Brokers, Pontiac work to overcome Silverdome's losing record | MLive.com

Brokers, Pontiac work to overcome Silverdome's losing record | MLive.com
 Published: Thursday, May 24, 2007, 8:38 AM     Updated: Thursday, May 24, 2007, 10:47 AM
By Tim Agne 
 
"...But bringing a buyer to the table may be the easiest part of trying to sell the former home of the Detroit Lions. The seller, the City of Pontiac, is notorious for slowing, stalling or killing deals. Just two years ago - before the property was formally transferred from a stadium authority to the city - Etkin Equities and Schostak Brothers/Danou Enterprises made $20 million offers, but the developers walked away as city leaders squabbled."

Nonetheless, the brokers are optimistic - and ready to go.

"We're taking all offers to the city. Our feeling is they are open to anything," says Myrna Burroughs of CB Richard Ellis. "Anything but a casino."

More potential than Lions?
CB Richard Ellis has sent fliers to some 11,000 potential land buyers, Burroughs says, and is expecting city approval soon for its marketing website and the final version of the request for proposals.

Are GM and Ford Playing High-Stakes Poker Disguised as Delphi and Visteon?

By Fred Leeb

 

Have GM and Ford developed a grand strategy designed to flush out their high union cost structures so they can be competitive again in North America?   Are GM and Ford, disguised as Delphi and Visteon, sitting at the poker table with the unions to accomplish this?  Or, are many pundits correct who see Delphi and Visteon merely as independent companies suffering from the continuing pressures of the extremely competitive automotive industry? 

The purpose of this article is to begin to provide an alternate view on the following issues:

1.      Do GM and Ford want to resolve their own labor cost issues by working them out first at Delphi and Visteon?

2.      Do GM and Ford want to protect their own images as caring members of the community from the screaming and finger-pointing they expect to occur prior to a labor settlement with the unions (by keeping the media spotlights at Delphi and Visteon)?

3.      Will manipulating Delphi and Visteon to do their bidding enable GM and Ford to protect their own cash hordes and other assets from the union negotiators? 

4.      Are GM and Ford using Delphi and Visteon to bring employee costs to a crisis now so that they can replicate the newly competitive cost structures in their own companies before it is too late?

In other words, is this really a game of high-stakes poker where GM and Ford are sitting at the table dressed up as Delphi and Visteon betting with the stockholders money of their “independent” suppliers rather than their own? 

The facts indicate that both GM and Ford (at roughly the same time in the 1990’s) saw that they were losing market share in North America and that their labor costs (current wages, benefits, pensions and retiree health care) were significantly higher than their competitors.  In addition, the UAW had conducted work stoppages in June/July 1998 in Flint that had an unfavorable after-tax impact on GM of about $2.0 billion.  In the 1990’s, GM and Ford’s own parts operations were clearly the most obvious targets for both cost-cutting and for out-sourcing to other low-cost manufacturers.  In addition, these parts operations were perfect candidates for a “grand strategy” because they had large numbers of union employees.

It is quite possible that GM and Ford’s turnaround experts not only identified the critical need for labor cost reductions but they also developed a process as to how it could be accomplished.  They could have realized that they needed a dramatic and fundamental change in their cost structure to again approach future profitability.  It is likely that they knew that the more fundamental the change, the greater is the opportunity for improvement.  With fundamental change, however, comes great risk.  They could well have thought that they could accomplish almost as much (and insulate themselves from most of the risk) by taking bold action to initiate and manage the process elsewhere first (Delphi and Visteon), the grand strategy. 

By using Delphi and Visteon, GM and Ford also could develop a clear-cut economic case where there would be only one solution—cutting union costs dramatically.  They would not want to negotiate with the union using their own complex financial situations to justify their maneuvers.  GM and Ford, in this manner, also could protect their huge cash hordes.  As of September 30, 2005, GM had cash and short term investments of $35.1 billion and Ford had $36.8 billion. 

GM and Ford established separate corporate entities (Delphi and Visteon) by spin-offs of these companies to their stockholders.  Delphi was spun off from GM in 1999; Visteon was spun off from Ford in 2000.  GM and Ford, thereby, not only could accomplish the goals discussed above but also immediately became free to buy parts from other lower cost global suppliers and reduce their own exposure to the union’s counterattacks.  For example, a “joint Ford-Visteon competitive pricing study intended to make Visteon’s prices competitive with third party competitors” enabled Ford to cut by 5% the prices it paid to Visteon for almost all parts just prior to Visteon’s spin off. 

