By William J.

Holstein

Who is to blame for General Motors' bankruptcy?

First of all, management. For most of its existence, GM was not really a centrally unified
company in the modern sense. Founder Billy Durant smashed together different companies—
Chevrolet, Pontiac, Buick, Cadillac—and allowed them to compete with each other with only the
thinnest level of oversight. Alfred P. Sloan, who took over the company in the 1920s, imposed a
measure of discipline on these rival fiefdoms by creating more financial controls and a more
rational positioning of each brand, with Chevrolet being the car for the masses and Cadillac being
the car of the elite. But the company was still very decentralized.

Following World War II, this lumbering GM dominated the American automotive landscape,
reaching 50.7% of the market in 1962. It didn't matter if GM was late to market with a feature or
a design because "we had such enormous power that we could always steamroller everybody
else," recalls Bob Lutz, the just retired product development chief who first joined GM in 1963.

Not Ready for Toyota

Then there was labor, and management's decision over the decades to grant the United Auto
Workers higher wages, medical benefits, and pensions with each contract negotiation. This
helped to elevate the standard of living for many blue-collar Americans, but health-care costs
would emerge as a major burden on GM, as would a confrontational standoff between
management and labor.

Then there was overseas competition. GM simply was not ready to respond to Toyota Motor and
other Japanese manufacturers when they began to gain serious ground in the early 1980s. Toyota,
in particular, had developed a lean manufacturing system that was completely different from the
mass-assembly-line techniques GM was still using, many decades after Henry Ford perfected them.
GM's fractured structure meant that each division had its own manufacturing processes, its own
parts, its own engineering, and its own stamping plants.

Hungry for jobs, U.S. states began to encourage Japanese manufacturers to locate plants, or so-
called transplants, in their states. The Big Three figured that would saddle the Japanese with the
same labor costs and the same labor problems they had. But they were wrong. The Japanese
located in mostly southern and border states that were solidly anti-union. They hired younger,
less expensive workers, and they created an entirely new relationship between management and
labor. This led to an entirely new auto industry. The net effect was to rachet up the competitive
pressures on Detroit, not ease them.

Other BusinessWeek stories

 India: Worries grow about Obama outsourcing policies
 Tighter US oversight comes to H-1B visa program
 Microsoft takes aim at Apple in touch computing
 Factory Slump Puts China on Verge of 'Recession'
Government Wasn't an Issue

But GM had to respond to the Japanese challenge without the help of the federal government.
The Clinton Administration, as many before it, simply could not figure out how to force the
Japanese to open their auto market, so in 1995 after a bout of highly publicized negotiations, it
declared victory, even in the obvious face of failure. And the Clinton Administration was also
unable to address the absence of a national health-care system. These two failures were huge,
seen in retrospect.

DETROIT: General Motors said on Tuesday that it had entered into a memorandum of
understanding to sell its Hummer brand, but didn't name the buyer

or say how much money it would get for the all-SUV line.

GM, which filed for bankruptcy on Monday, said the sale was is set to close by the third quarter
of this year and should secure more than 3,000 jobs in manufacturing, engineering and at
Hummer dealerships around the United States.

The transaction includes plans by the unnamed investor to aggressively fund future Hummer
product programs, according to the automaker.

Under the proposed deal, Hummer will continue to contract vehicle manufacturing and business
services from GM during a defined transitional time period.

Also, GM's Shreveport Assembly plant would continue to contract assemble the H3 and H3T
through at least 2010.

GM did not reveal other details of the sale.

The automaker has been reviewing options for the past year for the gas-guzzling brand.

GM sold about 27,485 Hummers in the United States in 2008, down 51 percent from a year
earlier. Hummer SUVs starts at roughly $31,000 and go up to nearly $72,000 with options.

In early April, sources told Reuters that three bidders were in the running for Hummer, and that
none of the bidders are automakers.

One bidder is from the United States and the other two are from overseas, the sources had said,
adding that the bidders include private equity and wealthy individuals.

Click here to comment on this story.

Room to improve Bharti deal: MTN top shareholder
2 Jun 2009, 1840 hrs IST, REUTERS
Print EMail Discuss Share Save Comment Text:

JOHANNESBURG: South African mobile group MTN's biggest shareholder supports revived
merger talks with Bharti Airtel in principle but believes there

is "room for improvement" on the price.

Brian Molefe, chief executive of South Africa's state pension fund Public Investment
Corporation, told Reuters the fund was still undecided on whether to vote for an initial proposed
$23 billion cash and share swap with Bharti.

