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Can Lutz Help Steer GM out of Its Slide?


When General Motors Corp. (GM) Chief Executive G. Richard Wagoner Jr. grabbed retired Chrysler Corp. (DCX) car guru Robert A. Lutz on Aug. 1 to be vice-chairman and head of product development, GM's Detroit headquarters was euphoric. The move was touted as the finale to a run of big hires, including former Ford (F) Chief Financial Officer John M. Devine as finance chief along with some big-name stylists. "Wagoner is getting all the cards in order," says Morgan Stanley Dean Witter analyst Stephen Girsky.

But will that be enough? While the big outside hires--a rarity for GM in the past--demonstrate a new aggressiveness on Wagoner's part to fix GM, the carmaker has a ways to go. It will be a few years before Lutz's creations hit dealer showrooms. Until then, Wagoner is betting that GM's launches in the next couple of years, combined with cost cuts enforced by Devine, will keep GM in the black.

But with growing foreign competition and slowing sales, GM is still struggling to reverse its slide in market share. If it can't, Wagoner may finally have to face a decision GM has avoided for years: making deep cuts in production and plants. Says UBS Warburg analyst Saul Rubin: "GM has some of its best products ever, and they can't boost market share."

That's where the new hires come in. To shore up margins, Devine is forcing GM to spend its rebate cash more wisely. Now, GM is making aggressive deals to sell large pickups and sport-utility vehicles, a move that has stolen market share from Ford and added to the bottom line. He's also trying to get GM's production costs down. In the next few years, GM will replace some old factories with smaller, more efficient plants that need fewer workers.

Lutz will get to work on rejuvenating GM's woeful car lineup. He'll work with designers to develop concept cars for the 2002 auto shows. Lutz will also improve the chances that GM's efforts to improve cars from sagging divisions such as Pontiac, Buick, and Chevrolet are more to consumers' liking. GM's latest attempts, the Pontiac Aztek and Buick Rendezvous SUVs, bombed.

And Lutz will do more than make sexy cars: He'll make them cheaply. At Chrysler, he was a master at making cheap winners. The PT Cruiser, for example, was cobbled together using Dodge Neon parts and cost just $600 million, far less than the minimum $1 billion new-car programs typically run.

But all that could take several years. In the meantime, Wagoner is hoping for help from a bevy of vehicles about to hit the showrooms. In the next few months, GM will launch the Cadillac CTS sedan, Saturn Vue sport-utility vehicle, and Pontiac Vibe compact wagon. All are aimed at bolstering GM's position in key segments where its products are weak.

SHRINKING SHARE. Yet even if they succeed, analysts say they're only likely to offset share losses in markets such as minivans and compact pickups. Which is why Wagoner ultimately may have little choice but to make much more dramatic cuts in production. GM's sprawling archipelago of assembly plants can still crank out about 33% of the 17 million vehicles built every year in North America, according to Morgan Stanley. Yet the company brings in just 28% of the market, and that figure is shrinking. As a result, analysts say that this year GM will at best earn half the $5 billion in profits it made in 2000. Says Lache: "Our forecast says GM will turn unprofitable in North America--even with its new products--in 2003 or 2004."

That's why as many as three plants may have to be shut in the next several years. Already, company insiders say, GM is planning to close its sports car plant in St. Therese, Que. And two other factory closings--a compact pickup and SUV plant in Linden, N.J., and a van plant in Baltimore--are under consideration. Wagoner isn't likely to discuss the issue publicly until 2003, when the current United Auto Workers contract--which precludes plant closings--expires. But unless big share gains materialize, Wagoner has plenty more tough decisions ahead. By David Welch in Detroit


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