gm should drop hummer

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York: GM Should Drop Saab, HUMMER




York: GM Should Drop Saab, HUMMER
Company has 1000 days of cash left, Kerkorian’s wingman says.
by Joseph Szczesny (2006-01-10)



The prescription for fixing General Motors is fairly straightforward but requires some tough action including the elimination of unneeded brands such as Saab and HUMMER, slashing the dividend and reducing the compensation of the board of directors and senior executives, says Jerry York.



York, an advisor to Kirk Kerkorian's Tracinda Corp., told the Society of Automotive Analysts that GM needs to recognize that "time is of the essence" and GM's management needs to create and galvanize change. Otherwise the company is on course to burn through its cash at a rate of $24 million per day, which means it will use up the balance of its cash reserves of $30 billion in about 1,000 days.



Bold and decisive action is needed to demonstrate that GM's management understands the problems and is willing to tackle them head-on, said York, who laid out a program of tough love for the struggling corporate giant.



"Although there are some people in this town that aren't there yet, in my mind this situation calls for the company's going into a crisis mode, adopting a degree of urgency that recognizes if things don't quite break right, the unthinkable could happen," said York, a former Chrysler and IBM executive, who has been advising Kerkorian on the ins and outs of the car business for more than a decade.



York also urged GM to revive the concept of equality of sacrifice that was used successfully more than 25 years ago to help revive the Chrysler Corp., which avoided financial catastrophe with the help of a government bailout. "In 1980 when Chrysler went to the Federal Government and requested loan guarantees, the government basically said, "Before we're willing to help to help, all of Chrysler's constituencies are going to have to kick in," York said.



"There was a lot of gnashing of teeth to get it all done but at the end of the day it worked," added York, who also quoted approvingly recent remarks by UAW President Ron Gettelfinger on the need for shared sacrifice. York's remarks also were a subtle rebuke to his old colleague Robert "Steve" Miller, the chief executive officer at Delphi, who has demanded major concessions from Delphi's hourly workers, at the same time he submitted a plan for rewarding top managers after the bankruptcy.



GM's board of directors also should reduce the company's 50-cent per share dividend and trim their own compensation by 50 percent. GM also should move down the corporate pyramid and reduce the compensation of top executives as well, York said.



GM, in many respects is a sound company operationally and has made huge progress in quality and productivity, he said. However, it isn't clear that GM has gone through the kind of all-encompassing review of cost structure which took place during the 1990s at Chrysler and IBM, he said.



In addition, GM must do more to rationalize its sales and marketing efforts, added York, who said he believed that Mark LaNeve, GM vice president of vehicles sales, service and marketing had the toughest job in the company. "Why does GM still own Saab?" York said. "HUMMER - this product line is most profitable but is it core? GM indicates HUMMER generates a high rate of first time GM buyers. But that's not the question in my mind. The real question is, 'Do first-time HUMMER buyers go on to buy Cadillacs or GM Trucks?'"



"If that's the case, then I guess it might be the correct decision to keep HUMMER. But even then, I'm not sure, given GM's substantial brand complexity and need to assure adequate liquidity," York said.



Fritz Henderson, GM's new chief financial officer, told reporters after York's presentation that he agreed with a lot of what York said. "To be honest I am in crisis mode," but he said would not discuss possible pay cuts or a change in the dividend with the board. Henderson also said he did not believe GM had to drop the Saab or HUMMER brands.



Meanwhile, Gary Cowger, the GM executive responsible for company's worldwide manufacturing operations who has been involved in the delicate negotiations between GM and the UAW, said that the three-way discussions are in progress but declined to comment further on the progress of the talks.



In effort to upstage York's broadside GM also announced that it was cutting Manufacturer's Suggested Retail Prices on dozens of vehicles, which account for about 80 percent of its sales volume. Under the new pricing structure, prices on many GM vehicles have been lowered, some by as much as $2,500.



LaNeve, GM vice president of vehicle sales, service and marketing, said the cuts included every Chevrolet, Buick and GMC model, as well as most Pontiac cars. "This is a big step for us and arguably the biggest price repositioning in our history," said Mark LaNeve, GM vice president, North America Vehicle Sales, Service and Marketing. "This move is in line with our customers' desire for simple, compelling prices."