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Kerkorian Calls for Drastic GM Overhaul

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Kerkorian Calls for Drastic GM Overhaul

The Daily Auto Insider

Thursday, January 12, 2006

January 2006

Jerome York, investor Kirk Kerkorian's top lieutenant, urged General Motors to speed up and expand its restructuring, The Wall Street Journal reported.

York, an adviser to Kerkorian's Tracinda Corp., which owns 7.8% of GM, said GM should immediately do the following: Cut its $2 a share annual dividend in half to save $566 million a year; cut pay significantly for top executives and directors; drop salaries for lower-level employees; trim GM's lineup of more than 80 U.S. models; and get rid of the Saab and Hummer brands to focus on core, high-volume brands.

"This situation calls for the company's going into crisis mode, adopting a degree of urgency that recognizes if things don't break right, the unthinkable could happen," York said.

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If he was so concerned then he shouldn't have invested his money OR he should have bought a controlling stake and implemented his plan.

He's just a greedy S.O.B. looking to make a quick buck as usual. He is exactly what is wrong with American society today.

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You are absolutely correct. He's voicing his opinion and in doing so, is trying to rally support from other shareholders to put pressure on GM management.

These statements are being made from one perspective only: the perspective of making IMMEDIATE profit. The Hummer brand is far too profitable for GM to sell off. It's image alone is worth something. A large chunk of it's platform/engineering costs is shared across other model lines. Killing the brand would be stupid. Selling the brand would generate a one-time blip on your income sheet, but you'd lose image, and more importantly, you'd lose sales and the large profit that these models generate. You could successfully make the case that Saab offers far too little return on it's investment for GM to keep the brand under it's current porfoilio.

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You are absolutely correct.  He's voicing his opinion and in doing so, is trying to rally support from other shareholders to put pressure on GM management.

These statements are being made from one perspective only: the perspective of making IMMEDIATE profit.  The Hummer brand is far too profitable for GM to sell off.  It's image alone is worth something.  A large chunk of it's platform/engineering costs is shared across other model lines.  Killing the brand would be stupid.  Selling the brand would generate a one-time blip on your income sheet, but you'd lose image, and more importantly, you'd lose sales and the large profit that these models generate.  You could successfully make the case that Saab offers far too little return on it's investment for GM to keep the brand under it's current porfoilio.

Please re-read York's entire prepared speech. It softened my opinion after reading it.

I too am concerned about the "IMMEDIATE" profit tactic, but in his speech he cites his strategy, and then goes on to show how well it worked for Chrysler and IBM. He goes on to say that the turnaround wasn't immediate, but took a few years to complete.

...and not that I agree with everything he offers as "advice", such as dumping Hummer. But even so, I am no business guru. Perhaps he knows more than we do.

Edited by greg_nate

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Eh... I'm torn by his advice.

I can see justification in cutting the dividend. GM is losing money. Stockholders need to look at long-term benefit also. I'd give up 50% of the dividend if it will eventually lead to GM's stock price increasing (back up) to $40-$60 a share.

SAAB... SAAB has burned through a lot of GM dollars. SAAB loyalists don't even want GM owning SAAB. It would be a win/win if GM would just sell (or even give) SAAB away to someone. Even if SAAB is profitable this year or next, GM will probably never recover the costs that it took to get SAAB back in the black. Subaru would be the best pairing up IMO.

HUMMER... yes, right now it seems NUTS to sell HUMMER but where will it go from here? A Wrangler competitor and then what? If GM wants to sell HUMMER, then this is the time to do it. Not after it becomes dated and ideas run dry. HUMMER's appeal can disappear in a heartbeat if GM lets it languish at any point. I'm sure DCX would be there to buy HUMMER at a premium if GM would sell it.

GM could give the Wrangler competitor (and a spin-off for an FJ Cruiser competitor) to GMC and call it a day.

Don't know... I'm still torn.

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How much money of GM's has SAAB "burned through"? See, I take exception to that. I would like to see an allocation of this money that SAAB has just "burned."

Since GM took over SAAB (wholly owned), I would like to see the dollar figure of all GM's SAAB expenditures. I would then like to see where this money went. Obviously, if SAAB spent it, it had to go somewhere. Now, I would like to see how much money other GM divisions "burned through."

What has GM done for SAAB?

9-3

9-3 SportCombi

9-3 Convertible

9-5 Refreshes

9-7X

9-2X

ok now let's put on the serious caps here for a minute:

How much money do you think the SAAB 9-5, 9-7X and 9-2X really cost GM? Were these big investments?

