Friday, July 14, 2006

Inside GM's game plan

Tuesday, July 11, 2006
Inside GM's game plan
Under fire from Kerkorian, Wagoner and his team take go-slow approach
Bill Vlasic / The Detroit News

DETROIT -- General Motors Corp. Chairman Rick Wagoner opened the automaker's board meeting last Friday with a subtle jab at his largest shareholder's plan to ally GM with two foreign automakers.

While he didn't mention Kirk Kerkorian by name, Wagoner said "some of us are mildly uncomfortable" with how the billionaire investor secretly courted Carlos Ghosn, the CEO of Renault SA and Nissan Motor Co., a GM source with direct knowledge of the meeting told The Detroit News.

But that was as provocative as Wagoner would get at possibly the most important board meeting of his career.

Rather than fight the proposed alliance as many predicted, Wagoner convinced the board to take a careful approach to a deal that GM management is already skeptical of.

And in doing so, the 53-year-old chairman fired the first volley in defense of his own job.

Wagoner and his top executive team believe that Kerkorian is intent on replacing the GM chairman with Ghosn.

Kerkorian's "prime motive" in pushing for an alliance appears to be his concern about Wagoner's cautious management style, said the GM source, who spoke on the condition of anonymity.

But Wagoner won't be baited by Kerkorian into making a hasty decision on a deal that could jeopardize GM's North American turnaround plan and longer-term global strategies.

Instead, the GM chairman has put together a team of three of his most trusted executives to study the implications of a historic alliance between GM, the French automaker Renault, and Nissan of Japan.

The team consists of Fritz Henderson, GM's chief financial officer; John Smith, the company's head of global product planning; and Lawrence Burns, GM's vice president of strategic planning.

GM executives have already looked at a potential product sharing with Nissan and Renault but so far don't see any obvious gaps in the GM lineup that the foreign models could fill.

Questions also have arisen as to how a GM-Renault-Nissan alliance spanning three continents would be managed and whether it would be a costly distraction for GM.

Wagoner's first meeting with Ghosn is scheduled for Friday, but GM's internal study of the merits of an alliance is in its earliest stages.

"Given the complexity of any potential relationship, it has to be carefully considered on its merits before coming to any conclusion," Wagoner said in a statement last Friday.

A dispassionate and deliberate analysis is exactly what GM observers expect from Wagoner, who has weathered crisis after crisis in the past year.

While some GM executives complain about Wagoner's low-key, somewhat emotionless style, it's proven to be a strength as the automaker goes through a wrenching downsizing of its North American operations.

He led the protracted negotiations with the United Auto Workers that resulted in 35,000 hourly workers at GM taking buyouts or early retirements -- a critical component of the automaker's restructuring plan.

UAW President Ron Gettelfinger -- who could emerge as a key player in the Renault-Nissan drama -- said last week that he applauded Wagoner "for the calm he has shown" in dealing with Kerkorian.

But Kerkorian, who owns a 9.9 percent stake in GM, signaled that a Wagoner-led analysis of a deal with Renault-Nissan is welcome only as a first step.

"A full and objective evaluation of this unique opportunity will require establishment of a board committee that receives independent financial and legal advice," said Kerkorian's investment arm, Tracinda Corp.

Jerry York, a GM director and Kerkorian's top deputy, is expected to keep the heat on Wagoner in the coming weeks.

The GM source who spoke with The News said executives are aware that at least some board members are supportive of York's efforts to accelerate change at the company. York initiated contact with Ghosn in May, and set up Ghosn's meeting with Kerkorian last month in Nashville.

If Wagoner and his study team ultimately recommend against an alliance with Renault-Nissan, Kerkorian and York will likely press harder for a GM board committee to evaluate the deal.

GM management, however, believes its best chance at keeping the automaker independent is to continue showing progress on the North American turnaround. The automaker's second-quarter financial results -- which will be reported July 26 -- will be a key measuring stick.

"If we don't decide to endorse a Nissan-Renault deal, Kerkorian and the board can say, now what?" said the GM source. "That's why the success of turnaround plan is crucial."

GM directors are likely to follow Wagoner's lead as long as he shows results in the turnaround, one analyst said Monday.

"The board at GM at least collectively is of the view that GM is heading in the right direction," Rob Hinchliffe of UBS Securities said Monday during a conference call with investors. "I think that's the primary issue here -- does management want to give up control and get off what they think is working? I think diversion is the biggest potential damage."

The fireworks following Kerkorian's June 30 public disclosure of a potential Renault-Nissan alliance are over for now. Wagoner is likely to insist on strict secrecy in his talks with Ghosn. At least for the next few weeks, Wagoner can lay the groundwork quietly to accept, or reject, a deal.

Internally, GM officials are downplaying the potential savings and synergies that could result from a tie with Renault-Nissan. They say that GM is already deep into cutting $8 billion in costs this year, and don't see a foreign alliance contributing much more.

Beyond that, GM is invested heavily in its global automotive platforms, which will allow the company to build models off common architectures in various regions of the world.

Auto analysts -- some of whom are also impatient with the pace of change at GM -- don't see the need for wholesale changes like those made at Nissan under Ghosn.

"In the end, GM today is stronger than Nissan in 1999, no matter what the credit ratings say," said Glenn Reynolds of the firm CreditSights. "GM does not need a rescue."

You can contact Bill Vlasic at (313) 222-2152 or

© Copyright 2006 The Detroit News. All rights reserved.


Post a Comment

<< Home