Because of the spin-offs, however, GM and Ford could no longer control the stock of either Delphi or Visteon. But GM and Ford still had their own former executives running these new companies.  For example, at December 31, 2000, five of the top seven Visteon executives were previously top Ford executives.  In addition, GM and Ford still could control Delphi and Visteon’s profitability through their purchasing power.  This is because the majority of the parts produced by Delphi and Visteon are sold to GM and Ford.   For example, GM’s Supply Agreement with Delphi provided that GM has the right to move its business with Delphi to other suppliers in the event that Delphi is not competitive.

Therefore, by working through the process using Delphi and Visteon, GM and Ford could distance themselves and still bring labor cost issues to a boil.  The impact on Delphi and Visteon has been severe.  Since mid-2001, Delphi’s stock price has dropped by over 90% and Visteon’s has dropped by about 50%.   Delphi has lost about $3.4 billion since it was spun off from GM in 1999 through June 2005.  Delphi also filed for bankruptcy on October 8, 2005.  From October 8, 2005 to November 30, 2005, Delphi lost $127 million and incurred $23 million in professional fees.  Visteon has lost about $4.1 billion since it was spun off from Ford in 2000 through September 2005.  These losses have impacted Delphi and Visteon’s shareholders, not GM and Ford.  In fact, a case probably could be made that GM and Ford benefited from Delphi and Visteon’s poor financial results.  GM and Ford paid lower prices and reduced the volume of business that they previously had with Delphi and Visteon, as they increased their sourcing to other cheaper global suppliers.  Both Delphi and Visteon had been profitable prior to the spin-offs.

In the meantime, GM and Ford have continued to say that they are good negotiating partners with their unions.  GM and Ford also have agreed to maintain many of the benefits for employees transferred to Delphi and Visteon.  If this is put into perspective, however, these costs could be a very small price to pay.  If Delphi and Visteon reach an agreement with their unions and set a precedent of dramatically lower employee costs, there will be a working model for both GM and Ford to copy in the future (with much larger numbers of union employees and much greater potential savings).  Delphi worldwide employment at December 31, 1998 was approximately 198,000 (33,000 salaried and 165,000 hourly), 33% of GM’s total worldwide employment.  In 2005, Delphi claimed that it paid its workers about $65/hour including benefits, more than double the amount paid by the competition.  Delphi has taken advantage of its position in bankruptcy to act very aggressively.  For example, Delphi proposed cutting hourly base wages from $27 to $12.50 (the original demand was $9.50) but is now seeking a negotiated settlement, with GM’s assistance. 

Is there a grand strategy to dramatically reduce union costs not only for Delphi and Visteon but more importantly, for GM and Ford too?  Have GM and Ford set processes in place causing Delphi and Visteon to do their bidding?  Did GM and Ford turn the screws on Delphi and Visteon through tough purchasing tactics to force the issue because they knew they couldn’t wait any longer?  Did GM and Ford have to precipitate crises with Delphi and Visteon now so that they could move on to breaking the union at their own companies before it is too late? 

We are not sure yet of the answers to these and many other questions.  We can only analyze the facts and speculate on managements’ strategies.  We will wait and see how the hands play out.

Highlights of the events leading up to today’s poker game:

GM/Delphi

• GM reported that Delphi’s net income had dropped from a profit of $853 million in 1996 to a loss of $93 million in 1998 (the year before the spin-off). 
• The UAW conducted work stoppages in June/July 1998 in Flint that had an unfavorable after-tax impact on GM of about $2.0 billion.
• GM’s “competitiveness studies” caused GM to record pre-tax charges against income for Delphi of $310 million in 1998 and $1.4 billion in 1997.  GM’s Supply Agreement with Delphi provided that GM has the right to move its business with Delphi to other suppliers in the event that Delphi is not competitive.
• Delphi worldwide employment at December 31, 1998 was approximately 198,000 (33,000 salaried and 165,000 hourly), 33% of GM’s total worldwide employment.  About 93% of the hourly employees were represented by unions (43,000 of these were in the US and represented by the UAW).
• Delphi management personnel were predominantly long-term GM executives.
• Delphi (conveniently for GM) embraced the strategy of reducing its reliance on GM business because, now that it was independent, it must have a more diverse customer portfolio.  GM was pleased to source parts from other suppliers.

Ford/Visteon

• In 1998, Visteon was almost totally reliant on Ford since 88% of Visteon revenue came from Ford; 81% of Visteon’s business was in North America.
• A “joint Ford-Visteon competitive pricing study intended to make Visteon’s prices competitive with third party competitors” caused Ford to cut by 5% the prices it paid to Visteon for almost all parts just prior to Visteon’s spin off.  In 2000, Visteon net income fell to $270 million (partially due to this pricing adjustment). 
• This price decrease in 2000 dramatically changed the Ford/Visteon relationship.  Previously, in 1999, Visteon’s net income had increased to $735 million from $511 million in 1997.  Visteon estimated that, had the 5% price reduction effective January 1, 2000 been in effect for 1999, sales [and presumably profits] in 1999 would have decreased by $690 million.
• Ford retained liability for all product liability, warranty or recall claims that involve parts made or sold by Ford for 1996 or earlier model year Ford vehicles.  Visteon became responsible for these types of claims relating to 1997 or later model year Ford vehicles.
• At December 31, 2000, Visteon had approximately 18,000 salaried and 64,000 hourly workers.  Of the hourly workforce, approximately 24,000 were Ford employees in the US covered under the Ford UAW Master Agreement.  At December 31, 1999 (prior to the spin off of Visteon), Ford had a total of 364,550 employees.
• At December 31, 2000, five of the top seven Visteon executives were previously top Ford executives.

