GM told: Cut every salary
Kerkorian's message: Fix must start at top, aide says
BY MICHAEL ELLIS • FREE PRESS BUSINESS WRITER • JANUARY 11, 2006
Billionaire investor Kirk Kerkorian sent a stern message to General Motors Corp. on Tuesday -- cut wages from the boardroom to the factory floor, chop costs by selling the Saab and Hummer brands, and adopt a sense of urgency to survive. With GM burning through $24 million of cash a day, the company will run out of money in 1,000 days or sooner unless executives make tough decisions now, Kerkorian aide Jerome York said in a speech delivered on GM territory at the Renaissance Center.
"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, that time is of the essence," York told the Society of Automotive Analysts. The society represents those who advise stockholders on automotive investments.
GM Chief Financial Officer Fritz Henderson, the fast-rising executive who took over his current role Jan. 1, exchanged friendly remarks with York before the speech and applauded his remarks afterward.
"I am in crisis mode," Henderson said. "Frankly, there was a lot he had to say today that I agree with."
Until now, Kerkorian and his representatives had not spoken publicly about GM and had not interfered in management of the automaker. But York, former chief financial officer of Chrysler Corp. and IBM Corp., said Tuesday that now was the time to give a detailed remedy for GM's ills.
The owner of MGM Mirage, the gaming company that includes the MGM Grand Detroit casino, Kerkorian has a long history of using his investments to shake up companies, none more notable than during his failed takeover attempt of Chrysler Corp. a decade ago.
Kerkorian made billions from his investment in Chrysler. But last year, he lost hundreds of millions of dollars on his stake in GM as the stock price lost nearly half its value.
Kerkorian sold 12 million shares at a loss last month, reducing his stake from to 7.8% from 9.9%, to book some tax benefits. As of Tuesday, his investment was worth about $970 million.
GM lost nearly $3.9 billion through the first nine months last year and, although its automotive operations have about $25 billion in cash at their disposal, York said the company could burn through that amount in three years or less.
For those reasons, York said that GM needs to take five steps to turn itself around:
• Be realistic about market share and revenues, and cut costs accordingly. That includes a "significant" cut in compensation for the board of executives and wages for senior management, with more modest cuts for other workers. He suggested single-digit percentage cuts for workers at the lowest levels.
But he was not more specific than that, saying it was up to management to decide. Although white-collar wages and benefits could be reduced fairly quickly, the company would have to negotiate any blue-collar wage cuts with its unions.
• Sell the Saab and Hummer brands and cut the number of vehicles in the rest of the lineup.
• Take a "clean sheet" approach, with nothing in the company untouchable.
• Make tough decisions. Those include chopping the dividend by half.
• Inject a sense of urgency into the business. GM needs to set financial goals during the next three years to measure its progress, similar to what Japan-based Nissan Motor Corp. did to aid its turnaround in 1999.
After starkly outlining the steps GM needs to take, York said in an interview that he was careful not to upset the UAW. He also had nothing but praise for GM Chief Executive Rick Wagoner, and he hoped his remarks would be received constructively.
"I think Rick Wagoner has the opportunity here to be the preeminent CEO of the decade of the 2000s," York said, comparing him with former IBM Chief Executive Louis Gerstner and former General Electric Co. Chief Executive Jack Welch.
Wagoner, speaking to reporters at the North American International Auto Show before York's speech, said: "It's my sense there's a lot of agreement on strategy, and if anyone says, hey, can we go faster to get this business turned around, I say, 'Amen.' That's what we're working on every day."
York, 67, said GM's new lineup of SUVs coming to market this year is impressive, and the automaker's continued fall in U.S. market share may be coming to an end.
He also lauded cost-cutting measures GM took last year, including plans to shift some health care costs to hourly retirees, idle 12 North American plants and cut 30,000 UAW jobs by the end of 2008.
But he indicated that Wagoner and UAW President Ron Gettelfinger need to do more.
Wayne Horn, a 48-year-old hourly worker at GM's power train plant in Toledo, said he would support pay cuts across the company. "If it's the only way, I'm all for it," Horn said. "If you're talking like Delphi, forget it. If it's a couple bucks, I wouldn't mind."
Bankruptcies in the airline industry have shown rank-and-file workers that the usual tactic of striking to preserve wages and benefits won't work now.
GM needs to adopt an "equality of sacrifice" plan to convince hourly workers that everyone, including board directors, executives and shareholders, will take painful cuts to help the company, York said.
"It's going to take a ton of statesmanship to get any deal done here," he said.