WisBusiness: GM Shareholders Meeting Could Affect Janesville Plant

By Brian E. Clark

JANESVILLE – Business, labor and civic leaders here will be paying close attention to news coming out of the General Motors shareholders meeting that starts Tuesday in Wilmington, Delaware.

That’s because the struggling auto maker has a huge impact on Janesville and Rock County, either directly or through its suppliers employing as many as one in 12 workers, according to John Beckord, head of the economic development group Forward Janesville.

Sales of the big SUVs that the GM assembly plant makes have slumped markedly this year and the giant automaker’s credit rating was recently downgraded to “junk” status by Standard and Poor’s.

And – in what may be the wild card – billionaire investor raider Kirk Kerkorian wants to increase his GM holdings. Kerkorian has a harsh reputation and is known as an aggressive investor, said David Healy, an automotive analyst with Burnham Securities.

On Wednesday, Kerkorian said he was prepared to take an 8.8 percent stake in GM. His Tracinda Corp. already has 22 million shares, while his tender offer was for 28 million more.

The automaker’s depressed shares rallied Wednesday to close at $32.80, up $5.03, or nearly $2 above Kerkorian’s offer, as investors speculated a higher bid may emerge. It was the largest gain for GM shares in more than 40 years.

If Kerkorian buys the stock he is seeking, he could put heat on GM to accelerate possible restructuring moves that include U.S. plant closings and negotiating health care concessions from the United Auto Workers union.

A recent cover story in Business Week Magazine said that even prior to Kerkorian’s push, rumors were rife in Detroit that GM might close one of its full-size pickup or SUV plants, either in Janesville or Pontiac, Mich.

The article also detailed a litany of other problems facing GM Chairman Rick Wagoner, who may lose his job if he can’t turn around a company that is faced with rising competition, mounting losses, shrinking market share and soaring health care and pension costs. In the first quarter of this year, GM reported a whopping loss of $1.1 billion. During the past five years, the price of GM shares have fallen from $94 to $33 on Wednesday, up from a low of $25 on April 19.

John Dohner, shop committee chairman of United Auto Workers Local 95, said the 3,600 union members at the Janesville plant are aware of the problems facing their employer.

But he said they are confident that a new line of SUVs that the Janesville plant will start producing later this year will do well.

“We’re optimistic,” he said, noting that that GM is spending $175 million to retool the factory to produce the next generation of SUVs.

“They will be more fuel efficient and that’s important with the high cost of gas,” he said. “We’re hopeful. We’re right on schedule with the retooling and should have salable units at the beginning of next year.”

Still, Dohner said workers are worried about Kerkorian, the former Las Vegas casino entrepreneur who holds nearly $700 million in GM stock. If he buys the additional shares, his holdings in the company could rise to more than $1.4 billion.

“Everyone is pretty much wait-and-see,” he said “He’s famous for making money at other people’s expense, but like I said, we’ll just have to see what shakes out,” he said.

Dohner said he does not believe Kerkorian has the power to force GM to close a plant.

“But he can scare people,” he said. “Who knows what might come out of the shareholders’ meeting? It’s really hard to say.”

GM officials declined to be interviewed for this story – other than to say that they expect the new line of SUV’s to sell well.

But Healy, of Burnham Securities, said GM’s travails are no secret.

“And everyone knows that SUV sales have collapsed since gas prices went up,” he said. “Add to that the models were long in the tooth.

“Still, I would predict that Janesville’s plant will be around for some time, but with lower volumes,” he said.

However, Healy said there may be some theatrics coming out of the shareholders’ meeting.

“The question is how much does Kerkorian want to mess around with the company, with GM management or even try to do a takeover?” he said.

“Then again, he may want to stir up the pot and make some money out of it,” he said. “It could be interesting.”

Beckord, of Forward Janesville, said he expects GM to pare down the number of models and brands it makes in coming years.

“They have to decide what is sustainable for the long term,” he said, noting that Toyota spends nearly twice as much money to develop half the vehicles.

Beckord said he hopes the new SUVs do as well as the rejuvenated Cadillac models.

“SUVs need a new generation of technology and style and other features,” he said. “This plant is retooling for a whole new product. The new architecture will be important.”

Still, he said, rising gas prices – which have recently cooled – will have an impact.

“You could have the greatest looking and performing SUV, but if gas costs $3 a gallon or more, who knows?” he said. ” There is still a market for full-sized vehicles. Americans have loved them for a long time. I don’t think that is going to end.”

With three plants – including one in Mexico – building SUVs, Beckord said something may have to give. He said the Janesville plant made 230,000 vehicles last year.

Those SUVs have been very profitable, selling for $40,000-plus, but there is too much volume,” he said.

Beckord said no one in Janesville is ready to conduct “fire drills” to deal with the possible closure of the GM plant, and he said the plant seems to be well-positrioned for the future

“Sure, people are a little nervous. But we are not ready to talk about a closure. That would be very premature.

“Time and the market will tell,” he said. “But we should be good in Janesville for some time to come.”

Doug Venable, Janesville’s economic development director, said the city has weathered other potential GM plant closing concerns before.

“I think people here are always, to a degree, worried about the plant shutting down. But I don’t think it’s imminent,” said Venable. He has worked in Janesville for more than two decades and has seen employment at the GM plant as high as 6,000. Now there are nearly 4,000 workers at the assembly plant and two other GM suppliers with another 1,000 workers. (GM has 321,000 employees around the globe and 422,000 U.S. retirees.)

Though Rock County’s economy is diversified, with about 80,000 workers who earn $3.5 billion a year, losing those GM jobs would be a major blow, he said.

Venable said he could not comment on moves that Kerkorian might make to take over GM.

“I’m not familiar with him,” he said. “To me, having GM invest $175 million in the plant says a lot about the company’s commitment to Janesville.” he said.

“We went through this in the ’80s before they spent nearly $400 million to adapt the plant for trucks, which made people here pretty happy,” he said.

“Then around 1991, they retooled to start making SUVs. They did it again in 1998. Then fast forward to 2004, people breathed a sigh of relief when GM said it would do it again.

“I would hope that we are safe for another four to seven years, as long as SUVs continue to sell well and gas stays at a reasonable price,” he said.

“To me, it’s the cost of gas that is the wild card.”