Can Wagoner Outlast GM's Loss?

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"We Didn't See Housing"

Fundamentally, U.S. auto sales are not living up to GM's expectations, said Henderson in a conference call for analysts, investors, and reporters. He said that when GM's current restructuring plans were made in 2005, GM expected the auto industry to run at a seasonally adjusted annual selling rate of about 17 million U.S. cars and trucks. The SAAR for October and for the few preceding months has been closer to 16 million, and the outlook for 2008 is similar, Henderson said.

"We expect that to continue. That [SAAR] is not a terrible number. We're not signaling that it's worsening or anything, but today it's certainly below trend," admitted Henderson. The "trend" line attempts to predict auto sales based on historical performance.

Central to GM's poor performance from continuing operations is the fact that GM continues to lose money on its core North American automotive operations, which lost $247 million in the third quarter. That was an improvement over the $660 million loss from the year-ago quarter.

"It certainly is not acceptable. Even if we were on the right side of the red, it would still not be adequate," Henderson said. Summing up GM's reversals, Henderson acknowledged, "We certainly did not see a 16 million market at the time, and we didn't see housing." GM's share price ended down more than 6%, to 33.95 at the close of trading on Nov. 7.

GM Can't Afford More Bad News

Rival Ford Motor (F) followed up GM's bombshell with news that was at least less-bad, if not exactly good: Ford on Nov. 8 reported a third-quarter net loss of $380 million. That was better than the $1 billion loss from continuing operations that analysts had expected, and an improvement over a year-ago loss from continuing operations of about $1 billion.

Through 10 months of 2007, Ford's U.S. sales were down 13% compared with the year-ago period. At fewer than 2.2 million cars and light trucks, Ford sales were slightly behind those of Toyota (TM), which means Ford could finish 2007 as No. 3 in U.S. auto sales for the first time for a full year, behind GM at No. 1 and Toyota at No.2.

But even in the famously clubby automotive business, a loyal board and employees may not be enough for Wagoner if the fourth quarter reveals any more nasty surprises. GM and its shareholders can't afford it.

Jim Henry is a reporter covering the automotive industry and automotive trends in BusinessWeek's New York office.