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After making a big signal of displeasure with General Motors (GM) - Get General Motors Company (GM) Report last week, Kirk Kerkorian has so far been quiet about any plans to shift gears with his investment.

And as long as the company's stock price keeps rising and its turnaround maintains its momentum, observers say he probably will sit tight.

Kerkorian's firm,

Tracinda Corp.

, reversed course Friday and said it doesn't plan to buy more shares of the automaker following the breakdown in negotiations of a potential alliance with





More importantly, Jerry York, Kerkorian's representative on the automaker's board,

stepped down in protest of the board's support for CEO Rick Wagoner's handling of the alliance talks. With shares of GM up more than 70% this year, York's misgivings about abandoning an alliance fell on deaf ears in the company's boardroom.

Now trading over $32, GM's stock is changing hands at a slight premium to the $31-a-share tender offer that Kerkorian, the billionaire Vegas mogul, used to accumulate the bulk of his 9.9% stake in the automaker back in May of 2005. The stock has led the

Dow Jones Industrial Average

in gains this year, and if the stock keeps that trend, York's resignation from the board will stand as a victory for Wagoner.

But if things turn south, Kerkorian could garner support from other shareholders to go after the CEO's scalp.

Profit Picture Important

Ultimately, Kerkorian is in this game to make money, so if the earnings are good and the stock keeps going up, he'll be happy, says David Cole, chairman of the Center for Automotive Research.

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In his resignation letter, York said that the near-term risk of bankruptcy for the ailing automaker has been diminished but the company's underlying problems have yet to be addressed. His view suggests that the company's recent success could be fleeting unless more radical changes are made.

Morningstar analyst John Novak says York has a point.

"At the end of the day, they're still free cash flow negative, they're still losing market share and they're still at a competitive disadvantage from a cost standpoint in a serious way," Novak says.

"The stock has been a good trading vehicle for people this year, but from a fundamental standpoint, things may be better than they were a year ago but there's still plenty of work ahead before you have a sustainable success story," he adds.

GM's year-over-year earnings gains, excluding charges, have pleased Wall Street in 2006, and the company is poised to post more positive results when it reports its third-quarter earnings Oct. 25.

The automaker has aggressively cut costs out of its business with one of the largest employee buyout offers in corporate history, as well as layoffs and plant closings. GM also has boosted profit margins by raising selling prices on vehicles and cutting down on low-margin fleet sales.

And despite the cash flow drain, investors have cheered the company's efforts to boost its liquidity with asset sales, like the sale of a majority stake in GMAC, its finance arm, to a private equity group.

Novak says GM probably will maintain its recent earnings momentum for the next two quarters. After that, certain one-time gains and easy comparisons to 2005 -- a disastrous year for GM -- will be used up. Then, it will be harder for the automaker to keep assuaging shareholders without improving its competitive position.

"They've probably moved about as fast as they can this year given their predicament, and sales are okay given the environment," he says. "Even management has acknowledged that they're still a long ways from a sustainable and consistent business model and they have a lot more work to do."

Management Focus

Though GM has made strides in revitalizing its business, the company stopped short of entering into a global alliance with Renault-Nissan, a move that Tracinda supported vigorously in public from the very beginning. York said on his way out that GM's board should have hired independent consultants to evaluate the deal.

"The right thing to have done here -- from a governance perspective if not a legal perspective -- would have been for the board to have hired its own independent advisers, who in turn could have designed the study process to more fully get at particularly the potential procurement savings," York said in the letter.

He said he made that view clear in a recent board meeting about the negotiations, suggesting that Wagoner had misrepresented the truth when he said GM's decision on the alliance had unanimous support from the company's board of directors.

Beverly Behan, managing director with consulting firm Hay Group and a co-author of

Building Better Boards: A Blueprint for Effective Governance, said York's proposal for independent advisers, if implemented, would have been unusual.

"A board should hire outside advisers only when they've lost confidence in management, or they're going to sell the company," says Behan. "If GM's board had taken York's advice, that would have amounted to a strong vote of no-confidence from the board against Wagoner and the management, and the board didn't want to make that vote."

Meanwhile, Tracinda's support of the alliance seemed motivated all along by a desire to undercut Wagoner's leadership in favor of Renault-Nissan's popular CEO, Carlos Ghosn. Wagoner's apparent reluctance to cut a deal looked like a desire to hold on to his job.

Now, with York off the board, speculation abounds that Tracinda will use its return to outsider status to wage a more aggressive fight against Wagoner. Tracinda's plan not to add to its stake for the time being signals that Kerkorian may wait until investors are less enamored with the company's results to make his move.

Playing the Union Card

While GM's quarterly earnings and sales results will be important factors for the stock, the other major hurdles that lie in wait for the company stem from labor relations.

GM's former subsidiary and chief parts supplier,



, is still negotiating a restructuring in bankruptcy proceedings with the United Auto Workers, and GM will negotiate its own master contract with the union next September. That process could dominate the automotive news headlines throughout 2007.

Novak points out that in his letter, York took particular care to praise the UAW's cooperation in the company's restructuring efforts. Such overtures, that seem intended to garner favor from organized labor, echo earlier criticisms that York made before he joined the company's board. He called on GM's management to adopt an attitude of "shared sacrifice" with the company's hourly workers.


Tracinda's getting ready for a fight, it would help to bring the union over to their side, considering the tough negotiations that lie ahead," Novak says.

If GM can't get out from under its cost issues and its market share continues to fall, the stock could start sliding again, and that's when Kerkorian could open fire with a proxy fight.

"They're probably formulating plans for something like that," Novak says. "They'll just wait for the right time to strike." has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from