Leaner, diversified carmaker likely to emerge after strikes |
Wall Street analysts say walkouts increase the pressure to restructure
By Daniel Howes / The Detroit News
DETROIT -- A settlement of General Motors Corp.'s costliest United Auto Workers strikes in 30 years, which appeared near late Saturday, will only intensify pressure on the No. 1 automaker to streamline its North American operations. Pressure is mounting from Wall Street and company insiders for GM to use the cover of United Auto Workers strikes at two parts plants in Flint, with a mounting cost of nearly $2 billion, to accelerate restructuring and shield the automaker from more devastating strikes.
"Their options are becoming more limited," said Stephen Girsky, senior auto analyst for Morgan Stanley Dean Witter in New York. "We all know they have too many products, too much management, too many dealers. What are they going to do? If they fold their cards here, they may as well turn in their retirement notices."
So confident is Girsky that GM's senior executives and directors are poised to take dramatic steps that on Friday he urged his clients to buy GM shares -- the first time he's made such a recommendation since 1992 when, he said, GM's top brass had a symbolic gun to its collective head.
Senior executives are preparing recommendations for the board of directors, set to meet Aug. 3. Under consideration for possible board action: * Restructuring GM's North American sales, service and marketing operations to eliminate redundant functions buried deep within each of GM's primary car and truck divisions -- Buick, Cadillac, Chevrolet, Pontiac-GMC and Oldsmobile -- but not Saturn Corp.
The reorganization, spearheaded by Ronald Zarrella, vice-president of North American sales, service and marketing, would not abolish the general managers now running the divisions. Nor are layoffs expected, though some of the 5,100 employees in North American marketing could be reassigned.
One strong possibility being considered is the creation of three senior positions -- one overseeing sales across the divisions, the second devoted to GM's brand management efforts and a third overseeing advertising. Likely candidates include two of the current divisional general managers and Philip Guarascio, vice-president for North American advertising and marketing.
"Everything right now is speculative," said James Farmer, chief spokesman for GM's North American marketing. "It's not soup at this point. By the time it gets to the board of directors it could be different than it is today."
* Pushing ahead with plans to sell at least 20 percent of GM's Delphi Automotive Systems parts unit -- the world's largest automotive components supplier -- to investors in perhaps the largest initial public offering in history.
A key question is determining how much of Delphi should be sold to investors, and whether the automaker should retain a long-term majority stake in what it hopes will become a "smart parts, smart systems" company.
UAW leaders have indicated their opposition to the move -- and signaled that they might attempt to call strikes to stop the sale. But, at the same time, GM executives have apprised the UAW of their plans, which presumably -- for now -- would keep Delphi's 53,000 UAW workers under the national contracts with GM.
* Closing at least two North American assembly plants -- perhaps the Ste. Therese, Quebec, plant, home to the Chevrolet Camaro and Pontiac Firebird, and the Baltimore, Md., van plant. Other candidates include the massive Lordstown, Ohio, car plant, as well as inefficient metal stamping plants, namely strikebound Flint Metal Center and the nearby Grand Blanc stamping plant.
It's not clear which of the options being evaluated by GM's President's Council -- if any -- would be approved by the directors when they meet at GM's Renaissance Center headquarters a week from Monday. Several GM officials declined to comment on the specific proposals, citing longstanding policy barring public discussion of items that may be on the board's agenda.
The automaker's potential moves, hastened by the UAW strike, aren't limited to improving efficiency and profitability in North America.
GM's leaders are scouting for new strategic partnerships in Europe and, especially, Asia that would solidify GM's presence in emerging markets. There were reports Saturday, for instance, that GM is bidding to buy Kia Motors Corp., the bankrupt Korean automaker in which GM rival Ford Motor Co. also has expressed an interest in boosting its 9-percent stake.
A key reason: GM's leadership is determined to seize leading positions in new markets outside North America that promise strong sales growth and fat profits as a hedge against the slow-growth North American market, where executives believe their continuing battles with the UAW -- eight strikes in the past two years -- are hamstringing GM's rebound.
Smith, described as spending "a lot" of his time monitoring developments in the strike, flew to Asia last week for high-level meetings, presumably with Kia executives or Korea's Daewoo Motor Co., with which GM is exploring possible business combinations. And Louis R. Hughes, president of GM's international operations met in May with representatives of BMW AG about a possible business arrangement.
The high-powered prospecting signals GM's strategy to diversify its revenue -- and shareholders' investment -- lest it be held hostage by UAW strikes that bedevil GM only in its home country -- not Canada, Mexico, Europe or Asia. In the past year, GM units in Germany, Belgium and the United Kingdom have crafted progressive job-saving deals with entrenched union, and GM plants in Canada are among its most efficient in North America.
Still, GM's UAW-dominated North American operations are GM's profit engine worldwide -- the current strike notwithstanding -- underscoring why bargainers are pushing hard this weekend to end the strike. Senior UAW leaders have privately recognized that a landmark arbitration ruling by arbitrator Thomas Roberts, who concluded hearings Saturday, could limit the union's freedom to strike in future disputes -- a risk the UAW is not eager to take.