He said in a phone interview that the PIC, which owns 13.5 percent of MTN according to the
company's 2008 annual report and is its biggest shareholder, "appreciated MTN's attempt to
diversify its revenue" but said the details still had to be "bedded down".

Two of the main issues that would determine whether it supports a deal are the price -- which
some MTN investors say is too low -- and the issue of how much influence over a merged entity
MTN would retain.

"Because of the strategic imperative, yes we will support the deal, but it depends on how they
are going to negotiate, how the final details are going to look," Molefe said.

"I would say there is room for improvement on the price."

MTN shares extended gains after the comments, trading 2.75 percent higher at 123.30 rand by
1206 GMT, still well below the 132-134 rand price tag which analysts say the complex deal
gives MTN shares.

Telecom daredevil Bharti hits a six in SA

31 May 2009, 0932 hrs IST, Harsimran Singh & Mansi Tiwari Somvanshi, ET Bureau

Print EMail Discuss Share Save Comment Single page view Text:

While the Deccan Chargers and Delhi Daredevils were slugging it out with square cuts and off-
spin deliveries, at The Wanderers in Johannesburg, some
miles away Delhi’s telecom daredevil Bharti Airtel was quietly spinning a deal with South
Africa’s largest mobile operator MTN.

In the yet to be concluded talks, the Asian and African telecom giants are thinking of a cross-
border merger which would create the fourth largest telecom major in the world, in terms of
market capitalization.

At 100 million subscribers, each, the merger would make a transnational telecom giant with
revenues of over $23 billion.

On one hand, it will herald a new era of Indian telecom players venturing abroad in large
markets like Africa and Middle East, on the other it will add another global telecom player to the
list of those queuing up to enter India with its large (over 400 million subscribers) telecom
market. Players like Batelco, Etisalat, France Telecom, Orascom - which are active in regions
like Egypt, Niger, Madagascar, and Kenya - have already entered India through holdings in
different companies.

Bharti had earlier participated in auctions for bidding of telecom licences in countries such as
Kenya, but eventually lost out to global competition. Earlier, it was in talks with the Gabonese
government to acquire a stake in the country’s national operator.

In an email response, Bharti said that there will be no brand dilution of either Bharti or MTN.
“Bharti would be the primary vehicle for both Bharti and MTN to pursue further expansion in
India and Asia while MTN would be the primary vehicle for both Bharti and MTN to pursue
further expansion in Africa and the Middle East,” a company spokesperson added.

For Bharti, the new merged entity will garner higher revenues. Currently the South African and
Nigerian markets - where MTN is active enjoy average revenues per user (ARPUs) of $23 and
$15.6 - respectively. On the other hand, the average of ARPU of Bharti Airtel, which operates in
India and Sri Lanka, is about $4.

For Bharti, the merger will mean an access to 21 new countries, in Africa and Middle East,
where Bharti would have found going alone a challenge. “Bharti needs to grow further. ARPUs
are falling and the great Indian story will be over in a few years,” says Ashish Kapoor, CEO of
Invest Shoppe, an investment advisory firm. “This deal will ensure Bharti’s entry into the
African and middle East market which is growing at the moment. There will be a few
challenges, but if Bharti overcomes those, it can repeat the Indian success story in Africa as
well,” he adds.

Meanwhile, MTN currently divides its operation into three major regions, all of which are
among the fastest growing: South and East Africa (SEA), West and Central Africa (WECA) and
Middle East and North America (MENA).

According to an Angel Broking report, for 19 out of the 21 markets in which MTN operates, the
ARPUs are $12.1, compared to Bharti’s $4. And after India, it’s Africa which is the world’s
most underpenetrated telecom market with an average teledensity less than 2%.

Still, there are concerns around integration. Says Gartner’s principal research analyst Kamlesh
Bhatia: “Cultural differences in the two companies

will play a big role in the integration. Otherwise, Africa and India are both similar markets with
larger pre-paid base, which is the similarity between the profiles of two operators.”

According to scheme of arrangement, Bharti would acquire a 49% shareholding in MTN and, in
turn, MTN and its shareholders would acquire an approximate 36% economic interest in Bharti, of
which 25% would be held by MTN with the remainder held directly by MTN shareholders. The
‘economic interest’ pertains to Bharti’s plans of issuing new global depository receipts (GDRs)
on the Johannesburg Stock Exchange, which MTN would subsequently acquire. Bharti Telecom
will continue to be the largest shareholder in Bharti and together with MTN and SingTel shall
have a majority economic interest in Bharti.

