York the Driving Force

This morning's Wall Street Journal has an excellent feature piece by Monica Langley on Jerome York's impact on the Board at General Motors (GM/NYSE):

In recent weeks, General Motors Corp.'s newest director, Jerome York, has picked through the company's financial statements with the chief financial officer. He spent several hours looking over new engines and transmissions at a Pontiac, Mich., plant. And he met with GM's labor-relations executives to size up their tense negotiations with the United Auto Workers.

Later in the article, this pops out:

Mr. York moved back to Detroit two years ago to be near relatives. A few months later, GM's fortunes turned sharply downward. The company's U.S. market share fell to a record low of 25% and employee-benefit costs were taking a greater toll. The share price fell steadily. Mr. York told analysts recently that as he saw GM's plight, he thought about giving Mr. Kerkorian a call.

Mr. Kerkorian beat him to the punch. He phoned Mr. York in March 2005 and asked him if he had seen what was going on with GM. The two men quickly agreed that Mr. York would take a "deep dive" into GM. He scoured public sources of information, visited 20 GM dealerships to test-drive vehicles and quizzed former car-company colleagues.

A month later, Mr. York sent Mr. Kerkorian a 14-page report. It concluded that GM had "plenty of cash to fix itself." But as Mr. York recounted in his speech to analysts, the report said a big question remained: Could GM take a "clean-sheet-of-paper approach to the business" and "make the tough decisions"?

Both men think the answer could very well be "yes" -- or Kerkorian's Tracinda Corp. wouldn't own nearly 10% of the company. I remain cautiously optimistic that GM will eventually be a profitable investment for the portfolio and have maintained the position.

But while we wait, be sure to take the time to read Langley's piece. This type of in-depth, top-notch reporting exemplifies why The Wall Street Journal is an indispensable publication.

Comments

[me]

York won't be able to run rough shod over the UAW like he did the un-organized workers at IBM. Don't nominate him for sainthood yet. Screwing employees only takes yo so far, less far when they are organized.

[John]

Oh, I'm not nominating York for sainthood, or believing him to be a silver bullet. Whether he "screwed" workers at IBM (or anywhere else) I don't know.

[Harry]

There were a number of things about the article which I found intriguing. 1) The level and degree of involvement was far greater than I thought which places a huge amount of pressure on Wagner. We should not underestimate this pressure on highly competitive people (read big ego), additionally it sets the stage for his removal if the turnaround does not become evident in a timely fashion. 2) The quoted comment from the CFO was very complementary and positive, possibly setting an important allegiance. 3) The concept of going directly to the workers is also very interesting; this does several things i. usurps the power of the union brass in controlling information flow ii. presents the companies view which can work as a lever against the union’s perspective. Recall the union has a much bigger fight than just GM. The union is worried about setting president for a rash of other negotiations at all sorts of companies and maintaining mass (bodies). What’s best from the union’s perspective may not be what’s best for GM employees. Finally, 4) I found it discouraging to realize how inept and clueless the balance of the board apparently is; clearly York is a change agent. While I don’t own the shares, I do find this all very intriguing and I’m warming up to the idea from a speculative angle. I wonder, however, if I’m better off from a risk/reward basis owning DCX or F which would also benefit from structural changes at GM?

[John]

Harry,

Wagoner put himself in charge of the North American operations last year. So if GM doesn't show signs of life in NA, he'll be gone and I think that's been the case since before York joined the Board.

One thing I've liked about GM's management is that Bob Lutz is in charge of designing vehicles. He's the first real "car guy" doing that with the company in ages. A real plus most people don't talk about.

Another factor I like about GM is that the company is a winner at selling cars outside NA. Europe is flat (as most things in Europe are) but GM is big in Latin America and profitble in mainland China. That's really the future of GM -- a much smaller seller in NA (20% market share) with more and more sales abroad.