Other Editorials

Tick, Tick for Rick

Tom Walsh
Tuesday, July 4, 2006

Time for Wagoner to Show Why GM Needs Him
Detroit Free Press

If General Motors Corp. CEO Rick Wagoner wants to keep his job and lead GM's revival his way, he needs to show Kirk Kerkorian and Wall Street the light at the end of GM's turnaround tunnel.

Very soon.

And if that means blatantly lifting a page from Carlos Ghosn's turnaround playbook at Nissan Motor Co. -- by setting specific near-term revenue and profit targets and vowing to resign if they are not met -- then Wagoner ought to do it.

Forget all the highfalutin talk about synergies, made in Friday's proposal by Kerkorian's Tracinda Corp., that GM should join forces in a global alliance with Nissan and Renault SA.

What Kerkorian, who owns 9.9% of GM stock, and his adviser Jerry York want to see is a clear plan that forecasts how many cars and trucks GM will sell, and how much profit it expects to make this year and next year and in 2008. That transparency is the natural desire of any investor and would be applauded by most Wall Streeters that trade GM stocks.

If Wagoner won't provide a plan with specific targets, Kerkorian and York believe they know who will -- Ghosn, the chief executive officer of the Renault-Nissan alliance.

Ghosn gets results at Nissan

When Ghosn was dispatched by Renault to save the near-bankrupt Nissan in 1999, he laid out a 3-year revival plan that promised profitability in the first year, plus a 4.5% operating profit and 50% debt reduction within three years. Nissan met all the targets on or ahead of schedule.

In a Jan. 9 speech to automotive analysts in Detroit, shortly before being granted a seat on GM's board of directors, York praised the Nissan revival strategy under Ghosn and urged GM to set similar public targets. GM later implemented some of York's other suggestions, such as cutting the stock dividend and slashing executive pay, but Wagoner has, thus far, refused to publicly set targets for sales and profits, or deadlines for achieving them.

Wagoner has cited uncertainty about the implications of supplier Delphi Corp.'s Chapter 11 bankruptcy, along with GM's related discussions with the UAW about buyouts and health care benefits, as reasons for his reluctance to make financial forecasts.

That's what makes the timing of Kerkorian's Renault-Nissan-GM proposal so interesting.

Wagoner makes some progress

In the wake of last year's staggering $10.6-billion loss, Wagoner and GM's top brass have made impressive progress recently in cutting labor costs at GM, where 35,000 workers are taking buyout offers and the UAW has agreed to cuts in retiree health care. In the first quarter this year, the company posted a $445-million profit following a health care accounting revision. Wagoner also has defused the threat of a crippling strike at Delphi by underwriting the cost for 12,600 Delphi workers to either retire early or flow back to jobs in GM plants. These achievements, plus the pending $14-billion deal to sell 51% of GMAC, have helped boost GM's stock price 51.4% this year, the best percentage gain of the 30 stocks in the Dow Jones industrial average.

But Kerkorian and York aren't handing out gold stars.

Rather, Friday's proposal of the Renault-Nissan-GM alliance was tantamount to saying, "Thanks, Rick, for dealing with the prickly UAW and Delphi situations. But we'd like to bring Carlos in now to help get us over the hump and back to big-time profits. And besides, Wall Street loves Carlos, and he'll be good for our stock price."

Kerkorian and York didn't say directly that they want to replace Wagoner with Ghosn as GM's quarterback. But they certainly didn't propose this deal so that Ghosn could be deployed as a second-string tight end. In whatever form this kooky alliance might take, Wagoner would face an uncertain future.

Frankly, I don't think GM needs Carlos Ghosn or some Franco-American-Japanese corporate stew in order to fix itself.

Wagoner is smart and determined, as he has shown during these past 18 months of nonstop crisis management. Fritz Henderson, GM's new vice chairman, is a plucky dealmaker who won't accept "can't be done" as an answer. Vice Chairman Bob Lutz, the ageless product guru, is as battle-tested as they come.

All that said, Wagoner must face some bitter truths and act accordingly.

" Truth No. 1: Wall Street thinks Ghosn is a better CEO than you, Rick. That's why GM stock jumped $2.35 on Friday at news of a possible GM-Ghosn alliance.

" Truth No. 2: Wall Street -- and much of Main Street USA, unfortunately -- believes that GM's cars and trucks are inferior to foreign-owned competitors'. That's why the resale price of used cars and the residual values of new vehicle leases are lower than those of key competitors.

Nothing short of a totally transparent, bold turnaround plan will change minds on Wall Street, or on Main Street, or in the mischievous minds of Kerkorian and York, who want to keep this pot boiling so GM's stock price doesn't cool off.

Contact TOM WALSH at 313-223-4430 or twalsh@freepress.com.