Wounded GM Ready for Some Bold Moves?

[Globalist]

SOURCE

Wounded GM Ready for Some Bold Moves?

By David E. Zoia
WardsAuto.com, May 25 2005

Under pressure from several fronts, GM brass finally may have that sense of urgency needed to engineer a complete overhaul.

There's nothing like a little pressure to get things moving.

Under the gun from Wall Street, which has relegated its bonds to junk status, and under the microscope of billionaire investor Kirk Kerkorian, General Motors top executives finally may be ready to stomp on the throttle of an action plan designed to right the financially troubled company and regain some of the lost market share that has Toyota threatening to take over as the world's No.1 auto maker.

It's been a long time coming.

For decades, GM has been content to play like a team with a big lead. Unwilling to take too many chances, it has avoided huge blunders but watched its position slowly but steadily erode just the same.

It's not that the auto maker hasn't made some critical improvements or the occasional tough decision. It killed Oldsmobile when the division's sales continued to lag, and since 1995 it has reduced its North American assembly plant roster by a half-dozen facilities and slashed its worldwide employment in half.

It has taken great quality strides – landing five first place winners in the latest J.D. Power rankings. Its steady rise in productivity – GM runs four of the top five most efficient North American assembly plants according to the Harbour Report – has been equally impressive.

And it's not that CEO Rick Wagoner has made many huge gaffs in his five years at the top – the exception, the ill-fated Fiat Auto tie-up that cost GM $2 billion to exit.

It's just that, publicly at least, there hasn't been that sense of urgency that has marked some of the most recent successful comebacks – such as the Carlos Ghosn-led resurrection of Nissan in Japan or the Dieter Zetsche turnaround at Chrysler here in the U.S.

By contrast, the more Nero-like GM has been content to simply make it to the next economic bubble, rather than undergo a massive, more permanent overhaul.

The result typically is two steps forward, one step back. The auto maker still has too much capacity and product overlap, refuses to push the United Auto Workers union very far in contract negotiations and remains averse to risk in its vehicle designs.

But that could change now that GM management – and its board of directors – has Kerkorian looking over its shoulder. No one is quite sure whether Kerkorian, who is moving to become the auto maker's third-largest shareholder, is a passive investor or one with an eye toward controlling the board and filling GM's management suites with his handpicked lieutenants.

But few inside GM are eager to find out – potentially making the timing right for the current regime to make some bold moves.

At least one top executive appears comfortable with being backed into the corner.

“I love being in the position of an underdog,” says Mark LaNeve, GM North America vice president-vehicle sales, service and marketing. It makes winning “all the sweeter.”

And who knows? It just might be the motivation GM has been waiting for all these years.

[Globalist]

I agree. What's happening to GM is a blessing. Tough times bring challenges and also opportunities ready to be seized.

[tgagneguam]

I'm not convinced yet that GM's brass gets it. Yes, they pay some lip service to the crisis, but I'm not so sure there's a real sense of urgency. I've heard similar things in the past, and yet we've never really witnessed a full turnaround. I'm convinced that GM possesses more than enough talented engineers, marketers, and assembly-line workers. I'm just not so sure upper management has figured out what it needs to do - or not do - to let these motivated people simply do their jobs well in the way they they'd like to. Granted there are some positive signs (I'm particularly pleased with GM's recent quality awards, which, if consistently earned, will serve GM well in the longterm) that lend support to the argument, but I still have this sense of deja vu. Time will tell.

[Globalist]

Originally Posted by tgagneguam

I'm convinced that GM possesses more than enough talented engineers, marketers, and assembly-line workers. I'm just not so sure upper management has figured out what it needs to do - or not do - to let these motivated people simply do their jobs well in the way they they'd like to.

For any corporation, it doesn't matter to have talented people if:
- it micro-manages the way they should think and grow
- thinking differently is a liability rather than an asset
- a common mold is used as "success recipe"
- teamwork means do not disagree
- the "unwritten" is more powerful than the "written"
- taking risk is punished rather than rewarded
- people need to wear gloves to talk to each other for routine and simple issues
- silence is the rule when it comes to communicate
- silence as a punishment tool.

And that's what kills people, innovation and ultimately corporations. It makes payrollists (or paycheckists).

[caprice 511]

Originally Posted by Globalist

For any corporation, it doesn't matter to have talented people if:
- it micro-manages the way they should think and grow
- thinking differently is a liability rather than an asset
- a common mold is used as "success recipe"
- teamwork means do not disagree
- the "unwritten" is more powerful than the "written"
- taking risk is punished rather than rewarded
- people need to wear gloves to talk to each other for routine and simple issues
- silence is the rule when it comes to communicate
- silence as a punishment tool.

