GM chief Wagoner calls bankruptcy a 'bad strategy'

[Ming]

GM chief Wagoner calls bankruptcy a 'bad strategy'
By Greg Bensinger —With reporting by Alan Katz in Paris and Jeff Green in Southfield, Michigan.
Bloomberg News
6/18/06

General Motors Corp. Chief Executive Officer Rick Wagoner said the company has no intention of filing for bankruptcy, and doing so would be a "bad strategy." Wagoner, in an interview aired on the Charlie Rose Show, said the automaker was on solid financial ground after posting $10.6 billion in losses last year.

Detroit-based General Motors reported a first-quarter profit, and Wagoner plans to trim $7 billion in annualized spending by the end of 2006.

"People say, 'Why don't you just put the company in bankruptcy and dump those liabilities?' " Wagoner said in the interview. "That's a bad strategy. That's a bad idea."

"General Motors in bankruptcy would be a company that would sell a lot fewer units," Wagoner told Rose. "If you were a consumer, you would think twice about buying a car from us."

GM, the world's largest automaker, is losing customers to Asian competitors, which have sold 39 percent of new vehicles in the U.S. this year. GM's share of the market has fallen to 23.7 percent in 2006, from 25.8 percent in all of 2005. "Our market share in the U.S. has been under pressure for years," Wagoner said in the interview. "I think it is certainly a consequence, in part, of this becoming a more global industry and open market."

Sales of GM cars and light trucks fell 12 percent in May, the fourth consecutive monthly sales decline. Asian brands' sales rose 10 percent in May, led by increases of 17 percent for Toyota Motor Corp. and 16 percent for Honda Motor Co.

Wagoner told employees in November that GM had no plan to file for bankruptcy. Other executives, including vice chairman Bob Lutz, have made similar comments since then.

"Bankruptcy is definitely not an ideal strategy," said Cyril Benayoun, a credit analyst at BNP Paribas SA in London. "With all the media attention it would get, I don't see how it wouldn't cause GM's sales to fall by 30 percent or 40 percent."

Benayoun said that potential car buyers would be concerned that GM wouldn't be around to service vehicles and trade-in values would decline. A filing for U.S. Chapter 11 bankruptcy protection would only reduce and not eliminate GM's health-care and pension liabilities, Benayoun said. Health care will cost GM $5 billion this year. GM's U.S. hourly and salaried pension plans were overfunded on a GAAP basis by $7.5 billion at the end of last year. GM expects to pay about $600 million this year to pension plans, mostly outside the U.S.

GM's ratings were cut to high-yield, high-risk junk last year by Moody's Investors Service, Standard & Poor's and Fitch Ratings.

Companies that have their investment-grade ratings rescinded default at almost twice the rate of those that never had such ratings, and seven of 10 stay junk, S&P said last year in a study of 24 years of data.

Moody's said June 12 that in the event that union workers at Delphi Corp., GM's largest supplier, make good on a threat to strike, it "could severely undermine GM's liquidity and viability." Moody's rates GM B3, or six steps below investment grade, with a negative outlook. About 30 percent of B-rated bonds default within five years, according to Moody's.

Continued: http://www.ecnnews.com/cgi-bin/15/et...0618-fn+page_0

[mkaresh]

I wish GM would turn the corner, if only so we wouldn't have to keep seeing the same "news" stories over and over again about whether GM will have to drop a brand, when Wagoner will be canned, whether they'll declare bankrupty, etc., etc.

Perhaps some journalist will do some real work and give us some new news? Not necessarily good news, just something new.

[djbango]

GM can not afford to match the competition, they must excel over their competition in such a way they consumer can not see any alternative but to buy a GM product.

Toyota used quality as their claim to woo consumers. Even though GM now matches the competition in that area, perception has already been cemented in the mind on the consumer. GM must style exteriors and especially interiors to exceed the expectation of the consumer.

A friend recently rented a G6, when I sat in it, I was so let down...such a good looking car, but that interior...oh my, that interior; and they want it to compete against what? Have the interior designers sat in their competition's products?

[mbukukanyau]

GM needs to show its interiors in commercials, I saw the new Tahoe commercial on TV and there was no interior shots..

[Ty_99]

I completely agree with Wagoner on the bankruptcy thing. What good could ever come from that???

Oh right, cause according to Friedman then Toyota can take over GM and all things in the world would be right. Silly me.

[56 Starchief]

GM is gonna smack Toyota in the back of the head in a couple years and run with it. With the new models out by that time I can feel it.

[civilzues]

People keep saying this because its the Media. We all know that many in the media are to retarded to think for themselves..GM will be better in the long haul, with all the new models and the criticism they are getting, they will keep improving everything

[Dead Dude]

This was an excellent interview.

[cfch3399]

Why does it seem we've read this article plenty of times before?
At this point, Wagoner shouldn't even entertain questions about bankruptcy. Be curt about it Rick, enough of the nice guy crap!

[toronado10]

Originally Posted by cfch3399

Why does it seem we've read this article plenty of times before?

That's what I thought. This must be at least the 7th time I've read an article like this in recent memory. Can't someone ask a different question, about products and not bankruptcy?

[CobaltSScrazy]

i'm sick of hearing about it, its not going to happen. these media folk need to let up and go report some actual news instead of manufacturing re-hashed stories over and over again. get over it.

[steverino]

Somehow you just have the feeling that if GM never files for bankruptcy and turns it around the media will spin it that they were the catalyst for GM's resurgence. Even Friedman will say he was the change agent.

[AutoGrifos]

After reading the headline, am I the only person to think, "DUH!!!"

[asim]

Originally Posted by AutoGrifos

After reading the headline, am I the only person to think, "DUH!!!"

No!

It doesn't take a genius to say that for the most part going into bankruptcy is a bad idea, especially for a company like GM that sells products to consumers. No body wants to buy a product from a company that declares bankruptcy, especially buying cars and trucks.

[tgagneguam]

...GM's share of the market has fallen to 23.7 percent in 2006, from 25.8 percent in all of 2005. "Our market share in the U.S. has been under pressure for years," Wagoner said in the interview. "I think it is certainly a consequence, in part, of this becoming a more global industry and open market."

This definitely concerns me, and I think it's the reason that GM-despite world-class effort exerted on some vehicles like the GMT-900's and the C6-continues to put forth a mixed effort on its products.

Rick, the primary reason GM lost share to import-branded competitors was because for decades GM built crap while its competitors offered clearly superior product. It's really that simple. Your competitors offered much more compelling vehicles than you did, and in many cases still do. When you acknowledge that, and when you address it with class-leading vehicles in every segment, you will watch sales rise on the retail level, you will see red ink ebb and black ink flow, you will see the media frenzy over reporting your demise evaporate and replaced instead with the same shower of praise that your competitors presently (and rightfully) enjoy.

The reason why we continue to read similar articles about GM's bankruptcy I think is because GM has not turned the corner... yet. Though with statements like the above, it makes me wonder if GM has gained an honest perspective on its problems. One day we're treated to great product releases like the FS SUV's (and presumably the soon-to-be-released FS pickups), while on the next day we hear that GM's going to let the TB and Envoy languish well beyond their expiration date rather than doing the harder work of properly addressing the MS SUV conundrum.

I know you possess the wherewithal to make consistently smart decisions, GM. The defining question is simple: are you up to the task?