Board tightens watch on GM

Directors vow support for CEO and team, but are keeping closer tabs in challenging times.

Christine Tierney / The Detroit News

The lead outside director of General Motors Corp. said Wednesday that Chairman and CEO Rick Wagoner has the board’s unanimous backing but added that directors are keeping closer tabs on the automaker during this difficult stretch for the industry.

At the close of a meeting Tuesday of the 14-member board, headed by Wagoner, GM officials said the board reiterated its support for Wagoner and his management. Board member George Fisher reinforced the message Wednesday to quell talk in the media of mounting pressure on Wagoner after GM’s first-half losses totaled $18.8 billion.

"I can assure you that the board is unanimous in its support of Rick Wagoner and the management team to get through these difficult times," Fisher told The Detroit News. "We truly feel we have the best management team to get this job done."

At the same time, directors now hold more frequent consultations with the company. "We have not only regular (board) meetings, but we have weekly update information calls on all the key issues we’re dealing with," he said.

Fisher said he proposed the weekly calls recently when oil prices began to rise sharply and the housing crisis took a toll on the economy. Previously, the board held such calls in months when it was not meeting.

"The fact that they’re speaking weekly is very good news but indicative that things have heated up to a point where they have to be more engaged than the normal calendar of regular board meetings," said auto analyst Maryann Keller. She said more frequent contact did not, however, suggest that Wagoner’s job was at risk.

Fisher, a retired chairman and CEO of Eastman Kodak Co., said characterizations of this week’s discussions as contentious were "totally inaccurate," but he said outside directors did put hard questions to the management.

"Every one of our board members is an accomplished person in his or her own right, and they ask very good, tough questions."

He described the meeting as "a very, very good meeting that delved deeply into very serious issues."

A source familiar with the discussions told The News on Tuesday that the tone was contentious, and a few directors were expressing concern about the automaker’s performance.

Some industry analysts have criticized Wagoner for being too slow to respond to changes in the market and for bungled efforts such as a costly tie-up with Fiat SpA of Italy.

But others say no one foresaw the difficulties he now faces. "The issues here have nothing to do with leadership but with oil prices running very high, a dramatic collapse in demand and falling revenue," said David Cole, chairman of the Center for Automotive Research in Ann Arbor and son of a former GM president.

"I don’t think he’s in any difficulty with the board," Cole said. "Everything I’ve heard is that they’re very strongly supportive."

A steep downturn in the U.S. auto market this year and an even deeper plunge in demand for large trucks and SUVs have complicated GM’s turnaround efforts. The automaker has been slashing jobs and closing plants, and Wagoner negotiated a landmark contract last year with the United Auto Workers to cut costs in its North American operations.

GM also has rolled out vehicles such as the Malibu sedan that have drawn excellent reviews. But its share of the U.S. auto market has fallen to 21.3 percent this year after GM’s sales tumbled 17.7 percent, faster than the market as a whole.

Last month, GM’s stock sank to its lowest level in more than 50 years amid concerns about the rate at which all the U.S. automakers were burning through cash.

GM announced more plant closures in July and measures to increase liquidity, including asset sales and further job cuts.

In this difficult context, GM’s board members gathered in Detroit for meetings as well as test drives. The directors focused primarily on financial issues at Tuesday’s board meeting, Fisher said.

He said GM’s management team — including President Frederick Henderson, Vice Chairman Bob Lutz and Chief Financial Officer Ray Young — were dealing with many problems they hadn’t created and that would take time to fix.

Wagoner has been chief executive since 2000. Henderson was appointed president in March.

"It’s a very big shift that won’t turn on a dime," said Fisher, a director since 1996. "The world is going to have to wait and see that we’re right on this issue."

Automotive News | August 7, 2008 - 12:01 am EST

DETROIT — Chrysler LLC appears headed for a crack up with Dana Holding Corp., one of its largest and oldest driveline parts suppliers.

Dana, in a statement released Wednesday evening, said it has asked a U.S. Bankruptcy Court in New York to allow it to end its business with Chrysler by the end of this year. Dana emerged from two years of Chapter 11 bankruptcy court protection on Feb. 1 and now has a new management team and board.

