief executive officer of Eastman Kodak, said on behalf of the entire board.
"While there is still much work to be done, the GM board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability," Fisher said in a statement.
Most notable about the board support is the apparent vote of confidence it expresses from Jerome York, who became a board member in February and attended his first board meeting last month.
York, the former chief financial officer of Chrysler Corp. and an adviser for billionaire investor Kirk Kerkorian, criticized GM's speed in attacking its problems in a speech in January. He declined to comment on Wagoner or GM when contacted Monday.
The support for Wagoner may have been prompted by calls for his removal by such sources as a Wall Street Journal column.
"I appreciate support from the board, our workers, my wife, anybody I can get it from these days," Wagoner jokingly told reporters at a news conference Monday.
Stock shares in flux
Investor confidence and U.S. vehicle sales are two areas where GM fell flat on Monday.
GM's shares fell $1.13, or 5.3 percent, to close at $20.14 on the New York Stock Exchange. "I think it is still a classic 'show-me' stock," said David Sowerby, portfolio manager at Loomis Sayles, a Bloomfield Hills firm that manages $75 billion in assets.
"They have moved incrementally in the right direction on the cost side. There is still a greater uncertainty on the revenue side. Just look at today's weaker sales numbers," Sowerby said.
On Monday, GM reported a 14.4 percent drop in its U.S. car and truck sales, causing its share of all U.S. sales to fall to just 23.3 percent from 26.7 percent in March last year.
However, GM's new line of large SUVs, a key driver of profits, posted another strong month of sales, partly offsetting a sharp drop in car sales.
Investors also have been spooked by growing accounting problems at GM. The automaker said last month in its annual financial report, filed with regulatory authorities nearly two weeks late, that a federal grand jury and the Securities and Exchange Commission have both issued subpoenas to GM.
The automaker also said that it found "material weaknesses" in its accounting practices after completing an internal investigation of its bookkeeping.
The accounting problems were the last straw for some critics already upset by GM's missteps, including a $2-billion payment to Italian automaker Fiat SpA to end a troubled relationship.
"Under Mr. Wagoner, age 52, GM has written off billions of dollars in disastrous foreign alliances, seen fully one-sixth of its U.S. market share melt away and watched its bond ratings sink below banana-republic levels," Paul Ingrassia, Dow Jones Newswire president and the former Detroit correspondent for the Wall Street Journal, wrote in an editorial in the newspaper last week titled "General Malaise."
Ingrassia predicted that the GM board would remove Wagoner by this summer.
Others said that the SEC investigation of GM's accounting problems raises troubling questions about the automaker's bookkeeping and leadership at a difficult time.
In response to the attacks, GM has begun making Wagoner available for interviews, including a story in this week's Newsweek magazine. On Sunday, the CBS news program "60 Minutes" aired its interview with Wagoner shot at Detroit's auto show in January.
Ultimately, Wagoner's fate could depend on whether GM can work with the UAW on a deal to save Delphi Corp. and avert a crippling strike at the automotive parts supplier.
He said that his strategy of working with the UAW on cutting costs is working.
"We've found that if we can work with the union rather than fight them, it's better. And that's our approach to try to solve these issues. And we have the same philosophy with Delphi," he said.
Copyright 2006, Detroit Free Press
Distributed by Knight Ridder/Tribune Business News.
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