Restructuring chief poised to kill Old GM
July 5, 2009
Restructuring chief poised to kill Old GM
BY TOM WALSH
FREE PRESS COLUMNIST
As a smaller, sleeker General Motors Corp. awaits a judge’s green light to exit bankruptcy, Al Koch, GM’s chief restructuring officer, says it will take two or three years and about $1.25 billion for the so-called Old GM to settle claims and dispose of factories no longer needed by the government-controlled automaker.
Koch, a turnaround whiz who tackled Kmart’s financial mess during the Troy retailer’s bankruptcy, will become chief executive of Old GM.
His job: dispose of 50 surplus GM properties and wrangle with bondholders, product liability lawyers and others trying to grab a few crumbs from what’s being discarded by GM.
In a wide-ranging interview Thursday with the Free Press, Koch talked about the Willow Run transmission plant (still closing), the Renaissance Center (still GM’s headquarters), the firing of Rick Wagoner and the tall task facing New GM boss Fritz Henderson.
Koch details history of plan
When Koch, managing director of AlixPartners, the Southfield-based consulting firm, was the interim chief financial officer steering Kmart through bankruptcy seven years ago, he said fixing the Troy retailer was akin to "turning around the Queen Mary."
When I asked him last week to compare today’s survival drama at General Motors Corp. with his prior Kmart gig, he said it’s like trying to turn around "a whole fleet of Queen Marys."
Koch, 67, has had a bird’s-eye view of GM’s government-funded rescue effort since December, when he was tapped to lead an AlixPartners team to help overhaul GM.
At first, while GM executives focused on drafting a viability plan to restructure outside of Chapter 11 bankruptcy protection, Koch’s team worked on what he called contingency planning: preparing GM for bankruptcy.
"We were really brought in primarily to work just on contingency," Koch said, acknowledging that even as former Chief Executive Officer Rick Wagoner and others at GM kept warning that consumers would not buy vehicles from a bankrupt automaker, the company was quietly preparing for Chapter 11.
Koch’s role changed after Wagoner resigned March 29 at the request of President Barack Obama’s auto industry task force and GM President Fritz Henderson was named chief executive.
"When Fritz became CEO and the U.S. Treasury said ‘you need to go faster and deeper,’ that generated a lot of work," Koch said.
His contingency team was integrated into an all-out effort that produced the current plan to form a New GM from its four core brands and best assets, while unloading mountains of debt, along with excess plant capacity and other liabilities, into Old GM.
Defining Old GM
Koch, a veteran of many bankruptcies, was a logical choice to oversee the cleaving of corporate assets and to run Old GM after the separation.
"What Old GM will be mostly," he said, "are properties that need to be disposed of, about 50 properties, most of which are former manufacturing facilities." Many of those will require environmental cleanup.
"And we need to settle claims of bondholders, claims of tort litigants, contract rejection claims. Once we’re able to estimate the claims, we will then file a plan of reorganization, a liquidation plan that basically says this is how we’re going out of business."
The "heavy lifting," he said, "will get done in two or three years." Koch is recruiting board members for Old GM, which will be owned by existing GM shareholders until it is liquidated and the stockholders are wiped out.
Asked why some GM shares were still trading last week for around $1 apiece, Koch said, "I wish they didn’t, but it’s true in every bankruptcy case. People either don’t understand or they speculate. It’s unfortunate because there is no value there."
What stays, what goes
Decisions about what GM assets will go to New GM or Old GM are virtually complete.
GM’s Willow Run transmission plant, the subject of recent speculation that it might be spared, is on the Old GM list, he said. GM’s Renaissance Center headquarters complex will remain with the New GM.
Ultimately, Koch said, the decision to overhaul GM via bankruptcy was a matter of money. "The real question mark we had, until Treasury helped us see the solution, was if the company does have to file bankruptcy, how does it get back out? It takes money to get out," Koch said.
Once Treasury said it was willing to convert federal loans to equity and allow GM to emerge with a modest debt load, the path became clear.
That was in May, Koch said, about a month after Wagoner was pushed out.
Wagoner’s ouster, Koch said, "was a surprise in some ways, and in other ways it wasn’t." Koch knows that most CEOs are replaced in bankruptcies. "But you feel badly for a guy that you like. Rick’s a guy who worked his tail off for the company for a long time."
How does Koch like New GM’s prospects?
"It’s not going to be overwhelmed with debt or with social costs that make it unable to compete," he said.
If market share can be stabilized, even at levels far below those of GM’s glory days, the company can break the deadly spiral of lower sales leading to more plant closings and head count reductions, he said.
Meanwhile, GM’s culture must become quicker and more responsive, and that won’t happen overnight. It will take five years or longer, he said he believes.
Has Henderson, a GM lifer, got the moxie to pull off such a transformation? "I’ve seen him in some pretty stressful times and I’ve never seen him lose his cool, not once," Koch said.
Still, Henderson is clearly serving under the watchful eyes of government masters who have no reservations about ejecting a CEO.
"I think Fritz and the management know what they need to do," Koch said. "He certainly knows that moving quickly is important. He knows the culture needs to change, and my hope is that he’ll be given a chance to do that."
Contact TOM WALSH: 313-223-4430 or email@example.com