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Why GM matters

May 26, 2006|Rick Wagoner | RICK WAGONER is chairman of General Motors Corp.

THIS IS A critically important time for the U.S. auto industry -- and a highly challenging one as well. Growing global competition, soaring healthcare costs and the persistent misperception that American cars aren't as good as Japanese cars compel Detroit to think hard about its future.

What happens at General Motors is obviously important to our employees, retirees, dealers, customers and suppliers. Wall Street cares too because of the financial implications for our stockholders and bondholders. But should the rest of America care much about what happens to GM?

The answer is, yes, Americans should care -- and care a great deal.

GM's future is vitally important to the U.S. The numbers speak for themselves: GM has nearly 329,000 employees worldwide, 138,000 of them in the United States; 450,000 retirees; 1.1 million Americans receiving GM health-plan benefits; 7,300 dealers in virtually every city and town in the U.S., employing nearly 300,000 workers, and 1,800 supplier companies from which we buy more than $40 billion worth of goods and services each year. In terms of customers, the numbers are even more dramatic. There are about 73 million GM cars on American roads today.

As powerful as these numbers are, they don't come close to telling the full story of GM's relevance to the American public. Two of the most challenging issues facing the U.S. today are globalization and rapidly escalating healthcare and retirement costs. At GM, we know these issues as well as any company, and we are working diligently to address them in a manner that is both financially prudent and socially responsible. In many respects, GM is a window on the nation's near-term future. How do we compete with low-cost producers globally? Can we hold our own in the growing markets of China, India and elsewhere? How do we meet our pension obligations made over the last several decades? And can we make vehicles as good as the ones made by our Asian, European and other competitors?

Last year was a tough one for all of us at GM, with a $10.6-billion loss. Over the last several months, though, we have been aggressively implementing a turnaround plan that increases our investment in new cars and trucks, revitalizes our sales and marketing strategy, addresses our healthcare burden and significantly improves our cost competitiveness. We've also announced plans to idle 12 plants and reduce 30,000 manufacturing jobs by 2008.

GM already is a dramatically more competitive company globally than most Americans realize. Last year we were the world's largest automobile manufacturer for the 75th consecutive year, with sales of nearly 9.2 million vehicles worldwide -- more than any other competitor, foreign or domestic. And for the first time in our history, we sold more cars and trucks outside the United States than within it. In China, the fastest-growing vehicle market in the world, GM displaced Volkswagen as the top-selling automaker.

We know we've got a lot more to do. The reality of a global economy is that the race is never won; it never ends. Continuous innovation, excellent quality and financial discipline are the only guarantees of future success.

With respect to the extraordinary healthcare obligations that GM and many other American corporations shoulder, the road ahead is challenging. GM's healthcare bill in 2005 was a staggering $5.3 billion, by far the highest of any American business. It's a cost that puts us at an unsustainable disadvantage to most of our foreign-based competitors, whose governments cover many of these costs.

The current U.S. healthcare system creates enormous tensions between employers, employees, insurance companies and healthcare providers. Obviously government has a role to play in finding solutions, but we can't and won't wait for that to happen. Instead, we have been working cooperatively with our unions to achieve reductions in our healthcare obligations. Last fall we negotiated a $15-billion reduction in GM's long-term healthcare liabilities, while working with the healthcare industry to find ways to make the system more efficient.

We also have reduced the salaries of our senior executives, including me, by up to 50%; cut the GM dividend to shareholders in half, and scaled back pension benefits for salaried employees. We believe in shared sacrifice and in solving our own problems. We're not looking for or asking for a taxpayer bailout.

Perhaps the most frustrating challenge facing all of us at GM is changing the misperception that our cars and trucks don't measure up to some foreign makes. The fact is, every major automaker makes good vehicles today. On a model-by-model comparison, different companies will be slightly ahead in different segments, but overall, GM cars and trucks rank among the best in terms of quality and value for the dollar.

This is important for consumers to understand. We all benefit from maximum choice in the marketplace. If consumers bypass GM dealers because of the misperception that our cars are not competitive, they lose just as certainly as we do. For many reasons, people should be interested in the turnaround at GM. We've been helping Americans pursue their love affair with the car for nearly a century. Today's challenges are difficult, but we will overcome them.

Across the nation, there are kids not yet old enough to drive who are thumbing through car magazines, dreaming of the day they can get behind the wheel of a Chevy Corvette or Pontiac Solstice. We plan to be there for them, as we were for their parents, grandparents and great-grandparents.

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