Magazine

Getting General Motors Back On The Right Road


In "Why GM's plan won't work" (Cover Story, May 9), your best-case scenario for Saturn -- "behind its cool new Euro styling, selling more expensive cars with design flair" -- appears extremely unlikely. For three-quarters of what General Motors Corp. (GM) invested in Saturn, GM could have purchased Honda Motor Co. (HMC) outright. Currently, GM is purchasing Honda engines and putting them into Saturns. It took Saturn seven years to deliver new, larger models and sport-utility vehicles to showroom floors -- just as the SUV market was starting to wane. Saturn's goal of following the Honda Civic marketing strategy never came to pass. Will "Euro styling and design flair" be accomplished with plastic panels, no-dicker sticker selling practices, and models based on aged Adam Opel (GM) platforms?

Can GM do anything right? "General Malaise" seems more fitting.

Carlo Petruzziello

Boston

Instead of beating up on GM for providing health care for its active employees and decent pensions for their retirees, we should be applauding the company and the United Auto Workers. We need to weigh in with universal coverage on both fronts -- health care and pension. It could be done as it is in other countries. We would return jobs to the U.S. instead of exporting them. Congratulations to GM in trying to figure out these complicated problems with the UAW.

Bruce Dunton

Montgomery Village, Md.

I believe the UAW will cooperate. In essence, the labor-management relationship is not adversarial. The enemy is not us. Mutual survival and success can be the reality. Such a genuine response and wise course will, in this case, make GM a better, more competitive company. The organization has it within its own power to pull this off.

John N. Heil

Los Angeles

GM will do whatever is necessary to remain at the forefront of automotive technology. I already see a major difference from even 10 years ago. Cadillac has not been this hot in more than 30 years. Pontiac, Buick, and Saturn will follow. It took the Japanese threat that started in the late 1970s to wake up the domestic auto industry. The Big Three have made tremendous strides to get back to the forefront. Ford Motor Co. (F) and Chrysler (DCX) started earlier, since they both came close to extinction. GM has more work to do, but I am sure the company will get it right.

Michael Burns

Howard Beach, N.Y.

One crucial factor behind the Big Three's escalating problems is the unfair and one-sided trade relationship in autos with Asia, especially Japan. North America has by far the most open automotive market in the world. Collectively, the three NAFTA economies imported 4.2 million new vehicles from offshore last year -- 22% of total sales and enough to keep 20 assembly plants running. Our market share from offshore is twice as high as Europe's, four times Asia's. Japan shipped 1.7 million vehicles into North America last year, while U.S. makers were restricted to 26,000 in Japan. Offshore imports to North America have more than doubled since 1996, accounting for 80% of the Big Three's market share loss during the same period. We need a fair trade policy that would force Asian countries to open their markets as North America does, or else face limits on their own sales here.

Buzz Hargrove

National President

Canadian Auto Workers

Toronto

GM could divest itself of its retirement obligations by creating and funding an institution like TIAA-CREF (the independent retirement-account holder for university professors) or CalPERS (California Public Employees' Retirement System, a quasi-independent state agency). This independent body could take on retirement plans from other companies who are also willing to prefund their promises regarding retirement. Going forward, GM could negotiate a set contribution for each worker, to clarify its future costs rather than promising a fixed monthly retirement income, as has been done by many companies in recent years.

Ed Troyer

San Jose, Calif.

With its cash and marketable subsidiaries valued at double its market capitalization, a viable solution for GM may be to accelerate the inevitable before its market share shrinks further. Consider the effects of distributing its cash hoard as a special dividend and the spin-off of its profitable divisions, thereby extinguishing its ability to prolong the agony. That would force it to focus on ills of its vehicle business and most likely force it into bankruptcy and restructuring before, rather than after, it squanders its window of opportunity for a second life and the remaining shareholder's equity. Is this perhaps what Kirk Kerkorian has in mind?

Fred Staudinger

North Salem, N.Y.

