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GM’s Wagoner sees difficult road in 2008

His critics would say he didn't move quickly enough, but few would dispute that Rick Wagoner has started to turn the giant freighter known as General Motors Corp.
GM Wagoner
"We look forward to the sunny days, but realistically we can't plan on it for next year," General Motors Corp. Chairman and CEO Rick Wagoner says.Paul Sancya / AP
/ Source: The Associated Press

His critics would say he didn't move quickly enough, but few would dispute that Rick Wagoner has started to turn the giant freighter known as General Motors Corp.

Since a devastating $10.6 billion loss in 2005, the company has cut labor and other costs, expanded sales overseas and moved to upgrade products to rival those made by the Japanese.

But just as years of work start to right the once-plodding industrial giant, Wagoner is faced with a gloomy U.S. auto market that could hamper GM's recovery plan.

"It would have helped to have a little bit of sunshine," he said this week in an interview with The Associated Press.

Yet the 54-year-old chairman and chief executive of the largest U.S. automaker is optimistic the rays will return and says his company is far better positioned to weather a tough 2008 than it was during past downturns.

"We look forward to the sunny days, but realistically we can't plan on it for next year," he said from his high-rise office along the slushy Detroit River.

Since 2005, GM has slashed $9 billion in annual costs, including the departure of more than 34,000 hourly workers to buyout and early retirement offers. It has globalized engineering, design and manufacturing to save billions, and there's the landmark cost-saving contract reached this year with the United Auto Workers.

On Thursday, GM tentatively agreed to sell its medium-duty truck business to a unit of truck maker Navistar International Corp. The sale, which involves a division that builds vehicles used as tow trucks, for example, is part of GM's plan to focus on building and selling passenger cars and pickup trucks.

"I'm glad we did all the stuff we did because frankly, the competitive conditions, the economy, obviously the discussions around the fuel economy regulations, certainly highlight that there's plenty of stuff to work on in front of us," Wagoner said.

If the dismal sales forecasts for next year come true, Wagoner said GM is determined not to rely on costly incentives, which hurt brand image and resale value, or low-profit fleet sales that have boosted its U.S. numbers in the past.

"I think, considering the state of the market, we've shown good discipline, and I think you'll see more of the same next year," he said. GM has spent about $2,975 per vehicle on incentives so far in 2007, down from $3,872 in 2004, according to the automotive information Web site

Wagoner said "the deal" topped the reasons people bought a GM vehicle in 2004. Now, thanks to stylish new models like the Cadillac CTS sedan and Buick Enclave crossover, the company says exterior styling tops the list, followed by value for the money.

"I don't want to mess with that. I want to keep building on that," he said.

Wagoner also said GM can meet new federal fuel economy requirements, but he's not sure if consumers will accept higher prices that come with the technology.

President Bush signed the new standards into law Wednesday, increasing the federal standard automakers must meet to an industrywide 35 mpg for passenger cars, SUVs and small trucks. The standard for cars today is 27.5 mpg, and 22.2 mpg for trucks and SUVs.

"I do think the challenge is really twofold. It's not just, 'Can you get the technology?', but 'What happens if people don't want to buy it?'" Wagoner said. "So that is the question mark that concerns me, but we'll have plenty of time to play that out."

Wagoner is ending a historic year at GM. While U.S. sales slumped, it posted record sales in other regions, including Europe and Latin America. It enjoyed a rare string of three profitable quarters before being stung by a record $39 billion third-quarter loss due to unused tax credits. Also, the automaker and the UAW agreed on a contract that transfers billions in retiree health care costs to the union and establishes lower wages for thousands of factory workers.

Wagoner said the full impact of the UAW agreement won't be felt until 2010. In the meantime, the U.S. industry is facing its slowest sales in a decade in 2008 as the housing crisis and gas prices wreak havoc on consumer confidence.

Wagoner said that even in a downturn, GM will cut elsewhere so that it can keep investing in technology, design and quality. It also needs to keep reducing low-profit sales, such as those to rental fleets, which were down 29 percent in November compared with the year before.

On Tuesday, the company announced a new round of buyout and retirement incentives for 5,200 hourly workers.

"We have to make sure we keep feeding the stuff that's critical for our future," Wagoner said.

GM's improved earnings and cost cuts have silenced many critics who just two years ago were calling for Wagoner's ouster.

But James E. Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago Graduate School of Business, said Wagoner, CEO since June of 2000, hasn't moved the company far enough.

Wagoner's response has been too focused on costs and not enough on product, according to Schrager.

"I think the world of him personally," said Schrager. "I think that he remains the wrong guy at the helm of GM. Given how long he's been around, he's doing good things, but they aren't enough."

GM, he said, continued to produce poor cars and rely on truck sales when signs were pointing to the market shift.

"The response time from GM to produce competitive cars has been very poor, and I think that some of their choices of where to enter the market have been ill-timed. And I think that General Motors underestimates the hangover of damage done over many, many years to their brands," he said.

GM is well aware of the quality gap that consumers believe exists between its brands and those of Toyota Motor Corp. and Honda Motor Co.

Wagoner said new vehicles, such as the redesigned 2008 Chevrolet Malibu, should go a long way toward showing that GM is serious about cars.

The Malibu has received critical acclaim for improvements such as a quieter cabin and a more luxurious interior, and Wagoner said the strong reviews should translate into higher sales, especially among drivers who have ignored domestic brands.

"We've got the best car in the segment," he said. "It will be a very good test case to see how far we can, how quickly we can, begin to change not only image but then consideration of the purchase."