Dana wants the court to enforce an agreement reached with Chrysler during the bankruptcy process.

“Our goal is to establish a mutually rewarding supply agreement with Chrysler moving forward,” according to statement by Dana Executive Chairman John Devine.

But if negotiations are unsuccessful, Dana will vacate the Chrysler business, the statement said.

Dana’s statement did not specify its differences with Chrysler. But the financial pressure from escalating raw material prices is breaking down old ties between suppliers and automakers.

Earlier Wednesday, Magna International Inc’s CFO Vincent Galifi told analysts some of Magna’s customers are trying to break their contracts with the supplier by asking it to bear more costs of the costs brought on by commodity price increases.

“We can’t eat it all, so we’re going to have to have some discussions with them,” Galifi said in the conference call.

In recent months, seating supplier Johnson Controls Inc. filed suit against several of its suppliers who were threatening to withhold shipments if they were unable to get price relief on the steel products it supplied Johnson Controls.

Dana is a large steel buyer for the driveline systems it supplies Chrysler Jeeps. Both Dana and Jeep originated their business in Toledo, Ohio. Dana’s history of supplying Chrysler dates back more than 70 years and includes supplying four-wheel drive and axle technologies for the first Willys Jeep produced in 1941.

Dana currently supplies parts for the Wrangler, Liberty, and select versions of the Grand Cherokee; the Dodge Nitro and Viper vehicles; and select light- and medium-duty versions of the Dodge Ram pickup truck.

Chrysler is not one of Dana’s largest three customers — Ford Motor Co., General Motors and Toyota Motor Corp. — but it ranks among a group of customers that still made up 19 percent of the supplier’s business in 2007.

Dana ranks No. 19 on the Automotive News list of the top 100 global suppliers with worldwide original-equipment automotive parts sales of $8.72 billion in 2007.

Craig Trudell contributed to this report

PRESS RELEASE: Dana Holding Corporation Seeks Declaratory Judgment Regarding Conclusion of Supply Contract with Chrysler LLC

TOLEDO, Ohio, Aug. 6 /PRNewswire/ — Dana Holding Corporation (NYSE:DAN) today announced that it has asked the Bankruptcy Court for the Southern District of New York to provide a declaratory judgment confirming that the existing supply agreement between Dana and Chrysler LLC will conclude on Dec. 31, 2008.

(Logo: http://www.newscom.com/cgi-bin/prnh/19990903/DANA )

Dana is seeking to confirm its rights relative to the Settlement Agreement reached by the two companies in August, 2007 and confirmed by the Bankruptcy Court one month later. The requested court action is an attempt to determine Dana’s future course as a supplier to Chrysler.

"Our goal is to establish a mutually rewarding supply agreement with Chrysler moving forward," said Dana Executive Chairman John Devine. "However, Dana is prepared to exercise its right to discontinue supplying Chrysler effective January 1, 2009, if we continue to be unsuccessful in engaging them to address this goal in a meaningful way.

"While we sincerely hope that this will not be the case, we have informed Chrysler of our intentions in order to provide both companies with the time to consider their options for ongoing sourcing of the programs we currently support," he added. "While this is an isolated case, it serves to illustrate our commitment to pursue only market-competitive business opportunities moving forward."

Devine acknowledged that a potential decision to vacate the Chrysler business could have a substantial impact on select Dana facilities, but cautioned that any related concerns would be premature. "It’s far too early and inappropriate to speculate on potential outcomes at a facility level," he said. "To be clear, our focus remains on achieving a market-competitive agreement with Chrysler moving forward."

Dana’s history of supplying Chrysler dates back more than 70 years and includes supplying four-wheel drive and axle technologies for the very first Willys MA Jeep(R) produced in 1941. This relationship continues today with Dana’s supply of drivetrain technologies for several Jeep models including the Wrangler, Liberty, and select versions of the Grand Cherokee; the Dodge Nitro and Viper vehicles; and select light- and medium-duty versions of the Dodge Ram pickup truck.

Dana threatens to terminate Chrysler business

August 6, 2008 4:52 PM ET

The automaker had planned to bring the mirror to market next year but moved up the date after getting so much positive feedback, said Kelly Kohlstrand, a member of Ford’s advanced product marketing and technology planning team.

