GM shakes up North America unit

April 05, 2005|By Rick Popely and Jim Mateja | Rick Popely and Jim Mateja,CHICAGO TRIBUNE

Chief executive G. Richard "Rick" Wagoner Jr. shook up the management of General Motors Corp.'s ailing North American operations yesterday, announcing that he will be responsible for its day-to-day duties.

Wagoner, 52, who ran the North American operations from 1994 to 1998, takes over from North American Chairman Robert A. Lutz and President Gary L. Cowger.

The pair will retain their titles but focus on global responsibilities: Lutz on product development, Cowger on manufacturing, GM said.

More changes are inevitable, said Peter Morici, a University of Maryland business professor. "The North American operations need a fundamental shift in strategy that will free up more cash for new product development and lower product development and production costs."

Morgan Stanley analyst Stephen J. Girsky said in a research note that it "may be the precursor to more aggressive actions" and questioned Wagoner's ability to handle the additional responsibility.

"What Rick has done with these moves is put a noose around his own neck," said David E. Cole, chairman of the Center for Automotive Research, an Ann Arbor, Mich., think tank. "If it works, he spreads the credit around. If it doesn't work, he accepts the blame."

Joseph Phillippi, principal of Auto Trends Consulting in Short Hills, N.J., said the realignment of Lutz and Cowger means they "can focus more on the critical issues, and that makes sense. They have been diverted by sales and marketing and market share reports."

But independent analyst Maryann Keller, a longtime GM critic, said Wagoner was forced to step in because Lutz and Cowger haven't performed.

GM's chief spokesman Tom Kowaleski denied that Lutz and Cowger were pushed aside. "We're trying to put our resources into place where they are needed most to move faster and more efficiently globally.

"Why would [Lutz] be put in charge of all global development, which includes North America, if that was the case? He hasn't relinquished North America, he's working on ways to develop product globally that would help North America," Kowaleski said.

Keller said the company's North American problems are rooted in products. "It's simple. Give the American public a car it really wants to buy. It doesn't matter how efficiently you build your cars if nobody wants to buy them."

Three weeks ago, GM said it expects to lose about $850 million, or $1.50 a share, in the first quarter, mainly because of sagging sales of large sport utility vehicles in North America. The automaker had forecast in January that it would break even for the quarter.

For the full year, GM expects to earn $1 to $2 per share, before special charges, a sharp reduction from its January forecast of $4 to $5 per share.

GM said its North American automotive operations will post a "significant loss" this year and has not announced when it expects it to be profitable. Most of GM's profits in recent years have come from GMAC, its finance unit.

The lower forecast announced March 16 sent GM's shares lower and prompted warnings that GM's debt could fall to junk status. GM's shares shed 33 cents yesterday to close at $29.05.

The management changes were initiated about a month ago when Lutz suggested that he should step away from his duties as chairman of North American operations to develop products GM can sell globally, said Kowaleski, the GM spokesman.

Wagoner agreed and suggested that Cowger should oversee a corresponding global manufacturing strategy, Kowaleski said.

Cowger, credited with making GM's North American manufacturing the most efficient of the domestic Big Three, has been told to reduce the automaker's soaring health care bill, which GM estimates will be $5.6 billion this year. That will probably mean tense negotiations with the United Auto Workers union in the middle of a four-year contract that ends in 2007.

The Chicago Tribune is a Tribune Publishing newspaper.

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