GM to Drop Hummer Line?

[Klaus]

Kerkorian Aide
Presses for Speed
In GM Overhaul

York, Calling for 'Sacrifice,'
Seeks Cuts in Dividend, Pay
As Auto Maker Slashes Prices
By JOSEPH B. WHITE
Staff Reporter of THE WALL STREET JOURNAL
January 11, 2006; Page A1

Investor Kirk Kerkorian's top lieutenant urged General Motors Corp. to speed up and expand its restructuring to stanch a $24 million-a-day cash outflow -- just as the embattled auto maker announced plans to lower sticker prices on most of its models.

In his first comprehensive statement about GM's turnaround plan, Jerome York, an adviser to Mr. Kerkorian's Tracinda Corp., which owns 7.8% of GM, yesterday delivered a measured but stern critique of the auto maker's efforts so far. The company, he said, needs to take more urgent action and a "clean-sheet-of-paper approach to the business" to reverse its losses.

Mr. York, a veteran of turnarounds at Chrysler Corp. and International Business Machines Corp., delivered a detailed prescription: Halve the $2 a share annual dividend, to save $566 million a year; cut pay significantly for top executives and directors; drop salaries for lower-level employees; cull GM's lineup of more than 80 U.S. models; and drop the low-volume Saab and Hummer brands to focus on core, high-volume brands.

"This situation calls for the company's going into crisis mode, adopting a degree of urgency that recognizes if things don't break right, the unthinkable could happen," Mr. York said.

Mr. York also held out a carrot to GM management. He said that Mr. Kerkorian is prepared to buy up to 24 million additional GM shares -- in effect repurchasing 12 million shares he sold in December for tax purposes and adding another 12 million. The additional purchases -- a potential vote of confidence that could help junk-rated GM's equity and debt -- would occur "under the right circumstances," Mr. York said. He didn't elaborate. In 4 p.m. composite trading on the New York Stock Exchange yesterday, GM shares were at $22.06, down 35 cents, or 1.6%. Mr. Kerkorian's stake in GM is now valued at about $445 million less than he paid for it.

For months, Mr. York and Mr. Kerkorian have watched without comment while the value of Mr. Kerkorian's 7.8% stake in GM has plummeted, even as GM Chairman and Chief Executive Officer Rick Wagoner outlined various initiatives to fix the struggling auto giant.

Yesterday, Mr. York said cutting the dividend and executive pay was critical for GM to negotiate significant cost savings with the United Auto Workers. Mr. York said that while cutting executive salaries won't save "huge dollars," it would be "a very important indication that we're all in this together." The union's president, Ron Gettelfinger, has said repeatedly that there should be "equality of sacrifice" between management and labor as the unionized Detroit auto companies restructure to fight lower-cost Asian and European rivals.

GM's new vice chairman and chief financial officer, Frederick "Fritz" Henderson, who listened to Mr. York's speech along with GM Vice Chairman and former Chief Financial Officer John Devine, said afterward that Mr. York's call for equality of sacrifice was "absolutely reasonable." But he took issue with some of Mr. York's other points. "To be honest, I am in crisis mode," Mr. Henderson said. "But you can't panic."

Mr. Henderson wouldn't comment on the suggested dividend cut, saying that is a matter for the board. Mr. Henderson said the Hummer SUV brand is the fastest-growing brand in the U.S. market. Saab, he said, is important to GM's growth plans in Europe, where GM lacks a luxury marque to compete with Ford Motor Co.'s Volvo, Volkswagen AG's Audi, BMW AG and DaimlerChrysler AG's Mercedes-Benz. "He doesn't understand the situation in Europe," Mr. Henderson said.

Shortly before Mr. York's presentation, GM launched another salvo in its campaign to regain share in the U.S. market, outlining a new pricing strategy in which it will cut base sticker prices for nearly 80% of its U.S. models. The move -- partly financed by cutting the profit margins allowed dealers on certain key products -- marks the latest attempt by GM to wean consumers off the expectation that GM cars will come with big rebates.

Instead, GM will now try to lure customers with low base prices. If successful, the tactic could help improve the relative resale value of GM vehicles. However, GM's effort to move away from big rebates has encountered resistance from customers accustomed to such offers. After last summer's employee-discounts-for-everyone deals sparked a sales surge, GM tried to lower base prices and reduce rebates. Sales went into a tailspin, and GM responded with another round of big rebates at the end of the year.

