Fallout: The Financial Crisis

What General Motors has left to do

Marketplace Staff May 14, 2009
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Fallout: The Financial Crisis

What General Motors has left to do

Marketplace Staff May 14, 2009
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TEXT OF INTERVIEW

Kai Ryssdal: Almost 800 dealers got the news today that they’re not welcome at Chrysler anymore. It wasn’t entirely unexpected. Both Chrysler and General Motors have made it clear for months that they’re looking to get out from under a big chunk of their dealership contracts. The companies say cutting their retail footprint is a key part of their restructuring plans. General Motors has about two weeks left until the government’s deadline for it to either figure out how to get smaller or file for Chapter 11. Earlier today I asked GM CEO Fritz Henderson what he’s got left to do.

FRITZ HENDERSON: What we’ll know in the next two weeks is whether or not the bond exchange is successful. If it’s not, then we would file for bankruptcy on or about the end of this month.

Ryssdal: Just to be clear, when you say bond exchange, that leads me to believe the major obstacle here for you filing or not filing for Chapter 11 is your debt holders, the people who own General Motor’s debt.

HENDERSON: I wouldn’t characterize them, Kai, as an obstacle. I’d just say it is a process that we need to go through. One of the objectives that we set for ourself, and certainly was contained in the task force finding of March 30th, was the company needs to have a healthy balance sheet coming out of this process. And, therefore, we need to substantially de-lever our business. We provided the options to bond holders as part of the bond exchange. They need to make their decisions. We also need to, by the way, reach a reasonable agreement with the UAW with respect to VEBA, which is basically for health-care benefits for retirees going forward. And finally, obviously, we would need to finalize the negotiations with the Treasury with regard to the terms and conditions regarding their support for us. So I wouldn’t say it’s only the bond holders. And moreover, I wouldn’t say their an obstacle. It’s just these are three things we need to address in the next several weeks if this can be done outside the bankruptcy process.

Ryssdal: Is it fair to say, though, that you are prepared for the possibility or even the probability of Chapter 11?

HENDERSON: We will be prepared, yes.

Ryssdal: One of things that you are going to do, that you have said repeatedly, and the company has said, is do something about your dealership structure. You’ve got 6,000, plus or minus. There are reports that you want to cut as many as 3,000 of them. Explain to us how that is going to help this company.

HENDERSON: One of the points I’ve made is slashing things is not a way to win. You win in this business and you accomplish turnarounds by winning in the market with great products, taking care of customers, and then getting your cost structure right. The issue with our dealer body is some part of those dealers are affected by the actions we’ve taken on the four brands that will no longer be core to the company: Saturn, Hummer, Saab, and Pontiac. Some part of the dealers just don’t have sufficient scale. So it’s about right-sizing our dealers so that dealers can take care of customers, they can invest in their facilities, they have the right through, but they have the best alternatives for getting a return on their investments.

Ryssdal: Except for the 3,000 who are going to be cut. I mean, they’re going to be out of work.

HENDERSON: Yes, there will be pain, sacrifice, it’s frankly part of this process. And we try as much as possible to be responsive to their needs, to try to address their needs. But candidly, we need to take these actions. We’re going to get on with it, we’re going to do the right way, we’re going to do it the responsible way, but we don’t have any choice.

Ryssdal: So those products that you’re going to innovate and come up with, what are they going to be?

HENDERSON: We’re going to have across four core brands: Chevrolet, Cadillac, Buick and GMC here in the U.S. Nameplates, individual nameplates, whether it’s the Chevrolet Spark, or the Cadillac CTS. I think putting our resources behind fewer, better entries is absolutely the right way to win.

Ryssdal: So we’re talking smaller, we’re talking electric cars, we’re talking all those things, right?

HENDERSON: You’re going to see smaller vehicles, you’re going to see the introduction of alternative propulsion advance technology. Whether it’s the Chevrolet Volt coming to a showroom near you by the end of 2010. We will fulfill all of our commitments with respect to biofuels, so we’ll half our production by 2012. We will be E85 capable. So we will see the implementation of technology across our entire product line at the same time that we’re launching, frankly, dynamite products into the market.

Ryssdal: You’ve been with this company a long time. As you watch the very nature of Detroit change, I can’t help but wonder what’s going through your mind.

HENDERSON: I’ve been 25 years with the company. I’ve worked everywhere around the world. I’ve had the benefit of visiting many places, seeing many operations, visiting with dealers in many countries. I think General Motors has huge assets that we can bring to bear to win in the marketplace. I never thought in my career 25 years that we’d be in this position that we’re in today, but we are. So we need to address it, and we need to deal with our reality. And we need to restructure so we can win in the future, so that’s exactly what we’re setting up to do.

Ryssdal: Fritz Henderson, the CEO of General Motors. Thanks so much for your time.

HENDERSON: OK, thanks. Take care.

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