Lutz Says GM Is Over the Worst

GM's Robert A. Lutz boldly predicts that new models and cost cutting will return to the company to profitability

Here's a bold statement: General Motors (GM) is on its way back. At least, that's what GM's ever-quotable Vice-Chairman Robert A. "Bob" Lutz said at the New York Auto Show.Advertisement

The 74-year-old GM car czar says the seeds of a GM turnaround are in place. He even hinted that the company's dismal financials (GM lost $10.6 billion last year) might show signs of a turnaround sometime soon.

Amid a throng of journalists, Lutz proclaimed: "GM has the worst behind it. Soon all will be revealed," he said, adding that, "I can't mention figures, because I'd get in big trouble."


 Let's not get too excited about an imminent turnaround. True, some of GM's new models are selling well. But sales are down 5% this year and market share is hovering at 24% -- almost two points below its share this time last year.

The company still has weak brands like Pontiac, Buick, and even Saturn, that are trying to catch the eye of consumers who have more choice than ever. And let's not forget that GM still relies on gas guzzlers for big profits at a time when analysts are predicting a rise in gasoline prices this summer.

So what's Bob talking about? For starters, GM's new large sport utility models -- the Chevrolet Tahoe, GMC Yukon, and Cadillac Escalade -- are off to a good start after launching in January. So are a few other new models.

The SUVs could give GM a boost in revenue. Whenever car companies launch an all-new vehicle to market, they are pumping out vehicles from the plants to stock dealer inventories and give shoppers plenty of choice on the lot.


  Since GM books the sale of a car as soon as it gets to a dealer, stocking up showrooms gives at least a temporary boost to revenue. And those SUVs sell for prices north of $30,000.

Lutz also pointed to a trio of sharply styled Saturns on GM's auto show stand (see BW Online, 4/12/06, "Saturn's Second Liftoff?"). Those cars look poised to spark a resurgence for the long-neglected brand.

In his comments, Lutz also tried to deflect talk of a GM bankruptcy by pointing out that the struggling auto giant is raising plenty of cash by selling off stakes in Japanese auto makers, and by the $14 billion sale of 51% of its GMAC finance arm.

"The imminent bankruptcy at GM is a myth created by Wall Street and our beloved media," Lutz said. "Maybe some of the analysts who have talked about bankruptcy hold short positions in GM's stock."


  Lutz's bold statements about GM's condition included a staunch defense of his boss, Chairman and Chief Executive Officer G. Richard Wagoner Jr. In recent weeks, the media -- including BusinessWeek -- have questioned the tenure of GM's embattled top exec and whether he will be around long enough to see a turnaround.

"Rick Wagoner is without question the right man to lead GM and continue the turnaround," Lutz said. "Read my lips. Rick Wagoner will preside over a turnaround at General Motors."

But let's temper enthusiasm a bit. Even Wagoner is telling GM watchers to be patient. He told BusinessWeek in an interview on Apr. 10 that the cost cuts he announced late last year and so far this year will hit the bottom line gradually in the first half, with a bigger bang in the second half.

Wagoner's message: Healthy profits won't return overnight.


  In fact, GM needs a sales rebound to make its resurgence happen. That means gas prices need to stay low, so SUV sales don't take a hit like they did a year ago. Buyers need to give a look to brands like Saturn and Buick to even discover that GM's cars really are much improved. Avoiding a strike at its largest parts supplier, bankrupt Delphi, is another iceberg Wagoner needs to dodge.

Lutz may not be crazy. There are some pieces coming into place that could get GM out of the mire. But a lot has to happen before he or anyone at the company can declare victory.