GM’s Board Needs To Save Itself
It is time for General Motors´ board to fulfill its fiduciary duty. GM management has failed to create a viable turnaround plan. The U.S. Senate has refused to bail it out. So the board is the only entity left that can save the company before it gets forced into bankruptcy. Isn´t this the board´s duty anyway?
Neither bailouts nor bankruptcy are viable courses of action. The $18 million that GM requested in its most recent bailout, on top of “the innovation R&D bailout” passed by Congress in October, is just a down payment on many more to come. Eventually, taxpayers and even the new administration will get fed up with chasing a downward spiral, especially when it means asking Americans who have no health care coverage to pick up 100% of the health care tab for GM employees.
In spite of many calls to let GM go bankrupt from Congress and elsewhere, the GM board is correct in its assessment that American consumers won´t want to buy their automobiles from a bankrupt company.
So why doesn´t the GM board do the obvious: dramatically downsize the company to make it viable? The only way GM can survive is to consolidate around three brands – Chevrolet cars and trucks, Buick and Cadillac, and sell off or shut down the rest of the company.
The fastest and most efficient way to get this done is to split GM into two companies, a healthy GM and one to be liquidated. The healthy GM would take the aforementioned brands, a limited number of factories operating at greater than 80 per cent of capacity, and a select number of healthy dealerships. Employment agreements would be renegotiated to get wages and benefits competitive with the North American plants of the Japanese and German producers, along with a more flexible set of work rules. This includes getting employees to pay up 20-25% of the cost of their health care, like all other Americans do.
The new GM would embark on a massive new product development program to make its automobiles competitive in engineering, features, fuel efficiency and styling. Management would commit to a fleet average of 40 miles per gallon by 2016 and 50 MPG by 2020, with a mix of lighter vehicles, efficiency improvements, hybrids, and electric cars like the Chevy Volt. Management should aggressively attempt to move buyers from former GM brands like Pontiac and Saturn to its remaining brands.
To lead this new company, GM needs new management, much like the team of Louis Gerstner and Jerry York that restored IBM to health. The best candidate for CEO is Carlos Ghosn, who has achieved remarkable success at both Renault and Nissan. A new headquarters location should be established – somewhere like Dallas or Atlanta – with a very small corporate staff. Finally, the company should be governed by a new board of directors.
The remaining GM, which includes the existing board, management, headquarters building and staff, the rest of the factories, jobs bank, retirees, and dealers, would be liquidated. This would likely mean that U.S. government would be forced to pick up some of the pension and health care obligations of the retirees, and renegotiate agreements with creditors, suppliers and the unions.
This solution is neither elegant nor easy, but it is the only way to save General Motors. In this way the GM board can fulfill its fiduciary responsibilities, not only to the remaining shareholders, but to the creditors, dealers, customers, employees, and suppliers that have a vested interest in the company.
The “divide and conquer” approach is far better than the partial nationalization of the company that will occur under continuing government bailouts, or forcing the company into a bankruptcy from which it may never emerge.