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Interview with GM Vice Chairman Bob Lutz

Interview with GM Vice Chairman Bob Lutz

By Lou Dobbs Tonight - June 2, 2009

DOBBS: One day after filing for bankruptcy, General Motors today said it's reached a preliminary agreement to sell its Hummer brand. GM tried to keep details of the deal secret, even though it's receiving tens of billions of dollars in taxpayer money and is a public company and is in bankruptcy. But General Motors later did confirm that the buyer is a company from communist China. Joining me now is GM Vice Chairman Bob Lutz -- Bob, good to have you with us.

BOB LUTZ, VICE CHAIRMAN, GM: Nice to be here, Lou.

DOBBS: What is -- what's the mood at General Motors right now? A lot of people to lose their jobs, lots of plants, 14 of them to be closed. What's morale like at the company?

LUTZ: Well I would say that we're all very sad for -- about those who are going to lose their jobs. You hate to downsize. You hate to close plants, but you know we in management have been preparing for this day for probably the last six months or certainly the last four months, working together with the Obama automotive task force, so to us it's almost a relief that it's out in the open.

It's going to be behind us soon. When we get through Chapter 11, we will emerge as a much stronger company for the next 100 years, no longer burdened by all of these legacy costs, which is really what dragged us down. It wasn't low vehicle sales that did it. It was basically our crushing debt burden and these billions of dollars annually of legacy costs.

DOBBS: And the fact that the American consumer right now isn't buying cars, are they?

LUTZ: Well actually May was a little bit better. It's still way down over last year, but it was quite a bit better than April and all three domestics did relatively well. We were all out sort of between 20 and 30 -- or all kind of 20 to 30 percent better than April. Still down versus last year and this time quite interestingly the main Asian brands took the main -- took the main head. They were down almost 50 percent. So there may even be a slight switch in the buying habits of the American public.

DOBBS: That switch in the buying habits, I talked with your chief financial officer, Ray Young, last night.

LUTZ: Yeah.

DOBBS: He's talking about a world that you all are preparing for, in which it's a 10 million unit world, the United States market, versus a 17 million unit world.

LUTZ: Right.

DOBBS: That -- how much smaller will General Motors likely be in say 24 months than a year ago?

LUTZ: Well, we're going to downsize to the point where we can be break-even to marginally profitable at an industry level of 10 million units. We think that's very conservative. I think we're starting to see some signs of a gentle economic recovery. We might see 10.5 million or 11 million or even 11.5 million next year. And then there will be a gradual rise, because right now the scrappage rate is 13 million units. That means that we're scrapping way more units than we're selling every year, and that can only go so long and then you finally run out of vehicles. So at some point, sheer replacement demand is going to kick in. And sheer replacement demand, not counting two million new drivers every year, but sheer replacement demand is about 13 million units. And we're going to size ourselves through this Chapter 11 restructuring to where we can do well at 13 million units.

DOBBS: And how well will the employees of General Motors be doing? I mean, the workforce has just been cut tremendously over the course of the past decade.

LUTZ: Well, don't say decade, it's really the past 30 years.

DOBBS: Or 30 years.

LUTZ: Ever since General Motors has been under tremendous competitive pressure from the Asians, we have had to reduce capacity and let people go, and we're down to about 40 or 50,000 hourly workers. We used to have 340,000, and that's one of the reasons why we now have an active to retiree ratio of ten to one, which if you look at pensions and retiree healthcare, if we didn't have this restructuring, we simply couldn't take it.

DOBBS: And you look at that ratio and you think it's insane, and how in the world did you ever get there?

LUTZ: Yeah. Well, that's right. But it was the fact that we had a bad balance sheet and we had to borrow money because these legacy costs were draining so much of our substance. I mean, $103 billion over 15 years, that's money that could have gone to capital or money that we wouldn't have had to borrow. And I think it's quite a remarkable feat that despite all of that, we were able to put out an array of new products over the last five years which are really selling well, having good margins and getting rave reviews.

DOBBS: How soon do you expect Hummer to be -- the transaction with the communist Chinese company, how soon do you expect that to be wrapped up?

LUTZ: I think we're shooting for the end of the third quarter. Right now it's a memo of understanding.

DOBBS: All right.

LUTZ: So we hope to have that finalized by the end of the third quarter.

DOBBS: Is there some reason that General Motors didn't want to say who they were selling the company to? I mean, you guys are sitting there taking almost $50 billion in taxpayer money, you're a public company and in bankruptcy, and you're playing -- playing let's keep a secret?

LUTZ: No, I think we just -- maybe it just -- frankly I don't know the answer why we didn't announce it earlier. But I'm sure there's nothing sinister involved, it's just that normally when we discuss deals with other companies, we don't like to discuss who it is or put out any details of the deal until it's finalized, and this isn't going to be finalized for quite some time. DOBBS: Bob, we wish you all the best and good luck. Bob Lutz.

LUTZ: Thank you very much. Personally I'm very optimistic. Thanks a lot, Lou.

DOBBS: All right, well, optimism, we can use all across the country right now. Thanks very much, Bob Lutz.

 

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