The renewed interest by Bharti this year is also a fall out of the slowdown. According to an ET
report, if the Bharti MTN deal, been fructified early last year, the Bharti would have paid almost
$7-8 billion, for a 40% stake in MTN. In comparison, Bharti will have to now raise only about
$4 billion to fund the deal.

Another challenge, to the deal is the opposition by minority shareholders in MTN. According to
reports, about four minority shareholders of the top 25 shareholders in MTN, are likely to oppose
the deal. Then there is a backlash from the MTN workers union COSATU which has
apprehensions over likely job cuts in the merged entity.

Another temporary hiccup is the volatility in the Bharti share which fell about 11% last Tuesday
from last week’s closing on fears of dilution of earnings per share(EPS). Analysts feel this will
come down. “Though the share will be a bit volatile right now, but in the longer run it’s a good
bet,” says Harit Shah, analyst at Angel Broking. From Sebi issues to FDI regulations, whatever
be the challenge, if the Bharti-MTN deal goes through by July 31, it will definitely herald a new
era in Indian telecom.

GM reaches deal to sell Hummer SUV brand

2 Jun 2009, 1755 hrs IST, REUTERS

Print EMail Discuss Share Save Comment Text:

DETROIT: General Motors said on Tuesday that it had entered into a memorandum of
understanding to sell its Hummer brand, but didn't name the buyer

or say how much money it would get for the all-SUV line.

GM, which filed for bankruptcy on Monday, said the sale was is set to close by the third quarter
of this year and should secure more than 3,000 jobs in manufacturing, engineering and at
Hummer dealerships around the United States.

The transaction includes plans by the unnamed investor to aggressively fund future Hummer
product programs, according to the automaker.

Under the proposed deal, Hummer will continue to contract vehicle manufacturing and business
services from GM during a defined transitional time period.

Also, GM's Shreveport Assembly plant would continue to contract assemble the H3 and H3T
through at least 2010.

GM did not reveal other details of the sale.

The automaker has been reviewing options for the past year for the gas-guzzling brand.

GM sold about 27,485 Hummers in the United States in 2008, down 51 percent from a year
earlier. Hummer SUVs starts at roughly $31,000 and go up to nearly $72,000 with options.

In early April, sources told Reuters that three bidders were in the running for Hummer, and that
none of the bidders are automakers.
One bidder is from the United States and the other two are from overseas, the sources had said,
adding that the bidders include private equity and wealthy individuals.

WASHINGTON/CHICAGO: U.S. President Barack Obama may find it tough keeping a pledge not
to meddle in the management of General Motors Corp once the government takes majority
ownership of the giant automaker.
The White House has put a priority on encouraging environmentally friendly technology. It could
be tempted to weigh in on issues such as the mix of vehicles.
And lawmakers -- some of whom already have spoken out against a GM proposal to shift some
production overseas -- may insist on a voice on everything from the location of plant closures to
the pay scales of top executives.
"We're already seeing them force out the CEO, restructure the board and talking about the right
kind of cars for them to build," said Douglas Holtz-Eakin, who was a top policy aide to former
Republican presidential candidate Senator John McCain.
He was referring to the decision to pressure Rick Wagoner to step down as GM's chairman and
chief executive.
"I don't know where that ends and I don't know how you easily end it," said Holtz-Eakin, now a
private consultant.
The 100-year-old automaker, once the world's largest, filed for bankruptcy protection to begin
what the Obama administration hopes will be a fast-track restructuring.
The slimmed-down company that will emerge is expected to be 60 percent-owned by the U.S.
government, which is giving GM a $30 billion cash infusion. The Canadian government and
Ontario will take a 12 percent stake.
"We are acting as reluctant shareholders, because that is the only way to help GM succeed,"
Obama said. "What I have no interest in doing is running GM."

