General Motors investors who have seen their shares tumble this year to the lowest price in more than a decade as the company’s US market share for vehicle shares slumped from 27% to 25.4%, and have also had to watch GM’s bond rating cut to “junk” status by two ratings firms as its losses topped $US1 billion in the first quarter, are hoping to hear of a comprehensive plan to turn around the company’s fortunes at the annual shareholder meeting in Wilmington, Delaware on Tuesday, according to the Associated Press (AP).
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AP said the normally sleepy meeting could be heated this year, especially after billionaire investor Kirk Kerkorian shook things up by promising to increase his stake in the world’s largest automaker – his tender offer to purchase 28 million GM shares – which would increase his stake from 4% to nearly 9% – expires on Tuesday.
David Cole, chairman of the Centre for Automotive Research, reportedly expects the meeting to produce few specifics on a potential restructuring, in part because it will depend heavily on ongoing talks with the United Auto Workers union which, so far, has indicated it won’t reopen its contract, which expires in 2007, and agree to pick up a larger share of soaring health care costs. Cole told AP some sort of deal with the UAW that includes plant closings or other changes could be announced later this summer.
According to the Associated Press, Cole does expect GM’s board to express its confidence in chairman and chief wxecutive Rick Wagoner, who took over day-to-day responsibility for the automaker’s North American operations in April.
Wagoner and others reportedly say the company’s turnaround will start with good products and include better pricing and marketing strategies, aggressive cost-cutting, a pared-down lineup of vehicles and possibly new agreements with the UAW.
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By GlobalDataBut so far, AP noted, some of the company’s programmes have raised eyebrows – analysts were puzzled last week when GM announced it will offer employee discounts to any consumer who buys a new GM vehicle until July 5.
“GM has had the tendency for the past several months to devise big-splash marketing programmes that ultimately prove to be less generous than expected, and thus do not have the desired effect on consumers,” Credit Suisse First Boston analyst Chris Ceraso said in a research note cited by the Associated Press. Even if the new promotion is successful, Ceraso reportedly said, GM could suffer from lower sales when the discount ends.
Others have told the news agency GM’s management has shown it doesn’t understand the company’s fundamental problems.
Peter Morici, an economist and professor at the University of Maryland, told AP that GM needs to explain to shareholders what percentage of the market it can reasonably sustain and then say how it will align its production and brands to meet that need. GM also needs to cut its bureaucracy and its salaries, from the executive level down to hourly workers, he reportedly said.
Morici also told the Associated Press that Kerkorian’s increased stake could force the company to consider more drastic measures, such as selling off General Motors Acceptance Corp., its profitable finance unit, and reorganising the rest of the company under Chapter 11 [bankruptcy] protection.
AP added that GM’s consolidated debt as of March 31 was $291.8 billion, according to Standard & Poor’s Ratings Services, and the company had nearly $20 billion in cash at the end of the first quarter, and GMAC had another $18.5 billion.
“With their overhead and legacy costs, it is virtually impossible for the company to survive three to four more years,” Morici told the Associated Press.