Mr. York's comments yesterday bring out into the open a debate that has been simmering around GM for months. GM executives, from Mr. Wagoner on down, insist they are moving aggressively to reverse automotive losses that through the first nine months of 2005 totaled $6 billion. But many investors and analysts have criticized GM for appearing to rule out an array of actions -- a dividend cut, culling the array of overlapping brands and models. Mr. Wagoner has at times offered tough talk about GM's condition, but has also been upbeat about GM's prospects for 2006 as a wave of new models hits the market.

GM's approach to its turnaround -- taking methodical steps without tying itself to deadlines or specific commitments -- stands in contrast to the approach taken in the most successful recent automotive turnaround, Carlos Ghosn's rescue of Nissan Motor Co. Mr. Ghosn, who took over Nissan in 1999 at a time when the company was near collapse, laid out in public a series of goals for returning Nissan to break-even performance, eliminating debt, and later, achieving specific profit margins.

"Frankly, absent something like this, I just don't know how you galvanize the organization," Mr. York said. "It certainly appears to have worked for Nissan." In his speech, he also reviewed how similar approaches worked in the turnarounds he helped engineer at Chrysler and IBM.

Mr. York, in an interview after his speech, didn't criticize Mr. Wagoner directly. But he said he and Mr. Kerkorian "would like to see a more comprehensive plan than the company has heretofore articulated. It's not just the dividend. ...They have to have a mindset that things could get bad, ugly and mean."

Mr. Wagoner and others in GM management argue that they have already done a lot. In December, Mr. Wagoner outlined plans to reduce GM's annual operating costs at a rate of $6 billion a year by the end of this year. He said GM would shed 30,000 jobs, mainly through attrition, by the end of 2008. He also said GM would cut its annual North American vehicle-making capacity by one million vehicles by closing nine factories.

GM had previously reopened its labor contract to strike a deal with the United Auto Workers to reduce cash outlays for union retirees' health care by $1 billion a year, although those savings for three years would go into a fund to offset retirees' health expenses.

But Mr. Wagoner appeared to draw the line at cutting the dividend or slicing more deeply into GM's complex North American business. GM has eight brands and more than 80 models, sales of which account for 26% of the U.S. market. Its labor contracts obligate it to pay idled UAW workers even if their jobs have been eliminated.

Mr. Wagoner has refused to say when he expects GM to return to profitability on either the corporate level or in its North American auto business.

Mr. York praised aspects of Mr. Wagoner's strategy, such as his plan to merge the Pontiac, Buick and GMC brands into one sales channel with few or no overlapping models. But he made it clear that he and other shareholders want Mr. Wagoner to do and say more.

Mr. York concluded his assessment on an upbeat note. "We are optimistic that a path exists for GM to return to prosperity." He wouldn't specify what Mr. Kerkorian wants to see before he moves ahead with acquiring more shares. "It's not just the dividend," Mr. York said. GM should show progress on other fronts, such as taking steps to show equality of sacrifice with the UAW and reduce the cash outflow. "It's not simple at all," he said.

Despite GM's difficulties, there are few signs that Washington is about to rush to the rescue. In an interview with The Wall Street Journal yesterday, Allan Hubbard, chief of the president's National Economic Council, said that he has met with Mr. Wagoner and that the GM chief executive wasn't seeking federal aid. "They're very confident they're going to...succeed," Mr. Hubbard said. "We're confident they're going to figure out how to remain competitive and viable in this very competitive marketplace."

The Bush White House, with only occasional exceptions, has resisted pressure to rescue ailing companies. After Sept. 11, for instance, it reluctantly agreed to federal loan guarantees for airlines, but then structured the legislation so that the guarantees proved difficult for airlines to get.

[Klaus]

Kerkorian Aide
Presses for Speed
In GM Overhaul

York, Calling for 'Sacrifice,'
Seeks Cuts in Dividend, Pay
As Auto Maker Slashes Prices
By JOSEPH B. WHITE
Staff Reporter of THE WALL STREET JOURNAL
January 11, 2006; Page A1

Investor Kirk Kerkorian's top lieutenant urged General Motors Corp. to speed up and expand its restructuring to stanch a $24 million-a-day cash outflow -- just as the embattled auto maker announced plans to lower sticker prices on most of its models.

In his first comprehensive statement about GM's turnaround plan, Jerome York, an adviser to Mr. Kerkorian's Tracinda Corp., which owns 7.8% of GM, yesterday delivered a measured but stern critique of the auto maker's efforts so far. The company, he said, needs to take more urgent action and a "clean-sheet-of-paper approach to the business" to reverse its losses.

