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  The Wall Street Journal, Mar. 8, 2007  


GM CEO Sees No End to Overcapacity


Wagoner Sees No Easing Of Industry Overcapacity; Health-Care Issue Ripens


By Neal E. Boudette And Stephen Power

March 8, 2007; Page A3


GENEVA -- General Motors Corp. Chief Executive Rick Wagoner said he doesn't expect a consolidation in the U.S. auto industry in the near term despite the intense pressures from fierce competition and excess production capacity.


The U.S. auto industry has had enough capacity to produce more vehicles than it sells for at least 10 years, Mr. Wagoner said in an interview at the Geneva auto show. "What's going to make it go away?" he said.


He declined to comment on recent reports that GM has had talks with DaimlerChrysler AG about buying the company's ailing Chrysler Group. Analysts have speculated that such a deal could help GM by taking a direct competitor out of the market.


In addition, Mr. Wagoner acknowledged that loans to high-risk borrowers have hurt the auto maker's former financing unit, GMAC. The slowing U.S. housing market has led to an increase in the number of defaults on high-risk or subprime loans, an area where GMAC's Rescap unit does business.


GM last year sold a 51% stake in GMAC to Cerberus Capital Management LLC. A final value for GMAC is being negotiated to take into account the downturn in Rescap's business. GM has twice had to delay filing its 10-K financial statements that outline its earnings for the fourth quarter and 2006. Mr. Wagoner said the delay in part stems from the GMAC deal, which closed late last year.


"These are big complex businesses and when you do transactions at the end of the year it adds additional complexity," Mr. Wagoner said. GM also plans to restate financial reports over several years because of accounting issues related to certain tax matters.


Mr. Wagoner said reducing manufacturing capacity is very difficult in the auto industry. "It's hard to take capacity out. It's expensive. There are frequent union issues. There are government regulations," he said. "The auto industry has high barriers to entry and high barriers to exit."


GM, Chrysler and Ford Motor Co. are each in the process of closing many U.S. plants, but foreign competitors are building new ones, keeping the industry's overall capacity from declining much. Toyota Motor Corp. just began production at a new truck plant in Texas and announced last week that it will build an eighth North American plant in Mississippi.


The Big Three auto makers have discounted prices heavily in the past five years in a bid to boost sales volumes and keep their plants filled. But the effort has pushed all three into heavy losses in North America. Toyota and Honda Motor Co. have continued to prosper in part because they have lower costs for health care and pensions.


Mr. Wagoner said he believes there is "a growing national concern" about health care. "I think people are open, and government officials are finally responding to what we've been telling them for the last five years," he said. "The U.S. economy has a huge competitiveness issue over health-care costs."


He remains doubtful, however, that the government will enact new laws that take over a major portion of health-care costs from corporations. "From where we are today, for the U.S. to embrace a national health-care system, if our business strategy was waiting for that, that's high risk," he said.


Write to Neal E. Boudette at and Stephen Power at


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