Tuesday, July 18, 2006

WAGONER: GM doesn't need a white knight

Wednesday, July 12, 2006
Daniel Howes: The Detroit News interview
WAGONER: GM doesn't need a white knight
But CEO keeps open mind to Renault-Nissan pact

General Motors Corp. Chairman Rick Wagoner defended his turnaround Tuesday and said the automaker isn't seeking a "white knight" to ride to its rescue.

In his first interview since shareholder Kirk Kerkorian urged GM to consider an alliance with industry superstar Carlos Ghosn's Renault-Nissan alliance, Wagoner said GM management will study the blockbuster proposal with an open mind even as it forges ahead with the revival of its core business.

"We didn't build our turnaround plan on the basis that a white knight would come in at the 11th hour and bail us out," Wagoner told me Tuesday. "Because my experience in life is when you bet on somebody saving you, that's a pretty risky business.

"We built our turnaround plan on the fact that we're going to restructure the company so it could be a competitive global enterprise in today's and tomorrow's world. That doesn't mean that other alliances, other ideas brought to the forefront couldn't make that plan better, faster, higher value-added to our shareholders. And we are acutely aware of our responsibilities to do that."

Wagoner doesn't exclude the possibility -- because he can't at this point -- that GM and Renault-Nissan could reach a broad agreement to cooperate on purchasing, product development or engines and transmissions. He said GM's management could "work on that pretty quickly" after he and Ghosn meet Friday in Detroit to discuss a framework for discussions.

But he also said that GM, over the past five years or more, has built its own "global footprint" from China, Latin America and the emerging markets of eastern Europe to the mature markets of the United States and Western Europe.

Whether any of that matters to Kerkorian, a Las Vegas mogul with a reputation for betting big on undervalued companies and pushing management to change faster, is unclear. If the past is prologue, Kerkorian wants more sooner and he thinks Ghosn, Renault and Nissan are more likely to deliver it.

Kerkorian's adviser, GM director Jerry York, is spearheading the We-Need-Ghosn campaign, ostensibly a call for a GM tie-up with Renault SA of France and Nissan Motor Co. of Japan. Ghosn is CEO of both companies, each of which could take a 10 percent stake in GM, giving a theoretical Kerkorian-Ghosn axis a 30 percent position in America's No. 1 automaker.

Wagoner makes his case

These are tense times for Wagoner. He is compelled to defend his strategy for turning around GM's beleaguered North American operations even as he accedes to the request from his most unpredictable shareholder to study a deal with Renault-Nissan.

But that's not all. A career GM executive who has been CEO since 2000 and chairman since 2003, Wagoner is being forced by events, leaks to the news media and occasionally wild speculation to defend his job and reassert that GM's directors -- who include York, a former Chrysler Corp. CFO -- still back him and his plan for returning GM to profitability.

"The board is very well informed and I feel the board is behind me," Wagoner said, reading excerpts from an official statement issued last week in which the directors reaffirmed their support for his turnaround plan.

"These things take time. The accomplishments have been remarkable and they should build a lot of confidence that this company and this management team -- not just me -- can take on some tough issues that other companies have taken a pass on."

How much time they should take depends on who you ask.

In the six months since York delivered his blueprint for a GM turnaround, Wagoner has completed a historic health-care cost-sharing deal with the United Auto Workers; engineered the buyouts or early retirement of 35,000 hourly workers; made progress on a restructuring plan that calls for closing a dozen facilities; eliminated executive bonuses and trimmed benefits for salaried workers.

Despite dire predictions, labor strife at bankrupt Delphi Corp. has yet to erupt and Wagoner said there has "been good progress" towards a three-way deal, but he doesn't "expect a solution imminently." Instead, the former GM parts unit has engineered -- with GM money -- its own buyouts, and negotiations are continuing to reduce the pay and benefits of those who remain.

Wagoner also unwound three global alliances, underscoring a poor GM track record that does not necessarily augur well for a tie-up with Renault-Nissan. GM's deal for 20 percent of Fuji Heavy Industries, parent of Subaru, never delivered as advertised. A $2 billion deal with Fiat Auto SpA cost another $2 billion to exit, leaving GM mostly with diesel engine technology for Europe and Latin America. A portion of GM's 20 percent stake in Suzuki Motor Corp. ended up in the hands of archrival Toyota.

And in a complex deal that could reduce GM's earnings power even as it bolsters its cash hoard, Wagoner sold a majority stake in its GMAC finance arm, a deal expected to net GM $14 billion in cash when it closes sometime in the third quarter.

"We've still got some stuff in front of us," Wagoner said. "We need to get the Delphi situation resolved and we need to get the GMAC deal closed. I do think it's accurate that we've accomplished a lot because we needed to."

Not moving fast enough

That's his opinion. However supported by the facts it may be -- and echoed by Wall Street, industry analysts and media accounts over the past 10 days -- there's growing evidence that Kerkorian and York don't think Wagoner is moving quickly enough to reduce GM's legacy costs, pare its brands and reduce administrative costs, the salaried ranks and the hourly work force.

Nor do they express public support for Wagoner, despite doing just that back in January when York used a speech to the Society of Automotive Analysts to lay out his vision for a GM turnaround.