Ford also is in a race with General Motors Corp. to bring the technology to market. Blind-spot mirrors will be a standard feature on some versions the 2009 Chevrolet Traverse crossover, which will start production in September, according to GM spokesman Terry Rhadigan.

Kohlstrand said the mirror will be a standard feature on the Edge and will be added to other vehicles in 2009.

On both the Edge and the Traverse, small mirrors that give drivers a view of the "blind spot" alongside the vehicle sit flush in the outer corner of the side mirrors.

Kohlstrand wouldn’t say how much the feature will cost Ford, but he said it’s less than the retail cost of the small convex blind-spot mirrors that many drivers attach to their vehicles.

Ford said its blind-spot mirror will weather the elements better than aftermarket offerings, and it also is specifically designed for each car or truck model to provide an optimized field of view. The factory-installed mirror also meets a federal standard that requires original-equipment driver’s side mirrors to be flat.

(This version CORRECTS that mirror will be standard on the Edge but only standard on some versions of the Traverse, not vice versa.)

No easy, cheap fix for GM woes

Losing a numbing $15.5 billion in one quarter, as General Motors Corp. confirmed Friday, is a sure-fire way to restart the wailing.

Kill Buick and Pontiac.

Euthanize Saab.

Sue the directors.

Dump Rick Wagoner, GM chairman through some of the most transformative (and bleak) times in the company’s 100-year history.

Blame the United Auto Workers and the clueless Detroit culture that didn’t see $4-a-gallon gas coming (even if Japanese rivals Toyota and Nissan, the airlines and lots of others didn’t, either).

However tempting some of these options may be — and a few actually could happen — the simple fact is that quick fixes for what ails GM right now aren’t easy. Nor are they cheap for a company bleeding cash and trying to conserve every penny.

Soothe Wall Street? Its traders already have shown by their actions — GM’s market cap is a measly $5.79 billion compared with Toyota’s $146.7 billion — they believe the company to be essentially worthless despite its massive assets in the United States and its profitable operations overseas.

Force a company into shuttering brands? Doing so would be the automotive equivalent of the cure being worse than the disease by inviting a wave of litigation and requiring GM to write checks totaling at least a couple billion dollars to dealers protected by myriad state franchise laws.

Validate the critics who’ve assigned personal culpability to a complex series of business challenges, many of which cannot be controlled from atop the RenCen? Feed a press corps with the attention span of a kindergarten, which will then turn its attention to Bob Nardelli’s meltdown at Chrysler LLC?

The point here is not to understate the gravity of GM’s predicament because it is very grave. A company that burns cash at roughly the rate of $1 billion a month, reports a 30 percent drop in North American revenue in a single quarter, books a loss in its hot Asian operations and says its overriding objective is to maximize cash flow is a company that is fighting for survival.

I’ve covered GM for 12 years from three continents, seen its successes and failures, its smart moves (China and Korea), its less smart ones (Fiat) and a legit renaissance in the quality and looks of its cars and trucks. Through it all has been one constant: GM can’t muster much of any momentum in its home market, and when things go wrong, they go really wrong.

The truth is that everyone in the business is getting whacked by record oil prices and the consumer’s turn away from pickups and SUVs to smaller cars and crossovers. But no one is getting hit harder and destroying more shareholder value than GM, whose stock closed Friday at $10.23, down a staggering 76.3 percent from its 52-week high of $43.20 in October.

Is steering the General clear of federal bankruptcy court the only test of accountability for Wagoner & Co. — beyond cutting bonuses, that is? GM’s directors are scheduled to meet Monday evening and Tuesday, their first since June, in what is likely to be the first in a series of fairly dramatic board meetings over the next 60 to 90 days.

If GM’s financials worsen, oil prices spike higher, credit conditions worsen, the automaker’s cash hoard slips appreciably south of $20 billion and the company draws heavily on its revolving credit lines, pressure will intensify on the directors to act. It won’t matter how broadly they may support Wagoner, President Fritz Henderson and their strategy.

