Kerkorian Urges Bigger Cuts at GM
Billionaire investor Kirk Kerkorian sent a message Tuesday that General Motors Corp. wasn’t moving fast enough in its turnaround efforts and called on the giant automaker to take more-dramatic action, including slashing its dividend, imposing pay cuts and getting rid of its Saab brand.
Kerkorian’s advisor, Jerome York, a former financial executive with Chrysler Corp., urged GM to cut its $2-a-share annual dividend in half to save about $550 million a year.
York outlined his plans in a speech to automotive analysts gathered in Detroit for the North American International Auto Show. The steps would help GM staunch what York estimated is a $24-million-a-day cash drain and help refocus the company’s efforts on reversing its mounting financial and market-share losses.
“GM is a voracious consumer of cash,” York said in his speech. “GM needs to husband every penny of cash they can to get through the restructuring.”
Kerkorian is GM’s fourth-largest shareholder with 43 million shares, a 7.8% stake, owned through his Beverly Hills-based investment firm Tracinda Corp.
York’s remarks diverted attention from GM’s announcement Tuesday that it would cut sticker prices as much as $2,500 on 80% of the cars and trucks it sells in the U.S. to wean buyers from rebates and other incentives. GM started the present round of aggressive incentives in 2001 to spur sales.
By lowering the so-called manufacturer’s suggested retail price, GM hopes to make its vehicles more attractive in price comparisons with rivals, especially Toyota Motor Corp. Last summer, GM’s aggressive employee-discount promotion helped boost sales temporarily, but the company still spent more on incentives than most automakers and ended the year with a record-low U.S. market share of 26%.
A retail price rollback is “one of the most difficult things to pull off,” York said. “You are always concerned that the consumer who likes getting a $3,000 rebate won’t recognize that a $1,000 rebate and a $2,000 price reduction is the same thing.”
York also called on GM’s top executives to take substantial pay cuts, and said every employee should share the pain, although he suggested cuts of less than 10% for hourly employees.
Last year Kerkorian sold 12 million GM shares for tax purposes. He may replace those shares, York said, boosting his GM stake back to 9.9%.
Kerkorian also might buy 12 million additional shares; that would push his GM stake to about 12%.
Another possibility is for Kerkorian to offer a dissident slate of directors, York said in an interview -- a clear indication that the investor intends to keep pressure on GM Chief Executive Rick Wagoner to move quickly.
GM Chief Financial Officer Frederick Henderson listened to a telecast of York’s speech and said afterward that any dividend cut would be for the board to decide. He also said that GM had determined that it was not appropriate to set some of the targets that York discussed.
Some analysts said Tuesday that a dividend cut was likely.
“It won’t be because Mr. York is requesting it, but rather [because GM] can send a message to the UAW [union] employees that ultimately the management and shareholders are sharing in their pain,” said John Novak, an auto industry analyst at Morningstar Investment Services.
Cutting the dividend would give GM “added leverage to get more cost cuts elsewhere,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
York said he supported GM’s plan to slash 30,000 jobs from its North American payroll, close eight factories, and close or downsize several other facilities in the U.S. and Canada over the next three years.
He and Kerkorian also believe “there are a lot of good things going on at GM,” York said. “It is operationally a pretty good company” and has been making “huge progress” in lowering costs and increasing productivity.
But the company needs to get rid of distractions and concentrate on its core automotive brands, York said, calling on GM to sell its Saab subsidiary and to consider getting rid of the Hummer brand as well. Saab and Hummer combined account for less than 3% of GM’s sales.
Meantime, GM is pushing ahead with its sticker-price cuts. All Buick, Chevrolet and GMC models and most Pontiacs will be covered, but Saab, Hummer and Saturn models will not.
“The benefit to the consumer is that it is simpler; the risk to GM is that it’s pretty permanent because you can’t lower your prices and then raise them back up,” said Jeremy Anwyl, president of Edmunds.com.
GM’s stock closed Tuesday at $22.06, down 35 cents.
Times wire services were used in compiling this report.
