ROCHESTER HILLS, MI – Jerome B. York, the longtime auto industry advisor to billionaire investor Kirk Kerkorian and a key copilot on a number of corporate comebacks, rates his confidence inGroup LLC and Corp.’s futures “extremely high.”
York, who was chief financial officer ofCorp. during its last government bailout in the 1980s and later helped lead a restructuring at International Business Machines Corp., says the two auto makers now are zeroed in on the task at hand and will be able to compete in the global auto industry once their restructurings are complete.
“Nothing sharpens the thinking process like the hangman’s noose,” York tells reporters here following a speech at a conference sponsored by the International Motor Vehicle Program and Oakland University. “It was like that at Chrysler when things were really bad. These companies are focused.”
York was a tough critic of GM when he sat on its board following acquisition of a sizable stake in the auto maker by Kerkorian, eventually resigning his seat in October 2006 in frustration after he backed a scuttled deal to form a 3-way linkup withSA and Motor Co. Ltd.
“In this man’s opinion, GM’s governance will be held in disdain as the history is written about,” he predicts.
But he now believes the auto maker is on the right track.
“I think they’re finally doing the things that had to be done,” says York, who in January 2006 delivered a conference keynote speech calling for GM to dump unprofitable brands such as Saab and Hummer. “Time will tell at some point whether they will be able to get the revenue side working.”
York says he certainly hopesAuto Group, which closed its deal to take an initial 20% equity in the new Chrysler Group LLC today, will do a better job running the Detroit auto maker than former parent AG did.
“should be shot for what it did,” he says. “It left the company in a mess. Its styling is bad. Jeep has only two real models – you can’t treat a brand like that. Quality is terrible. How could a German company do that?”
Bankruptcy was necessary for both GM and Chrysler to restructure properly, York says. “They could not have pared down to the right size (and) gotten rid of dealers (otherwise).”
The government could have handled CEO Rick Wagoner’s dismissal differently, pressuring the GM board to replace him instead of forcing him to resign directly, he admits.
“But if you believe the press reports, Rick was not buying into the bankruptcy as the right solution. And he had to go in the eyes of the administration. I don’t know how else to do it.”
More management shakeups are likely at GM, York says, but he adds that it doesn’t require a lot of change near the top to positively alter a company’s culture.
“IBM had cultural problems,” he says. “But we managed in most cases to find someone at a lower level who was chomping at the bit to do the right things. Fritz (GM CEO Fritz Henderson) is going to have to do a bit of that.”
York says to watch for a few key developments when trying to determine if the GM and Chrysler recoveries are on track. Those include whether incentive spending, fleet sales and residual values all begin to approach industry averages.
“There’s a $2,500 advantage to the Japanese (in residual values),” he says. “This has to be fixed.”
The former auto executive praisesMotor Co. CEO Alan Mulally, saying he was amazed how quickly someone with an aerospace background was able to grasp the competitive issues facing the auto industry.
’s future boils down to a “race between its cash on hand, (plus its) ability to raise some additional money, and the shape of the recovery curve,” he notes.
But the overall outlook for the auto industry is becoming more positive, York says, pointing to the rise in pent-up demand now that the U.S. vehicle scrappage rate is far outpacing current sales volumes, as well as indications the overall economy is nearing the beginnings of a recovery.
“There are some encouraging signs,” he says. “I’m sleeping better than I was a few months ago. The government is getting its hands around fixing the financial system.”
York says he may stay involved with the auto industry in some way, possibly as a consultant. However, he has no aspirations to rejoin the board of the new GM and would refuse if asked.