Heartfelt congrats to David Welch and Dan Beucke for their well-detailed and above all well-timed article. As I write this e-mail, I'm sitting in front of my trading station, closing out a General Motors Corp. (GM) short position. Just five minutes ago, Standard & Poor's (MHP) cut its rating to junk status for GM long- and short-term and then came out again, cutting Ford Motor Co.'s (F) rating too. Anyone who read the article needed no persuasion that even when sitting on top of a cash hoard, GM, with its trade-union pacts and behind-the-times models, was plunging deeper into the hole.

Karam Jaffery

London

Your cover story on General Motors made for a fascinating read. The first thing the GM management should be doing is to stop getting so much bad press. Otherwise, sales might be affected, especially in Asia, the way Daewoo's and Fiat's (FIA)have. People would stop buying GM cars if they thought the company was going down, with the fear that spare parts for its cars might become difficult to obtain.

Second, the $1,600-per-car cost disadvantage to its Asian carmakers could be brought down by outsourcing a major portion of critical components manufacturing to places such as China, India, or Thailand, which have huge cost advantages over their American counterparts, without compromising on the quality.

GM employees and investors will have to forgo a lot, as you have rightly said, and prepare themselves for hard times. GM's CEO G. Richard Wagoner Jr. just has to start thinking out of the box to save GM, which isn't just another American company but is an institution in itself.

Kush Katakia

Bombay

The solution to the crisis General Motors is undergoing is simple: Eliminate waste. Waste equals negative cost, and it's the deadly virus killing GM and all that it represents. There's waste in GM's mind-set, to begin with. There's waste in GM's management system. There's waste in GM's production systems. There's waste in the chaotic value propositions of the company, in the multitude of brands GM has to offer -- it might have worked during Alfred Sloan's era, but times have changed! There's waste in its pension and benefit packages, in its sales and marketing activities, and more.

Structural changes are required, and saving GM entails a great deal of raw courage, discipline, and deep commitment to rid itself of these wastes. It has to be done before this great company wastes away into oblivion. Should that happen, it will be utterly tragic not only for GM but for America itself.

Iskandar Z. Ghazali

Selangor, Malaysia

I would like to clarify some of the information contained in "Overcharging Uncle Sam?" (Up Front, May 2) about fuel fraud at the State Dept. 's Jordanian International Police Training Center. DynCorp International was not "involved in fraud." Rather, it was the victim of a fraudulent scheme by a local fuel vendor who falsely reported the amount of fuel delivered.

Contrary to BusinessWeek's report, the fuel-delivery driver was not an employee of DynCorp International; he was employed by the fuel vendor and had no ties to this company. While an internal DynCorp investigation into the matter resulted in the termination of two employees for negligence that may have contributed to the fraud, we have found no proof of collusion or conspiracy between them and the vendor involved.

BusinessWeek correctly noted that U.S. officials give DynCorp International high marks for its work and that DynCorp International absorbed the loss by promptly crediting the State Dept. for the estimated $685,000 for fuel that was not delivered. DynCorp International adheres to strict ethical standards, gives outstanding performance, and places the highest possible value on meeting its customers' needs. These are the reasons our company gets high marks from U.S. government officials.

Stephen J. Cannon

President and CEO

DynCorp International LLC

Falls Church, Va.

"Genentech's lessons for Big Pharma" (News: Analysis & Commentary, May 9) suggests that companies such as Pfizer Inc. (PFE) emulate Genentech Inc.'s (DNA) focus on drug discovery, rather than on "marketing, acquisitions, or patent-extension battles." In fact, discovery is unsustainable unless we are able to patent and market our inventions. Acquisition is another imperative, well illustrated by a star of Genentech's portfolio -- Tarceva. Pfizer invented Tarceva and demonstrated its value in Phase II clinical studies. Partner OSI Pharmaceuticals Inc. (OSIP) supported our discovery work. Genentech snapped up the rights when we were required to divest this compound to OSI as part of our merger with Warner-Lambert Co.

You are right to applaud Genentech's oncology success but wrong to imply that an exclusive focus on cancer is a lesson we need to learn. Companies like Pfizer have worked in the oncology area since before Genentech's birth. Finally, Genentech's 15 years of "coming up with novel drugs for unmet needs" merely defines a 150-year-old business model, one that Pfizer pioneered.

John L. LaMattina

President Pfizer Global Research & Development

New London, Conn.


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