- The Washington Times - Sunday, June 5, 2005

DETROIT (AP) — General Motors Corp. investors have seen their shares tumble this year to the lowest price in more than a decade as the company’s U.S. market share for vehicle shares slumped from 27 percent to 25.4 percent.

They’ve also had to watch GM’s bond rating cut to “junk” status by two ratings firms as its losses topped $1 billion in the first quarter and a sales slump for profitable sport utility vehicles darkened the carmaker’s prospects for the remainder of the year.

What shareholders haven’t seen — or heard — is a comprehensive plan to turn around the company’s fortunes. And that’s certainly what they hope to get tomorrow at GM’s annual shareholder meeting in Wilmington, Del.

“Shareholders are feisty, and they own the company,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. “They’ve got some very tough questions.”

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. Mr. Kerkorian’s tender offer to purchase 28 million GM shares — which would increase his stake from 4 percent to nearly 9 percent — expires tomorrow.

So far, GM’s board has remained neutral on the proposal, but only because Mr. Kerkorian has assured GM that he doesn’t intend to acquire or influence control over the company. But Mr. Kerkorian, who tried to take over Chrysler Corp. in the 1990s, isn’t known as a passive investor.

Mr. Cole 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. So far, the UAW has indicated that it won’t reopen its contract, which expires in 2007, and agree to pick up a larger share of soaring health care costs. Mr. Cole said some sort of deal with the UAW that includes plant closings or other changes could be announced later this summer.

Mr. Cole does expect GM’s board to express its confidence in Chairman and Chief Executive Rick Wagoner, who took over day-to-day responsibility for the automaker’s North American operations in April.

“The board has complete faith in the management team to execute a turnaround, and this is where they will be more explicit in saying that,” he said.

Mr. Wagoner and others 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.

“Believe me, GM has a crystal clear strategy in place to turn around our fortunes, particularly in the U.S.,” GM Vice Chairman Bob Lutz wrote last month in his FastLane Web log (https://fastlane.gmblogs.com).

But some of the company’s programs have raised eyebrows. Analysts were puzzled last week when GM announced that it will offer employee discounts to any consumer who buys a new GM vehicle through July 5.

“GM has had the tendency for the past several months to devise big-splash marketing programs 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.

Even if the new promotion is successful, Mr. Ceraso said, GM could suffer from lower sales when the discount ends.

Others say GM’s management has shown that it doesn’t understand the company’s fundamental problems.

“I think they’re going to tell shareholders they’re restructuring, right-sizing and making it competitive. But I think in reality they don’t have answers,” said Peter Morici, an economist and professor at the University of Maryland.

Mr. Morici said 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 said.

Mr. Morici said Mr. 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 reorganizing the rest of the company under Chapter 11 protection. GM’s consolidated debt as of March 31 was $291.8 billion, according to Standard & Poor’s Ratings Services. The company had nearly $20 billion in cash at the end of the first quarter, and GMAC had an additional $18.5 billion.

“With their overhead and legacy costs, it is virtually impossible for the company to survive three to four more years,” Mr. Morici said.

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