Does GM need a new CEO, I asked York then, less than a month before he joined the GM board.

"We don't think that," York said. "We think Rick Wagoner, by virtue of his background, is very well equipped to get the job done. We think he can do it."

Not anymore, apparently.

Now York is meeting with Ghosn in a Tennessee hotel, wooing him with the prospect of running the largest global automotive alliance the world has ever seen. Now York's boss is using a federal filing on the Friday of the July 4th holiday weekend to drop a bombshell that reverberated across three continents.

Now, Kerkorian's people are claiming that Wagoner, once he'd learned of Kerkorian's alliance idea from York, dawdled in his response -- an alleged misstep that angered Kerkorian.

"That's not true," Wagoner said. "Within a business day I had that call. There was no confusion over the idea. And there was no delay in me calling Carlos. I talked to Kirk before I talked to Carlos. I think in the context of things you could call my reactions lightning speed and most serious. Anything else is inaccurate."

GM weighs the options

Who called who when is less important to GM, its shareholders, its employees and the communities where it operates, than how or whether its leadership will elect to remain an independent American company.

Or will GM's directors be persuaded to allow foreign rivals -- one of which is partly owned by the French government -- to take a stake in it and partner with a shareholder whose track record is more get-rich-quick than in-it-for-the-long-haul?

For now, Wagoner isn't betraying whatever bias he may have. He says he knows Ghosn and respects him. He says GM has done alliances before, learned from the successes and the missteps -- some of them very costly in dollars and lost reputation.

He says leaks of boardroom discussions "is not constructive at all" and "it's a very unfortunate trend in recent months." He says he was "surprised" that York reached out to Ghosn "because that is not conventionally the way we would handle an idea in GM."

Should you take the gloves off?

"I like to be honest to shoot straight," Wagoner said. "That's the way I like to conduct business. That's the only way I'm going to play this game."

Daniel Howes' column appears Mondays, Wednesdays and Fridays. He can be reached at (313) 222-2106 or dchowes@detnews.com.

© Copyright 2006 The Detroit News. All rights reserved.

Wagoner on General Motors:

On comeback

"We didn't build our turnaround plan on the basis that a white knight would come in at the 11th hour and bail us out."

On the board

"The board is very well informed and I feel the board is behind me."

On GM's progress:

"I think we're moving a lot faster than people thought we could; we're getting the financial results moving in a way that I think people were surprised at in the first quarter. We'll have a chance to talk about the second quarter here soon,
I won't take the time to run down the list of things that are done and behind us. It's a long list and it's impressive that it was done frankly with a lot of cooperation from people -- it's not always easy to do that. But we've still got some stuff in front of us and we need to get the Delphi situation resolved and we need to, for example, get the GMAC deal closed."

On auto alliances:

"We've had an extensive experience as much as any other manufacturer with various kinds of cooperations or alliances. And frankly, some have worked very well, some have worked OK and some haven't worked. And that has given us a pretty good body of knowledge -- if you will, lessons learned -- on how to approach looking at the opportunities and how to have a high degree of confidence in whether the potential benefits are going to be realized and over what time frame and what the pitfalls are."

On timetable for studying possible deal:

"We have a meeting scheduled, Carlos (Ghosn) and I, fairly soon -- and what we'll need to do at that meeting is identify how we want to approach analyzing the potential synergies, the benefits We're prepared to approach this expeditiously and thoughtfully. We've learned in our prior workings on alliances that you need to take the time to do the analysis and reach agreements with your future partners to make sure that you can realize the benefits you expect, but we're very experienced doing it, so I think we can move on it quite expeditiously."

On dealing with critics:

"These discussions about my tenure come up, quite frequently it seems over the last six months. I just make it clear: I'm doing one thing here -- which is doing my best to make GM successful. In doing so, we're taking on issues that in many cases have their roots 50, 60 years in the making, and we're trying to do them in a way that will structure the company to be successful in the future and that's the only thing I care about."

On sales and marketing:

"I think one of the stories that hasn't been covered as well is we're being very disciplined at structuring our marketing strategy and it's starting to work. I mean, June sales were the biggest retail sales this year -- a very strong month for us, and I think we're beginning to reap the benefits of what was somewhat of a painful first five months of the year, where we began to throttle back on daily rental business, we began to throttle back on very low-cost leasing business, been trying to get more focus on the value-based marketing, and so I think that's beginning to work.

On GM's stock price

"I personally think that until we get (the Delphi) issue resolved, and probably until we get several more quarters of financial results out and maybe several more months of sticking with the sales and marketing strategy, I think the stock is trading a little more on events that occur rather than more on the fundamentals. But over time we hope to address the big issues that are overhanging the stock and I suspect we'll get some more stability in the way that the company's viewed."

On cost-cutting

(Wagoner said GM will close this year having reduced its structural cost by $8 billion on an annual basis -- including $5 billion in cash) "I don't think anybody's ever had a cost reduction like that. I've never seen it in the history of any company. And that's a fundamental change in our business -- and I do think the Street is increasingly recognizing that."

© Copyright 2006 The Detroit News. All rights reserved.


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