Excerpted from a BusinessWeek story in the March 17 issue
In the morning of Feb. 4, about 20 of the top executives at the Irvine headquarters of Kia Motors America left their warm offices to stand outside in near-freezing cold. They were awaiting the arrival of Byung Mo Ahn, the president of Kia Motors. The group organized itself into a receiving line and stayed in formation for more than 15 minutes until Ahn arrived in a chauffeur-driven Kia Amanti sedan.
Although some of the executives were shivering, it would have been bad form to return inside: Standing to greet top brass is customary at Hyundai Motor, Kia’s South Korean parent.
After spending a full week in Irvine, Ahn performed another ritual that has become common at the company: sacking the American leadership team. On Feb. 8 he axed Len Hunt, president and CEO of Kia Motors America, and Ian Beavis, marketing vice president.
It marked the fourth shake-up in three years for Kia’s American operation. The U.S. unit of Hyundai in Fountain Valley, meanwhile, has churned through four top executives in five years.
Many of the departures have come at awkward times. Hunt and Beavis got the news at the airport as they were about to fly from Irvine to an annual dealer meeting in San Francisco. According to several sources, Hunt’s predecessor, Peter Butterfield, was dismissed during a dinner meeting with dealers at the Bellagio Hotel in Las Vegas,between the entree and dessert.
The management shake-ups at the American divisions of Hyundai and Kia,two once-separate manufacturers that are now essentially run as one company,come at a critical period. Both brands, which were originally marketed to American consumers as utilitarian econoboxes, are trying to move upscale and sell sedans that can compete with Cadillac and BMW.
The problem is that the companies keep booting out American talent. And many of the American executives who do stay find parent Hyundai Motor’s corporate culture to be suffocating. According to several current and former managers, Hyundai Chairman Chung Mong Koo, Kia’s Ahn and other top executives run the companies in a far more authoritarian style than do most American CEOs.
While Chung’s top-down management style might rub some Americans the wrong way, his long-term track record in the U.S. is impressive. Under his leadership, Hyundai has nearly doubled sales in the country since 2000, to 467,000 cars last year. Kia has posted almost identical growth.
But in America, the two companies often establish sales targets based on what their auto plants can produce,a persistent source of tension with local managers. Several past executives say that Hyundai and Kia have set unhealthily aggressive sales goals that are causing inventory to pile up. Hyundai has about 32,000 Sonata sedans parked in lots around its Montgomery (Ala.) plant with no orders from dealers.
Hyundai Motor’s leadership team “lacks marketing savvy,” says Yoo Young Kwon, a Seoul-based auto analyst at Prudential Investment & Securities. “What they need in the U.S. is to let American executives implement marketing strategy in a sustainable way.”
Little Jazz for Jazz Semiconductor
Excerpted from a March 18 Fortune story at www.fortune.com.
Normally investors make decisions based on close evaluation of the fundamentals underlying a company. In a SPAC, or special-purpose acquisition corporation, popular Wall Street vehicles whose organizers raise money to spend on yet-to-be-determined targets, investors buy solely into the pedigree of the founders.
Which is why they were so quick to pour $173 million into Acquicor, a SPAC formed in 2005 by a supergroup of Apple alumni,cofounder Steve Wozniak, former CEO Gil Amelio and ex-senior executive Ellen Hancock. Instead, the trio turned that cash into a highly indebted company whose equity today is worth $15 million.
In early 2007, Acquicor bought a Newport Beach chip company called Jazz Semiconductor for $253 million (after returning $33 million to shareholders who wanted their money back instead). But the timing was terrible. Jazz sells to wireless companies like mobile-phone makers, who have been in a nasty downturn. Shares of Acquicor,renamed Jazz Technologies,have cratered from their IPO price of $6 to a recent 71 cents per share. On Feb. 13 the company retained UBS to explore “strategic alternatives.”
These days things are lonely at Jazz. Hancock resigned as president in June 2007, followed by Wozniak, who had been an unpaid “chief visionary officer,” in February. In mid-February, Amelio told investors he had succeeded in taking Jazz “from a two-fiddle orchestra to a ten-fiddle orchestra” and that he’s “laying the foundation for a much better future.”
Sacramento’s Tax Talk
Excerpted from a March 10 column in the Los Angeles Business Journal by editor Charles Crumpley.
The talk out of Sacramento about the possibility of raising taxes is alarming.
The more they raise taxes, the more people leave. Trouble is, it’s often wealthy people and business owners who pack up. So the state ends up with less money.
A report by the American Legislative Exchange Council illustrates the problem. The richest 10% of income earners in California pay 75% of the state’s income tax. California’s marginal tax rate is the second highest in the country. Many of the wealthy are small business owners,the ones who create jobs.
So when taxes get raised on those folks, they tend to leave. According to the report, about 240,000 more Californians left the state in 2005 than other Americans moved in. Much of the same was true in 2003 and 2004. The outflow has become so systemic that it can cost six times more to take a U-Haul from Los Angeles to some non-California towns than it costs to go the other way.
It is crucially important in California that Democrats understand that the greater they make the tax burden, the more likely that businesses will leave and the budget problem will get worse. After all, President Kennedy did. He cut taxes by a huge amount.
