Wagoner still has GM’s support

Despite huge losses, backing for CEO ‘has not changed,’ says spokesman

Robert Snell and Christine Tierney / The Detroit News

General Motors Corp. said its board continues to support Chairman and CEO Rick Wagoner despite the company’s deteriorating performance in the second quarter, when it lost a staggering $15.5 billion.

The board’s 13 directors gathered in Detroit on Monday and Tuesday for previously scheduled meetings that took place at a challenging time for the automaker.

GM is struggling with record oil prices, tight credit, sagging consumer confidence and a dramatic shift in demand from the automaker’s profitable pickups and SUVs to more fuel-efficient cars and crossovers. Wagoner, CEO since 2000, has been hampered in his turnaround efforts by the weakest U.S. auto market in more than a decade.

"The board has expressed support for Rick Wagoner and the GM management team on several occasions and that has not changed," GM spokesman Steve Harris said Tuesday.

Some analysts say it’s hard to fault Wagoner for most of the problems GM is facing, such as $4-a-gallon gas and the market collapse for its most profitable vehicles.

"I can understand the pressure, but from where I sit, it’s hard to see anybody else coping any better than what they have done," said auto analyst David Healy of Burnham Securities.

GM declined to characterize the board’s discussions, but a source familiar with them described them as contentious and said some members were concerned about the automaker’s performance.

Faced with an unexpectedly steep downturn in the U.S. market, Wagoner last month announced a series of cost-cutting measures and production shifts.

It takes time to turn around a "Queen Mary"-sized company, Healy said.

"I’m not sure changing horses mid-stream," is the solution, he said. "But I’m glad I personally am not either a director or manager on this set of problems."

The board has to determine whether Wagoner, who became chairman in 2003 in addition to CEO, is the best candidate to press ahead with GM’s recovery effort or whether another chief executive might be able to move faster.

Since 2005, GM has idled six plants and it has cut about 35,000 hourly jobs in the past two years, helping to shave about $9 billion in annual costs.

But those restructuring efforts have been undermined by the weak economy and falling sales in the United States. North American sales plunged 20 percent during the second-quarter and revenue fell by almost $10 billion.

GM’s results overseas have been mixed. In the Latin America, Africa and Middle East region, GM posted a $445 million pretax profit in the second-quarter, up from $296 million a year ago, while its Asian operations swung to a $65 million loss from a $294 million profit. In Europe, GM made $99 million, down from $345 million a year earlier. A record 65 percent of GM sales in the second quarter were overseas.

In November, GM posted a record $39 billion loss for the third quarter, including a $38.6 billion hit related to future tax benefits.

This year, as GM marks its 100th anniversary, analysts have raised concerns that GM might face the risk of bankruptcy. Analysts estimate the company is burning through cash at a rate of $1 billion to $1.5 billion a month.

With GM’s stock sinking last month to its lowest level in more than 50 years, Wagoner took further steps to raise cash. In July, Wagoner outlined ways to boost GM’s cash by $15 billion this year and next. Along with canceling its $1 a share dividend, GM plans to raise $5 billion through asset sales and borrowing.

GM also is slashing production capacity by 300,000 vehicles; laying off 1,760 hourly workers; and closing four truck plants, on top of downsizing measures taken in previous restructurings.

This is GM’s fourth restructuring plan in four years, by Gerald Meyers’ count. Meyers, a University of Michigan professor and former chairman of American Motors Corp., said the first three plans failed, but Wagoner likely will get about 18 months to prove the latest restructuring works.

"He is respected for his perseverance and courage and his vision," Meyers said of Wagoner, "but I think the jury is still out," on whether he will survive as CEO.