General Motors Corp. shareholders will remember this January. In anticipation of a spin-off of shares in the car giant's fast-growing Hughes Space & Communications business, GM stock gunned it from 70 to 85. But then came the February effect. Late on
Feb. 1, the company announced it would indeed spin off 15% of the Hughes shares. The next morning it announced that G. Richard Wagoner Jr., chief operating officer since October, 1998, would succeed John F. Smith Jr. as CEO. GM shares quickly backed off nearly 5%. Not only is Wagoner a signal of more business as usual, but business looks grim: In January, as the U.S. auto industry set another sales record, GM's share dropped to 28.4%, below the disappointing 29.4% level of December and far off the 32% goal the company set in 1998.
There was little doubt at headquarters that Wagoner, a lifetime GMer, was right for the job: "The feeling within the company and with the board is that we have the finest CEO in the entire auto industry right here in Rick Wagoner. So game over," said Smith.
BUMPY ROAD. The Wagoner appointment dashes hopes among some investors that the company would take dramatic action--hiring a dynamic outsider such as former DaimlerChrysler President Thomas Stallkamp. "Rick is a lifetime GM guy," says one investor. Others say the stock's dip reflects heavy arbitrage in various GM shares related to the Hughes deal.
The 46-year-old Wagoner, who takes over June 1, certainly has his work cut out for him. Overseas, GM's Latin American operations and its German Adam Opel unit have been stuck in the red. Back home, inventories of its new full-size pickups are building. The company's stubborn problems: a bland lineup and an inability to react quickly to market shifts. "They just lack products that people want to buy," says one investor.
Wagoner says he will move faster with new design and product decisions. "There's a lot of work going on there," he says. The company is opening a new design studio in California and unfettering its young designers to create hot new models. For proof of progress, Wagoner points to a raft of creative concept vehicles, such as the Chevrolet SSR roadster-truck hybrid and Buick LaCrosse luxury car. And on Jan. 31, Wagoner unveiled plans to build a $558 million state-of-the-art Cadillac plant in Lansing, Mich.
But until it can get its flashy new wheels into showrooms, GM is falling back onto its usual strategy to generate sales: more rebates. The auto maker kicked off the year with $500 discount coupons to millions of potential buyers, after boosting incentive spending in December to $1,881 per vehicle--higher than major rivals and $300 above year-earlier levels. And with a new midsize sport utility due next year, GM may spend more to buoy sales of the aging Chevrolet Blazer, GMC Envoy, and Oldsmobile Bravada. "We'll try to come up with some creative marketing to hold share," says GM North America President Ronald L. Zarrella. "But if we need to discount that vehicle to hold share, we'll do it." That's unlikely to get the Wagoner era off on the right foot with Wall Street. And unfortunately, there are no more prize jewels for the new guy to sell.