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Wagoner's miserable month
Dismal sales in North America and an SEC investigation have pummeled GM's stock price. What's next?
October 27, 2005: 1:46 PM EDT
by Alex Taylor, Fortune senior editor
CEO Rick Wagoner says that GM is at a
CEO Rick Wagoner says that GM is at a "criticial juncture."
FORTUNE: How to Fix Detroit
Delphi’s CEO is following a strategy that should worry the UAW. (Full story)

NEW YORK (Fortune) - October is shaping up to be the worst month in a particularly awful year for General Motors and its chairman and CEO Rick Wagoner -- and it's not even over yet. The cascade of ill tidings has pummeled GM's stock price once again and renewed suggestions that the world's largest automaker may have to seek the protection of bankruptcy.

GM's latest blow is the announcement that the Securities and Exchange Commission has issued subpoenas regarding investigations into GM's pension accounting practices and its relations with auto parts supplier Delphi. After Delphi declared bankruptcy earlier in the month, GM disclosed that it could owe as much as $11 billion to cover pensions for Delphi employees who used to work for GM (Research).

The subpoenas indicate that the SEC has upgraded an informal probe of GM's practices into a formal investigation -- not exactly encouraging news, though GM says it has done nothing wrong.

More distractions and added legal bills are not what Wagoner needs these days. Only a week ago, GM reported that it lost $1.6 billion in 2005's third quarter, mostly because of another dismal performance in North America, where GM has lost more than $4 billion this year.

With additional losses likely on the way because of high oil prices, falling SUV sales and a host of other factors, Wagoner says that GM is at "a critical juncture in our company's history."

He's got a plan to bail GM out but so far it hasn't produced results. For instance, his deal to cut GM's health care expenses by $3 billion annually has been viewed skeptically because he hasn't announced many details and acceptance depends on agreement by members of the United Auto Workers, who haven't always acted kindly towards GM.

Watching all these developments carefully is Kirk Kerkorian, the Las Vegas billionaire, who increased his GM stake in October to nearly 10 percent, worth about $1.5 billion at current prices. Kerkorian started buying GM stock earlier this year and his presence creates another headache for Wagoner, who now has a big, impatient investor looking over his shoulder with the probable intention of agitating for a seat on the board of directors.

When he spoke with FORTUNE in August during his last extensive interview, Wagoner claimed that, rather than feeling beaten down by the cascade of woeful news, he was energized by it. "There's nothing like a good, tough battle to raise the adrenaline and get everyone focused," the onetime Duke basketball player said. "This is crunch time." But he admitted that company had let some issues fester without addressing them, and added "we don't have a lot of time."

SEC investigations, Delphi bankruptcy, dismal earnings, Kerkorian -- could it get any worse? Actually, yes. Next week GM is due to announce October vehicle sales and they are expected to be dismal. After blowout months in June and July because of lot-clearing employee price promotions, GM sales have plummeted this fall.

For one thing, the fire sale pulled ahead buyers who had been intending to make a purchase later in the year and also left dealers short of inventory. Meanwhile, the spike in gasoline prices around Labor Day spooked any remaining customers, especially those considering a big SUV.

Deutsche Bank analyst Rod Lache says he expect GM's sales to fall 25 percent compared to a year ago. That would give GM an October U.S. market share of 20.5 percent -- poisonous for a company with high fixed costs that expects to maintain a market share closer to 30 percent.

As recently as last week, Wagoner was saying "we remain bullish on the long term prospects of the auto industry in the U.S." He may be rethinking that now.

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