SAFEGUARDS IN PLACE
The Obama administration also said it had created safeguards to prevent interference, including
prohibiting government officials from sitting on the firm's board or working for firms in which
the automaker invests.
U.S. officials, who briefed reporters on the details of the GM restructuring on Sunday night,
likened the government's ownership role to that of Fidelity Investments, a mutual fund giant that
often holds large amounts of shares in other companies but does not seek to manage them.
Officials held a separate conference call with lawmakers to make it clear they wanted to draw
lines and not allow political interference on issues like shutting plants.
The administration wants to balance two main aims, said Gene Sperling, counselor to U.S.
Treasury Secretary Timothy Geithner.
It wants to make sure there is a strong board in place "and a strategy for viability" but "that must
be combined with an equally strong commitment to stay out of even controversial day-by-day
business decisions," Sperling said.
Republicans wasted no time in attacking Obama's plan. The Republican National Committee
launched a Web video dubbed "Government Motors."
Analysts said the hope of divesting quickly may not be realistic.
"If he's going to be out in five years, I'll be playing point guard for the Detroit Pistons that season
and I'm 5-foot-6 and I'll be 66 years old," joked Peter Morici, a professor at the University of
Maryland School of Business.
Government officials first need to stabilize GM, said Tim Ghriskey, chief investment officer with
Solaris Asset Management in New York.
"That's going to take a while and it might not be successful either," he said. "We're certainly
talking years here. It could be as many as, say, five years before the government's able to begin
to unwind their stake."
IT WILL BE MESSY
Louis Lataif, a former Ford Motor Co executive who is now dean of the school of management
at Boston University, doubted government officials can resist the urge to meddle. The
government also is likely to still be GM's major stakeholder in 2011 when the next round of
contract talks with the United Auto Workers union -- which campaigned for Obama ahead of last
year's election -- are due to take place.
"It's inevitable it will be messy," Lataif said. "We just don't know exactly how.
"I think that's just hopelessly naive that Washington is going to run Detroit," he added. "There's
no evidence that Washington can run a private business."
But others think U.S. officials will move as fast as they can to divest in a year or two once the
auto market and economy improve, or risk sticking the taxpayer with large losses.
"In five years, if there's anything left in the U.S. government's hands, I would be shocked and
they'll want to just write it off at that point," said Diane Swonk, chief economist with Mesirow
Financial in Chicago. "That means GM has failed. That's all there is to it."
One of the aims of the government's action is to buy time for the company and its various
constituents to accept the shrinking of the once-formidable automaker, said former U.S. labor
secretary Robert Reich.
"It would be too much of a blow to the nation and the consumer psyche to have the icon General
Motors basically disappear," said Reich, now a professor at the University of California,
Berkeley.

New Delhi: GM India has announced that it continues all its normal operations and is not
included in the court reinvention process of GM’s US
operations.

GM announced a U.S. Court filing of the automaker under Chapter 11 of the United States
Bankruptcy Code. The launch of New GM, which will have substantially less debt and operating
cost, is expected to be completed within two or three months, and is aimed at creating a company
that is stronger, leaner and ready to move forward.
“We believe this step – which was taken with the support of the U.S. government – is the most
efficient and effective means for GM to quickly achieve a competitive and profitable future. ,”
said Mr. Nick Reilly,GM Group Vice President and President of GM Asia Pacific in Shanghai.

GM India operations are not included in the US filing for Chapter 11. Consequently, all GM
India dealers, warranty and customer support services will remain unaffected and continue to
function as normal. Its country-wide dealership network and service centres will continue to do
business as usual and customers can visit their local dealer for service and warranty coverage,
while dealers will receive new vehicles and spare parts as usual.

“We are committed to ensuring that our customers continue to receive a top-notch sales, service,
spare parts and warranty coverage experience. Our dealers will also continue to receive all our
carlines, while our suppliers will continue to work with us to supply parts and components for
our cars, which we will continue to build at our state-of-the-art Talegaon and Halol facilities, in
the normal course of business. We have no intention to modify our product, brand or other
business plans including new product launches, the all new Chevrolet Cruze from our mother plant
in Halol and an all new Chevrolet mini car from our new state of the art plant at Talegaon,” said
Mr. Karl Slym, President and Managing Director, General Motors India.

“We will remain aggressive in all areas of our business and continue to introduce new and
exciting products that are best in class, in order to contribute to our own long-term viability and
the bottom-line of our company as a whole. Our product programs and other plans for the future
remain on track.

“In its 14 years of established operations in this country, GM India has invested over Rs.5000
crore to create a manufacturing capacity of 225,000 vehicles per annum. We are deeply
committed to this market, our customers, suppliers, dealers and all other stakeholders to continue
our rapid story of successful growth in India. Over 4000 people are directly employed by GM
India at our manufacturing plants in Halol and Talegaon, our Engineering, R&D and Design
Centre in Bangalore and our corporate office in Gurgaon. We are not going anywhere and we are
here to stay for the long term,” added Mr. Slym.

It may be recalled that GM India has already announced the launch of three brand-new cars for
this year. Of these, it has launched Chevrolet Captiva Automatic+ in January and its second
offering of the year, the premium luxury Chevrolet Cruze sedan, will reach dealerships within the
next few months. An all-new, segment-leading mini-car will also hit Indian roads towards the
end of this year. In addition, the company will also be launching LPG and CNG options in its
current product line-up in the coming months.