Posted by: David Welch on March 22, 2010
I am regrettably late writing about this. As most readers know, former Chrysler Corp. and IBM Corp CFO Jerome York passed away on March 18. York will be most recently remembered for his role as the brain trust behind Kirk Kerkorian’s investment in General Motors in 2006 and their attempt to force the auto giant into a shotgun marriage with Carlos Ghosn’s Renault-Nissan. The attempt was half-baked and destined for failure.
York should be remembered for much more. The flinty finance guy was a tough veteran of some big turnaround jobs. He knew how to rescue bad companies. Let’s look at that foray into General Motors. It’s true that York failed to create major change at the troubled automaker. But the U.S. Treasury Department and its auto task force wound up doing many of the things that York said needed to be done. Management wasn’t going to bite the bullet until the company was nearly out of money and facing bankruptcy.
A veteran of turnaround jobs at Chrysler and IBM, York had a few key points for any company in trouble. Ditch bad operations and focus on fixing the core business. Simplify the company and its brands. Most of all, create accountability and a sense of crisis. That means firing any executive who couldn’t get the job done.
Over dinner one night during the GM saga York told me the company needed to pare its brands down and focus on the core. Saab and Hummer were two that he wanted to put up for sale. Under former CEO Rick Wagoner, that wasn’t going to happen. But once the Treasury Department and its hired advisors came in, they started looking at every brand. They even pressed to find a business case for Buick and GMC, which remain with GM to this day. But the Feds ordered closure or sale of the rest. Pontiac and Saturn are gone. Saab is sold and Hummer will be sold or, more likely, wound down. Bankruptcy helped that happen, of course, but York knew which direction to go. York’s mantra was simple. Sell non-core businesses and focus cash and executive time on the parts that matter.
He also wanted to see a restructuring of GM’s massive union obligations. That was much tougher to do back in 2006, when bankruptcy was unthinkable. York wanted to take on the United Auto Workers union to slash retiree benefits and labor costs. Wagoner got some of that done on his own. Ultimately, the government-funded bankruptcy helped get a health-care fund done with less cash than GM initially was going to give it.
Sure, York’s Renault-Nissan gambit had no chance of working. Wagoner would never give the deal a real look because he knew it was a means for York and Kerkorian to replace him with Renault-Nissan CEO Carlos Ghosn. It didn’t work, and three years later it was left to the government to fire Wagoner. Auto Task Force leader Steve Rattner said GM was as poorly-managed as any company he had ever seen. York told me on several occasions that Wagoner was the problem. It appears he was ahead of the game on that call. York said the company needed an outsider to come into GM and create a bit of fear. Today, the company has that leader in Ed Whitacre. The AT&T boss may end up being just the outside voice GM needs. Time will tell, but Whitacre is shaking things up.
Don’t forget who Jerry York was. He was the CFO at IBM under Louis Gerstner and a major player in saving the company. Spendthrift executives used to quake before going before York. He wanted to create a sense of urgency and it worked. IBM’s turnaround is legendary.
Now that York has passed and car guy Bob Lutz is retiring from GM, the industry is losing a couple of the executives who played key roles in some big fix-it jobs. They have been replaced by outsiders like Whitacre, Ford’s Alan Mulally and Fiat-Chrysler’s Sergio Marchionne. Hopefully those men and the young executives coming up will have the kind of business sense to truly compete. They can always take a few cues from York. Stay focused. Cut the weak stuff out. Invest in your core business and make sure the troops know that there are consequences for failing. That is York’s legacy. Farewell, Jerry.