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Jan 23, 2014

Back in gear: the GM story

GM went from the world’s biggest car seller to bankrupt in just two years, before pulling off a record IPO. Hear the story from the IR executive at the center of it

The turmoil of the late 2000s left many in the investor relations profession with stories of high drama to tell. If you were compiling a list of the most dramatic, however, you would have to include the events at US auto maker GM.

Randy Arickx, GM
‘The IPO was very successful: we had terrific demand for the stock’ – Randy Arickx, GM

A quick recap: for more than half a century, GM held the title of the world’s biggest car maker by selling more vehicles than any other company. But substantial legacy costs, a collapse in US demand and the credit crunch saw it enter bankruptcy in 2009 after months of fraught negotiations with Washington.

The pre-packaged bankruptcy saw GM emerge 40 days later in a far leaner state and majority-owned by the US Treasury, thanks to bailout funds totalling $50 bn. After shedding thousands of jobs and selling off struggling brands, the firm then made a spectacular return to the equity market in 2010, when it raised $23 bn in the biggest US IPO in history.

‘They were challenging times for the company, without question,’ recalls Randy Arickx, executive director of corporate communications and IR at GM, in reference to the bankruptcy proceedings. ‘It was important for the investor relations department to be fully aware of where the company was and where it was going, and to ensure the most transparent communication to investors possible.’

Vital communications

Arickx first joined GM in 1979 and, after a long career in finance, switched to financial communications in 2001. He had responsibility for the entire communications plan surrounding the bankruptcy. ‘A company as large and as global as ours has many stakeholders, whether they be employees, investors, dealers, labor unions, joint venture partners or suppliers, so that communication in its entirety was enormous and challenging, and there is no question that ensuring we were communicating as effectively as possible with our important stakeholders was key to success,’ he says.

Naturally, no one in GM had been through a process quite like this before. Indeed, the bankruptcy of GM stands as the largest in the US for an industrial company, and the country’s fourth-largest of all time. ‘It’s fair to say that most of us didn’t have any experience in developing a communications plan for a company going through bankruptcy, so we got some outside help,’ Arickx says. ‘[That firm] was instrumental in helping us set the framework and understand the degree of the challenge.

‘Then we put together a cross-functional team here, which worked long and hard on developing a very comprehensive – and, ultimately, quite successful – communications plan, so we could keep all of our stakeholders abreast of what was happening, in as timely a manner as possible.

‘As you can imagine, the challenges were very diverse concerning what and how we had to communicate to investors, and what and how we needed to communicate to employees. Keep in mind that many of our operations around the world were not influenced by a bankruptcy that occurred here in the US. So [we were] trying to ensure other international operations understood to what degree they would be affected by the bankruptcy.’

New model GM

After emerging from Chapter 11 protection, GM set about the tough process of making itself profitable again. The firm, which now had a far stronger balance sheet, outlined plans to close roughly a quarter of its plants and shed a third of its workforce. It also announced the resignation of CEO Fritz Henderson, who was perceived as too involved in the prior failings of the company to stay on as leader.

‘We were somewhat challenged because capital expenditures were obviously reduced as we proceeded through bankruptcy, so we were not delivering a great many new products to the marketplace,’ says Arickx. ‘But we were fortunate enough that the new products we did deliver, especially to the US market, were very, very successful, and just happened to be in market segments that were growing.’

By the following year, GM had recorded two straight quarters of profit, even though the US auto market was still struggling. This got investors and analysts excited about what the company could achieve when consumer spending picked up further – all of which set the stage for the firm’s earlier-than-expected IPO.

‘It’s fair to say I think the IPO was very successful,’ says Arickx. ‘We had terrific demand for the stock, we put together very succinct messaging, and we tried to be extremely transparent relative to the plans for the company. And now it’s all about execution.

‘[Our] messaging concentrated on three areas: heavy focus on product, which is everything in our business; an outline of what was different in the firm today compared with a few years back, such as the strength of our brands, how we go to market, and the strength of our balance sheet; and highlighting key areas of strength, such as leadership positions in the US and China. The messaging was credible as we had early examples with successful products in the marketplace, especially regarding pricing and residual values.’

The regular changes to the leadership team during this time offered another communications challenge for the IR team. After Henderson resigned, chairman Ed Whitacre stepped in as CEO, a role he held until replaced by Dan Akerson in September 2010 as GM geared up for its NYSE listing. Akerson and CFO Chris Liddell then led the IPO roadshow.

