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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
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Get Four
|  | MAY 5, 2005
By David Welch Just What GM Needs[Page 2 of 2]SETTING UP A SPIN-OFF? Wagoner is already talking to the United Auto Workers about cutting health-care costs and production. But many on Wall Street think GM needs to start downsizing -- and fast. Kerkorian could become management's new gadfly, demanding plant closings and other cuts that could boost GM's operating performance, says Joseph S. Phillippi, president of AutoTrends Consulting: "If he could force management to restructure the company, it would pay big dividends." But that may not be the only -- or even the main -- focus of Kerkorian's second foray into Detroit. GM has $19.8 billion in cash in its auto business and another $18.5 billion in GMAC. Merrill Lynch analyst John Casesa says the auto maker could sell its GMAC mortgage and insurance businesses for billions. The same day Kerkorian made his move, GM put its residential mortgage business under a separate holding company, which would make it easier to spin off. Kohlberg Kravis Roberts & Co., a New York private equity firm, is also looking at the commercial mortgage business, say bankers. KKR declined to comment. Moreover, GM owns 20% each of Suzuki Motor Corp. and Subaru parent Fuji Heavy Industries Ltd., both of Japan. BREAKUP AHEAD? Could Kerkorian or another investor try to take over GM and cause such a breakup? For now that looks unlikely. Private equity firms have been sniffing around but are mostly interested in picking off what they can from the financing operations. Besides, the costs of fixing GM would be prohibitive, say bankers. It will take tens of billions of dollars to shrink GM's auto-making business to a profitable level. Even if that happens, GM has $57 billion in unfunded health-care liabilities. Instead, most expect Kerkorian to grab a big enough stake to make his voice heard, a move that could lead him to try to gain seats on the board. Given Kerkorian's track record, his presence alone may be enough to get GM more focused on restructuring. While that could be disruptive, some execs say Wagoner might actually welcome the threat of someone like Kerkorian as a way to win support for more massive change. Says one GM insider: "Rick could use the cover to make some of the difficult decisions that we need to make." Who knows? Kerkorian could end up lending Wagoner a hand.
 Welch is BusinessWeek's Detroit bureau chief with Ronald Grover in Los Angeles and Emily Thornton in New York Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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