Mr. York, a veteran of turnarounds at Chrysler Corp. and International Business Machines Corp., delivered a detailed prescription: Halve the $2 a share annual dividend, to save $566 million a year; cut pay significantly for top executives and directors; drop salaries for lower-level employees; cull GM's lineup of more than 80 U.S. models; and drop the low-volume Saab and Hummer brands to focus on core, high-volume brands.

"This situation calls for the company's going into crisis mode, adopting a degree of urgency that recognizes if things don't break right, the unthinkable could happen," Mr. York said.

Mr. York also held out a carrot to GM management. He said that Mr. Kerkorian is prepared to buy up to 24 million additional GM shares -- in effect repurchasing 12 million shares he sold in December for tax purposes and adding another 12 million. The additional purchases -- a potential vote of confidence that could help junk-rated GM's equity and debt -- would occur "under the right circumstances," Mr. York said. He didn't elaborate. In 4 p.m. composite trading on the New York Stock Exchange yesterday, GM shares were at $22.06, down 35 cents, or 1.6%. Mr. Kerkorian's stake in GM is now valued at about $445 million less than he paid for it.

For months, Mr. York and Mr. Kerkorian have watched without comment while the value of Mr. Kerkorian's 7.8% stake in GM has plummeted, even as GM Chairman and Chief Executive Officer Rick Wagoner outlined various initiatives to fix the struggling auto giant.

Yesterday, Mr. York said cutting the dividend and executive pay was critical for GM to negotiate significant cost savings with the United Auto Workers. Mr. York said that while cutting executive salaries won't save "huge dollars," it would be "a very important indication that we're all in this together." The union's president, Ron Gettelfinger, has said repeatedly that there should be "equality of sacrifice" between management and labor as the unionized Detroit auto companies restructure to fight lower-cost Asian and European rivals.

GM's new vice chairman and chief financial officer, Frederick "Fritz" Henderson, who listened to Mr. York's speech along with GM Vice Chairman and former Chief Financial Officer John Devine, said afterward that Mr. York's call for equality of sacrifice was "absolutely reasonable." But he took issue with some of Mr. York's other points. "To be honest, I am in crisis mode," Mr. Henderson said. "But you can't panic."

Mr. Henderson wouldn't comment on the suggested dividend cut, saying that is a matter for the board. Mr. Henderson said the Hummer SUV brand is the fastest-growing brand in the U.S. market. Saab, he said, is important to GM's growth plans in Europe, where GM lacks a luxury marque to compete with Ford Motor Co.'s Volvo, Volkswagen AG's Audi, BMW AG and DaimlerChrysler AG's Mercedes-Benz. "He doesn't understand the situation in Europe," Mr. Henderson said.

Shortly before Mr. York's presentation, GM launched another salvo in its campaign to regain share in the U.S. market, outlining a new pricing strategy in which it will cut base sticker prices for nearly 80% of its U.S. models. The move -- partly financed by cutting the profit margins allowed dealers on certain key products -- marks the latest attempt by GM to wean consumers off the expectation that GM cars will come with big rebates.

Instead, GM will now try to lure customers with low base prices. If successful, the tactic could help improve the relative resale value of GM vehicles. However, GM's effort to move away from big rebates has encountered resistance from customers accustomed to such offers. After last summer's employee-discounts-for-everyone deals sparked a sales surge, GM tried to lower base prices and reduce rebates. Sales went into a tailspin, and GM responded with another round of big rebates at the end of the year.

Mr. York's comments yesterday bring out into the open a debate that has been simmering around GM for months. GM executives, from Mr. Wagoner on down, insist they are moving aggressively to reverse automotive losses that through the first nine months of 2005 totaled $6 billion. But many investors and analysts have criticized GM for appearing to rule out an array of actions -- a dividend cut, culling the array of overlapping brands and models. Mr. Wagoner has at times offered tough talk about GM's condition, but has also been upbeat about GM's prospects for 2006 as a wave of new models hits the market.

GM's approach to its turnaround -- taking methodical steps without tying itself to deadlines or specific commitments -- stands in contrast to the approach taken in the most successful recent automotive turnaround, Carlos Ghosn's rescue of Nissan Motor Co. Mr. Ghosn, who took over Nissan in 1999 at a time when the company was near collapse, laid out in public a series of goals for returning Nissan to break-even performance, eliminating debt, and later, achieving specific profit margins.

"Frankly, absent something like this, I just don't know how you galvanize the organization," Mr. York said. "It certainly appears to have worked for Nissan." In his speech, he also reviewed how similar approaches worked in the turnarounds he helped engineer at Chrysler and IBM.