That’s business. That’s how corporate directors can behave — arguably must behave — when sustainably crappy business results quickly merge fiduciary responsibility with personal liability and directors start showing up at board meetings with their lawyers in tow.

The more immediate question: What are you gonna’ do about it, GM? It was telling that Henderson opened Friday morning’s 90-minute conference call with a reprise of the automaker’s two-week-old plan to raise $15 billion through $10 billion in "self-help" cost cutting and $5 billion in asset sales and financing.

"This is a game about rebuilding our revenue base," Henderson said. "It is what it is."

Yes, it is. And it’s ugly.

Wagoner still has GM’s support

Despite huge losses, backing for CEO ‘has not changed,’ says spokesman

Robert Snell and Christine Tierney / The Detroit News

General Motors Corp. said its board continues to support Chairman and CEO Rick Wagoner despite the company’s deteriorating performance in the second quarter, when it lost a staggering $15.5 billion.

The board’s 13 directors gathered in Detroit on Monday and Tuesday for previously scheduled meetings that took place at a challenging time for the automaker.

GM is struggling with record oil prices, tight credit, sagging consumer confidence and a dramatic shift in demand from the automaker’s profitable pickups and SUVs to more fuel-efficient cars and crossovers. Wagoner, CEO since 2000, has been hampered in his turnaround efforts by the weakest U.S. auto market in more than a decade.

"The board has expressed support for Rick Wagoner and the GM management team on several occasions and that has not changed," GM spokesman Steve Harris said Tuesday.

Some analysts say it’s hard to fault Wagoner for most of the problems GM is facing, such as $4-a-gallon gas and the market collapse for its most profitable vehicles.

"I can understand the pressure, but from where I sit, it’s hard to see anybody else coping any better than what they have done," said auto analyst David Healy of Burnham Securities.

GM declined to characterize the board’s discussions, but a source familiar with them described them as contentious and said some members were concerned about the automaker’s performance.

Faced with an unexpectedly steep downturn in the U.S. market, Wagoner last month announced a series of cost-cutting measures and production shifts.

It takes time to turn around a "Queen Mary"-sized company, Healy said.

"I’m not sure changing horses mid-stream," is the solution, he said. "But I’m glad I personally am not either a director or manager on this set of problems."

The board has to determine whether Wagoner, who became chairman in 2003 in addition to CEO, is the best candidate to press ahead with GM’s recovery effort or whether another chief executive might be able to move faster.

Since 2005, GM has idled six plants and it has cut about 35,000 hourly jobs in the past two years, helping to shave about $9 billion in annual costs.

But those restructuring efforts have been undermined by the weak economy and falling sales in the United States. North American sales plunged 20 percent during the second-quarter and revenue fell by almost $10 billion.

GM’s results overseas have been mixed. In the Latin America, Africa and Middle East region, GM posted a $445 million pretax profit in the second-quarter, up from $296 million a year ago, while its Asian operations swung to a $65 million loss from a $294 million profit. In Europe, GM made $99 million, down from $345 million a year earlier. A record 65 percent of GM sales in the second quarter were overseas.

In November, GM posted a record $39 billion loss for the third quarter, including a $38.6 billion hit related to future tax benefits.

This year, as GM marks its 100th anniversary, analysts have raised concerns that GM might face the risk of bankruptcy. Analysts estimate the company is burning through cash at a rate of $1 billion to $1.5 billion a month.

With GM’s stock sinking last month to its lowest level in more than 50 years, Wagoner took further steps to raise cash. In July, Wagoner outlined ways to boost GM’s cash by $15 billion this year and next. Along with canceling its $1 a share dividend, GM plans to raise $5 billion through asset sales and borrowing.

GM also is slashing production capacity by 300,000 vehicles; laying off 1,760 hourly workers; and closing four truck plants, on top of downsizing measures taken in previous restructurings.

This is GM’s fourth restructuring plan in four years, by Gerald Meyers’ count. Meyers, a University of Michigan professor and former chairman of American Motors Corp., said the first three plans failed, but Wagoner likely will get about 18 months to prove the latest restructuring works.

"He is respected for his perseverance and courage and his vision," Meyers said of Wagoner, "but I think the jury is still out," on whether he will survive as CEO.