RANTS #443

April 30, 2008

Captain Kirk weighs in, and the turnaround story within the turnaround story.

By Peter M. De Lorenzo

Detroit. I have two topics this week because revolving my whole column around Captain Kirk Kerkorian seemed like a giant waste of time, so I won’t do it. Needless to say, his “M.O.” hasn’t changed one iota since he was a young businessman, some 60 years ago. It’s all about the m-o-n-e-y for Kerkorian, with the words “timing” and “opportunity” thrown in for good measure. Are we to take his expanded investment position in Ford on face value, that he’s just an enthusiastic investor who has burgeoning confidence in the crisply run Alan Mulally-driven Ford?

How about no?

Boredom had set in, apparently, for both Kerkorian and his Detroit-based bagman, Jerry York, and it was just time to start messin’ with the one member of the Detroit Three that they hadn’t messed with already. Ford doesn’t present the same outright ownership opportunity that Chrysler or GM presented, what with the Ford family controlling 40 percent of the company’s stock, but still, the Kirk and Jerry show has never been about being “passive” – not even remotely so, as a matter of fact.

They will be supportive of Mulally and his management team only as long as they see what they deem to be “acceptable” improvement. The problem with this is that Kerkorian and York’s version of acceptable, and the real-time progression of a solid turnaround plan usually have nothing in common. Let’s just say that having these two guys - Kerkorian and York - as your Cheerleaders in Chief is suspect, at best. It would be like calling those vultures circling over your head as you’re wandering around lost in a desert somewhere your “friends.”

Kerkorian is investing in Ford for one reason and one reason only, and that is to roil the stock upward – and in a big hurry – so he can reap a nice chunk of profit and go back into his cave. If he and York don’t see what they want to see, you can bet the whining by York will start in the media – which can’t seem to help but give the guy a forum – and then the agitation and harassment of Ford will really begin.

This exercise will probably be done sometime by mid-summer, and then we can all return to our regularly scheduled programming, but in the meantime we’ll have to put up with these guys again for a while.

Is any of this the least bit productive? Of course not. It’s all about “The Game” for Kerkorian. It keeps him busy and it keeps him alive, basically, and whether or not it’s good for the company in question – in this case Ford – has absolutely nothing to with it.

The SUV hangover gets U-G-L-Y.

Much has been written about the rapidly changing tastes of the American car-buying public over the last six months – as in the exodus away from big SUVs and pickups - but it was hard to anticipate just how dramatic it was going to be, until now. GM announced on Monday that it would cut production schedules at four plants - its full-size pickup truck assembly plants in Pontiac, Mich.; Flint, Mich.; and Oshawa, Ontario; and its full-size SUV assembly plant in Janesville, Wis. – to the tune of around 140,000 units, while costing 3,500 employees their jobs.

Gas prices aren’t helping, of course, but the painful reality is that a lot of American consumers who bought large SUVs at their faddish peak (and who never needed them to begin with) are now bailing out of that segment for good. GM and Ford in particular are struggling with the transition to make more cars and crossovers in order to keep these buyers from abandoning their companies completely, while their dealers are being inundated with used SUVs and big pickups that are piling up daily - and plummeting in value.

Should Detroit have anticipated this earlier? Absolutely. And now the transition is proving painful for everyone. On top of this country's dismal financial news that’s contributing to poor vehicle sales in the U.S. right now, add to it the fact that an entire segment - one that propelled Detroit profitability for years – is literally evaporating by the day.

Retooling Detroit plants to build more cars and crossovers is the turnaround story within the turnaround story in this business. The companies that have new entries either on the ground or due within the next 18 months are well-positioned for at least a shot at survival, but it’s only a shot.

Not surprisingly, the one constant in all of this turmoil, of course, is that in the midst of the constant drumbeat of bad news on top of more bad news, these companies must deliver excellent products that consumers will at least give serious consideration to, let alone buy. 

It'a amazing how it always comes down to the product, isn't it?

As always, the clock is ticking on Detroit, and it’s not getting any easier.

Thanks for listening, see you next Wednesday.