Jack Smith Leadership Awards (Remarks by Rick Wagoner)

Rick Wagoner
President and Chief Executive Officer
New York, NY
May 14, 2002

Thank you, Jack. It's a pleasure to be here.

Let me begin by recognizing the role that you, our best dealers, have played in creating the very strong sense of momentum we feel at GM these days.

As Jack said, the watchword today at GM is momentum, inside and outside the company, in North America and around the world. And I have to say it feels good to be winning again - and not just for how it builds pride within the company, but also for the positive message it sends to consumers, investors, and, of course, to you, our dealers.

Now, to be honest, it hasn't been easy - as they say here in New York, on Broadway, it takes a long time to create an overnight success. We've made a lot of progress in recent years. Not overnight, but over many years - steady, measurable steps in the right direction, including:

• tremendous improvement in quality and productivity, which Gary Cowger will talk about;
• we've invested heavily to reinvigorate our product lineup, shifted our focus to more innovative vehicles, and sped up our vehicle development process, which Bob Lutz will cover;
• we've taken aggressive steps to strengthen our balance sheet, though we clearly have a lot more to do here, which John Devine will talk about;
• and, as Jack pointed out, we've improved relations with our key constituents and partners, especially the UAW, our suppliers, and, of course, our dealers.

When it comes to our relationship with dealers, each of you has played a big role in helping create the more cooperative and constructive environment we have today. And I especially want to recognize the critical role that Jack Smith has played in all this; not only in leading GM's turnaround, but in re-energizing our partnership with our dealers. Jack, thanks for your terrific leadership.

* * * * * * *

So, we've built some momentum at GM, but the truth is we still face some real challenges. One that I want to say a few words about this morning is the overall competitive environment we work in, starting with very challenging pricing and incentives.

You know this issue as well as I do, so I won't go into it in any great detail - but I'd just like to highlight that we're now in a fifth straight year of net negative pricing, and the situation's getting tougher, not easier.

The weakness of the Euro, and especially the Japanese yen, versus the U.S. dollar has increased the pressure on us even more. There's no question this situation is hurting our ability to compete on a level playing field with our foreign competitors.

Another big competitive challenge we face - and one we have a better chance of influencing - is stronger, more global competitors and their clear focus, in virtually every case, on growing their businesses here in the U.S. market.

At GM, over the years, we've had a successful record of investing in regions and countries where we intend to sell vehicles - Europe and South America are two great examples. In both cases, we entered the region early with the intention to compete in the local market, making it clear to the local competitors that they were going to have to fight to defend their own home markets.

And when we set up business in a foreign country and force the competition to fight for their home market, those competitors have less time and fewer resources to devote to coming after us in our home market. For example, the market share of European-based manufacturers in the U.S. has actually dropped about two points since 1970, from 8 to 6 percent. And the result is that we have fewer concerns with transplant and import competition from those manufacturers than would otherwise be the case.

Now, in some cases, we have not been able to invest in the countries where we want to sell our vehicles. In Japan, for example, we were not allowed back into the country for many years following World War II. And since we've been allowed back in, we've found ourselves way behind, and frankly haven't been too successful.

The result is that Japan's domestic automakers have remained very strong at home, with a combined market share in Japan last year of 94 percent. This has allowed them to amass the resources they needed to compete effectively in our market. In fact, they've grown their share of the U.S. market from 4 percent in 1970, to 26 percent in 2001.

Once these manufacturers establish a foothold in the U.S., they begin to mimic our broad product lines, eventually become accepted by the public as a "domestic" brand, and suddenly we lose our "home field" advantage.

Now, Japan is not the only example of all this. Last month, Korea's Hyundai announced their intention to build a new plant in Alabama - and that's far from an isolated incident. In fact, the number of units of transplant capacity in North America has increased from zero in 1970, to 4.5 million in 2001. That 4.5 million represents almost 25 percent of total North American capacity, and comes primarily from countries where GM and other U.S. automakers do not have a major presence.

* * * * * * *

So how do we compete against this situation?

We begin by making sure that we compete aggressively in the major, and soon-to-be-major, auto markets around the world. That's why we're building a market presence in China these days, and keeping the domestic competition there focused on its own home turf. And that's why we recently announced our stake in a new company that will own and operate selected assets of Daewoo Motor Company.

GM's stake in this new company offers us the opportunity to enter the Korean market with a limited capital investment, and compete against Hyundai and Kia in their home market. In the long run, we believe it will divert some of their attention from our home market, and help us continue building the momentum we have today.

In my mind, then, we have two options in today's global auto industry: we can sit back and focus exclusively on our home market here in the U.S., and let our foreign-based competitors build up their war chests by dominating their home markets... or, in this era of open economies and freer trade, we can take the fight to our competitors in their home markets, while we aggressively defend our own domestic turf.

And I know you'll agree that in today's global industry, there's really only one choice. In today's industry, being strong at home is all about being strong around the globe. We cannot accept an "either/or" distinction - we have to be both.

And I hasten to add that investment in foreign markets does not weaken our commitment to the North American market. In fact, the percentage of our capital expenditures we plan to spend in the U.S. over the next three years - compared to the percentage we spent in the U.S. during the past three years - will actually increase from 54 to 60 percent.

And that's going to result in the most aggressive onslaught of new GM products that the U.S. market has seen in a long time. In fact, we'll launch 50 percent more vehicles in the next three years than we did in the past three years - one vehicle every 27 days.

In recent years, it has been this commitment to our home market - along with the efforts of our key business partners, like you - that has led to the momentum we feel at GM today. We have every intention of strengthening that commitment, and keeping the momentum going. We'll do it by:

• continuing to design and build great new products;
• by continuing to be very aggressive in the market - every day, every week, every month - to turn around two decades of market-share decline - once and for all;
• and by working with you, our outstanding business partners, who share our passion for making GM great, again!

To you, our best dealers, let me say thank you for what you do for us. It's been my pleasure, over the years, to get to know many of you personally. And from that experience, and from your sales and business results, I know you are the best of the best. And I know - like us - you are passionate about our mutual success.

You are vitally important to GM. We know we can't win without you, and without the leadership example you set for the rest of our dealer body.

Thank you for your efforts, and congratulations on your success.