Friday, April 14, 2006

Lutz: GM in driver's seat by 2011

Lutz: GM in driver's seat by 2011

Wall Street is all wrong, vice chairman says; Chapter 11 bankruptcy is 'out of the question.'

Brett Clanton / The Detroit NewsApril 13, 2006

NEW YORK -- General Motors Corp.'s top product executive came out swinging Wednesday in the heart of the financial world, dressing down Wall Street critics who say the automaker is headed for bankruptcy, defending embattled GM Chairman Rick Wagoner and predicting the automaker is poised for a historic comeback.

Vice Chairman Robert Lutz said a Chapter 11 bankruptcy filing is "out of the question" and that he "absolutely refuses to believe" there will be a strike at key supplier Delphi Corp. because the consequences would be too great for all.

Predicting that in four to five years GM will be in far better shape, Lutz used a platform at the New York International Auto Show to rail against naysayers who he claims are ignoring the progress GM has made in turning around its North American auto business. He singled out New York-based financial analysts for creating and fueling the "fiction" that GM is bankruptcy bound.

"Most of the analysts living in New York don't even own cars, and have never even visited one of our dealerships," he said.

Lutz further suggested that Wall Street analysts may have profit motives for casting doubt on GM's future.

"At some point, I start to question whether they're holding short positions on the stock," he said, referring to the practice of betting that a stock price will fall over a short period in hopes of collecting on the back end.

Lutz's comments are the most pointed to date from a GM executive in defense of the struggling automaker. And they highlight a criticism that Detroit automakers often raise of auto analysts: that they are too far removed to know what's really going on.

But analysts say they have played a valuable role that executives may not acknowledge.

"Without pressure from Wall Street, they would never have got things moving," said Brad Rubin, an industry analyst with BNP Paribas in New York. "It took Wall Street to wake them up."

A good example of how unrealistic GM management has been came early last year when GM projected it would turn a solid profit, but instead lost $10.6 billion.

After the loss, GM intensified a sweeping overhaul of its North American auto business, which has been plagued by a decline in sales of its profit-rich SUVs, increased foreign competition and crushing obligations to retirees.

GM plans to close or downsize 12 facilities and slash 30,000 hourly jobs by 2008, shift more health care costs to retired factory workers and pare back pensions for salaried employees.

Industry analysts, though, point out that GM still has many serious problems to resolve.

Chief among them is the possibility of a strike at Delphi, GM's largest parts supplier.

Spun off from GM in 1999, Delphi filed for bankruptcy in October and last month riled its unions representing its 33,000 hourly workers by filing a court motion to terminate its labor contracts. With tensions high, the situation could blow up into a strike that could shut down both Delphi and GM in a matter of days, though the companies pledge to reach an agreement that avoids that outcome.

Until there is a deal, there will continue to be speculation about a GM bankruptcy, said Jeremy Anwyl, president of Santa Monica, Calif.-based, an industry research firm.
"They don't want to file, but the question analysts are asking is 'Would they be forced to by events beyond their control?"

At a minimum, GM estimates it will have to pay between $5.5 billion and $12 billion to cover post-retirement benefits for former workers at Delphi. In anticipation of the hit, the company has raised cash by selling a majority stake in its profitable GMAC finance arm and unwinding other partnerships.

GM also says a list of cost-cutting moves under its North American turnaround plan will help it reduce overall costs by $7 billion beginning next year.

"Soon, all will be revealed to you," Lutz told reporters. "And the last skeptic in America will be convinced that we are well on the way to recovery. GM has its best days ahead of it."

He said Wagoner will be praised for engineering one of the biggest corporate turnarounds in history.

"General Motors will come back and blossom like never before, and Rick Wagoner will be the celebrated hero at the head of the company," Lutz said.

Wagoner has come under fire for GM's latest financial losses, and speculation has been rampant that his days atop GM are numbered. Last month, the company's board gave him a public vote of confidence, reportedly at Wagoner's request. GM dealers last week ran a full-page ad in the Wall Street Journal backing Wagoner.

"I've worked for a lot of CEOs in my life, including some who are very famous and wrote books," Lutz said, in a reference to former Chrysler Corp. Chairman Lee Iacocca.

"And Rick is the best, most stable, most thoughtful guy I have ever worked for. He's not dramatic. But he gets the job done."

Due in part to the bullish comments from Lutz, GM's stock jumped more than 4 percent to close at $20.03 Wednesday and helped send the Dow Jones Industrial Average over 11,000.

Despite Lutz's claim that GM's darkest days are past, the company faces big obstacles as it renegotiates a crucial United Auto Workers contract in 2007, introduces vital new pickups and waits for cost-cutting measures to take hold, said Glenn Reynolds, president of New York-based CreditSights.

"The worst behind them?" he said. "Not unless he just took the time machine to early 2008."

You can reach Brett Clanton at (313) 222-2612 or


Post a Comment

<< Home