General Motors (NYSE: GM) posted a $15.5 billion loss in its second quarter. This was much worse than analysts had expected. With its stock opening 8% lower, GM stock has lost 84% of its market value since CEO Rick Wagoner began that job on June 1, 2000. His failure to prepare GM for high gasoline prices, as Toyota Motors (NYSE: TM) has done, makes me wonder whether GM's board is asleep at the switch.
GM's North American results were really bad. The New York Times reports it lost $4.4 billion and its revenues plunged 33% from $29.7 billion to $19.8 billion. But Wagoner has promoted cost reduction plans. In June, Wagoner announced that GM would close four assembly plants making pickups and SUVs by 2010 and cut vehicle production by 500,000. Then, on July 15, he detailed a 20% cut in "salaried personnel costs, the elimination of health-care coverage for white-collar retirees past the age of 65, and cuts in advertising and marketing budgets and capital expenditures," according to the Times.
Some Administration officials have been touting the wonders of a cheap dollar as if that will save our industries from a collapsing domestic economy. They should think again. Meanwhile, it is a testament to Wagoner's board relationships that there have not been calls for a new CEO. There is absolutely no way that GM can cut its way to prosperity. He has led GM into a situation where his choices are to cut costs or to file for bankruptcy. During the booming SUV and truck years, Wagoner could have invested the profits in energy efficient vehicles.
His failure to do so has jeopardized GM and should end his role as its CEO.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
Reader Comments (Page 2 of 2)
8-02-2008 @ 7:59AM
Mike Sanders said...
What if GM were to do, what many of the chip-makers have done and go "fablous?" For GM, this would mean taking an "arm-length relationship" to manufacturing. GM would still design the cars and coordinate suppliers, but it would have the actual final assmbley, done overseas. That's pretty radical, but GM's situation (NAO's situation) indicates the need to do something, (radically) different. This would turn GM around in a hurry... I so wish that we could build cars here, but the red-tape and costs are insane!
8-02-2008 @ 8:57AM
Mike Glen said...
GM's and Fords failure is just an example of Greed and Stupidity. For yrs the big corps have been going to asia and Mexico for cheap workers. Problem is these workers cannot afford most of the goods they make or have no interest in it. It seems most big business's forget the basic rule of economics, people who work, buy.
8-02-2008 @ 9:10AM
TomWilkinsonatGM said...
Many people don't realize that cars are the most complex, most heavily regulated product in the world. (With the possible exception of commercial aircraft.) You need a massive design and engineering organization, and a strong presence in all major markets, just to survive. So for GM, there is no option but to fix the business, which we are doing. Most people who think there is a quick fix, i.e. outsourcing or Ch 11, have never been in the business. And this complexity is why most of us stay and fight our way through the crises. It gets in your blood after a while.
8-02-2008 @ 10:45AM
Sheila said...
Lets see who actully runs GM? I mean who makes all the decisions? Is it the union, labors, government, ceos or what? If you narrow it down to who is at fault ask the question who is in charge? No one is their right mind who owns a business would keep someone employed who was not doing their job. Especially if that employee was stealing or sleeping on the job. To many chiefs and not enough indians does not make sense. I am so surprise of all the comments I am reading. Personally I thought the person who wrote the article for AOL did a very accurate job.
8-02-2008 @ 11:37AM
nickerson said...
I have a plan for GM. Sell off all parts except Buick and Chev, Caddy. Get rid of about 30,000 more union people. Move all your operations to the south. Hire the best QC folks you can get. Model your operation after Toyota and Honda. As long as you have the unions bleeding you dry and people like Sen LEVIN being their mouth piece you will be in the tank. You have only the stockholder to account to not the union thugs.
8-03-2008 @ 8:39PM
Maria V. said...
The Demographics has changed in the car buying population, yet over 90% of GM’s mid to upper management is still men – even though 49% of the workforce in America are women. I do not think GM knows how to take care of women. That's why women, who make up 65% of new car purchasers and influence 95% of new car buys, try to find whatever man they can to come with them into the dealership. It is like walking through a construction site with the men whistling. It is an awkward feeling that you do not feel safe; that the men at the dealership are about to take advantage of you. Studies show that both men and women prefer to buy their cars from women. Yet GM has only 3% of their dealerships owned by women. Another fact, those dealerships that are owned by women far out-pace, on average, the average male dealership in terms of sales.
8-03-2008 @ 8:46PM
Sandy said...
GM does not know how to efficiently run a company. Instead of keeping up with the times, they fought vigorously to keep women-blacks-Latinos out of their white-collar workforce. This caused an environment of overpaid, white "yes" men who said yes to anything that upper management said. A man making $150,000 at GM would receive about $90,000 at any other company but GM has a habit of overpaying their white “yes” men. Good thing the yes men agreed to go with upper management and continue advertising with the same agency that decreased Pontiac sales by over 60% in the past 8 years and sunk Oldsmobile into dissolve with Leo Burnett’s famous “It is not your father’s Oldsmobile”. Now we can say, “It is not your father’s Buick, Pontiac, or GMC vehicle”.
8-05-2008 @ 7:53PM
Carl said...
Impala has better gas mileage than Camery
Chevy Colbolt has better mileage than Corrrola
Pontaic G6 has better milage than Camery
GM has great Quailty at great Prices also.
Talk to people that dive them!!!
I have 84,000. on my BUICK and have done nothing but front brake pads at 39,000 miles and at 80,000 , it get 35MPH on the highway.
8-12-2008 @ 7:55PM
Bill Dollar said...
In any other industry Rick Wagoner would have been fired years ago. But sadly Detroit is in denial and has been for the last 35 years. GM will allow this terrible executive to continue to ruin the company. And yes, the board of directors have been asleep at the switch.