What about the 9-3? Was this a big investment? Was it a good use of money? Has the 9-3 lineup increased SAAB sales?

Now...these are just questions to ponder, but for the short time GM has had SAAB, I really don't think the money SAAB just "burned through" is really all that much. I also think that when GM does invest in SAAB, the results pay off. The SAAB Epsilons are proof of this IMO.

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If he was so concerned then he shouldn't have invested his money OR he should have bought a controlling stake and implemented his plan.

He's just a greedy S.O.B. looking to make a quick buck as usual. He is exactly what is wrong with American society today.

Shouldn't he just shut up and retire to a nursing home (he's like 90 or something, isn't he?)

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How much money of GM's has SAAB "burned through"?  See, I take exception to that.  I would like to see an allocation of this money that SAAB has just "burned."

Since GM took over SAAB (wholly owned), I would like to see the dollar figure of all GM's SAAB expenditures.  I would then like to see where this money went.  Obviously, if SAAB spent it, it had to go somewhere.  Now, I would like to see how much money other GM divisions "burned through."

What has GM done for SAAB?

9-3

9-3 SportCombi

9-3 Convertible

9-5 Refreshes

9-7X

9-2X

ok now let's put on the serious caps here for a minute:

How much money do you think the SAAB 9-5, 9-7X and 9-2X really cost GM?  Were these big investments?

What about the 9-3?  Was this a big investment?  Was it a good use of money?  Has the 9-3 lineup increased SAAB sales?

Now...these are just questions to ponder, but for the short time GM has had SAAB, I really don't think the money SAAB just "burned through" is really all that much.  I also think that when GM does invest in SAAB, the results pay off.  The SAAB Epsilons are proof of this IMO.

The exact figures would be good to know. Maybe you should find out before taking exception to it... :)

Looks like you have some research ahead of you.

Most of GM's NA divisions have been profitable over the past several years... only SAAB, Saturn, & Oldsmobile haven't been.

Although GM bought 100% of SAAB in 2000, GM has owned 50% of SAAB since 1990.

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I don't have access to that information. Maybe one of our insiders can oblige?

That said...IMO if you want to accuse SAAB of "burning through" GM's cash you should at least have some proof of those allegations.

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LBO's (leveraged buy-outs) are supposed to start becoming big this year like they were in the 80's. Companies have been saving money and have piles upon piles of cash laying around. GM might be ripe for one.

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I don't have access to that information.  Maybe one of our insiders can oblige?

That said...IMO if you want to accuse SAAB of "burning through" GM's cash you should at least have some proof of those allegations.

GM has been very open about SAAB being unprofitable... that's common knowledge. I believe SAAB has been unprofitable 13 years out of the past 15 years. Someone has to pay for being in the "red" and that's been GM. Tack on the investment amount of 50% back in 1989/1990 ($600 million) & the final 50% in 2000 ($125 million) and you've got even more "red" to add to the bottom line.

So, if you want to "take exception" to my post, then at least have justification. :P

Here's one article I found that helps in answering your questions...

Many of these issues are apparent in GM's forays in Europe. Witness Saab. GM bought half of the struggling Swedish carmaker in 1990. A decade later, Saab still has a measly two-car lineup, and it has lost $1 billion since GM bought it. In all, say sources close to the deal, GM spent nearly $1 billion to get all of Saab. Yet GM often let the operation sputter along without giving Saab the new products it needed to transcend its status as a niche player. Undaunted, GM plans to double Saab sales, to 250,000 a year, by 2005.

The cost is at least in the Billions so far, because GM's been paying every penny since 2000. GM hasn't broken even on the investments to develop the new 9-3, refreshed 9-5, rebadged 9-7x or 9-2x.

Oh... and not to mention the costs to maintain "SAAB specific" facilities and the annual salaries of all the "SAAB specific" employees in Sweden (between 5,500-6,000 employees)

Edited by VenSeattle

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I'm pretty sure GM has broken even on the GMT-360s and the Epsilons. Your quote really proved my point...that GM isn't doing anything with SAAB, therefore SAAB is not the problem, GM is. Why would SAAB sales jump dramatically with the same lineup just because GM bought them?

Now GM is finally starting to do stuff with SAAB. The results should be good...

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I'm pretty sure GM has broken even on the GMT-360s and the Epsilons.  Your quote really proved my point...that GM isn't doing anything with SAAB, therefore SAAB is not the problem, GM is.  Why would SAAB sales jump dramatically with the same lineup just because GM bought them?

