Update: Kerkorian's prescription for GM
Jerry York's speech to the Society of Automotive Analysts is history, and Automotive News has posted
the full text of the speech here.So what does Kerkorian's advisor recommend for GM? The short answer: get into "crisis mode." Why is it time for crisis mode? Because York calculates that GM's total cash and potential cash will run out in about 1,000 days, if nothing changes. Roughly three years.
Concrete suggestions abound in his lengthy speech, including:
- cut dividends
- focus on four sales channels: Chevrolet, Pontiac-Buick-GMC, Cadillac and
Saturn and unload everthing else. This means selling Saab and Hummer (which York terms non-core assets) and eliminating
Isuzu vehicles from the lineup. Lets GM focus on core brands and raises cash.
- salary reductions at all levels of the company
- focus on short-term cost considerations to reduce cash burn rate
With respect to suppliers, York doubts that GM will find significant relief from that quarter - GM and everyone else have gone to that well too many times already, and the auto supplier segment of the industry is arguably in worse shape than the auto manufacturers themselves.
And York points out that these short term actions have long term implications, saying, "...every single day the [auto] companies are in the headlines regarding their financial stress, they are one day closer to the day when customers could begin deciding not to take the risk of buying a domestic product..."
Well worth reading.
Reader Comments (Page 1 of 2)
Chargo 10:46AM (2/09/2006)
Jeff Gilleran,
Where did you get the following information?
'GM already sold the Medium and Heavy Duty division that was originally Isuzu's back to Isuzu late last year.'
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j-dawg 8:28PM (1/10/2006)
"This means selling Saab"
YES.
Maybe Saab will regain a personality.
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Bruce 8:38PM (1/10/2006)
These Gordon Gecko types just don't get it. Or rather they do, but their goal is to obtain a quick killing on a stock purchase, rather than build a quality company. They'll buy in, make short term moves to drive the price up, then sell short as the mess they've created starts to surface and things go bad. Taking company management advice from this type of person is like taking health advice from your undertaker. He's not interested in keeping you healthy, now is he? As for his "strategies"
-cut dividends. Fine, that's a source of some cash. You can worry about the stock price later. If GM survives and gets through this the stock price will be just fine.
- Sell Saab and Hummer? Those, you bean counting fool, are your only "cool" brands with potential to grab that part of the market. Hummer MIGHT be topped out and a fad to dump, but Saab gives you your only European car brand. Why have 4 or 5 domestic "brands" and then cut the only one that's significantly different. But, if it's necessary for the cash it brings in, it's so small that it doesn't really matter. But you'll wind up buying it or another euro brand back later in 10 or 20 years for much more. If you sell it, you'll need to convert one of your other brands to your euro/performance brand. Pontiac is currently closest to that, I suppose.
- Salary reductions at all levels? How about "salary levels where they're too high" instead? Penalize some high performer along with the deadwood? Again, a beancounter approach that shows no clue about the reality of finding good employees and keeping them motivated.
_Focus on the short-term considerations? Isn't this what got them in this mess in the first place?
They squeezed suppliers for short term gains and wound up getting lots of defective parts that hurt their reputation. They rode SUV cash cows too long. While a cash crunch does result in some short term considerations, the focus needs to be on the long term actually. They need to totally change their focus from "we're cheaper than those great Asian and German cars" to "we're better than those cars but cost about the same"
All GM needs to do is simple:
1. Design and build good cars people want. Toyotas are mostly plain Janes but they are reliable so they get bought. If the car is a performance car, make it perform.
2. Design cars that look good. (Solstice ring a bell?) Improve the looks inside and out.
3. Emphasize quality and value rather than cheap price and tacky add-ons or electric doodads. This is definitely not a
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Chunks 8:54PM (1/10/2006)
There's an interesting article at thetruthaboutcars regarding the Tahoe Hybrid.
Conspiracy theorists have your fun:
http://www.thetruthaboutcars.com/content/1136908925848489408/index.php
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slimslim 9:26PM (1/10/2006)
we can all talk about what GM needs to do at a high level. let's get specific.
1. cut or prune subpar brands
- does Pontiac really need an SUV? the performance division does not a rebadged Chevy Trailblazer
2. build a top notch 4-cyl engine
- no Quad4's; i want a Honda-esque engine which is silky smooth, fuel sipping, with OH cams and VVT
3. upgrade interior plastics
- take the Malibu, great car but lousy interior
4. maintain value pricing
- don't mention incentives esp. in mass marketing. it makes GM look desperate
5. cut the "dead wood"
- no idea how they'll do this
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JohnA 10:07PM (1/10/2006)
Gordon Gecko obviously hasn't read this:
http://www.thelocal.se/article.php?ID=2827&date=20060110
Doesn't he know where the Epsilon chassis came from?
Isn't he aware Saab put a hi-perfomance turbo on Ward's 10-best
list this year and racked up several other industry golds kept
at the records of Saabnet.com, maybe the best brand-specific
automotive forum online.
