Kirk Kirkorian is a rich man, and since he owns just short of 10 percent of GM, making him the largest shareholder in the world’s largest car manufacturer, he is also a very powerful man. And when a man like that says jump, most people under his employment somersault, just to impress him.
Not so, for Rick Wagoner. The chief executive at GM has presided over a disastrous few years, which has seen the company steadily run through its massive cash pile, and has seen its market share plummet, so much so that many expect Toyota to soon take the number one spot in the car super league. With some even warning of the threat of bankruptcy, you would think that Mr Wagoner would be doing all he could to placate his important shareholder.
And so, when Kirkorian had lunch with the car industry’s answer to Superman, Carlos Ghosn, the man who performed miracles at Renault and Nissan, and now occupies the unique position of boss of both companies, many thought it was curtains for Wagoner. Or if not that, then at least Wagoner would be forced to accept help from Ghosn, a man who is so highly regarded in Japan that there a comic character based on him.
And yet, Wagoner still continues to fight on. The latest set of results, have been held up as an example of why Wagoner can still resist the pressure from up high.
In the quarter just gone, GM lost $3.2 billion. That’s not good, and it is surely another nail in Wagoner’s coffin, you could be forgiven for thinking. But in fact, the big loss was largely explained by one offs. Laying off workers and reducing costs, led to a one off charge of $4.3 billion – that means earnings before special items of $1.2 billion, while revenue was up an impressive 12 percent.
And for once, the company’s ever shrinking pile of cash and marketable securities rose from $20.2 billion a year ago to $22.9 billion.
A star performer for GM was its subsidiary Saab, which saw sales rise 24 percent. Mr Wagoner could not help gloating about this performance. Kirkorian’s man on the GM board wants the company to sell the Saab subsidiary. Wagoner was effectively saying to his influential shareholder, “sir, yes sir, get your three bags full of sugar yourself, sir.”
But does all this mean GM is safe? That a tie in with Renault Nissan is off the agenda, that Carlos Ghosn, the man who has proved that Brazilian superstars don’t only exist on the football pitch, is not required at GM?
Don’t you believe it. A lot of GM’s good results came from one offs. For example, it recently sold a subsidiary, and improvements on its warranty costs are likely to boost the bottom line just the once.
Now contrast GM’s performance with Honda’s. Sales in North America were up 10 percent.
While GM reduces costs, and boosts revenue through selling’s assets, Honda booms because it produces cars people want.
You might blame GM’s antiquated pension and worker relations policies for its woes, but maybe there is a deeper problem, and it’s one that’s symptomatic of the entire US and its tendency towards introversion.
Global warming is a reality, and despite the fact that some still deny the link, there is little doubt in our minds it is due to pollution. The world still does not pay the true cost of petrol. At 70-odd dollars a barrel, the price of oil is still not high enough to reflect its true cost on the environment. In the UK, the government taxes petrol to the hilt, but in the US, its still subsidised. A reader recently sent us an article from a US magazine in which consumers were complaining about gas breaking though $3 a gallon. How the Brits would love to pay so little.And just as the US buries its head in the sand over the effect of petrol consumption on the environment, GM buries its head in the sand over the inevitable move away from demand for fuel guzzling monsters of the highway.
Only when the company can combine cost cutting with a sense of realism on the importance of fuel efficiently can the company reverse its long running fall from grace.
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