Saturday, October 07, 2006

Tensions at GM again

WSJ Premium

Billionaire investor, Kirk Kerkorian's designate on GM Board, Jeremy York (former Chrysler Corp. and IBM Corp. turnaround specialist) quit from the Board after a failed push to get the company to partner with Nissan and Renault, which came to a halt earlier this week. He acknowledged that the auto giant had made progress to reduce risks of bankruptcy, but at the same time he had grave reservations about the ability of the company's current business model and to successfully compete in the American market place.

Mr. Kirkorian's investment vehicle, Tracinda Corp., indicated serious doubts of whether he will retain his massive 9.9% investment in GM, which amounts to $1.6 billion. Investors pushed GM's stock down by 6.3% to $31.05 yesterday, with volumes nearly 8 times the norm. A fall of this magnitude adds around $120 million in losses to Mr. Kerkorian's investment.

Mr. York's exit exposed the long-running tensions in the GM Boardroom, and this can be a short-term success for CEO Rick Wagoner. But now, he faces the long-term challenges of overcoming GM's competitve ills and threats.

A very classical example of Principal-Agency conflicts!



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