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robcorn 10:14PM (1/10/2006)
Bruce, just to let you know that Opel is GM's largest European brand and they're turning the corner with some great new product.
Saab is dead, bury it.
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HC_Earwicker 10:20PM (1/10/2006)
Pretty much agree with #2 here with a couple of exceptions. Regarding SAAB - I see no reason why that should remain. It lost its coolness factor a long time ago. GM has a European brand - Opel and is using the Saturn brand as a vehicle to bring in (somewhat modified versions of) Opel cars. Regarding Hummer, I have a suggestion. Why not combine Hummer and Saturn the way GMC, Buick and Pontiac have been combined. There is no overlap here and dealers of both brands would now have additional vehicles to sell.
- HCE
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Rodger Donaldson 10:43PM (1/10/2006)
#2: Saab gives you your only European car brand
Except for Opel (http://en.wikipedia.org/wiki/Opel).
And Saab has been going through the GM blander of common platform design, undermining it as a brand.
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roadside observer 10:52PM (1/10/2006)
Something Jerry York left out:
Why in the world does GM sell two identical lines of trucks, from compact to full-size to medium-duty and low-cab-forward? A buyer can get Chevrolet and GMC(and in some cases, Isuzu!) versions of all of GM's trucks. How much sense does that make? None whatsoever(despite GM's claims that GMC trucks compete in a different market segment).
Solution: Put all compact/full-size trucks and all SUVs currently sold as Chevys and GMCs under the Chevy banner. Put all medium-duty trucks and low-cab-forward trucks under the GMC banner. Kill Isuzu outright.
(I already hear the pro-GMC crowd screaming bloody murder over this, but GM should have done it years ago. Let's face facts - the only difference between the two lines is the badges.)
On another note, the idea of combining Hummer and Saturn is an interesting one. Whittle both Pontiac and Buick down to a total of three models each, narrowly focus each brand, and GET RID of those horrid minivans. Why does Buick even have a minivan? Who's bright idea was that? Lutz has said that he sees Buick as an entry-level Lexus fighter. Hey Bob, how many minivans does Lexus sell? How many? None? That's what I thought.
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Duck Dodgers 11:23PM (1/10/2006)
I can't imagine why GM didn't want this guy on the board. Seems like a real people person.
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laserwizard 12:40AM (1/11/2006)
I agree - cut Saab and Hummer - Hummer is stealing development dollars that would better be spent on GMC to make it different from Chevrolet Trucks. Hummer is building dead-end products that offer little in value and nothing to overall sales potential. GMC, using Hummer's dollars, could offer substantially more cache' and sales potential.
Saab has been screwed by GM ever since it bought it and no longer has any value. If GM can get anything from Saab's sale it should take it - Saab is adding nothing to the GM stable that its European arm cannot supply world wide.
Personally, I think GM should close its doors and cease operations - I'm so friggin' tired of their melodrama and poor vehicles.
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j-dawg 1:00AM (1/11/2006)
GM has officially stated about Saab that it "hasn't got a history of making money" but it's still important to GM. I'm calling BS on that, but I hope they don't cut Saab, because even if they're getting progressively more boring, Saabs are still nice cars.
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Jeff Gilleran 1:37AM (1/11/2006)
Isuzu is leaving on its own guys.
They have been trying to remove themselves from GM rule for many years now.
GM only owns 9% last I heard.
The main contract with GM has ended this year.
GM is buying Duramax Diesels from Isuzu, and Using the I-Max Chassis for the Colorado/Canyon.
Thats it.
GM already sold the Medium and Heavy Duty division that was originally Isuzu's back to Isuzu late last year.
As Far as GM.. Diversify, Simplify and reduce waste as well as unneccessary expenditures and strength will return in time.
Focus on the top selling models, can all the rest and focus on product development based closely with consumer demand and desire.
Dont build what they "think" they will buy.
Thats a sure fire way to tank the company the rest of the way.
Much of the restructuring I see in the article sounds good really.
Shareholder attitude should be placed first, because that helps build revenue and increases positive growth and makes people feel a bit more comfortable about the company they may buy a vehicle from.
It has to be there for the company to even get back on it feet again.
And as they say, everyday that goes by, the consumer has less and less good to say about GM.
Good Points.
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pedantic 2:25AM (1/11/2006)
Let's compare the number of "unique" vechiles that Toyota and GM sell in the US (your totals may vary).
Toyota - 14
Lexus - 8
Scion - 3
Chevy - 19
Pontiac - 7
Buick - 5
Cadillac - 9
GMC - 6
Saturn - 3 (not including Sky)
Hummer - 3
Saab - 4
So. 25 vs 56... The wonderful thing about Toyota is they have so few vechiles that compete with other ones in their lineup. But they have many trim levels...
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iQuack 4:00AM (1/11/2006)
York has made intelligent suggestions. A bloated mess like GM must cut costs.
A dividend cut would probably raise the value of GM stock because paying dividends while losing money is unsustainable and investors expect a dividend cut anyway.
