Fighting for the wheel at GM

MotorsInterview:  Motoring Editor Michael McAleer caught up with GM's embattled chairman in London last week.

MotorsInterview: Motoring Editor Michael McAleer caught up with GM's embattled chairman in London last week.

One could be forgiven for expecting the chairman of General Motors to be a little short-tempered these days.

Richard Wagoner is generally admired for his composure in the face of adversity, the epitome of business diplomacy.

Yet in recent weeks, in the midst of a billion dollar restructuring operation, boardroom politicking has taken centre stage.

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Wagoner's list of duties is onerous. He is currently charged with putting GM back on track after last year's financial report showed a $10.6 billion (€8.4 billion) loss.

He has to rapidly shrink its scale to match its ever-declining market share. He also has to dramatically reduce the enormous health and pension commitments entered into with powerful car industry unions by his predecessors.

He has to revamp a model line-up that seems to have too many brands doing their own thing and featuring too many big gas-guzzling SUVs at a time when the key US market is recording petrol price rises.

That "to-do" list is enough for any executive to suffer a few sleepless nights, but as of the end of last month, he now has to handle what looks like an ambush from the company's largest individual shareholder, Kirk Kerkorian.

It started several weeks ago, when Kerkorian publicised details of a private meeting he had with Renault-Nissan boss Carlos Ghosn. Kerkorian, who owns 9.9 per cent of GM, let the world's media know, through a stock exchange briefing, that he was of the opinion it would be beneficial for both firms to form an alliance.

Whatever about the reasons behind it, the timing was far from opportune for Wagoner. The problem is that Kerkorian made his move in the middle of a complex turnaround scheme that needs the full attention of management if it is to succeed.

This plan was beginning to gain some traction but has now been overshadowed by these latest power games.

"I would be less than candid to say it's not particularly perfect for us," says Wagoner. "We are in the midst of getting a number of important things done in the US from the beginning of the year. We haven't got those completely done yet.

"It's fair to say that without the way the topic came up, we'd be concentrating on implementing the plan we had laid out. I'm not saying that at some point the Renault-Nissan or something similar could have arisen, but I don't think at this specific moment it would have arisen.

"Timing isn't ideal for us, and I think Carlos has said the same but the issue is upon us and we have to look and see if it makes sense or not."

Some suggest Kerkorian is setting Wagoner up for a fall, others that he is merely trying to up the share price in the hope he can recoup some of his $1.7 billion (€1.34 billion) investment in GM, for which he has seen no real return to date.

This is not the first time the billionaire Kerkorian has caused boardroom ructions in the car industry. Ten years ago he was the scourge of Chrysler's chairman Bob Eaton when that company was still independent and preparing for future development - or rather, as it turned out, making itself attractive to Daimler-Benz.

The 1998 merger to create Daimler Chrysler didn't bring the benefits that Kerkorian had expected. Some industry pundits reckon the same may happen with this deal.

Regardless of Kerkorian's impatience with the speed of his reforms, Wagoner has a strong track record. He fixed GM's ailing Brazilian operations in the early 1990s before overhauling the firm's balance sheet during his reign as chief financial officer.

During this time he also played a pivotal role in streamlining operations, helping to halt multibillion-dollar losses.

He's quick to point to recent achievements as well: "If you think back to the Detroit Motor Show last January, people were asking me if GM was going to go bankrupt. Clearly no one would be interested in this sort of deal with a company that is being viewed in that light and I think the fact we have taken on and really overachieved in changing some of those really complex structural issues that people have not been able to change in the US before."

Of course there could be benefits to an alliance, as Wagoner points out. "If you work with someone else and can get higher volume base or just engineer it once rather than twice for different products, then you can get economic savings that can be worthwhile to pursue."

In reality those savings could be enormous. Take purchasing, for example. GM spends a staggering $85 billion (€67 billion) a year on wheels, axles, seats, bolts and the like, a bill that's second only to the US military. Anything they can do to reduce costs here will be of benefit to the bottom line.

Another benefit of co-development is more parts sharing. One example of the problems faced by GM at present was highlighted in the media recently. GM makes 26 different versions of the average car seat frame. Toyota has two. Engineering a seat frame for a new model can cost $20 million (€15.8 million). Add it up, and GM has a half-billion-dollar handicap compared to Toyota on seat frames alone.

There's a similar gap with engines. Wagoner is stating the obvious when he says: "The opportunities to save are tremendous."

For now we must wait and see. Ghosn and Wagoner have started a 90-day investigation within the three brands to see what benefits may accrue from an alliance.

As to suggestions in a recent Business Week article that Toyota were looking at coming in as a white knight to any deal, Wagoner says: "While it's certainly true that we speak to most manufacturers on a regular basis, we have not received any proposals or spoke with Toyota on the issues raised by the article."

As to whether he believes the potential alliance is a good idea, he prefers to be coy: "I would say it's a potential opportunity but not mandatory and we are not building our plan on the basis that we have an additional alliance." Kerkorian may have other ideas.