RICK WAGONER'S LETTER TO THE WALL STREET JOURNAL!

A Portrait of My Industry — By Rick Wagoner
The Wall Street Journal--December 6, 2005

DETROIT -- Since mid-October, General Motors has announced plans to ceaseproduction at 12 North American manufacturing facilities and eliminate30,000jobs by 2008; trim $1 billion in net material costs in 2006; and, incooperationwith the United Automobile Workers, reduce GM's retiree health-careliabilitiesby $15 billion, or about 25%, for an annualized expense reduction of $3billion.The reason for these dramatic actions is no secret: GM has lost a lot ofmoneyin 2005, due to rapidly increasing health-care and raw-material costs,lowersales volumes and a weaker sales mix -- essentially, we've sold fewerhigh-profit SUVs and more lower-profit cars. What is less clear is whythingsturned sour so fast for GM, as well as for other American auto makers andsuppliers. To put it another way, why are so many foreign auto makers andsuppliers doing well in the United States, while so many U.S.-based autocompanies are not?Despite public perception, the answer is not that foreign auto makers aremoreproductive or offer better-quality or more fuel-efficient vehicles. In thisyear's Harbour Report, which measures manufacturing productivity, GM plantstookthree of the top five spots in North America, including first and secondplace.In the latest J.D. Power Initial Quality Study, GM's Buick and Cadillacrankedamong the top five vehicle brands sold in America, ahead of nameplates likeToyota, Honda, Acura, Nissan, Infiniti and Mercedes-Benz. And GM offersmoremodels that get over 30 miles per gallon (highway) than any other automaker.In fact, this kind of operating performance makes GM's recent financialperformance all the more frustrating. The fact is, we're building the bestcarsand trucks we've ever built at GM, our products are receiving excellentreviews,and we're running the business in a globally competitive manner. Outside ofNorth America, we're setting sales records. In fact, for the first time inourhistory, we will sell more cars and trucks this year outside the UnitedStatesthan inside, aided in no small part by our market-leading performance inChina.So why, fundamentally, are GM and the U.S. auto industry struggling rightnow?Intense competition, for one. The global auto business grows tougher everyyear, and we accept that. Our ability to compete has made us the world'sNo. 1auto maker for 74 consecutive years, and we're fighting hard to stay ontop.Beyond that, our performance in the marketplace has not been what we'vewantedit to be. While we've been strong in truck sales, we've been weaker incars,and, yes, the recent surge in gas prices hurt sales. While we've led intechnologies like OnStar, we've lagged in others like hybrid vehicles. Restassured, we're working hard to address the areas where we lag. Simply put,weare committed to doing a better job of designing, building and sellinghigh-quality, high-value cars and trucks that consumers can't wait to buy.Noexcuses. We will step up our performance in this regard.But competition and marketplace performance are not the whole story. Tofullyunderstand why GM and the U.S. auto industry are struggling right now, wehaveto understand some of the fundamental challenges facing Americanmanufacturingin general -- challenges well beyond the control of any single company.There are those who ask if manufacturing is still relevant for America. Myview: You bet it is! Manufacturing generates two-thirds of America's R&Dinvestment, accounts for three-fourths of our exports, and creates about 15million American jobs. And the auto industry is a big part of that,accountingfor 11% of American manufacturing, and nearly 4% of U.S. GDP. Together, GM,Fordand DaimlerChrysler invest more than $16 billion in research anddevelopmentevery year -- more than any other U.S. industry. And GM, alone, supportsmorethan one million American jobs.So what are the fundamental challenges facing American manufacturing? Oneisthe spiraling cost of health care in the United States. Last year, GM spent$5.2billion on health care for its U.S. employees, retirees and dependents -- astaggering $1,525 for every car and truck we produced. And the figure isgoingup again this year. Foreign auto makers have just a fraction of thesecosts,because they have few, if any, U.S. retirees, and in their home countriestheirgovernments fund a much greater portion of employee and retiree health-carecosts.Some argue that we have no one but ourselves to blame for ourdisproportionately high health-care "legacy costs." That kind ofobservationreminds me of the saying that no good deed going unpunished. That argument,while appealing to some, ignores the fact that American auto makers andothertraditional manufacturing companies created a social contract withgovernmentand labor that raised America's standard of living and provided much of theeconomic growth of the 20th century. American manufacturers were once heldup asgood corporate citizens for providing these benefits. Today, we aremaligned forour poor judgment in "giving away" such benefits 40 years ago.Another factor beyond our control is lawsuit abuse. Litigation now coststheU.S. economy more than $245 billion a year, or more than $845 per person.That'smore than 2% of our GDP. No other country has costs anywhere near thislevel.And the perverse thing is that, in many cases, the majority of courtroomsettlements go to the lawyers and other litigation costs, not to theinjuredparties.Another major concern is unfair trading practices, especially Japan'slong-term initiatives to artificially weaken the yen. A leading Japaneseautomaker reports that for each movement of one yen against the dollar, itgains 20billion yen in additional profitability -- or nearly $170 million attoday'sexchange rate. No wonder Japanese auto makers have noted their recentrecordprofits were aided by exchange rates. And no wonder the U.S. trade-balancedeficit continues to grow by leaps and bounds.There are other issues, of course, but my point is this: We at GM have anumber of tough challenges that we must and will address on our own -- butwealso carry some huge costs that our foreign competitors do not share.Some say we're looking for a bailout. Baloney -- we at GM do not want abailout. What we want -- after we take the actions we are taking, inproduct,technology, cost and every area we're working in our business today -- isthechance to compete on a level playing field. It's critical that governmentleaders, supported by business, unions and all our citizens, forge policysolutions to the issues undercutting American manufacturingcompetitiveness. Wecan do this. And we need to do it now.