In the past 30 years, I have learned a number of basic lessons while working with many large and small, successful and troubled organizations. I believe these lessons often can make the fundamental difference between business success and failure. Please read the following and pass it along to others who may find it helpful.

How Do You Cut Costs After You Have Cut to the Bone? The Top 30 Ways to Reduce Expense By Fred Leeb   Many companies today are facing extremely tough financial and operating conditions that are only likely to get more difficult. Even more resources will be required in the future to compete for customers, employees, vendors, joint venture partners, business partners, investors, lenders, publicity, and on and on. The purpose of this article is to provide assistance for companies that already have gone through their cost structure and have cut all the fat out but recognize they must find a way to do much more to enable them to grow and be successful.  The first step is to recognize that further significant cost cuts demand strategic thinking, teamwork, and a sound business plan, the same process required for a growth plan. Otherwise, further cuts will weaken the organization and are very likely to lead to just more cost cutting later on.  Cost cuts should be a means of strengthening the organization for the future, not just buying time. An experienced consultant can provide the valuable perspectives to help make prudent decisions, the manpower to get the job done with a sense of urgency at a critical juncture, the new ideas and creativity from understanding how many other organizations have faced similar issues and the objectivity needed to counter entrenched vested interests.  In the list below, the most successful cost reduction methods are listed first and the least preferred (but the most often used methods) are listed last: Refocus and reduce cost through strategic planning (the most successful method for cost reduction): rank each department or profit center in terms of its current and longer term value (basically, calculate the program’s future return on investment); cut the lowest-ranked areas. Increase quality to reduce rework, scrap and administrative cost Take a fresh look at the entire expense structure by utilizing zero base budgeting and/or activity based accounting. Tap into new ideas from employees--give them an opportunity to provide information without fear of being identified, patronized, or criticized--have a consultant ask for their ideas respectfully and confidentially. Take advantage of your difficult financial circumstances to renegotiate leases or debt service payments (reduce or defer payments, extend terms, return equipment, request interest-only payments, etc.). Negotiate feasible monthly payment terms with vendors to eliminate interest and penalties on past due amounts (as part of a sound overall business plan) Prepare breakeven analyses, take a hard look at all opportunities—revenue (volume, price and mix), variable cost and fixed cost. Develop a longer term view by preparing contingency plans (e.g., by developing alternative scenarios of 5%, 10% and 15% cuts in operations). Pay down debt or reduce lease costs by selling off real estate, equipment and/or other underutilized assets. Gain efficiencies and economies of scale: eliminate excess capacity and duplication of services, expand through vertical or horizontal integration to gain synergies, and gain access to new geographic areas. Bring more work in- house as opposed to utilizing more expensive outside vendors or outsource more work to less expensive outside vendors, depending on the circumstances. Centralize or decentralize overhead functions, depending on the circumstances. Combine with other organizations to pool purchasing power and negotiate lower costs from suppliers. Reduce “fixed costs” by utilizing the advice of outside experts in areas such as health insurance, phones, office rent, property tax, vehicles, information technology, outside accounting fees and janitorial fees. Obtain better computer systems to reduce the personnel cost of financial and operational reporting. Target marketing and advertising dollars most efficiently by preparing demographic analyses. Keep personnel costs in line with the competition by utilizing salary, wage and benefit analyses available from outside sources. Generate additional value and reduce expense by implementing incentive compensation systems, instead of using flat salaries and wages, when appropriate. Reduce administrative cost by listing all reports and then eliminating all those that are unnecessary. Reduce significant costs by tracking (e.g., posting graphs and monitoring) key operating statistics as appropriate (on a daily, weekly or monthly basis). Incorporate the best practices of competitors and other similar organizations to reduce cost. Reduce managerial personnel cost by expanding the number of direct reports per manager (flattening the organization). Reduce the number and length of business meetings and the number of attendees at each meeting. Require all employees to report how they utilized their time (the tasks they completed), on an hourly basis, for one week each quarter. Least Preferred Cost Reduction Methods Increase employee oversight and discipline by requiring all employees to utilize a time clock. Freeze salaries, decrease employee benefits, increase overtime for exempt employees, postpone hiring, increase reliance on contract employees and part-time staff who are not provided with benefits. Cut all capital expenditures, repairs and maintenance, employee training, new programming, marketing and consulting fees. Require the managers of all departments to devise their own means to reduce expense by a certain percentage or dollar amount. Require that all expenses be reduced by a specific percentage across the board. Wait for a miracle The Bottom Line As stated previously, cost cuts should be a means of strengthening the company for the future. An experienced consultant can provide: Valuable perspectives to help make a prudent decision, Manpower to get the job done with a sense of urgency at a critical juncture , New ideas and creativity from understanding how other organizations have faced similar issues, Objectivity needed to get past roadblocks and vested interests and gain the most value for the organization as a whole, and the Confidentiality for your employees so they can be forthcoming with many new ideas and procedures without fear of criticism or retribution. The best leaders are those constantly looking for good ideas everywhere and learning from others.

