Tracinda Steps Up Pressure on GM

Kirk Kerkorian's firm calls for the automaker to slice its dividend in half and cut management payouts.
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Updated from 2:08 p.m. EST

Kirk Kerkorian's firm,

Tracinda

, called on

General Motors

(GM) - Get Report

Tuesday to pare back its dividend payments to shareholders and adopt a comprehensive "equality of sacrifice" plan to revive its business.

The firm said its adviser, Jerome York, presented a plan for GM at the Society of Automotive Analysts that included cutting the company's annual dividend by 50%. York also is seeking a "substantial" reduction in payments and salaries for the company's top brass.

"The reality is that all constituencies -- the companies themselves, their investors, their unions and employees, and indeed the communities in which they live and work -- are in this together and should therefore work together towards the best collective solution," York said in a statement. "The

United Auto Workers union will be a key partner in much of what GM must do, and we believe an 'equality of sacrifice' approach similar to what was done at Chrysler in 1980, and consistent with what

UAW President Mr.

Ron Gettelfinger recently wrote in the

Detroit News

, will be necessary."

GM, seeking to cut its skyrocketing health care and pension obligations, has been locked in negotiations with the UAW. The company made some progress in lowering its cost structure in 2005, but the union didn't give up much, pointing to GM's dividend and executive compensation plans as evidence that the company was not being entirely forthcoming about its predicament.

In response to York's proposals, GM spokeswoman Toni Simonetti said, "We were there and we listened." She says it is too early for GM to address any of the specific proposals directly, but she did note that GM's directors make announcements about the company's dividend several times a year, and its next announcement is coming soon.

"We have a comprehensive turnaround plan of our own in place that addresses cost and sales issues at GM," Simonetti said. "We're confident that our plan will work."

Kerkorian, the Vegas mogul who bought a 9.9% stake in the automaker in May with a $31-a-share tender offer, is deep in the red on his investment, with GM's shares languishing below $20. His firm has been unable to negotiate a board seat with the company for York.

York's proposed reduction to GM's $2-per-share annual dividend payments would save the company about $566 million a year, according to Tracinda. Meanwhile, the firm noted that GM's directors are paid $200,000 a year, and its top officers now collectively earn about $7 million a year.

Shares of GM shed 48% in 2005.

"GM has a mountain of liquidity on hand -- both cash and noncore assets -- that can be sold," York said. "So it has the wherewithal to fix itself."

York also said that Kerkorian is interested, at the appropriate time, in reacquiring the 12 million GM shares that he sold for tax purposes in December. He said Kerkorian also is willing, if GM shows progress on fixing itself, to buy an additional 12 million shares, which would require certain regulatory approvals.

"Given the domestic industry's current situation -- higher costs than its foreign competitors, and market-share losses to those competitors -- it is crucial that the industry pick the right fork in the road as it moves forward," York said. He said GM has to adopt a strategy that "assumes not only are better products and capacity realignment required, but all of the old ways of doing business have to be scrutinized, recognizing that some aspects of the business that were affordable a decade ago are no longer possible."