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GM's CEO Cites Progress In Turnaround Effort
posted by admin on 21/06/06

WILMINGTON, Del. -- General Motors Corp. is making progress in turning around its core North American auto-making business, the company's top executive told shareholders Tuesday. 

Speaking at the company's annual meeting here, Chairman and Chief Executive Rick Wagoner said GM has been aggressively implementing the revitalization plan that was first announced at last year's meeting, which was marked by shareholder criticism of the auto maker's financial and market-share woes. 

While the tone of this meeting was less hostile, holders did approve a measure that could give them more influence in the election of board members. The proposal on so-called cumulative voting had failed on 19 prior occasions, according to GM. 

Mr. Wagoner said that GM's first-quarter profit of $445 million, which ended a five-quarter streak of losses, "was an encouraging sign that our turnaround plan is working." Last month, the company transformed a previously reported first-quarter loss into a profit after regulators allowed GM to revise the way it accounted for a health-care deal with the United Auto Workers union. 

The CEO said that the company is working to "change GM for tomorrow" and that he has no doubt the efforts will be successful. "Our goal is to structure GM for sustained profitability and growth." 

"We have absolute clarity about the road ahead," Mr. Wagoner said, thanking shareholders for being patient and supportive of the company even as it slashed its stock dividend earlier this year. "We have a strong plan and I have no doubt we will succeed." 

But the GM chief warned that near-record gasoline prices continue to be a deterrent to GM's recovery, carving deeply into its sales of the sport-utility vehicles and pick-up trucks that have for years been the company's biggest profit-makers. 

GM endured one of its most difficult years in 2005, as it struggled with a continued loss of market share and a burdensome cost structure. The world's largest auto maker posted a $10.6 billion loss and saw its top supplier, Delphi Corp., plunge into bankruptcy. GM's share price suffered the ire of Wall Street, moving as low as $18.33 in December, a two-decade low. 

The auto maker's shares have soared in recent months amid optimism that the turnaround plan is gaining traction, and that has relieved some of the pressure on Mr. Wagoner, who earlier this year had to face down talk he was on the way out. The stock was off 80 cents, or 3%, at $25.25 in 4 p.m. composite trading on the New York Stock Exchange, but is up roughly 30% year-to-date. 

GM's restructuring is anchored by a plan to cut 30,000 jobs and shutter nine manufacturing plants in North America, while also trimming benefits to employees and reducing the financial drain of its "JOBS Bank" of idled workers who get paid near-full wages and benefits. GM also cut its dividend to shareholders in half and cut executive pay earlier this year. 

GM is offering early retirement and buyout packages to its entire U.S. hourly work force in hopes of reaching its attrition goals. The company reports the plan, which runs through the end of June, is making progress, but has not given specific results. Mr. Wagoner told shareholders Tuesday that he is "quite pleased" with the results of the program, but added that the company still has more work to do to achieve its cost-cutting goals. 

GM has also been taking steps to boost liquidity. Among recent moves, the company in April reached a deal to sell a controlling stake in its profitable General Motors Acceptance Corp. to Cerberus Capital Management. The transaction, which is expected to add $14 billion to GM's coffers over three years, is on track to close by the end of the year, Mr. Wagoner said. 

The executive also said he is pleased with the success of the company's newly launched vehicles, especially full-size SUVs. 

Mr. Wagoner said that new models accounted for one-third of sales in the first quarter and should represent 30% of U.S. retail sales volume for the whole of 2006, up from 20% last year. In 2007, launch vehicles are expected to account for 40% of total sales. 

The GM chief also reiterated the company's commitment to improving the profitability of its sales. Last summer, the company launched an employee-discount-for-everyone program that spurred record sales but failed to boost profits. 

"Rather than incentives, we're promoting our brands," Mr. Wagoner said Tuesday. "We're focused on the mix and quality of our brands, including reducing the rental business." 
Sales to rental car agencies are generally considered to be less profitable than those to retail customers. 

While improving the sales mix will undoubtedly result in "some challenging months" for sales figures, "it will pay off in the long term," he said. 

Holders Vote on Resolutions 

Taking up various resolutions Tuesday, shareholders voted 54% in favor of a proposal for cumulative voting, while 43% rejected it and 4% abstained, the company announced at the meeting. Under cumulative voting, a shareholder may cast all cumulated votes for a single candidate or split votes among multiple candidates, as that shareholder sees fit.
Stockholders who suggested the proposal said cumulative voting could lead to a more diverse board of directors, with at least one member focused on corporate governance. "On the heels of two major convictions at [bankrupt energy company] Enron, the company could benefit with one director focused on corporate governance," said California-based shareholder John Chevedden. 

Mr. Wagoner said the proposal could undermine the company's goals. In GM's opposition statement to the proposal, the company said that cumulative voting could lead to the election "of a board member obligated to represent the special interest of a small number of stockholders." 

Shareholders countered that the director they may elect under the new cumulative system would represent "specialized expertise," not special interests. 

Shareholders also approved a measure Tuesday requiring that GM directors be elected by an outright majority of votes. The board has to consider it before it is adopted, but Mr. Wagoner noted that laws in Delaware, where GM is incorporated, look to be on track to force companies such as GM to move toward majority voting on the election of directors.
Shareholders shot down a plan to replace the entire board, with each of the current directors getting 96.6% of the vote. 

A separate proposal to recoup executive bonuses that may have been improperly awarded in recent years gained relatively strong support at the annual meeting. The proposal argues that due to financial restatements in the 2000 through 2004 period, executive compensation based on financial performance was flawed and overpaid. 
Nearly 42% of the votes were in favor of the initiative. Even though it failed, the board will conduct a "thorough review" of the proposal, Mr. Wagoner said. 

Write to John D. Stoll at john.stoll@dowjones.net4 and Simona Covel at simona.covel@dowjones.com5

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