Mr. York, in an interview after his speech, didn't criticize Mr. Wagoner directly. But he said he and Mr. Kerkorian "would like to see a more comprehensive plan than the company has heretofore articulated. It's not just the dividend. ...They have to have a mindset that things could get bad, ugly and mean."

Mr. Wagoner and others in GM management argue that they have already done a lot. In December, Mr. Wagoner outlined plans to reduce GM's annual operating costs at a rate of $6 billion a year by the end of this year. He said GM would shed 30,000 jobs, mainly through attrition, by the end of 2008. He also said GM would cut its annual North American vehicle-making capacity by one million vehicles by closing nine factories.

GM had previously reopened its labor contract to strike a deal with the United Auto Workers to reduce cash outlays for union retirees' health care by $1 billion a year, although those savings for three years would go into a fund to offset retirees' health expenses.

But Mr. Wagoner appeared to draw the line at cutting the dividend or slicing more deeply into GM's complex North American business. GM has eight brands and more than 80 models, sales of which account for 26% of the U.S. market. Its labor contracts obligate it to pay idled UAW workers even if their jobs have been eliminated.

Mr. Wagoner has refused to say when he expects GM to return to profitability on either the corporate level or in its North American auto business.

Mr. York praised aspects of Mr. Wagoner's strategy, such as his plan to merge the Pontiac, Buick and GMC brands into one sales channel with few or no overlapping models. But he made it clear that he and other shareholders want Mr. Wagoner to do and say more.

Mr. York concluded his assessment on an upbeat note. "We are optimistic that a path exists for GM to return to prosperity." He wouldn't specify what Mr. Kerkorian wants to see before he moves ahead with acquiring more shares. "It's not just the dividend," Mr. York said. GM should show progress on other fronts, such as taking steps to show equality of sacrifice with the UAW and reduce the cash outflow. "It's not simple at all," he said.

Despite GM's difficulties, there are few signs that Washington is about to rush to the rescue. In an interview with The Wall Street Journal yesterday, Allan Hubbard, chief of the president's National Economic Council, said that he has met with Mr. Wagoner and that the GM chief executive wasn't seeking federal aid. "They're very confident they're going to...succeed," Mr. Hubbard said. "We're confident they're going to figure out how to remain competitive and viable in this very competitive marketplace."

The Bush White House, with only occasional exceptions, has resisted pressure to rescue ailing companies. After Sept. 11, for instance, it reluctantly agreed to federal loan guarantees for airlines, but then structured the legislation so that the guarantees proved difficult for airlines to get.

[DRTYFN]

I can see them dropping Saab, but never Hummer. Saab shows very little long range potential, while the future is bright for Hummer.

[J from the D]

GM should be counting their lucky stars for Cadillac and Hummer!

[PARAGON]

<BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">TAKING ACTION. So, will GM take York's and Kerkorian's advice? It's doubtful that it will close down Saab anytime soon. And you can forget about Hummer being sold: GM says the brand is profitable and is bringing in buyers who previously didn't shop its other brands.

Since the UAW has already made concessions on job levels and health-care benefits, getting more would take some wrestling. Wagoner may not be able to get more from the union until its current labor pact expires in 2007.

Wagoner told BusinessWeek that GM already made significant cuts, but he didn't rule out the possibility that in a few years more could be necessary. He did say that his current plan -- including the job cuts, health-care concessions, and savings from purchasing -- will take out $6 billion in costs. But he added during an interview, "Will we need more? I don't know."

Neither do York and Kerkorian, but Wagoner can be certain that both will be riding hard on his management team. And if GM won't take action, they will. </div></BLOCKQUOTE>

[PARAGON]

<BLOCKQUOTE class="ip-ubbcode-quote"><div class="ip-ubbcode-quote-title">quote:</div><div class="ip-ubbcode-quote-content">If York and Kerkorian don't think management is doing enough to turn the auto maker around, they have until Feb. 6 to file proxy proposals that would be voted on at the shareholders' meeting in June. They could file a shareholders' resolution, asking the board to explore the suggestions. Or Kerkorian could get really feisty and nominate his own slate of board members on a proxy ballot to wield more influence.

"[Kerkorian] has identified his intentions and used the pulpit to suggest them," says Maryann Keller, a longtime auto-industry watcher and consultant. "If management doesn't want to do that, he could stage a proxy fight."
</div></BLOCKQUOTE>

[DarthKarl]

It just doesn’t make any sense to even think about dropping one of only two product lines that are seeing any growth. It’s like pulling out from all of your investments that are making money and putting your cash into the ones that aren’t performing.