Kerkorian aide urges ailing GM to cut salaries (for low level US employees...)

[Marc]

Guess who will also loose their pensions and benefits...

Kerkorian aide urges ailing GM to cut salaries

By Chris Woodyard, USA TODAY

DETROIT — General Motors faces a financial crisis requiring that it slash costs from top to bottom — cutting salaries of board members and top executives, hourly wages for factory workers and the dividend for shareholders — financier Kirk Kerkorian's automotive lieutenant declared Tuesday.

If conditions are right, Kerkorian's Tracinda will not only buy 12 million shares to make up for those he just sold for tax purposes, but go for another 12 million, Jerome York said. Kerkorian's stake, currently 7.8%, would rise to 12% of total GM shares.

"The time has come to go into crisis mode," warned York, a longtime corporate executive and consultant to the Beverly Hills, Calif.-based billionaire. GM is burning cash at rate that will only give it about 1,000 days — three years — of survival, he asserted. GM lost $3.8 billion in the first three quarters of 2005.

Besides further cost cutting, York also called for shedding non-core, low-volume brands Saab and Hummer. That would clear the path for CEO Rick Wagoner to focus on critical heavyweight divisions like Chevrolet, Cadillac and Saturn.

York's speech to the Society of Automotive Analysts comes at a pricklish time for GM. A block away, the automaker was introducing its 2007 model line at the North American International Auto Show.

In spotlighting the balance sheet, York denied attempting to mobilize shareholders as a prelude to a proxy fight. He also said talks continue about a board seat for a Kerkorian representative. Calling for "equality of sacrifice," York said GM should:

• Ask board members to work for less than the $200,000 a year they are currently paid. The company's top five executives should take a big pay cut, too. Drastic reductions would serve as a "very important tone setter that everyone is in this together."

• Halve the dividend from $2 to $1 a share, saving $566 million a year. Most investors won't flee. "Not many think the current dividend is cast in stone."

• Seek wage concessions from the United Auto Workers for rank-and-file workers. The cuts would probably be in the "single-digit" range. The union would be more willing to accept concessions if it sees the pain being shared.

York credited GM with introducing some stylish models that could help sales. He also likes the cost-cutting plan Wagoner announced in November, which would slash 30,000 jobs and close nine assembly plants. He declined to comment on GM's pricing plan announced Tuesday, which lowers sticker prices on 57 out of 76 models.

GM Chief Financial Officer Fritz Henderson, who heard the speech, told reporters that he already is in crisis mode, no shifting required. "I've been in it for a while," he said. He didn't venture a response to the cost-cutting suggestions. However, he defended Hummer, calling it one of the fastest-growing domestic brands, and Saab, which sells well in Europe.

York's call to arms didn't help GM stock, which lost 35 cents, or 1.6%, Tuesday to close at $22.06 a share. But analysts generally applauded York's ideas.

"He's pretty much on the money," said Kevin Tynan of Argus Research. Brian Johnson of Sanford Bernstein endorsed York's call for urgency and the pay cuts. Saab can go, but not profitable Hummer, he said.

[Jim Howe]

Great article Marc! It sounds as if the article is advocating across the board cuts and Its been my experience that this usually means the leaning out of middle management as most Corp's. are usually heavy in the middle.

I remember the attempted hostile takeover of Goodyear a few years back by a British financier. I believe his name was Goldsmith. He testified before congress that his intent in "Raiding" Goodyear was to bring them back to their core industry (Tires). You may recall that Goodyear paid Goldsmith some $93 million to go away and to finance it they sold off their interest in other industries. This action of course fullfilled Goldsmiths intent of returning Goodyear back to its core.

My question is does GM have interest in industries other than Automobiles?