‘We were fortunate to have a strong board member in Dan, who took the role of CEO after Ed had decided to resign,’ states Arickx. ‘Dan was familiar with the firm and had broad experience in running other companies, so the transition was very smooth. Soon after Dan was named as chief executive, we implemented fairly aggressive communications across all key stakeholder groups including employees, media, suppliers, investors [and] dealers.’

State stakes

The IPO cut the US government’s ownership in GM by approximately 50 percent, leaving the Treasury holding 33 percent of the stock. The Canadian and Ontario governments, which between them held a combined stake of 12 percent following the bailout, also took the opportunity to reduce their ownership.

While the ‘Government Motors’ tag certainly got plenty of media airplay, Arickx says the investment community soon learned to stop asking about its impact on the business.

‘Point number one: the US Treasury has absolutely stuck by its word not to be involved at all in the operations of the company,’ he points out. ‘From an IR perspective, I have no dialogue with the US Treasury on any issues related to its ownership.

‘[Investors] found out early on that they ought to be asking those questions of the US Treasury more so than us. Because, just like any shareholder, it was making its own decisions when to sell shares; that’s its decision – and one that, frankly, we cannot influence. We hardly get that question at all anymore.’ [Shortly after this interview was completed, the US Treasury announced it had sold its remaining stake in GM.]

Still, Arickx notes that a complete exit by the US government will prove a fillip for GM. ‘It’s… fair to say that corporate reputation is a journey and there is a set of customers whose buying decisions are influenced by things like the US Treasury having a stake in the company – we have some research that indicates just that,’ he explains. ‘So we would be pleased to see the positive effect it potentially has on consumer buying habits.’

He adds that the most popular questions investors and analysts are asking now focus on two areas: product and capital allocation. ‘I enjoy both these questions,’ he comments. ‘Regarding the first one: we are in the middle of launching a new full-sized truck in the US, which is an incredibly important product in the American market, and a very profitable one, too. I get a lot of questions relative to how that launch is going, and the good news is it’s getting terrific reviews from any and all experts.

‘Another important question I get – which is a question I love – concerns capital allocation. Investors are always interested in what our thinking is with regard to capital allocation. We currently have a very strong balance sheet, very strong liquidity.’

Given all the troubles and forced change GM has endured in recent times, Arickx must be thrilled the questions have become enjoyable once again.

The GM way

Randy Arickx, executive director of corporate communications and investor relations at General Motors, explains how the car manufacturer approaches IR.

How do you divide up responsibilities?
I spend about half my time on investor relations and half on my communication responsibilities. I have a director of IR, a manager and two analysts, so the team basically comprises four people. We split up the sell-side analysts between me, the director and the manager. It’s not entirely single point of contact but one individual is largely responsible for the majority of the communication and interaction with certain sell-side analysts, and the same largely holds true for investors.

What’s your approach to targeting?
I am a big advocate of having a targeting program, so we spend some time trying to determine – and we use certain companies to help us find – the best targets for us to pursue, and we typically have an initiative to go after new investors. It’s a strategic approach for one of the members of the team whereby we jointly identify eight or 10 targets and then there are obviously initiatives you can put in place, like making sure they get invited to small group meetings.

How much time do you spend traveling?
[I don’t spend] a lot of time outside of the US. It’s the classic IR question: how much [time should] a large-cap American company spend outside the US? We’re spending more time than we used to speaking about issues in places like China, for sure, as we have a leadership position there and it’s an important part of our story.

We do two or three non-deal city visits, a day or two in New York, a day or two in Boston, a day or two on the West Coast, six or eight conferences – most of those are focused in the US – and around eight or 10 other events, [for example] dinner with sell-side analysts or a ride-and-drive event.

Are you doing anything innovative in terms of technology with IR?
On the technology front, [we are doing] nothing out of the ordinary. On the social media front, we do tweet information, [but] we don’t use social media to announce anything. We have a social media team on the communications team, however, and the IR team is actively engaged with it. We discuss messaging with the social media team, and the social media team is active on days when we have a big announcement, like an earnings day.

What’s the story behind your IR website?
The website was built in-house. We did a significant update three or four years ago: we did a fair amount of benchmarking and tried to pick off the best of the best relative to things we saw on other websites. I did some investor outreach about six months ago and one of the things I asked investors about was the website, so I received some feedback there, which was very positive regarding the degree to which the IR website meets investors’ needs.

What support do you receive from outside IR firms?
I work with two surveillance firms, a webcasting firm and a fourth company in the area of investor communication consulting.