GM Shareholders Hope for Answers at Meeting
General Motors Corp. investors have seen their shares tumble this year to the lowest price in more than a decade as the company’s U.S. market share for vehicle shares slumped from 27% to 25.4%.
They’ve also had to watch GM’s bond rating cut to “junk” status by two ratings firms as its losses topped $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 Tuesday at GM’s shareholder meeting in Wilmington, Del.
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% to nearly 9% -- 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.
The annual meeting is unlikely 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 healthcare costs. Analysts say some sort of deal with the UAW that includes plant closings or other changes could be announced later this summer.
Chairman and Chief Executive Rick Wagoner and others say the company’s turnaround will start with good products and include better pricing and marketing strategies, aggressive cost-cutting, a pared-down lineup of vehicles and possibly new agreements with the UAW.
But so far, some of the company’s programs have raised eyebrows. And one analyst said 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.
Morici said Kerkorian’s increased stake could force GM to consider more drastic measures, such as selling off General Motors Acceptance Corp., its profitable finance unit, and reorganizing the rest of the company under Chapter 11 protection.
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The Week Ahead
Tuesday
* Quarterly earnings report expected from Albertsons Inc.
Thursday
* Intel Corp. gives its anticipated mid-quarter sales update.
Friday
* The Commerce Department reports the U.S. trade deficit for April.
