GM Chief Outlines the Company's Strategy

Jan. 8, 2006 — -- Probably no American business needs more good news in 2006 than General Motors. The world's largest car company looks like it may go bankrupt this year, and George Will traveled to the Detroit Auto Show, which opens today, to ask GM Chairman Rick Wagoner how he intends to beat that threat back.

George Will, ABC News: Mr. Wagoner, the Detroit paper this Saturday morning says not so fast, Toyota. Toyota was talking about becoming the largest seller of cars and trucks over General Motors. It didn't happen in 2005. It may not happen in 2006. General Motors is setting records in Latin America, Europe, China, but sales are down in the United States.

And in Saturday's Wall Street Journal, a front page story says Wall Street estimates a chance of 40 percent of General Motors bankruptcy. How do you square these two stories?

Rick Wagoner, chairman and CEO of General Motors: Well, I think it's-- I mean, it is an interesting juxtaposition. It does highlight some of our investments overseas are coming along very well, whereas here in the U.S., actually, sales last year were down 5 percent. So [it's] not a huge decline, but obviously our earnings were under tremendous pressure.

And frankly, we're confronting some structural issues here -- some issues for being around for a long, long time -- and certainly hurt our bottom line significantly in 2005. And we need to dramatically improve those results this year.

Will: Let's deal with the question of bankruptcy, because it keeps recurring. The airlines are operating in bankruptcy. The steel industry went through this. Bankruptcy is a management tool to shed unsustainable contracts. Why not, people ask?

Wagoner: Well, I think our business is somewhat different from others that have gone into bankruptcy -- steel, airlines. People buy our cars. They spend a lot of money -- $25,000, $30,000, $40,000. They expect to use those vehicles three, four, five and even 10 years.

They expect to have warranty provisions enforced if they need them. They have a lot of other choices of car companies to buy from. So as we sell consumer products, I think that whole issue needs to be looked at very differently.

Will: When you say people buy your product, they're paying a lot of money…

Wagoner: Yes.

Will: …they're paying a lot of money for a welfare state that you're running. Someone recently said you buy a Hyundai, they give you a satellite radio. You buy a General Motors car, or Ford, you're buying pensions, medical care and all the rest. That adds an enormous premium on the cost of a car.

Wagoner: That's really not true at all. Well, it adds to the cost. It doesn't add to the price. We price to the market. I think if you watch what we've been doing and what we're doing, our prices are very competitive, and the value that we offer is unprecedented.

If you look at the quality of our vehicles -- really, now, top of the heap. If you look at our productivity -- excellent. If you look at things like OnStar -- we offer features that others don't offer. So the customer isn't paying for that. What's happened is, frankly, the shareholders pay for it, and it's hurt our earnings.

Will: You have and are supporting two and a half pensioners for every employee. You're the largest health care provider in the world. General Motors, I read, writes a prescription every 1.5 seconds for drugs for their retirees and others -- 1.5 seconds, 24 hours a day, seven days a week, 365 days a year -- cost approaching $6 billion a year.

Can you function indefinitely with this kind of healthcare burden?

Wagoner: No, I don't think we can. And that's really why we made the move we did last year. I think, by any reasonable measure, [it was a] historic agreement with the UAW -- in which we agreed that about $15 billion of a roughly $60 billion healthcare burden with our hourly employees would be, in essence, funded directly or indirectly by active and retired employees.

So I think this issue of needing to share some of that cost is accepted, and that contract change was ratified.

Will: Let's look ahead. Part of General Motors' plan to revive its North American operations is more improved SUVs. Some people say this looks a lot like Henry Ford sticking with the Model T for too long. Are you worried that this is a product that's past its apogee in the market?

Wagoner: I think that's an extremely simplistic analysis. Our strategy to deal with the revenue side of our turnaround is very much driven by product. And if you look at our new product introductions over the span of about three years, in fact, a lot of our new introductions -- the majority are crossover vehicles and cars. So I think it's highly simplistic to say we're betting only on SUVs.

Will: Bob Lutz, who's in your product development, head of your product development, said we, meaning the automobile business -- we are in the arts and entertainment business. Is that still true?

Wagoner: I think it's more true than ever. The company that comes up with the, what we call, gotta-have products-- To Bob's point, the real breakthrough movie, in his -- is the one that's really going to get the competitive advantage.

So this focus on design, I think, is actually picking up in our industry now, certainly at G.M.

Will: Mr. Wagoner, thank you very much.

Wagoner: Thanks very much. Great to be with you.