Wagoner Attempts to Pave Road Ahead for GM
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PAUL SOLMAN, NewsHour Economics Correspondent: GM is in a race to save itself, both off-road and on. But just how much will it take for the world’s largest automaker to recover, if, that is, it can?
In the midst of a reasonably robust economy came the announcement of today of GM’s sixth-straight quarterly loss, $323 million. But looking on the bright side, the losses are growing smaller. GM lost $1.3 billion during the first quarter last year and a whopping $10.6 billion in 2005 as a whole.
Today’s lower loss then may be evidence of a leaner, meaner, GM. Last November, GM announced it would close all or part of a dozen plants and axe some 30,000 jobs in North America, nearly 10 percent of its workforce there.
And that was just for starters. Last month, GM offered buyouts to more than 125,000 employees, aimed largely at offsetting its huge health care disadvantage: some $1,500 per car compared to its foreign competition.
It also sold its majority stake in its financial arm, GMAC, to come up with ready cash. It’s all part of an effort to become profitable once more and beat back Asian rivals, like Toyota and Honda, who’ve helped knock GM from the top of the U.S. auto ladder.
GM’s U.S. market share is now down to 26 percent, its lowest since 1925. A continued decline at GM has implications for the economy as a whole.
Economist Peter Morici…
PETER MORICI, University of Maryland: It’s very important that America have a vibrant manufacturing sector, and the most significant thing Americans make is cars, because it covers every element of supply chain management, from the design of a product, through its sale, service and finance.
PAUL SOLMAN: Meanwhile, half a world away, GM is doing just fine. It has become the number-one producer of cars in the exploding China market. So GM’s CEO, Rick Wagoner, met at the White House today with President Bush and Chinese President Hu, among others. Before that, he sat down with us.
Rick Wagoner, welcome.
RICH WAGONER, General Motors CEO: Thanks. Great to be with you.
PAUL SOLMAN: You’ve cut costs. You’ve laid off workers. You’ve come out with new cars, and yet you’re still losing money.
RICH WAGONER: Well, I think, first and foremost, we are taking some big actions, not just to become profitable — which you want to do — but to really fundamentally restructure the company to be competitive in what is now a global auto industry and a global economy.
PAUL SOLMAN: Do the Japanese make better cars? Americans seem to believe that. I sit here as someone who myself actually believes that, based on my personal experience. Am I diluted? Are Americans diluted?
RICH WAGONER: I appreciate the confession. It’s good to set the record straight.
If you look at independent quality data — we don’t do it; other people do it — I think it’s instructive that GM plants rank at the top of all plants that build cars and trucks in the U.S., whether they be owned by Japanese, Germans, Americans.
It’s true. From category to category, one manufacturer may have the highest quality vehicle in that category, but it is a myth that American companies and General Motors’ quality isn’t completely competitive with the best of any that’s on the market. And our job is to make sure people get out and understand it.
PAUL SOLMAN: What took you so long? You know, this is a company, from “Roger and Me,” where it’s a company that appears quite clearly to be ducking any confrontation with the world and speaking, except in the ways it wants to speak, a company that, when I talk to people, say it’s a moribund, bureaucratic culture for decades now.
RICH WAGONER: Well, as far as the culture of the company, I think, let’s just measure by results. If you look back, even in the last six months, the list of actions that have been taken: increased product spending at a time of terrific financial pressures on the company; advanced the launch of new products; accelerate the application of biofuels E85; continue to bring out to the market fuel-saving, fuel-leading technologies in our vehicles.
At the same time, we announce a breakthrough health care deal with the UAW, significant capacity restructuring in the U.S., and a consensual agreement with the UAW on early attrition, major restructuring of GMAC, changes in salary and health care benefits. If you look at that, that doesn’t sound like a moribund company at all.
PAUL SOLMAN: You said the last six months. I mean, you’ve been CEO for how long now?
RICH WAGONER: I’ve been CEO for five or six years.
PAUL SOLMAN: Well, so, I mean, you’ve had — what about five years ago? Why didn’t you make these kinds of moves?
RICH WAGONER: Well, we’ve been making big moves. Five years ago, we had basically a minimal position in China. We had nothing in Korea. Our European businesses were losing money. South America had just gone into the downturn. Our products in the U.S. were not as well-considered as they are.
So we’ve completely restructured the business to run product development globally, for example. A lot of this stuff is kind of behind the curtain. I’m not sure you should worry about it, but I can guarantee you hard work to put us in a position to be very competitive in the future.
PAUL SOLMAN: You’re going to have lunch with or one of the people who is having lunch with President Hu today?
RICH WAGONER: Right, I think it’s a large group, actually.
PAUL SOLMAN: Yes, I know it’s not an intimate arrangement.
RICH WAGONER: No, I don’t think so.
PAUL SOLMAN: But how well are you doing in China? And what are the challenges that you face or a major challenge that you face in China?
RICH WAGONER: If you go back about a decade ago, GM had a minimal presence in China. The industry was less than a million units, closed market.
PAUL SOLMAN: A million units per year?
