From today's Journal....
-Dan
GM Shifts Its Strategy Into Reverse
Company Plans to Shut Four Plants
As Truck Demand Falls; Hummer for Sale?
By JOHN D. STOLL
June 4, 2008; Page B1
Wilmington, Del.
After three years of restructuring and tens of billions of dollars in losses, General Motors Corp. shifted direction once again Tuesday, unveiling plans to close four truck plants and possibly sell its Hummer brand.
Associated Press
GM shareholder and Buick car salesman James Dollinger, right, points toward CEO Rick Wagoner, left, during the GM shareholders meeting Tuesday.
The moves were forced on GM by soaring gasoline prices, which are prompting more consumers to opt for more fuel-efficient vehicles. The struggling auto maker must now try to rapidly reduce its dependence in North American truck sales, once seen as the key to its turnaround.
The abrupt shift, outlined at GM's annual meeting, is an acknowledgment that Chairman and Chief Executive Rick Wagoner miscalculated in 2005 when he bet big on trucks. That plan, based on expectations of steady vehicle sales and gas prices in the U.S. through 2008, won the backing of GM's board and helped Mr. Wagoner prevail in a 2006 boardroom battle with then-shareholder Kirk Kerkorian.
But like many in the auto industry, Mr. Wagoner didn't anticipate a rise in gas prices to $4 a gallon, nor did he see the slump in the U.S. economy brought on in part by the housing crisis. Both factors have damped vehicle sales and caused consumers to shift away from trucks to cars.
This rising consumer focus on fuel efficiency is shifting the competitive landscape in the U.S. auto industry. GM, which dominated the U.S. market for decades, is now in a neck-and-neck race with Toyota Motor Corp. Hurt by declining truck sales, GM in May saw its U.S. market share fall to a new low of 19.2% -- just a nose ahead of Toyota's.
PLANT CLOSURES
Oshawa Truck Assembly in Canada, which builds the Chevy Silverado and GMC Sierra, will likely cease production in 2009, GM said.
Moraine, Ohio, which builds the Chevy TrailBlazer, GMC Envoy and Saab 9-7x, will end production at the end of the 2010 model run, or sooner.
Janesville, Wis., will cease production of medium-duty trucks by the end of 2009, and of the Tahoe, Suburban and Yukon in 2010, or sooner.
Chevrolet Kodiak medium-duty truck production will also end in Toluca, Mexico, by the end of this year.
• Map: North American Auto PlantsGM's decision to scale back truck production means that losses are likely to continue for at least another two years, and possibly longer -- prolonging one of the worst stretches of corporate losses in history. Between 2004 and 2007, GM lost more than $55 billion, and in this year's first quarter, it reported a loss of $3.25 billion.
Mr. Wagoner outlined the plan before a group of about 80 shareholders gathered Tuesday in Wilmington for the annual meeting. He told them that his turnaround strategy for the U.S. has "made significant progress on all fronts." Fixed costs have fallen significantly, sales are rising in emerging markets, and GM is pushing to produce a new plug-in vehicle by 2010, he said.
Mr. Wagoner took over as chief executive in 2000. His track record has been rocky. GM's stock, which closed Tuesday at $17.58 in 4 p.m. composite New York Stock Exchange trading, is now near a 26-year low. GM's market share in May was about one-third lower than it was when he took over. Its market valuation now stands at $9.87 billion -- less than one-quarter of what it was in 2000.
Some shareholders are frustrated. "You don't get a sense that the General Motors crowd really gets it," said Sister Patricia Daly, who represents the Sisters of Saint Dominic of Caldwell, N.J., a religious order that owns GM shares, in an interview on Friday. "Even in the 1990s, it was clear they weren't going to be able to sell the big SUVs for 15 years without any impact."
On Tuesday, Jim Dollinger, a small investor and auto-sales consultant, spotted George Fisher, GM's lead independent director, in the hotel where the shareholder meeting took place. He chided Mr. Fisher for what he characterized as the unwillingness of GM's management to listen to dealers and shareholders.
Mr. Fisher responded that the board would be glad to listen to Mr. Dollinger but did not like his brash approach.
In an interview last week, Mr. Fisher said the board supports Mr. Wagoner and believes the CEO is taking the necessary steps to fix the company.
Other shareholders were supportive of management on Tuesday. "GM has for a long time shown it can lead in truck designs. Now it needs to show it can do the same with car designs," said Carol Moreno, an analyst with TCW Group Inc., which owned 16 million GM shares as of March 31 and has added to the position this quarter.
As far back as 2005, when gas prices were rising past $2 a gallon, SUV sales were falling, and many in the industry were saying the SUV era was coming to an end.
Mr. Wagoner disagreed. That year, he accelerated the launch of the company's new trucks and SUVs by six months. The market for large SUVs is "stable, not shrinking," he said at one press conference.
Other auto makers, including Toyota, also thought demand for trucks would remain healthy. But GM's crosstown rival, Ford Motor Co., had a dimmer view of truck sales, and began downsizing its truck capacity.
Interactive map of auto maker plant closings.
In 2007, GM's turnaround effort was lifted by booming sales in China, Latin America and other emerging markets. The company began trying to position itself as more than just a seller of gas-guzzling trucks. It unveiled a concept for a battery-powered car, called the Chevrolet Volt, that drew praise from environmentalists. It added a sprinkling of hybrids to its lineup, including hybrid versions of its big SUVs.
But gas prices started creeping up. Sales of big SUVs, which are made from the same components as those used in full-size pickup trucks, began falling sharply. In this year's first quarter, the entire industry was on pace to sell only about 500,000 full-size SUVs for the full year -- half as many as were sold in 2003. To produce that many, the industry would need only two plants. GM alone has two plants making big SUVs.
Last month, GM announced it would slash production at four truck plants in the second half of the year. Mr. Wagoner gave up day-to-day oversight of GM's global auto operations, turning it over to Frederick "Fritz" Henderson, who was promoted from chief financial officer to chief operating officer and president.
By last month, gas prices had climbed to $4 a gallon in many parts of the country, and even some hard-core pickup buyers began defecting to smaller vehicles. As the month wore on, Messrs. Wagoner and Henderson concluded the truck market was in a "structural" or long-term decline. GM couldn't continue making trucks in six plants, they decided.
On Tuesday, Mr. Wagoner declined to forecast when GM will return to profitability.
Write to John D. Stoll at
[email protected]