Now GM is finally starting to do stuff with SAAB.  The results should be good...

I haven't proved any point that you've made. I have answered some of your questions though...

The losses are still from the SAAB division. Neglect does not make the red ink disappear. If that was the case, then Oldsmobile & Saturn's losses would be completely excused as well. No one here is denying neglect or mismanagement... you just couldn't accept that SAAB is costing GM money.

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I'm pretty sure GM has broken even on the GMT-360s and the Epsilons. 

If that's the case, then why is SAAB unprofitable? What (of any consequence) has GM spent money on in the past 5 years? I think the investment costs for SAAB's versions are attached to the SAAB division... and SAAB still isn't turning a profit so all the costs haven't been recouped.

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Saab cerainly isn't turning a profit in the US. If it was, we'd be hearing about it.

Saab should just be removed from the the US, IMO, and GM can offer the dealers Saturn because most likely the dealers are relatively upscale if they're selling Saab so it wouldn't affect Saturn's rep as having good service. Saab must be making a profit in Europe because we've heard some rumors that Saab globally is going to turn a profit. But, I wonder how much more that profit would be if you didn't have some of it removed from the loss in the US.

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I think SAAB should stay in the U.S.; I just think it is ridiculous how some people are almost making it out that selling SAAB will return GM to profitability. The only changes GM needs to make with regards to SAAB is to keep developing vehicles! SAAB really needs something like the recently-cancelled 9-6X. GM should have waited longer on the whole Subaru thing just for that reason IMO. The Tribeca is a great vehicle if you can get past the grille, and a SAAB version would have been extremely competent as well.

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I haven't proved any point that you've made. I have answered some of your questions though...

The losses are still from the SAAB division. Neglect does not make the red ink disappear. If that was the case, then Oldsmobile & Saturn's losses would be completely excused as well. No one here is denying neglect or mismanagement... you just couldn't accept that SAAB is costing GM money.

He's not necesarely "not accepting that Saab is losing money" we have all realized that a loooong time ago that Saab isnt realy a money maker for GM but you can't take a beaten horse and expect great results from it.

Look at Oldsmobile. It got a WOPING 3 new models wich 2 were rebadges in it's last 6 years of operation!

With Saab, this year is the first year of profit. How the f@#k did they get out of the gutter with a 7 year old, continuously refreshed 9-5?

So lets get it straight here:

Saab was un profitable for it's 15 years with GM as GM invests tiny amounts of cash into it and refreshing the lineup with new models.

All of a sudden, they decide to start managing Saab properly and give it a bit more advertising as well as a fine tuned 9-3 lineup and yet another refresh of the 9-5 but that's all Saab needed to come out on top!

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He's not necesarely "not accepting that Saab is losing money"

Uhm... he said...

How much money of GM's has SAAB "burned through"?  See, I take exception to that.  I would like to see an allocation of this money that SAAB has just "burned."

Since GM took over SAAB (wholly owned), I would like to see the dollar figure of all GM's SAAB expenditures. 

...for the short time GM has had SAAB, I really don't think the money SAAB just "burned through" is really all that much.

...That said...IMO if you want to accuse SAAB of "burning through" GM's cash you should at least have some proof of those allegations.

Uhm... and I replied...

Here's one article I found that helps in answering your questions...

Many of these issues are apparent in GM's forays in Europe. Witness Saab. GM bought half of the struggling Swedish carmaker in 1990. A decade later, Saab still has a measly two-car lineup, and it has lost $1 billion since GM bought it. In all, say sources close to the deal, GM spent nearly $1 billion to get all of Saab. Yet GM often let the operation sputter along without giving Saab the new products it needed to transcend its status as a niche player. Undaunted, GM plans to double Saab sales, to 250,000 a year, by 2005.

The cost is at least in the Billions so far, because GM's been paying every penny since 2000. GM hasn't broken even on the investments to develop the new 9-3, refreshed 9-5, rebadged 9-7x or 9-2x.

Oh... and not to mention the costs to maintain "SAAB specific" facilities and the annual salaries of all the "SAAB specific" employees in Sweden (between 5,500-6,000 employees)

My original post had nothing to do with GM's mismanagement of SAAB or neglect of SAAB's line-up. He only took exception the the "SAAB has burned through a lot of GM dollars" comment. Please reread my original post for verification.

Your point is different from his "exception".

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Uhm... he said...

Uhm... and I replied...

The cost is at least in the Billions so far, because GM's been paying every penny since 2000. GM hasn't broken even on the investments to develop the new 9-3, refreshed 9-5, rebadged 9-7x or 9-2x.

