With a $15.5 billion loss, can GM or its CEO survive?
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.