Image: Richard Wagoner Jr.
Tim Shaffer  /  Reuters
General Motors corporation Chairman and Chief Executive Officer G. Richard Wagoner Jr. said the automaker expects to cut $7 billion in structural costs in North America.
updated 6/6/2006 8:18:24 PM ET 2006-06-07T00:18:24

General Motors Corp. has made significant progress on its turnaround plan in the past year, reducing costs and rolling out new products, the company’s chairman and chief executive told shareholders Tuesday.

But shareholders, gathered for their annual meeting, passed two nonbinding shareholder-sponsored proposals that would change election procedures for the world’s biggest automaker. It was the first time that such shareholder initiatives have ever won majority votes at GM.

Yet a plan to replace the entire board was shot down, with each of the current directors getting 96.6 percent of the vote.

Before the votes were announced, Chairman and CEO Rick Wagoner told shareholders that GM’s first-quarter earnings of $445 million were a good sign that better times are ahead for the automaker.

“It’s important to understand that our goal in this restructuring is not just to change GM’s bottom line from red to black. Our goal is to structure GM for sustained profitability and growth to set us up to be successful for years to come,” Wagoner said.

Wagoner touted increased sales in Europe and Asia and pointed to successful new product launches in North America. He said new product launches will account for nearly 30 percent of U.S. retail sales volume this year and about 40 percent next year as more new models roll out.

In North America, Wagoner said the company expects to cut costs by $7 billion by the end of this year, a big step toward the goal of reducing costs from 34 percent of revenue last year to 25 percent in 2010.

Video: GM’s shareholders meeting “These are huge reductions for GM and any other corporation anywhere,” Wagoner said.

At the meeting at the Hotel duPont, preliminary vote totals showed two proposals that would change the way the board is elected were approved. The changes in the election procedure still would have to be approved by the board, however.

One proposal asks the board to allow cumulative voting by shareholders, meaning that each shareholder can cast votes equal to the number of shares they hold, multiplied by the number of directors up for votes.

The measure would allow a shareholder to cast all votes for one director.

John Chevedden, a shareholder from Redondo Beach, Calif., whose family sponsored the proposal, said it would let shareholders to push for directors with expertise in areas that are needed by the company such as introducing products to capture more market share or corporate governance, which he said needs to be reformed.

The other measure that passed would require each director to win a majority of votes to be elected. Currently the top 12 votegetters are elected.

John Lauve of Holly, Mich., a sponsor of the majority voting measure and of a new slate of board candidates, said change is needed at GM because of last year’s $10.6 billion loss and because the company sold its finance arm, the General Motors Acceptance Corp., with no remuneration for stockholders.

“We’re just left out in the cold as this continues to implode,” he said while advocating a management shakeup.

Other proposals prohibiting further stock options for executives, requiring a report on global warming, requiring separation of the chairman and chief executive jobs and recouping executive bonuses if they were based on earnings that later were restated downward all failed.

Wagoner said the proposals would be referred to the board’s corporate governance committee. Delaware’s corporation law is now under review in regards to majority voting, he said.

“The board is very sensitive to the input from shareholders,” he said.

Majority and cumulative voting are trends that have been backed by activist shareholders for other corporations, said David Larcker, an accounting professor and specialist in corporate governance at the Stanford University Graduate School of Business.

If adopted, the proposals could give more power to institutional investors who might want to replace a particular director or directors by throwing all their votes at a few candidates, he said.

At a post-meeting question-and-answer session with reporters, Wagoner said he is not concerned about his future with the company because he’s just trying to keep the company on track. Shareholders called for his resignation at last year’s meeting, but no such calls were made on Tuesday.

He predicted continued earnings improvement in coming quarters.

“I think the basis for improvement may shift as the year goes on. I think we can continue to show year over year improvement, and we need to,” he said.

The company plans to stay the course on reducing vehicle incentives and sales to rental companies, even though it may cause a continued sales drop, Wagoner said. He left the door open for specific end-of-the-model-year offers and other changes.

“We’re going to read the market and see what the customer is telling us,” Wagoner said.

He also said there are no plans to end the Buick or Pontiac brands, although those brands may have fewer models in coming years.

GM’s U.S. vehicle sales dropped 8 percent in the first five months of this year as high gas prices took a toll on trucks and the company pulled back on sales to rental fleets.

Wagoner told reporters he is optimistic about talks with auto parts supplier Delphi Corp. and its unions over wage reductions and buyouts. “The general direction is positive,” he said.

Delphi, which has filed for bankruptcy protection, is negotiating with its unions while seeking a judge’s approval to cancel its labor contracts, a move that could provoke a strike and devastate GM, its former parent and largest customer.

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