York sees GM progress, Chrysler sale

DETROIT (Reuters) - Jerry York, a former General Motors Corp GM.N board member and adviser to billionaire investor Kirk Kerkorian, said on Sunday GM had made substantial progress in its turnaround, while a merger with a foreign automaker was likely down the road for Chrysler LLC.

York, who resigned from GM's board of directors just over a year ago, said the No. 1 U.S. automaker had made deep cost cuts but needed to do more to slow and reverse a loss of market share in recent years.

"I think GM has made a lot of progress. They're well on their way to taking $9 billion out of their structural costs," York told the Reuters Auto Summit. "They have this new labor contract that will save them several-billion dollars each year, but again the 64-dollar question, if you will, is attenuating market share loss."

York, a former Chrysler chief financial officer who also advised Kerkorian's Tracinda Corp in a failed bid for the No. 3 U.S. automaker earlier this year, said Chrysler would likely be spun off after its own turnaround shows results.

The carmaker is now majority owned by Cerberus Capital Management CBS.UL, and York speculated on the private equity firm's strategy for his former employer.

"My best guess would be that it is to fix up the company, get it back to profitability and then merge it with a foreign automaker," York said.

York said Cerberus would need four years to turn around the company's financial performance to ready it for a merger. "They have got a four-year fixer-up job to do," he said.

York, who had served as Kerkorian's representative on GM's board, had lobbied the automaker to sell its Saab and Hummer brands and resigned after GM decided to end talks with Renault-Nissan over a proposed alliance.

When asked, York said there were indications that Saab and Hummer were still not performing well for GM.

"I have decided I don't want to talk a lot about GM," York said. "But needless to say in the case of Hummer, rising fuel prices haven't helped its outlook very much."

He said published estimates also point to heavy discounting by GM on Saab sales in the United States. "The incentive spending on Saab is quite high," he said.

York declined to comment on whether Kerkorian, who sold off his GM stake late last year, would return to take an investment interest again in one of the Detroit automakers.

Both GM and Chrysler, he said, could be hurt in the coming year by a continued slump in new vehicle sales in the United States, prompted by the downturn in the housing market.

York would not comment on why Kerkorian had been shut out of the Chrysler bidding process by former owner Daimler AG (DAIGn.DE).

But he said the terms of the $7.4 billion deal negotiated by Cerberus suggested the private equity firm got "a helluva deal" for the struggling automaker, which has targeted a return to profitability in 2009.

"As best as I can tell the car business was pretty much given away and the bulk of the purchase price was for the finance company," he said.

York said Chrysler under Cerberus would need to revamp vehicle design to address interiors that appeared "cheap" and exterior styling that had become "too controversial."

"Chrysler, I would have to say, just flat lost its way on styling," he said, adding that its reliance almost exclusively on North American sales was not sustainable. "All of that needs to be fixed for Chrysler to get back into the game."

(For summit blog: summitnotebook.reuters.com/)

(Editing by Braden Reddall)