Jerry York to GM: Get in 'crisis mode'
The Kerkorian advisor wants a 50 percent dividend cut, and to reduce management compensation.
DETROIT (CNNMoney.com) - The advisor to GM's largest individual shareholder called for a 50 percent cut in the automaker's dividend along with compensation cuts for the company's directors, management and hourly employees.
In his speech to the Society of Automotive Analysts at the North American International Auto Show in Detroit, Kirk Kerkorian's advisor Jerry York said that GM needed to be in a "crisis mode" to address its problems, and said that more needs to be done than is currently being done to turn around the embattled No. 1 automaker.
York, a former executive at Chrysler Corp. and IBM (Research) who was part of the turnaround efforts at both of those companies, wasn't completely negative about the situation at GM or the actions of current GM management. He praised plans announced in November to close a dozen plants and facilities and to significantly reduce North American capacity. And he praised some of the new products that GM is introducing or planning to build.
He even said that Kerkorian is prepared to repurchase 12 million shares of GM that he sold at the end of last year to lock in a loss for tax purposes. And he added that Kerkorian is interested in possibly purchasing an additional 12 million shares of GM on top of that repurchase if he sees company management and the union make immediate and more significant moves to cut costs and stem losses.
The dividend cut would save GM $566 million a year in cash, he said. The reduced dividend York proposed would cost Kerkorian's Tracinda Corp. investment vehicle about $44 million a year, but he said that not only would Tracinda approve of a dividend cut as a way of conserving cash, he believes most other shareholders would also agree with the move.
Call for more changes
And he said that GM needs to take a "clean sheet of paper" approach to looking at the business to see what to continue and what to stop doing. In addition to pay and dividend cuts, he said it might be time for GM to look at dropping some of its brands.
York said that GM had reached a fork in the road and that this was a crucial time in determining whether the company would solve its problems.
"The wrong fork is the one that assumes that 'better products' and 'some capacity reduction' are about all that is needed," he said. "The right fork is the one that assumes that not only are better products and capacity realignments required, but all the old ways of doing business have to be scrutinized, recognizing that some aspects of the business that were affordable a decade ago are no longer economically possible."
York did not specify the extent of cuts he'd like to see in compensation for directors, management and union-represented employees but said there needed to be "equality of sacrifice" in order to turn GM around.
York said he is confident that the UAW would be willing to make sacrifices if it is convinced there is a shared sacrifice taking place. He said that GM Chairman and CEO Rick Wagoner and UAW President Ron Gettelfinger had "behaved like statesmen" when negotiating changes in the union's health care plan last year aimed at saving GM $1 billion a year in spending. And he said the threat of bankruptcy at GM could get the union to agree to other concessions, as they had in the airline and other troubled industries.
"Bankruptcies have shown all of us what the worst deal is -- the one you get in court," he said.
A spokesman for the UAW could not immediately be reached for comment on York's comments. The union is on record in favor of cutting or eliminating the GM dividend. But when it negotiated changes in the health care plan, its leadership resisted making any changes that would have required it to reopen the current labor contract that runs through September 2007.
York also suggested that GM should look at dropping some brands including Saab, Hummer and Isuzu. And he said is was important for GM to layout financial targets to measure its progress in its turnaround plan. Company executives have refused to give investors or analysts any guidance as to when the automaker expects to return to profitability.
Fritz Henderson, GM's chief financial officer, told reporters after the speech that he agreed with much of York's call for action saying, "To be honest I am in crisis mode," but he said would not discuss possible pay cuts or a change in the dividend. He disagreed with a reporter's question which suggested that York had been reading GM management the riot act.
"I've been read the riot act before," said Henderson. "One of our largest shareholders was articulating quite clearly his vision for what we need to do. Frankly there's a lot of what he had to say that I agreed with."
Henderson also disagreed with the proposal to drop the Saab or Hummer brands, saying that Hummer is the fastest growing brand in the United States and that it could be profitable. He added that the decision on Saab needed to be based on more than its very small slice of the U.S. market.
"Most of [the decision to keep or get rid of Saab] is determined by Europe, not by the U.S.," said Henderson, whose previous job at GM was running GM Europe. "I can understand [York's] position. Frankly, you don't take decisions quickly. I think you have to take into account all factors. And Jerry, to be fair, doesn't really understand the situation in Europe."
Henderson said a dividend cut would be up to the GM board of directors and that he would not hold negotiations with the United Auto Workers union in the media. GM Chairman and CEO Rick Wagoner also declined to express his view on the dividend when asked about it by reporters earlier on Tuesday.
For more on whether GM should drop or cut it's dividend, click here.
For a look at GM's plan to cut its car prices, click here.
For more news and photos from the Detroit auto show, click here.