Kerkorian aide: GM must step up its overhaul

[Charles Brown <cbrown@xxxxxxxxxxxxxxxxx>]

Kerkorian aide: GM must step up its overhaul

Jerry York expected to seek dramatic cuts in dividend and executive pay

Bill Vlasic / The Detroit News



Kirk Kerkorian is about to send a pointed message to General Motors Corp. to
move faster and harder to fix the problems that have crippled GM's profits
and ravaged its stock price.

In a major speech to analysts Tuesday, Kerkorian adviser Jerry York is
expected to challenge GM to further overhaul its operations, set timetables
for a turnaround, and come to terms with pressing issues involving the
United Auto Workers.

York, a former chief financial officer at Chrysler Corp. and IBM Corp., is
also likely to call for dramatic cuts in GM's dividend and its compensation
for senior executives and salaried workers -- moves already advocated by UAW
President Ron Gettelfinger.

With his $1.4 billion investment in GM looking worse by the day, Kerkorian
is using the backdrop of the North American International Auto Show to prod
GM to take tougher measures to slash costs and possibly shed brands such as
Hummer and Saab.

Details of the speech have been closely guarded by Tracinda Corp.,
Kerkorian's Los Angeles-based investment arm. York declined to comment
Sunday.

But in interviews over several weeks with people familiar with Kerkorian and
GM, The Detroit News has learned that York will call into question whether
GM management is on "red alert" with respect to its current crisis.

Kerkorian, GM's third-largest shareholder with a 7.8 percent stake, has kept
a low profile as GM's share price plummeted -- it closed Friday at $20.80 --
and the automaker lost $4.8 billion in North America in the first nine
months of last year.

But the billionaire casino mogul has, along with York, been active behind
the scenes in meetings with GM Chairman Rick Wagoner and GM outside
directors George Fisher and John Bryan, The News has learned.

Now Kerkorian is going public with his concerns about the need for a
heightened sense of urgency at the top of GM.

An aborted deal in December to put York on the GM board has only increased
the anticipation for his speech to the Society of Automotive Analysts in
Detroit.

Asked about how he will receive Kerkorian's message, Wagoner said Friday:
"We clearly listen to what one of our biggest shareholders says."

GM said in November that it plans to close nine North American plants and
shed 30,000 jobs as part of an effort to cut annual operating costs by $7
billion over the next three years.

But the world's No. 1 automaker has declined to project when it will become
profitable again, frustrating shareholders and analysts who may be losing
patience with Wagoner and his management team.

"There are people who think they need more of a sense of urgency," said Ron
Harbour, whose consulting firm tracks factory productivity in the U.S. auto
industry. "The cost side is one thing, but they better figure out how to
grow revenues."

GM executives contend the automaker's restructuring plan is an important
first step in revitalizing the bottom line.

"Clearly the (financial) numbers don't look good," GM Vice Chairman Bob Lutz
said Sunday. "But it's precisely when the numbers don't look good when
companies get on the stick and change."

However, York is expected to challenge whether GM has gone far enough in
scrutinizing its operations and making tough calls on its brand lineup and
future products.

As CFO at Chrysler in the 1980s and later at IBM, York earned a reputation
as a fearless cost-cutter who sold off entire divisions, chopped salaries
and payrolls, and even eliminated company cars for executives.

With GM's U.S. market share at an all-time low of 26 percent, York could
follow the lead of several analysts who say the carmaker needs to downsize
operations beyond the restructuring plans.

Moreover, York has said that companies in crisis -- such as Chrysler in the
1980s -- must cut costs across the board, including reducing executive
salaries.

With the UAW under pressure to accept wage cuts at bankrupt Delphi Corp. and
give up thousands of jobs at GM, Gettelfinger has spoken out about the need
for "shared sacrifice" by GM's management, board of directors and
shareholders.

"If anybody gives, everybody gives," Gettelfinger has said in recent
interviews.

York is likely to endorse that point of view given the savings GM could
achieve by cutting its $2 annual stock dividend. A 50 percent reduction, for
example, could save GM about $500 million a year.

A dividend cut would directly affect Kerkorian, who owned 44 million shares
as of Dec. 19. But by supporting a lower dividend, Kerkorian would defuse
critics who claim he is a short-term investor interested only in GM's cash.

Since he began buying GM shares last spring, Kerkorian has been portrayed by
some media outlets as a corporate raider best known for his unsuccessful
attempt to take over Chrysler in 1995.

People familiar with Kerkorian, however, say he views GM differently.
Whereas Chrysler was on an upward trajectory and churning out record profits
in the mid-1990s, GM is at a crossroads in its efforts to stabilize its
North American business.

So far, the relationship between Kerkorian and GM has been cordial and
mutually respectful. In October, Wagoner met with Kerkorian and York in Las
Vegas, according to people familiar with the matter.

Moreover, two of GM's senior outside directors -- former Sara Lee Corp.
Chairman John Bryan and retired Eastman Kodak Co. Chairman George Fisher --
also have met face-to-face with Kerkorian and York.

Negotiations to give York a seat on the GM board went on for several weeks
in November and December before breaking down. Sources close to the
situation said the talks collapsed when GM wanted various "standstill"
clauses on Kerkorian's investment.

Wagoner said Sunday that GM would not rule out a board seat for York in the
future. Another option open to Kerkorian, however, is to run a slate of
three or more directors, including York, for the GM board at its annual
meeting.

Kerkorian would have to disclose plans to run a board slate by early
February in order to be included in GM's proxy materials.

York's speech could hardly come at a more dramatic juncture. GM executives
Sunday were deluged at the show with questions about the firm's future and
whether it can fend off Toyota Motor Corp.'s drive for the No. 1 spot in the
industry.

Wagoner acknowledged that York's credibility and experience lend extra
weight to his observations about GM. "I've had a chance to talk to Jerry,"
he said. "He's quite knowledgeable about our business."

And how would he feel if York takes a few critical shots at GM?

"It wouldn't be the first time," Wagoner said.

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@xxxxxxxxxxxx