Tough times at General Motors

General Motors' chairman cautioned today that the world's largest auto maker faces a tough US market and record-high commodity costs despite progress made under a sweeping restructuring, as shareholders voted to strengthen board oversight.

Higher prices on raw materials -- everything from oil to steel and aluminium -- make it "very difficult" to meet GM's goal of cutting US$1 billion ($1.6 billion) from supply costs this year, Chairman and Chief Executive Rick Wagoner told investors at the company's annual meeting.

But GM, which lost US$10.6 billion in 2005, was still on track to cut US$7 billion in structural costs in North America by the end of the year, he said.

Over the objection of GM's board, shareholders at the meeting passed a pair of non-binding proposals intended to reform the way GM's directors are elected.

This was a first-of-its-kind move, which analysts said showed that institutional investors wanted to send a strong message at a crucial time in GM's turnaround.

Wagoner said GM's board would take up the question of reforming the election procedures of directors, but he declined to say when or if the measure would be enacted.

The reforms endorsed by shareholders would require GM directors be elected by a majority vote and allow investors to split votes unequally among nominees.

Both proposals were supported by the influential proxy advisor Institutional Shareholder Services and intended to make it easier for investors to pool their votes behind outside directors and shake up the composition of the board.

"It's a sign there is a decent shareholder base that thinks that some pretty strong medicine is needed for the GM board," Beth Young, senior research associate with The Corporate Library, said.

"It goes to show that there is a perception at institutions such as the ISS that GM is in danger of bankruptcy and management is doing nothing about it. Neither of those are true, but that is how it is perceived," said David Healy, an analyst at Burnham Securities.

GM is closing 12 plants and eliminating 30,000 jobs as it looks to adjust to a slide in its US market share, now just above 25 per cent and down almost 8 percentage points over the past decade.

Shareholder votes to separate GM's CEO and chairman roles, and force executives to return certain bonuses were defeated, but board reform advocates noted their victories on the other two key votes.

"It's great because it's been a traditionally passive GM board, and it has been indulging in poor governance too long," said GM investor John Chevedden.

GM shares have gained 30 per cent since the start of the year as Wall Street pessimism over the company's near-term outlook eased, but shares are still down about 17 per cent from a year ago when Wagoner first announced GM's cost-cutting plan.

At Tuesday's meeting, Wagoner said GM was focused on the successful conclusion of a buyout programme offered to its unionised work force and closing the sale of a majority stake in its finance arm, GMAC.

He also said GM was still in discussions with former subsidiary Delphi Corp. and the unions that represent workers at the bankrupt auto parts supplier. The talks are aimed at achieving a settlement that would avoid a labour disruption.

GM's new vehicle launches, which accounted for 20 per cent of sales last year, are running at 30 per cent this year and are on track to hit 40 per cent next year, Wagoner said.

Asked whether management and GM director Jerry York had reached agreement on the company's branding strategy, Wagoner said that GM had no plans to drop any of its brands, despite suggestions that its eight nameplates are not sufficiently differentiated for car buyers.

York, who represents billionaire investor Kirk Kerkorian and his nearly 10-per cent stake in GM, had called on GM to sell its Saab and Hummer brands in January before he joined the company's board.

GM has been under investigation by the US Securities and Exchange Commission for its accounting practices. Wagoner said the company was cooperating with the SEC and was taking steps to strengthen internal controls.

GM shares closed down 3 per cent, to US$25.25, on the New York Stock Exchange.

- REUTERS