GM has too many brands and Saab is already dead. Hummer could amount to something, but if it could be sold, the cash would be welcome. If and when GM can build and sell a superior truck of Hummer's stature, GM can brand it a Chevy or GMC and people will buy it IF THE PRODUCT IS GOOD. And the GMC brand is redundant anyway because for every GMC, there's a corresponding Chevy.
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Chimay 4:22AM (1/11/2006)
I'm still trying to figure out why GM bought Saab in the first place, since they've done nothing but undermine the brand with platform-sharing since they bought them. They replaced a very, very popular but aging platform in the old 900/9-3 hatchback with a rebadged Opel sedan. They finally bring a hatchback back to market, but it turns out it's just a rebadged Subaru for more money and less performance. They decide Saab needs an SUV (Saab people love Saabs because they are NOT SUVs!)so they do a little more badge engineering and bring in another Chevy for that duty. They completely miss the boat the on the demand for all wheel drive in the sport luxury car segment. And they fail to do a damned thing to update their flagship 9-5 sedan and wagon - or even give them a six cylinder engine or all wheel drive!
All GM has to do is go look at Ford's history with Volvo to get an idea about what they should be doing with their Swedish car company. They should be looking for ways to make their own cars become more Saab-like rather than turning Saabs into GM cars. If they want to save Saab, they should be looking for how to make it compete with the Germans and Volvo.
I honestly think GM couldn't have screwed this up more if they had tried. It's criminal.
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iQuack 5:24AM (1/11/2006)
Saab can't make money selling as few cars as it does. So to increase volume, GM added other car models to the Saab line; however, the cars they added were badge-engineered disappointments.
The cars are OK (Subaru/Saabaru, and the mid-sized Chevy/GMC SUV with a Saab snout on it), but they aren't Saabs and Saabs are all about individuality.
The kinds of people who buy Saabs are likely to be the kinds of people who recognize and HATE badge engineering.
You'd think GM should have expected this strategy to fail, but I guess they're just too stupid!
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Manolo 10:02AM (1/11/2006)
You all missed Vauxhall as another GM European brand.
Yes, it is a rebadged Opel sold only in the UK, but manufactured there too....
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Professor Tex 11:35AM (1/11/2006)
You could actually make a pretty strong argument for keeping SAAB and Hummer (as has been said here, arguably GM's coolest brands) and dumping Pontiac, GMC, and or Buick. BMW is probably the most successful car company in the industry right now, and which GM brand most resembles it? SAAB, of course. The problem there is that they've been starved of new investment, unlike Volvo. On the other hand, what the hell is it going to take to get a guy out of a Honda or Toyota and into a PONTIAC, for chrissakes? GMC's lineup is totally duplicated by Cadillac on the high end and Chevy on the low end, and Buick? It's only legitimate competition anymore is Mercury, another brand that needs to be taken off life support.
Mr. York (and GM) needs to think long and hard about this: what are the future prospects for the brands? What will it take to make them hot again? I would love to hear the case for Pontiac and Buick; short of renaming them, what could it possibly be other than rearranging the deck chairs on the Titanic? Think of the enormous equity in the Cadillac name, and the radical new styling direction it took to get Cadillac just on its feet and noticed again- for that is all it really is- and you will get a feel for just how difficult it is to resurrect a brand when you have been pumping sewage for so many years. As a GM dealer, I can tell you it is DAMNED difficult.
As far as re-dealering goes, Hummer and Saturn are like oil and water- that will not work. SAAB certainly could be shifted over to Saturn, as they are very similar psychographically, but that will screw up GM's channel strategy.
This brings up another problem that Mr. York is clearly totally ignorant of: in all but the largest markets, Cadillac dealers are dualed with Hummer (and often SAAB) and rely on that volume to make sense as a business. What happens if they go away? Cadillac starts to fall apart, and nobody wants to see that happen. There are something like 1500+ Cadillac dealers out there (as opposed to maybe 300 Lexus- yet another problem) so the sales per dealer are pitiful (as are the profits compared to Lexus). You cannot just yank out two legs of a stool and expect it to stand. And as a small aside, Hummer dealers are shelling out millions of dollars as I write this to build extravagant new facilities at GM's insistence. What happens to them? I smell a gargantuan lawsuit.
Mr. York's seems to have total disregard for what his comments do to GM's dealer body, SAAB and Hummer in particular. You can bet they won't be ordering deep or spending a penny on facilities or improvements until this issue is put to bed, which seems to me monumentally stupid and counterproductive.
The bottom line is that Jerome York is a loose cannon, and he needs to stow it before his mouth costs Mr. Kerkorian the rest of his investment. Most of his suggestions are good, but simply classic turnaround strategies straight out of B-school, and while they did work reasonably well at Chrysler and IBM, it's not exactly rocket science. GM damn sure does not need York to pull this off- just the intestinal fortitude to make the tough decisions. Hire McKinsey or someone outside of Detroit and forget Jerry York.
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