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Q&A with General Motors director Kent Kresa


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Q&A with General Motors director Kent Kresa

December 8, 2008

- General Motors Corp. board member and former Northrop Grumman Corp. Chairman and Chief Executive Kent Kresa said Monday that GM CEO Rick Wagoner should not be ousted. His comments come after Senate Banking Committee Chairman Chris Dodd, D-Conn., said Wagoner should go as a condition to get federal loans.

In an interview with The Associated Press, Kresa, a board member since 2003, said it would be terrible if Wagoner were ousted because he has moved the company forward.

Here is an edited portion of the interview:


Q: What do you think of Sen. Dodd's statements from Sunday and Monday and then (President-elect Barack) Obama also saying that management changes are necessary in the industry, and Dodd's comments specific to Rick Wagoner?

A: Rick has done a phenomenal job restructuring the company to date. The problems that have occurred in the marketplace have really not been the doing of the company, but outside sources both on the credit side, and the rapid change in the public's buying habits. And so it's hard. Here's a guy who's done an excellent job for the company, and I certainly wouldn't support that (Wagoner's ouster). But you know, they're making statements which are clearly driven by the terrible events that are going on and the loss of value of the corporation. So I understand their position, but I think if you look at it carefully, you'd find that Rick's done a good job.


Q: What if you have to make a choice, government money or Rick?

A: First of all, I don't believe that that will be what will be said. But if it is contingent on any particular element — whether there's an oversight board, whether the full board needs to go, whether Rick needs to go, whether we have to move from Detroit to Washington, D.C. — we need this resource in order to keep this great company going. And we're going to have to look at whatever the demands are from the individual who's bringing the money. But I don't think it's reasonable.


Q: What do you think of having government oversight, whether it be kind of this coalition of the secretaries or an auto czar or whatever, what do you think of having that over top of you?

A: Well if this is what's required in order to keep this great industry going, then we're clearly going to do it. There's, I guess, an important point that we're having the taxpayer as a new owner of a substantial portion of the corporation, and therefore some oversight by the government, I think, is warranted. I've been a participant in the defense industry for all of my career. There certainly is strong government oversight. There are people there who really understand our industry and have done the right things, and provided that the government puts the right kind of people who understand business and who understand what it takes to be successful, I see no problem with it. In fact, we welcome it.


Q: Correct me if I'm wrong, but your contention would be that since Rick has been there, the company has moved a long way toward accomplishing a lot of the things that they (Congress) are seeking anyway?

A: Absolutely. If you look at the facts, the dramatic contract which was negotiated by Rick with the union which has really put us on a path to be successful in the future. And restructuring has gone on dramatically, there's been lots of costs taken out of the business, there have been fabulous products that have been brought on line. There's a whole innovative push to more fuel-efficient vehicles including going all the way to an electric vehicle with the Volt, which will be here in 2010. So there's all kinds of very positive things that this company is doing, and the growth of the international marketplace which General Motors has been a clear leader worldwide. ... What we want to do is exactly what we've been doing all along, but accelerating it.


Q: There also is the contention in Congress that under Rick's leadership you were too slow to realize the gas prices were going up and that the public would move away from trucks and SUVs to cars, that you relied on SUV profits for too long. How would you respond to that?

A: I would say that there was no question that we relied on SUVs and trucks for a long time. That's what the public wanted to buy. And clearly if the market, if the costs went up, if gas prices went up, there would be some indication of that change. I can say that as it went up from $1.50 to $3, we saw no change. The market was still predominantly SUVs and trucks and then sort of magically, at $3.50 to $4, the market just collapsed for the large vehicles. I might also say, the public will buy what they want to buy and will make all those individual decisions, and if there's a permanent change in gas price, then everyone will see this move to the smaller cars dramatically. If the price goes back to where it was two or three years ago, we'll probably see the American public want to get back in trucks and big SUVs. So you've got to worry about what it is the customer wants to buy.


Q: Even by your own numbers, when you go back to the labor costs, you're roughly $8 an hour still above Toyota in all-in costs, including the retiree health care. Do you see this government intervention, if you will, as a way to get parity there? I mean, you came pretty close in the contract.

A: Right. I think that the key thing with the contract is that there is a gradation that in time will heal these kinds of things. Unfortunately the world has collapsed, the automotive industry has collapsed, and the time frame short compared to what was sort of perceived when you could be at parity. But the dual-price model which was in the contract would allow the next workers that come in after others retire to be at this much lower number with significantly different pension benefits which would go a long way to equalizing that situation. But what we still had, as you know, the jobs bank was still going to be there for several years, it's been reduced substantially but that's a lightning rod and clearly a negative thing. And there's this huge pension and medical problem which we have to deal with. But I think that we certainly have the right things done so we can work out of these things in the next few years. But right now it's a tremendous problem and you're absolutely right, we have an enormous disparity with the transplants.


Q: Are you confident that if you get this infusion, the $18 billion, that you won't have to come back again, that you have the plans in place that will make GM viable and be able to repay the taxpayers?

A: Certainly at the kind of markets that we're now projecting, which are down substantially, like in the 12 million (annual vehicle sales) mark in the United States. If that went to eight, or six, who knows? No one would have thought we'd ever be at 12 at this point when we were cruising along sort of in the 16 to 17 and maybe thinking we'd have a drop to 13 or something like that. But here we are at 11. So we certainly, at 12, we see a very viable company and we should be able to pay this thing back by 2011, 2012 at the latest, and we will have made all the restructuring things we need by then. We'll see the kind of cost reductions that are projected through that period, which are now happening.


Q: I would think that there's some frustration on your part with Rick and the other CEOs being caricatures on "Saturday Night Live." Do you regret having to be in this position, having to go to the government?

A: Certainly. I think we regret the entire situation. I regret the fact that we're in a severe recession, but we have to face it. ... There's a lot of times when you're very pleased with your face on the news and the newspaper. But that's on the upside when it's all good and sometimes you get it the other way, so it comes with the territory.


Q: There was a lot of talk in the last congressional hearing that you're just hamstrung by debt load, I think it's $44 billion plus whatever you owe on the VEBA (the voluntary employees beneficiary association that will be operated by the United Auto Workers). And that will stop you from being able to do research and development even if you get the government money and you're able to make it through the downside, you still have less to spend on R&D. How would you respond to that?

A: We have as a company made a strong commitment to new product. You've seen that with the new product that's come out. You know that we're working on a whole bunch of new vehicles including the leadership in the electric vehicle field, and we're committed to that. We understand you have to plan for a future. That's built into our plans; we're not gonna give that up. We have stated in our plan that restructuring the debt is an important part of this whole thing. So we have to deal with that the same way we have to deal with the dealers and the union. Everybody's got a problem here. And we as fiduciaries of this business have to work with all of these players to come out with a viable solution so that we can go forward as a company. But cutting back and not having any future by not having new product is certainly not the answer.


Associated Press Writer Ben Leubsdorf contributed to this report.

© 2008 The Associated Press. All rights reserved.

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