And that's what kills people, innovation and ultimately corporations. It makes payrollists (or paycheckists).

Oh Great Niji , you speak the truth .

[cfch3399]

No doubt that competition drives improvement and innovation. GM like any one individual, but particularly as a large (very large) institution, it will develop practices and habits that originally may have been a good idea. Since those practices and habits work at the time, GM becomes entrenched in those and turns ultra-conservative in order to avoid change. For an employee to suggest a new and better way to do things is outrageous and deemed as treason to the good old way of doing things by senior staff. Eventually those practices will hinder improvement and habits become bad habits. Conserving them then becomes a liability when competing against smaller, flexible, more liberal and more aggressive institutions out to get you.

[vxl]

A point I would make to Mr Kerkorian though, is that if there is a forced sale of assets (such as the commercial mortage subsidiary of GMAC) there will be NO special dividend to shareholders as the money is for corporate use only.

[moman]

The problem with GM is they are running a 2005 business in the view of the 1960s.

This day of reckoning would have come 10 years ago if it were not for the SUV craze. GM got lucky on this (it was luck, not anything else) and minted gold for a few years. But now that the SUV craze is over, they are back to the same position they were in before. The recent releases by GM execs saying that weak SUV sales are caused by weak product flies in the face of common sense and simple economics, and shows that upper management is in deep denial.

GM has been through this blunder before. They dismissed consumers' changing tastes in the 1970s and kept producing large gas sucking vehicles while mocking Datsun, Toyota, and Honda's smaller offerings. By the time they realized they were wrong, GM did a 180 and rushed the infamous X, J & A bodies to the market which helped eliminate any credibilty of quality products that GM once had.

Where does GM go from here? Here's some of my suggestions: Consolidate GMC/Hummer, pare back Buick, merge Saturn and Pontiac, design flashier models, provide better service, and articulate VALUE VALUE VALUE.

[moman]

Originally Posted by vxl

A point I would make to Mr Kerkorian though, is that if there is a forced sale of assets (such as the commercial mortage subsidiary of GMAC) there will be NO special dividend to shareholders as the money is for corporate use only.

Not necessarily, GM could spin off GMAC to the shareholders who could then sell it off for big bucks. They could also use the cash for a special dividend.

[DemonKnightDK]

why would they sell GMAC since its making money for the rest of the copreration?

[vxl]

Originally Posted by moman

Not necessarily, GM could spin off GMAC to the shareholders who could then sell it off for big bucks. They could also use the cash for a special dividend.

R&D - the source of the future requires a lot of money. Spinning off to shareholders generates nothing except for happy shareholders. I would not be surprised if the non-auto portions of GMAC are sold off in the next 12 months but this would be disastrous if all that happened was to line KK's pockets with even more money.

[moman]

Originally Posted by vxl

R&D - the source of the future requires a lot of money. Spinning off to shareholders generates nothing except for happy shareholders. I would not be surprised if the non-auto portions of GMAC are sold off in the next 12 months but this would be disastrous if all that happened was to line KK's pockets with even more money.

I agree, selling off components will leave the company weaker overall. BUT many investors want to line their pockets and don't care about the future of the company. Remember TWA airlines that sold off their body in the 90's to save an arm? Same thing for GM.

[jwrebholz]

Shareholders think short-term, almost exclusively. "What have you done for me lately?" If a move will make quick cash, they'll almost always go for it--the only exception is when it's obvious that that quick-cash move WILL--not CAN or MAY--put the company under. Selling off GMAC WILL put GM under.

[Cortazzo]

If they were to spin off a PORTION of GMAC, it would be the commercial loan aspect, not the auto loan aspect for clarification. The advantage of this would be a superior credit rating for the spun off company, making it easier and cheaper to secure financing. Also, some suggest that spinning off a portion of GMAC would yield a price far greater in proportion to it's size versus GM's current stock price (if portions are spun off and fetch $10/share, and it's not 1/3rd of the company as GMs shares are hovering around $30, stockholders come out ahead and value is created).

[tombalas]

Maybe I'll end up kicking myself, but I am holding onto my shares for at least a few more years until GM steers back to a solidly profitable course. Unlike some (most?) others, I really like what I seeing coming down the pike in terms of product. In terms of labor relations, the UAW will hopefully share some of the pain that we shareholders have thus far been enduring by ourselves. As the airline industry proved, if labor chokes off the goose laying those golden eggs, competitors will drive the suffocated geese out of business. With the Asians opening up non-union plants in the South, without pensions and mediocre pay and benefits, this disparity between UAW/non-UAW plants has finally come to a head. Neither management nor labor can avoid that the competition will kill it unless they match the non-Union prices. It may not be fair, but fair went out the window too long ago. Good luck GM!