General Motors chairman and CEO Rick Wagoner reportedly told employees on Thursday night that the car maker has no plans to file for bankruptcy despite heavy losses in its North American division and the threat of a strike at Delphi, its major supplier.
Go deeper with GlobalData
“I’d like to just set the record straight here and now: there is absolutely no plan, strategy or intention for GM to file for bankruptcy,” Wagoner said in a letter to employees, which a GM spokesman told The Associated Press (AP) was posted on an internal website.
Wagoner reportedly said GM has a clearly defined turnaround plan and “a robust balance sheet,” with US$19 billion in cash and $16 billion in assets in a trust fund for retiree health care.
“The large losses at GM North America are unsustainable, for sure, and require a comprehensive strategy to address them … a strategy that must be implemented promptly and effectively, to get our US business profitable again,” Wagoner said, according to the report.
AP noted that GM shares rose after the letter was posted after trading at a record low earlier on Thursday.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataAccording to The Associated Press, Standard & Poor’s Ratings Services upgraded its opinion of GM’s stock Thursday from “strong sell” to “hold,” saying it doesn’t expect the company to file for bankruptcy in the next 12 months. S&P reportedly said it also believes there is a low probability of a costly strike at Delphi, GM’s former parts division, even though union members rejected Delphi’s latest wage offer earlier this week. Delphi filed for bankruptcy protection last month.
“Although we expect high gas prices to hinder large vehicle sales, we project rebounding sales volume of these vehicles and a return to profitability in 2006,” S&P said, according to AP.
However, The Associated Press noted, GM’s mounting problems are causing speculation about the future of Wagoner and other top executives – GM’s US market share is falling and it lost nearly $4 billion in the first nine months of this year, crippled by high health care and labour costs. It is under investigation by the U.S. Securities and Exchange Commission for accounting errors, and it also could be liable for billions in pension costs for Delphi retirees.
“If the company continues to go south the way GM is doing, it does raise questions about the confidence the board has in these people,” Gerald Meyers, the former chairman of American Motors who now teaches at the University of Michigan, told AP. “I know they are dealing as best they can, but it’s just awful.”
The Associated Press noted that, among the investors who could call for a change is billionaire Kirk Kerkorian, who owns a 9.9% stake in GM. So far, Kerkorian hasn’t acquired a seat on GM’s board, even though the value of his investment has dropped substantially this year.
Industry analyst Maryann Keller told the news agency Wagoner isn’t entirely to blame for the company’s woes, which “go back generations of CEOs.” But she reportedly said shareholders and others will criticise management until GM takes bold actions. For example, Keller said, GM has said it will reduce 25,000 jobs and close several plants by 2008, but the job cuts are due to attrition and the plant closings haven’t been announced. The company also continues to pay dividends to shareholders.
James McTevia, a restructuring expert involved in the Delphi bankruptcy proceedings, reportedly said GM’s board needs to be more active and aggressive.
“I do not think they have been bold or dramatic enough about the direction in which they want take this company,” McTevia told The Associated Press. “GM’s problems are going to be solved by a lot of people, not just one.”
David Cole, who is chairman of the Ann Arbor-based Center for Automotive Research and has close ties to GM, told the news agency the company’s board has faith in Wagoner. He said Wagoner can’t be too bold because decisions like plant closings involve delicate union negotiations. Negotiations with Delphi also are unpredictable, he said.
“Nobody controls all the levers in this one,” Cole told The Associated Press.
GM seen bankrupt in 6-12 months