Do You Really Want to Do Everything Yourself

By Fred Leeb

As the head of the organization, you have proven the capability to solve whatever problem comes up.  You have risen up through the ranks by making your boss look good, by getting the most out of your teammates and by always looking for new ideas.  On your way up, you learned a lot from others because you recognized they had good ideas of their own and lots of experience for you to draw upon.  You even complained once in a while about how you did all the work while your boss just had to sit back and watch you grow.  In fact, your only wish was for your boss to stay out of your way.

Now that you are in charge, why does everything seem different?

 

• Why are you working more hours than any of your employees? 
• Why must you try to solve everyone’s problems for them? 
• Why are you the only one to understand the urgency of the situation? 
• Why are you the only one living up to the commitments you have made?
• Why must you be everywhere at once? 
• Why must you rely only on yourself to solve difficult problems?
• Why is the entire burden of success on your shoulders?

The answer is that you have trained your employees to rely on you.  They are watching you very carefully and are internalizing your actions.  If you don’t care about the team, they won’t care about the team.  If you don’t listen to your advisors, they won’t listen to their supervisors.  If they think that you only want to solve a problem your way, they won’t even try to do it differently and will wait for you to step in and save the day.  Even worse, many employees may actually be behaving counterproductively.  They may be vocally resentful or pulling against each other.  Since you are the leader, nobody but you can change the personality of the organization that you have established.  If you allow this behavior to go unchecked it will result in tremendous costs to your organization and much greater risks in the future. 

In addition, if you are taking on the most difficult parts of your employees’ jobs, you might as well also cut the number of your employees and/or reduce their pay.  If you do that, however, you should expect that your profitability will decline.  You know that if you really could do their jobs yourself you wouldn’t have hired them in the first place. 

Instead, shouldn’t you encourage them to suggest new ideas, take on new commitments, and make their own ideas work so they can then gain the confidence they need to take on even more responsibility?  Won’t your organization be much stronger when everyone is contributing and you are sharing the burden with them rather than keeping it all on your own shoulders?  Your employees are relying on you to help them achieve their greatest potential, not to do their job.

You may be saying, “OK, OK, I know that but it’s much easier said than done.”  That’s exactly right.  That’s why you, as head of the organization, should be asking, “What will be my ‘bang for the buck’ and who should I rely on to help me achieve success?”  You are actually the most important link in the chain for the very reason that you are the head of the organization.  Without your effective leadership, it is almost impossible for your employees to make the organization successful.  In fact, the worst case scenario occurs when the president is the organization’s biggest enemy, he/she doesn’t even realize it, and there is no other catalyst for change.  With your effective leadership, however, your organization can achieve greatness.

But who can you rely on for new ideas and to prevent stagnation?  Fortunately, you already have invested in a circle of professionals—your banker, attorney, accountant and business consultant--who are now ready and able to give you tremendous value at relatively low cost.  This is because they already have worked on your transactions, business issues and financials.  Don’t let this knowledge go to waste.  They already know:

·         The additional perspectives you need to both stimulate change and make prudent decisions

·         The resources you have available and your operating constraints

·         What many other organizations have done to be successful

·         How to avoid the many pitfalls experienced by others

·         The personalities of your leaders and the history of your organization

The best leaders are those constantly looking for good ideas everywhere and learning from others, just like you did when you were going up the ranks. 

The Bottom Line

A well-functioning team almost always beats the individual player.  The team, however, is almost totally dependent on its leader.  The best leaders stay the best by utilizing their own team of professionals, consisting of their banker, attorney, accountant and business consultant, as tools to help them be successful.  Often, these professionals can be used very effectively at relatively low cost because they already know about the unique aspects of your business.  Their knowledge is from working through past transactions, accounting reviews and business analyses.  Your organization is depending on you to utilize these valuable assets (that you already have paid for) to make the team successful.   The return will be tremendous.