GM's CEO pulls off a trick

By Robert Walberg

It's hard to believe, but Rick Wagoner may just pull a Harry Houdini and escape the General Motors (GM, news, msgs) mess with his CEO job.

But is that any good for GM's shareholders?

Less than a year after the automaker posted a loss of nearly $11 billion, prompting one of the largest restructurings in corporate history, Wagoner may be able to relax. Today, GM reported that its third-quarter loss narrowed to $115 million, from $1.7 billion a year ago. Excluding one-time charges, it had a profit of 93 cents a share, 54 cents more than Wall Street expected. Revenue rose to $48.8 billion from $47.2 billion, the third straight quarter of year-over-year gains.

The surprising performance was fueled by an improvement in the beleaguered North American auto group, which saw its loss fall by $1.3 billion to $367 million. The fact that GM’s improvement in North America came despite production of nearly 96,000 fewer units shows the amount of progress. GM expects cost savings of about $9 billion this year -- nearly $6 billion from slashing structural costs.

A brighter outlook

Operating results in Europe, GM’s other sore spot, also improved. Combined with better results in Asia and Latin America, GM’s outlook seems brighter than it has in years.

Maybe that’s why Wagoner and his team felt emboldened to scuttle talks with Nissan (NSANY, news, msgs) and Renault regarding a potential global alliance -- a deal pushed hard by Kirk Kerkorian, a top GM shareholder. Wagoner recognized that such a deal would represent a significant threat to his power, and after doing just enough to (hopefully) placate investors, he pulled the plug.

Unfortunately, a global alliance with Nissan and Renault might have been the best long-term option for GM and its shareholders. Despite the modest jump in sales and the smaller quarterly loss, GM still saw its share of the global auto market decline by a half percentage point to 13.9%. The downward trend is unlikely to be reversed as GM slashes production and continues rolling out gas-guzzling trucks and SUVs.

GM management may have dodged a bullet over the short-term but the company is far from healthy. It has done nothing to improve its bloated product mix or solve its styling and quality issues.

Harder tasks ahead

The cost-cutting program is hard on blue-collar employees, but it’s relatively easy for management. What’s difficult is developing a differentiated line of products that consistently resonate with consumers. It’s a task that still eludes Wagoner.

Not so for Carlos Ghosn, the CEO of Nissan. Ghosn helped turn around Nissan, and it was hoped that, as leader of a global alliance, he could have done the same for GM. He won’t get that chance thanks to the sleight of hand by Wagoner.

While there were no guarantees that an alliance with Renault and Nissan would have been a long-term winner for GM, it’s almost certain that retaining Wagoner for another year or more will only delay a recovery.

More results from restructuring?

He has already squeezed about as much juice out of the restructuring lemon as he’s going to get. (He might get lucky because the cost to GM of the Delphi bankruptcy, once feared to be over $10 billion, now looks to be closer to $6 to $7 billion.) When GM unloads a majority stake in its profitable financing unit later this year and the initial benefits from the restructuring effort seem less impressive, management will still be faced with the singular task of consistently improving global sales. And there's no evidence to suggest that they can do it.

This quarter’s improved performance and the stock’s year-to-date gain of 79% are the blue smoke and mirrors that make Wagoner one of corporate America’s top illusionists. But the only trick he has perfected -- aside from saving his own job -- is the incredible shrinking of a once-great company. Until the magician is exposed, the risks of owning shares of GM, which continues to burn through cash and trades just off its 52-week high, remain way too high for my liking.

Robert Walberg is a financial writer based in Chicago and a regular guest on CNN's "Moneyline." He was formerly chief equity analyst at Briefing.com and ran for Congress in Illinois in 1994.

At the time of publication, Walberg did not own or control shares of any companies mentioned in this article.