Is General Motors in denial
In a speech given by Jerome B. York, advisor to Kerkorians Tracinda Corporation, to the Society of Automotive Analysts on Tuesday January 10, 2006, York outlined the steps necessary for General Motors to be return GM to prosperity. According to PR Newswire the speech included these comments from York,
“The UAW will be a key partner in much of what GM must do, and we believe an equality of sacrifice approach similar to what was done at Chrysler in 1980, and consistent with what Mr. Gettelfinger recently wrote in the Detroit News, will be necessary.”
Components of the plan advocated by York include:
— A 50% cut to the current $2.00 annual dividend to shareholders, which will save GM some $566 million a year.
— A substantial reduction in payments to GM directors who now get paid $200,000 a year.
— A substantial salary reduction for GMs most senior management, including the top five officers of the corporation, who now collectively earn about $7 million a year.
— A salary or wage reduction proportionally decreasing down through all tiers of the company, with hopefully only a single-digit reduction necessary among the rank and file in plants and offices.York noted, “GM has a mountain of liquidity on hand — both cash and non-core assets — that can be sold. So it has the wherewithal to fix it’self.” He cited his experience in previous turnarounds at Chrysler and IBM in identifying five principles he believes GMs board of directors and management must pursue to succeed:
— Be realistic about market share and revenue expectations, and gear the cost and expense structure accordingly. York indicated he believed GMs recently announced North American capacity reduction action is at least a very good first step toward what needs to be done.
— Cull out the product offerings. Offer fewer, better products that will sell at higher net wholesale prices. Each car and truck division should have a more focused image. York stated that all evidence suggests GM is making substantial progress regarding the market attractiveness of it’s new products, but that it would be a daunting task for GM to effectively manage the number of brands and models it has in North America.
— Take a “clean sheet of paper” approach to the business. No sacred cows should be allowed. York noted that large enterprises have a propensity to perpetuate initiatives started in the past, even if they no longer make business sense. He noted that Saab appears to be a good example.
– Make the tough decisions. If something isnt part of the core business or cant make money, sell or close it. Accordingly, York said the likely best course of action for GM is to simplify it’s North American divisional line-up to focus on Chevrolet, Saturn, Pontiac/Buick/GMC, and Cadillac, and to dispose of Saab, cease selling Isuzu products and probably sell Hummer as well.
— Time is of the essence. A “sense of purpose” needs to galvanize the organization. York said GM needs to articulate some financial goals and milestones for the next three years, similar to what Nissan did in 1999 — and that in his experience, it is essential to motivate an organization around a plan of action.York also said that Mr. Kerkorian is interested, at the appropriate time, in reacquiring the 12 million GM shares that he sold for tax purposes in December 2005. Mr. Kerkorian is also willing — under the right circumstances — to acquire an additional 12 million shares, which would require certain regulatory approvals.