September 2010 - Association for Corporate Growth

Cover Story
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that had been put off for decades.
The resuscitation of General Motors is unlike any
turnaround or restructuring ever witnessed. From the
scale of the problem to the Senate hearings and subsequent
government funding, it can be hard for any
executive to relate.
SSG Capital Advisors’ J. Scott Victor, founding
partner and managing director at
the firm, says in his view, “There is
no correlation, whatsoever” between
GM’s restructuring and what most
distressed middle-market companies
may encounter.
But as GM’s performance starts to
reflect the labors of the turnaround,
others believe important lessons can
be pulled from the effort. AlixPartners’
Albert A. Koch, vice chairman
and managing director at the firm
who helped oversee the turnaround,
notes that even the distinctiveness of
the GM situation underscores a key
theme in this kind of rehabilitation
work. “They’re all unique,” he says.
“Big or small, any turnaround is
about figuring out what the issues are, and then solving
them quickly. It’s like fixing an airplane in midflight.”
Koch, 67, should know. Before he signed on to
work with GM, he accumulated a track record that
included turnaround mandates for Kmart, where he
served as interim chief financial officer; Polar Corp.,
where he served as chief executive for three years ending
in 2007; and Champion Enterprises, again as interim
CEO as the company went through an out-ofcourt
restructuring in 2002 and 2003.
Currently, Koch serves as the president and CEO
of Motors Liquidation Co., tasked with disassembling
GM’s old business, including shuttered factories and
brands such as Pontiac and Hummer.
A retelling of GM’s story probably isn’t necessary.
It was nearly impossible for anyone with access
to a television or radio to not follow the company’s
descent into bankruptcy. From there, a new GM
emerged, owned primarily by the US Treasury, with
the United Auto Workers union, the Canadian government
and GM bondholders together assuming the
40% balance.
As GM returns to health, its story is still hard to
avoid. From the 25% jump in sales for GM’s four
strongest brands (Chevy, Buick, GMC and Cadillac),
announced in August, to the sticker price of GM’s
newest hybrid line, the Volt, taxpayers are kept wellinformed
as to the status of their investment. Even
the back-and-forth talk of a possible IPO seems to
be in real time – the UAW said paperwork would be
filed with the automaker’s upcoming earnings statement,
while CEO Ed Whitacre in August mitigated
expectations, telling the Wall Street Journal succinctly
“We’re not there yet.”
The part of the story that doesn’t necessarily reach
the masses is the way in which GM’s turnaround is
like every other distressed situation.
Koch, for instance, cites four indicators of corporate
decline that are present in nearly every distressed
situation. He points to weakening revenue or profit
margin; poor industry dynamics; either too much
debt or inadequate capital; and insufficient information
systems.
GM, of course, operated in an industry facing intense
global competition, which wasn’t saddled with
the labor and healthcare costs that weigh down the
Detroit automakers. Rising raw material costs also cut
into GM’s profits, while rising gasoline prices made
certain lines of its automobiles irrelevant almost overnight.
The result was a roughly 30% decline in domestic
car sales. Incentives to lure in consumers chipped
away at the company’s margin, and by the time GM
declared bankruptcy, its cash burn was roughly $1 billion
a month. In the company’s last quarterly filing
26 MERGERS & ACQUISITIONS September 2010