Thursday, November 17, 2005

GM chief faces loss of confidence

DETROIT (Reuters) - As General Motors Corp. (NYSE:GM - news) tries to turn its ailing business around, the pressure on its chief executive is mounting amid concerns that nothing short of a change at the top will help the world's largest automaker.

Investors and analysts are losing confidence in GM Chairman and CEO Richard Wagoner, who rose to the helm of the company in 2000 and took control of daily operations at its struggling North American unit in April 2005.

This year alone, the car maker has lost almost $4 billion, shocked investors with earnings restatements, seen its stock plunge to new lows, come under investigation by federal regulators and lost significant U.S. market share to foreign rivals.

"When Wagoner took over for GM North America, he essentially implied that it was all on his shoulders now," T. Rowe Price analyst Brian Ropp said. "By taking on that role, he took full responsibility for North America, where the key issues are. And things have only gotten worse."

The company has been hurt by slumping sales of its large sport utility vehicles as high gasoline prices have made the longtime cash cows less popular. GM is also grappling with high health-care and commodities costs.

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To compound matters, a possible strike at GM's main parts supplier -- bankrupt Delphi Corp. (Other OTC:DPHIQ - news) -- could shut down a few plants and force GM to burn through billions of dollars in cash in a matter of weeks, analysts have said.

"If there is a continued dip in U.S. market share, board members will have to say enough is enough. Even though it is not completely Wagoner's fault, you just have to shake things up," Argus Research group analyst Kevin Tynan said.

GM spokesman Tom Kowaleski said: "Rick is fully engaged in running the company and doing the tough work to turn the business around."


Adding to the pressure on Wagoner is investor Kirk Kerkorian, who owns 9.9 percent of GM's stock, and is widely anticipated to demand a seat on the board next year.

GM shares, which have dropped more than 46 percent this year, spiraled to an 18-year low of $20.91 on Wednesday, helping to drag down the Dow Jones Industrial Average.

"Based on analysts' writings and comments, it is clear a sizable number and arguably a majority believe Wagoner should be removed from the top position at GM," marketing and research firm CNW said in a report on Wednesday.

"... This is not necessarily a judgment on how he runs GM as much as a belief that a dramatic change in management is necessary to signal a new direction will be taken," the report said.

Ratings agencies Moody's Investors Service and Fitch recently cut GM's debt deeper into "junk" territory, citing uncertainty about a financial turnaround.

"It seems like the rest of the world has figured it out. When are they going to figure it out?" independent analyst Maryann Keller said, referring to GM's leadership. "When are they going to declare a crisis and start running a company as though it is in a crisis?"

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Despite the pressure, some analysts believe Wagoner will see the auto giant through much of its planned restructuring, including the closing of plants and cutting of 25,000 jobs through 2008. Analysts also believe bankruptcy is a growing possibility, even though GM has said it is not considering Chapter 11 an option.

"If GM does file for a bankruptcy, he would be the one to take them into the Chapter 11 filing," Tynan said.

But Tynan and several other analysts say if Kerkorian does get a seat on GM's board next year, his patience could soon wear thin unless Wagoner can convince investors he has an aggressive plan for steering the company around.

"Kerkorian is not someone who stays on the sidelines at $21 a share when his average cost is $30 a share. 2006 is going to be the show-me year for him and other investors," Ropp said.

Kerkorian's spokeswoman was not immediately available for comment.


Many analysts believe that if Wagoner were to be replaced, GM would likely fill the position internally.

Analysts say Fritz Henderson, chairman of GM Europe; Robert Lutz, GM's vice chairman of products; or John Devine, chief financial officer and vice chairman, would each make good CEOs.

If the automaker were to bring someone in from the outside, many analysts favor Carlos Ghosn, the CEO of Renault (RENA.PA) and Nissan Motor Co. (7201.T) who is credited with turning the Japanese carmaker around.

Ghosn took control of Nissan in 1999, and transformed it into a profit machine, from a company that had bled $5.6 billion, and was rapidly losing market share in Japan and the United States.

"Nissan was on the verge of insignificance at least in the United States. Ghosn's job of turning it around was phenomenal, making it one of the Japanese Big Three here," Tynan said.

"GM today is in worse shape than Nissan was when Carlos took over. It's just a much bigger company with a much bigger problem in a much worse situation."

GM shares closed at $21.29, down $1.32, or 5.8 percent, on the
New York Stock Exchange.

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