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GM turns to Plan B
No. 1 automaker gives CEO oversight of North America; shuffling deck chairs on the Titanic?
April 4, 2005: 5:57 PM EDT
By Chris Isidore, CNN/Money senior writer
GM CEO Rick Wagoner, left, will take over day-to-day management of GM North America, which was previously the responsibility of Gary Cowger, center, and Bob Lutz, right.
GM CEO Rick Wagoner, left, will take over day-to-day management of GM North America, which was previously the responsibility of Gary Cowger, center, and Bob Lutz, right.

NEW YORK (CNN/Money) - General Motors Corp., trying to stem problems that have hit its stock price and share of the U.S. market, shook up top management Monday to give day-to-day responsibility of its core North American unit to CEO Rick Wagoner.

GM (Research) Vice Chairman Bob Lutz and Group Vice President Gary Cowger, who had been in charge of GM North America, will now focus full time on global responsibilities, the world's largest automaker announced.

"Given the challenges we face in North America, it makes sense for me to assume control of GM North America's day-to-day operations and shorten the lines of communication and decision-making," Wagoner said in a statement.

Shares of Dow component GM sank about 1 percent Monday. Overall, the shares are down about 40 percent from year-ago levels.

One analyst saw the moves as a sign that a recent spate of bad news has GM management jittery.

"I suspect that Wagoner is under a lot of pressure from the board to turn things around. To me it seems the company is in crisis mode," said David Healy, analyst with Burnham Securities.

Healy said that while GM has problems with its North American cost structure, he's not sure these moves are the way to improve results there.

"It's not a good sign when you transfer two of your most highly respected and able executives," he said.

Spate of bad news

GM announced last month that it would see a first-quarter loss of about $1.50 a share, rather than the 3-cent-a-share loss forecast by analysts at the time of the announcement. On Friday, its March figures put first-quarter U.S. sales down 5.2 percent compared with a year earlier, dropping its U.S. market share to 25.7 percent from 27 percent.

GM spokesman Brian Akre denied the management move is a result of crisis management and makes sense given the amount of attention Wagoner was already spending on North American operations.

"Any CEO of a large company is typically dealing with the pressing problems facing the company," he said. Akre said the reorganization of GM's European operations are going well, while Asia-Pacific and Latin America are also not the pressing problems for the company.

"We have four regions and three of our four regions are operating at target or ahead of targets," he said. "It's natural your focus is going to shift where the problems are."

Even with its global operations, GM's North American operations are the key unit for the company. In 2004 North America's auto operations accounted for 71 percent of auto revenue and 59 percent of company revenue overall.

Operating earnings from continuing operations in North America of $1.3 billion basically balanced out a slightly larger loss in Europe and allowed GM to post a narrow profit in its auto unit last year.

But those results will clearly not be repeated this year as the company admitted that continued downward pressure on car prices and rising costs in North America, especially health care expenses for both employees and retirees, are causing losses.

Some observers expressed doubts that Monday's changes will help the company's woes.

"Don't look for big results. GM's current leadership is responsible for the woes at its North American operations. This is like moving around the chairs on the deck of the Titanic," said Peter Morici, business professor at the University of Maryland. He said that GM needs to address what he called GM's "bloated bureaucracy."

General Motors, Ford Motor Co. (Research) and DaimlerChrysler (Research) have been forced to use large cash-back offers and below-market financing to boost sales as overseas competitors, notably Toyota Motor Corp (Research)., have taken a growing share of the U.S. market.

GM largely stemmed market share losses in the first four years of this decade but saw its share of U.S. auto sales drop to 27.5 percent last year from 28.3 percent in 2003.

The Detroit automakers have been battling the public perception that their vehicles lag in quality and higher costs as well.

And while GM has closed some of the quality and productivity gap compared with Japanese automakers' U.S. plants, its older plants can't shift production as rapidly to respond to shifting demand. On top of it all, stiff competition has forced prices lower while all the automakers are paying more for steel, oil and other commodities.

New responsibilities

Lutz will now focus on GM's global product development activities, while Cowger's new role will be in charge of global manufacturing and labor. Wagoner's statement said that the new roles for Lutz and Cowger were not less important than their previous responsibilities for North American operations.

"With the ongoing globalization of GM's product development organization, and the implementation of our global architecture strategy, Bob felt he needed to devote his efforts to product development full time, and I agreed," Wagoner said in the statement. "Bob's legacy at GM will be in our future cars and trucks. It makes sense for him to devote his full energies to that critical task."

Wagoner signaled he would be seeking changes in the cost structure and labor deals, particularly health care costs in the United States.

Chrysler Group was reportedly granted millions of dollars in health care cost savings last month in a deal with the United Auto Workers union.

"One of our biggest challenges is our lack of cost-competitiveness in the United States, which is due to our legacy costs, especially the ever-increasing burden of high health-care expenses," Wagoner said. "Addressing this challenge in a fair and equitable way requires close work with our union partners, in addition to our ongoing work with government and health-care providers. Gary is the ideal person to do this."

GM spokesman Akre would not discuss what changes the company would be seeking from the union other than to say, "There are negotiations ongoing with the UAW."

A spokesman for the union could not immediately be reached for comment.

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