Friday, June 09, 2006

Annual Meeting Today to Test G.M. Theory of Relativity

June 6, 2006
Annual Meeting Today to Test G.M. Theory of Relativity

DETROIT, June 5 — Even though General Motors lost $10.6 billion last year and faces a particularly uncertain future, its chief executive, Rick Wagoner, will undoubtedly find plenty of good news to talk about at its annual shareholders' meeting in Wilmington, Del., on Tuesday.

Its stock price has managed to climb, despite some volatility, from a low in December. G.M. has begun closing plants under its latest turnaround plan. And even in the face of high gasoline prices, sales of a new family of sport utility vehicles are off to a promising start. In addition, the media storm around its embattled chief, Mr. Wagoner, has calmed somewhat.

But everything is relative. And G.M., relatively speaking, was better off at its shareholders' meeting last year than it is expected to be this year.

Consider its stock. Last year at this time, G.M. shares traded above $30, on their way to a closing high for the year in July of $37.52. But in the months following, G.M. stock lost more than half its value, dipping below $18 in December.

And while it has recovered most of its decline, closing on Monday at $26.05, down 44 cents, it is still more than 15 percent lower than where it stood a year ago — pinching its most loyal shareholders as well as its biggest investor, the billionaire Kirk Kerkorian.

That price pales when viewed against the $70-to-$85 range that some analysts had forecast a few years ago, expecting by now a strong lift from redesigned cars and new S.U.V.'s and pickup trucks.

Those vehicles, G.M. predicted, were going to increase its American market share from the 25 percent or so it held a year ago. So was its marketing plan, extending employee discounts to all shoppers, introduced last June. The effort sent auto sales soaring and was one reason the stock hit its 52-week high last summer.

But once the employee discount plans were discontinued in October, G.M.'s market share took a tumble from which it has not recovered. The company ended May with just 22.5 percent of the American market, the second-lowest level in its history, down three percentage points from last year.

Despite the slide in market share, G.M.'s stock price has been sustained by investors, who seem to be buoyed by every shred of positive news. That is what happened late last month when the stock rose on media reports and Wall Street speculation that a buyout plan for G.M.'s 113,000 hourly workers was running ahead of schedule.

The company, which is closing all or part of a dozen plants through 2008, would like the 30,000 workers whose jobs it plans to cut to leave voluntarily, rather than go into a program called the Jobs Bank, where G.M. must pay them their full wages and benefits.

G.M. shares are also getting a boost as the odds of a lengthy strike at the parts maker Delphi appear to be diminishing. Delphi filed for bankruptcy protection in October,.

A judge is now hearing Delphi's request for permission to set aside its labor contracts and impose sharply lower wage rates. If that request is granted, the United Automobile Workers union has voted to strike. That could shut down both Delphi and G.M. and potentially lead to G.M.'s own bankruptcy filing.

On Monday, lawyers for Delphi said negotiations had continued "in earnest" over the weekend with its six unions, including the U.A.W., which had rejected Delphi's bid to cut wages to as low as $12.50 an hour, from about $28 an hour.

"All of the unions are in active discussions," a Delphi spokesman, Lindsay Williams, said. He cautioned, though, that it would be hard to reach a comprehensive deal by Friday, when the next hearing is scheduled. A spokesman for the U.A.W., which holds its leadership convention in Las Vegas next week, declined to comment.

More good news came in a report last week by Harbour & Associates, which detailed improvements in G.M.'s manufacturing.

Five of the 10 most productive factories in the United States were G.M. plants, the Harbour report said. Moreover, G.M. said it had improved its manufacturing efficiency by 30 percent since 1998, and had closed almost 90 percent of the gap between its car plants and those run by Toyota, long considered the world's most efficient automaker.

Gary Cowger, a global group vice president at G.M., who oversees manufacturing, said last week, "We're pretty proud of the fact that over the past seven or eight years, we are the one manufacturer that has improved our productivity."

He continued: "The others have had their ups and down. We have consistently gotten better."

Such an improvement would have been hailed as miraculous a decade and a half ago, when the book "The Machine That Changed the World" drew attention to the efficiency of Japanese auto factories in the United States.

But these days, efficiency is less of a competitive advantage and more an expectation, said James P. Womack, an author of the book and an expert on manufacturing.

"In the great vastness of the problems facing G.M.," Mr. Womack said, "the plants are not the problem."

G.M.'s bigger issue, he said, is that those factories are saddled with turning out vehicles to support eight different brands. Mr. Wagoner, for his part, has insisted that there is no need to reduce the number of brands, despite criticism from Jerome B. York, a financial adviser to Mr. Kerkorian, that there are too many.

Mr. York, who was named a G.M. director this winter, will be attending his first shareholders' meeting on Tuesday. Mr. Kerkorian, like many G.M. equity holders, has profited little from his stake in G.M. — of 9.9 percent — over the last year.

He began buying the first of his 56 million G.M. shares at an average price of $30.10 last May; thus far, he is down $224 million on his entire stake.

The only gain he has made, in fact, is on 12 million shares that he sold in December to cover a tax liability and repurchased a month later for an average of $21.91 apiece.

On those shares, at Monday's price, Mr. Kerkorian is nearly $50 million ahead on paper — pocket change to a billionaire perhaps, but at least something to show for his G.M. gamble.

Copyright 2006 The New York Times Company


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