Oh... and not to mention the costs to maintain "SAAB specific" facilities and the annual salaries of all the "SAAB specific" employees in Sweden (between 5,500-6,000 employees)

My original post had nothing to do with GM's mismanagement of SAAB or neglect of SAAB's line-up. He only took exception the the "SAAB has burned through a lot of GM dollars" comment. Please reread my original post for verification.

Your point is different from his "exception".

No, Turbo is correct. "SAAB burning through GM cash" sounds like SAAB is receiving money from GM with unprofitable results. The reality is that GM hasn't done hardly anything with SAAB, and that any money SAAB has "cost" GM is because GM has made such a ridiculously minimal investment in SAAB and SAAB is still unprofitable, just like they were when GM bought them! Again, the Epsilons, 9-7X, and 9-5 refresh are maybe enough to push SAAB into the black...and that STILL is a pretty minimal investment. Think what SAAB could do for GM if actually given the chance!

In other words, SAAB isn't "burning through GM's cash" like a teenaged Beverly Hills girl with an extension on daddy's credit card; rather, GM keeps paying the hospital to keep the patient on life support.

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Wait, so Kirk wants to get rid of Hummer?

Hummer is exploding as jeep did for Chrysler?

did he cry about Jeep when he was digging in Chryslers piggy bank?

He wants to dump that sweetish brand

I had some customers that drove a saab... they wanted to purchase a Trailblazer SS or the Saab version of the Trailblazer... the reason i'm bringing this up is because when their lease was up, they picked the saab...

many people love their saab... and if marketed correctly could be a highly profitable unit...

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many people love their saab... and if marketed correctly could be a highly profitable unit...

the key is in the execution and the investment GM offers them. Saab has long suffered simply because as Croc above has stated the investment GM has offered it has been next to nothing. When the 9-3 was released, in it's second model year, Saab had a record year because of it. The car was newer then, competition was not as intense, and Saab is a luxury alternative with a cool image many seek. Momentum was going and GM sabbotaged it with no products or updates. Now we have a refreshing of a car that is at least ten years old and widely recognized as uncompetitive due to that fact. We also have a new wagon. A wagon in market that categorizes wagons in an unflattering manner. 9-3 languishes in one of the most intense and scrutinized segments in the industry. basically, all bad news and an aging, but still somewhat appealing thanks to great styling, lineup.

Saab suffers due to lack of investment. Execution has not been there in recent times, but this goes back to the lack of newer platforms. 9-3 with one model sold 30k units in one year, and that is fantastic if you consider Saab's limited marketing and limited dealer body.

As for burning through GM's cash, I agree with Croc's assessment. If GM had the foresight when they saw how good a product the new 3-series sedan was in 1999 and the 5-series, they could have really put some dollars into Saab and would currently have a hot property. The way I see it now, Saab has no ill will for it, except from enthusiasts who don't know any better, but the general public would have no problem accepting Saab products, replete with good styling

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Well this is fine and all for him to say because he does not work here!! I am a lowly contract worker so who do you think this is going to affect the most... hmmm...ME! Make the biggest cuts at the top and leave the small fish alone. As a contract worker we are hardly paid anything to begin with. I work from paycheck to paycheck literally, I am not joking! When overtime becomes available it is like feeding time in the shark tank because that money is more vaulable than anything. It is hard enough to get a raise out of your contract house, again I should know! You could hold a gun to their head and they would say 'go ahead and pull the trigger'. Well enough of that.

As for York's brilliant idea of getting rid of Saab and Hummer, get rid of Saab and keep Hummer. Hummer is actually making some money where as Saab is bleeding from everywhere. Thats my 2 cents.

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In other words, SAAB isn't "burning through GM's cash" like a teenaged Beverly Hills girl with an extension on daddy's credit card; rather, GM keeps paying the hospital to keep the patient on life support.

Semantics... either way: 1) a Bev Hill's teen with a credit card or 2) a terminally ill patient on life support they both burn through cash... so WHY are you taking exception to my comment? :rolleyes: You can try putting words in my mouth but I never indicated a bias towards SAAB or GM being the problem.

Besides, you were originally using the "lack of GM product investment" as a defense to your assumption that SAAB hasn't cost GM a lot of money over the past several years, when I've shown you that SAAB has cost GM quite a bit.

If your point was what Turborush said then you should have said it instead of "taking an exception" to something you yourself have finally conceded to (see quote). Turborush's post had no contradiction to my post. It just helped in explaining why SAAB isn't profitable.

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