Critics Say GM’s Request for a Rebate Proves Auto Giant Overvalued Hughes
Did General Motors pay too much for Hughes Aircraft in 1985?
It is a question that some GM critics are asking more frequently since the recent disclosure that GM is seeking a rebate of $200 million on the Hughes deal.
The company wants the $5.2-billion price reduced because of an estimated $200-million penalty that Hughes absorbed on a Navy contract that it failed to complete.
H. Ross Perot, the former maverick GM director who cast the lone dissenting vote against the Hughes acquisition, said in a recent interview that Hughes was worth no more than $3 billion to $3.5 billion. He insisted that the GM effort to obtain a rebate shows that he was right in saying that Hughes was overvalued. “I said, ‘What does Hughes have that we are going to put on a car?’ ” Perot recalled. “And they said, ‘The window displays that you have on fighters.’ I said, ‘Are you sure anybody wants that?’ ”
When GM bought Hughes, it did not expect to recover its investment through Hughes profits.
In a July 16, 1985, letter to the Securities and Exchange Commission, GM Executive Vice President F. Alan Smith wrote: “There is little expectation that a significant portion of GM’s investment in Hughes in excess of the underlying net book value will be recovered through future Hughes operations nor was that the intent in acquiring Hughes.”
Rather, GM wanted Hughes’ technology, believing that it would “make GM’s automotive manufacturing operations and products more efficient and more competitive and carry GM into the 21st Century,” Smith wrote.
Hughes has started 140 engineering projects to help transfer its technology to GM, Hughes Chairman Malcolm Currie said in an interview. Hughes has sold $30 million worth of its technology and products to GM in the past year.
Not the Only Critic
“The automotive electronics market is growing quite rapidly,” Currie said. “It’s one of the big opportunities in the electronics industry today. So I’m hoping we can get some real synergy there.”
Nonetheless, the rationale is faulted by critics like Perot, who said GM did not have to spend $5.2 billion to get the technology.
“I said, ‘I am the only person on the board with an advanced technology background. Tell me what technology you want and set aside $100 million. I will get you that technology and bring you change,” he said. “I will do it on the following premise: You don’t have to own the dairy to get milk.’ ”
Perot is not the only critic. Chrysler Chairman Lee A. Iacocca wrote recently in Fortune magazine: “The decision to pay $5.2 billion for Hughes Aircraft in 1985 was crazy. GM will never get a worthwhile return on that.”