RICH WAGONER: A million units per year, sorry. Today, the industry is the second-largest national market in the world. It probably runs 6.5 to 7 million units. We’ve moved from basically a minimal presence to having — we grew share in the first quarter, and now we run about 13 percent share of the market.
Our sales were up 76 percent in the first quarter. We sell under…
PAUL SOLMAN: Seventy-six percent from…
RICH WAGONER: … from last year’s first quarter. We run under a multiple-brand strategy, Buick, Chevy, Cadillac, Hummer, Saab.
PAUL SOLMAN: Really, this is the old Alfred P. Sloan strategy?
RICH WAGONER: Alfred P. Sloan had a great idea. We didn’t run it that well for a while here in the U.S. We’re fixing it. But we run it well there.
PAUL SOLMAN: But that is a car for every sort of level of income?
RICH WAGONER: Yes, a car for every person and purpose, as you said. We do it there with a partner, 50-50 ownership structure, with a company called SAIC. They’ve been a great partner. We’ve continually expanded, so we’re able to invest that profit to grow the business there, and actually send dividends back to the U.S. to help us fund the turnaround here.
PAUL SOLMAN: Is SAIC government-owned?
RICH WAGONER: Shanghai municipality owns SAIC, Shanghai Auto Industry Corporation.
PAUL SOLMAN: Are you afraid that, as I’ve read, China is going to now create its own auto industry, take the knowledge that it’s gotten, for example, from a joint venture such as yours, and then just supplant any foreign presence, such as yourself, just go it themselves?
RICH WAGONER: Yes, I don’t think it’s a realistic probability that China will take companies like General Motors out of the business. I think it’s perfectly natural that they would want to develop their own industry, and I don’t think it’s fair for us to be against that.
To be completely fair about it, China has let us come in at an early stage. Japan did not; Korea did not. They basically closed the markets and said we’re having only local companies, and they set about policies to help those companies export with huge subsidies.
And so here we are, 40 or 50 years later, and say, “That wasn’t a very good deal for U.S.-based manufacturers.” China, to their credit, at least is letting us get in to play, to develop our brands, our capabilities. We expect to continue to be a big player over there.
PAUL SOLMAN: If things are going as well as you say at GM, then how come you could buy the whole company today for — I don’t know — $12, $14, $13 billion dollars, something like that, that is buying all of the stock up at its current price?
RICH WAGONER: So it sounds like a deal to you, too?
PAUL SOLMAN: Yes, if I had an extra $12 billion, I might well consider it. But why does the world not understand what you’re now telling us?
RICH WAGONER: I think people have been focused on the downside issues. We had a bad year last year, had a loss of $10 billion, which is huge by any measure.
I think people have been concerned about some of the tough issues. How are we going to address health care? How can we get our capacity right-sized? What’s going to happen with Delphi?
And I think until we get all of those issues clarified, it is an overhang on our stock price. But I think the most important thing we can do is stay focused on the business, keep working on cars and trucks that excite people, keep improving our financial results, generate cash. The stock price will come back.
By the way, I mean, this is a case where I, myself, about a year ago put a lot of my own money into GM stock, because I honestly believe there’s a huge opportunity.
PAUL SOLMAN: But you would understand that somebody like myself would be skeptical of what you would say about the financials? I mean, you’re under investigation from the SEC for having restated your financials in, I guess, 2002 to 2005, or during that period, at any rate. Is that part of the reason that the market is as skeptical of you as it seems to be?
RICH WAGONER: I think we’ve been very clear and transparent on that. If you’ve had a chance to read our 8-K’s, you know the extent of the closure. We found some issues where things were accounted for improperly. I think that’s exactly the issue; they were corrected; they were exhaustively corrected.
PAUL SOLMAN: What are the chances or the odds that GM will have to file for bankruptcy?
RICH WAGONER: We don’t have any strategy or plan to file for bankruptcy. Bankruptcy is a very bad idea, and just about everybody associated with GM, from customers, to employees, to retirees, to suppliers, just about anybody, to dealers, loses.
People who buy our products have a lot of choices, and we sell our cars one at a time to, every year, 9 million people around the world. I think they’re going to think twice about buying a car from a bankrupt company. That’s a $20,000, $30,000 purchase that they want to keep five, six, seven years. They want a service network. They want a part, a supply.
I think we can do better for our employees, too, than running and hiding from problems by bankruptcy. We think we can sit down across the table and say, “Hey, we can’t maybe give you everything we’ve given you in the past, but we can continue to offer very fair benefit programs, but we’re going to need to work together in cutting the costs of those.”
And that may be a harder way to go, but I think it’s a better way for everybody. It’s worthwhile doing. It’s the right thing for us. It’s the right thing for the U.S. economy, and we’re going to do it.
PAUL SOLMAN: But to be fair, you’d have to say that in an interview like this, wouldn’t you?
RICH WAGONER: I believe it; I strongly believe it. I’ve always felt like that you don’t get ahead in the world by not shooting straight, by not being credible. So I wouldn’t do what I’m doing if I didn’t have a high degree of confidence that we’re taking on the tough issues and we’re going to get the company turned around.
PAUL SOLMAN: Rick Wagoner, thanks very much.
RICH WAGONER: Thanks, Paul, appreciate it. Great to be with you.