Tue, Jun 07, 2005 page12

• Investors fume as GM declines

  SALES SLUMP Share prices at the US automaker have hit their lowest point in about a decade, and the management doesn't appear to know how to turn things around

  • AP
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  General Motors Corp investors have seen their shares tumble this year to the lowest price in more than a decade as the company's US market share for vehicle shares slumped from 27 percent to 25.4 percent.

  They've also had to watch GM's bond rating cut to "junk" status by two ratings firms as its losses topped US$1 billion in the first quarter and a sales slump for profitable SUVs darkened the carmaker's prospects for the remainder of the year.

  What shareholders haven't seen -- or heard -- is a comprehensive plan to turn around the company's fortunes. And that's certainly what they hope to get today at GM's annual shareholder meeting in Wilmington, Delaware.

  "Shareholders are feisty, and they own the company," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan. "They've got some very tough questions."

  The normally sleepy meeting could be heated this year, especially after billionaire investor Kirk Kerkorian shook things up by promising to increase his stake in the world's largest automaker. Kerkorian's tender offer to purchase 28 million GM shares -- which would increase his stake from 4 percent to nearly 9 percent -- expires Tuesday.

  So far, GM's board has remained neutral on the proposal, but only because Kerkorian has assured GM he doesn't intend to acquire or influence control over the company. But Kerkorian, who tried to take over Chrysler Corp in the mid-1990s, isn't known as a passive investor.

  Cole expects the meeting to produce few specifics on a potential restructuring, in part because it will depend heavily on ongoing talks with the United Auto Workers union. So far, the UAW has indicated it won't reopen its contract, which expires in 2007, and agree to pick up a larger share of soaring health care costs. Cole said some sort of deal with the UAW that includes plant closings or other changes could be announced later this summer.

  Cole does expect GM's board to express its confidence in chairman and chief executive Rick Wagoner, who took over day-to-day responsibility for the automaker's North American operations in April.

  But so far, some of the company's programs have raised eyebrows. Analysts were puzzled last week when GM announced it will offer employee discounts to any consumer who buys a new GM vehicle through July 5.

  "GM has had the tendency for the past several months to devise big-splash marketing programs that ultimately prove to be less generous than expected, and thus do not have the desired effect on consumers," Credit Suisse First Boston analyst Chris Ceraso said in a research note. Even if the new promotion is successful, Ceraso said, GM could suffer from lower sales when the discount ends.

  Others say GM's management has shown it doesn't understand the company's fundamental problems.

  "I think they're going to tell shareholders they're restructuring, right-sizing and making it competitive. But I think in reality they don't have answers," said Peter Morici, an economist and professor at the University of Maryland.

  Morici said GM needs to explain to shareholders what percentage of the market it can reasonably sustain and then say how it will align its production and brands to meet that need. GM also needs to cut its bureaucracy and its salaries, from the executive level down to hourly workers, he said.
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