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“GM Needs a Phe-Nom of Its Own” by Richard Johnson

Madison — Thu, 03 Dec 2009 19:22:54 +0000

In the new Detroit, it’s all about the CEO, all about having the right guy in command at the right time.

We are in the era of the outsider hero.

The relative calm at Ford Motor Co. these days is attributed to Alan Mulally’s arrival in September 2006.

Chrysler Group’s future is bound up in the style and personality of Sergio Marchionne, who as an outsider transformed Fiat and now tries to do the same in Auburn Hills.

The board of General Motors Co. wants a Mulally or Marchionne of its own. The company never has really had someone like that. That’s why Fritz Henderson had to go.

Henderson was an insider, a GM lifer. The board wants a superman.

True, Henderson was a different kind of insider. He spent much of his career overseas fixing GM’s Asia-Pacific and European businesses. He gained a reputation as a fast-moving, somewhat unconventional turnaround specialist before coming to Detroit in 2006 as CFO.

But Rick Wagoner was once a smart gate-crasher from overseas operations, too. Eventually, GM’s Detroit culture grinds you down and takes over your reputation.

Although GM did not specifically rule out promoting from within, it is clear the new board wants to find a little magic out there somewhere. It needs a phe-nom.

That doesn’t mean bringing in an illustrious auto industry star, a Jim Press. Whoever takes over from acting CEO Ed Whitacre likely will be someone we’ve never heard of.

Mulally was all but unknown to the auto industry when Bill Ford snared him from the No. 2 spot at Boeing. Marchionne was an even bigger mystery when he moved to Fiat in 2006 from SGS Group, the Swiss inspections, auditing and certification services company.

Henderson was way more than a just bean-counter, but there was no evidence that he was a true revenue builder.

In former times, revenue builder meant product specialist — a Bob Lutz. But the new General Motors needs more than that as it prepares to go public in a year or so.

It needs more than a car guy, or even proven turnaround idol. It needs a confidence-builder, an inspirer. That can make all the difference.

Column courtesy of Automotive News.

“Whitacre Must Lead…” by Peter Brown

Madison — Thu, 03 Dec 2009 19:19:47 +0000

Five things about still another changing of the guard at General Motors:

1. Fritz Henderson did a heck of a job as the bankruptcy/reorganization CEO of GM. He dumped $90 billion in liabilities from an utterly failed financial wreck.

Fritz systematically went after all GM’s creditors and — with, of course, a massive assist from the Obama administration and U.S. bankruptcy code — cleaned up the company’s balance sheet.

He’s the finance guy’s finance guy. There were no mysteries for him in this radical remaking of GM’s finances.

During the humiliating rinse of GM, his regular press conferences kept the country informed. I think he assured people that they could buy GM products, and the company has performed pretty much in line with this terrible market. (Bankruptcy buddy Chrysler Group has grossly underperformed this terrible market.)

Henderson leaves a company with a clean balance sheet, competitive costs and some fine cars and trucks.

But long term, he was always doomed. Fritz Henderson is the turnaround finance guy. The company no longer has a cost problem. It has a revenue problem. It needs stronger brands, including more great vehicles, better sales and higher prices. His many achievements around the globe were pretty much on the expense side, not the revenue side.

His departure surprises nobody. The timing, yes. The departure, no.

2. Ed Whitacre, now chairman and placeholder CEO, needs to be dynamically conservative in his new role. Occasionally, executives from outside the car industry have done remarkable things at car companies. Think of Alan Mulally at Ford and Sergio Marchionne at Fiat. (We’ll see about Marchionne at Chrysler.)

These two guys strode in and imposed solid business discipline on their huge organizations, and they drove strategy. But they didn’t design cars and write ads. The auto industry really is different.

Ask Steve Feinberg at Cerberus how easy it is to make a fortune with a car company. And when John Smale, late of Procter & Gamble, became an activist chairman at GM, he imposed P&G brand management on GM. The results were catastrophic.

Salty-snack managers became heads of car lines. Car models were confused with brands, and brands such as Chevrolet and Oldsmobile suffered, sometimes to the death.

Whitacre must lead, impose business discipline and ask good questions. But if he has delusions of adequacy about being a car guy, if he gets into the details and tries to turn GM into AT&T, the clean balance sheet could get soiled fast.

3. Henderson and Whitacre have been extolling the virtues of speed. Do things fast. Decide fast.

More important is to decide right and execute.

Traditionally, Toyota thrived with a painfully slow decision-making culture. But once the company arrived at consensus, the company executed fast and nearly flawlessly.

GM’s culture didn’t fail so much because decisions were slow but because too many were off-base. It is an insular culture. GM people talk only to each other. They are most incurious about what others think and know. They don’t ask questions. They too often have a tin ear about the buying public.

Right now, GM people are bragging about their new culture. Yes, they’re critical of the old GM and of the ways of the past. Great. But it’s still all navel-gazing within GM.

For the two decades I’ve been covering the company, starting with Roger Smith’s regime, I’ve heard GM executives criticize the GM of the immediate past. Where has that led? Bankruptcy.

It’s no great trick to look at your own company and criticize the past. The trick is to be curious, explore, know the customer and come upon solutions for the future. There’s no evidence that the new GM will be a leader in that.

Whitacre needs to drive that kind of cultural change.

4. In his short statement at his no-questions press conference, Whitacre said GM needs to accelerate offering the best cars and trucks, “which will also mean a return to profitability” and faster payback of U.S. and Canadian taxpayers.

Far more important than the speed of the payback is the foundation of the company. Hurtling toward a short-term profit is not going to make GM beloved by consumers. The balance sheet and cost structure are OK. Now get the culture right, the cars and trucks right and the marketing right. Profitability will take care of itself, and the taxpayers might even make a few bucks.

5. Nobody will accuse this GM board of being pet rocks.

Column courtesy of Automotive News

“Why the Reorganization of the US Auto Industry was Handled the Way It was” by Eddie Alterman

Madison — Wed, 11 Nov 2009 07:34:32 +0000

Earlier this summer, after GM had run through bankruptcy like a greased pig, our John Phillips threw a page of questions onto my desk. The queries sought to make sense of the rearranged domestic car industry. There were a lot of them, but they demanded answers. Here are the most pressing five:

Q: If it’s true that Americans will only buy small, fuel-efficient cars when gas exceeds $4 per gallon—and stays there—why would Fiat’s range of small cars help Chrysler?

A: Fiat’s small cars won’t help Chrysler, but its engine technology and mid-size platform will. The critical distinction here is between “small” and “fuel efficient.”

It’s true that Americans want big cars—they represent security, utility, and status to those of us poor unfortunate souls condemned to living between the coasts. But we also want fuel-efficient cars, especially with so much volatility in gas prices. The two would appear to be at odds. It wasn’t until recently that cars such as the Ford Fusion hybrid and the Chevy Malibu four-cylinder/six-speed automatic broke the “fuel efficient means small” paradigm. What Fiat will give Chrysler are the platforms to make cars like that—C- and D-segment fillers with modern, fuel-efficient powertrains.

And although coming CAFE regs are mainly supply-side sleight of hand, Fiat will have to build as many high-mpg cars as it can, in America, to satisfy the government. Everyone involved hopes this will stabilize Chrysler’s vitals.

Q: Why does GM—or Chrysler or Ford—care how many dealers it has? (GM plans to go from 6000 dealers in the U.S. to 3600. Honda has 1300 here, Toyota 1500.) If any given dealer can sell enough cars to turn a profit, who cares how many there are?

A: The care and feeding of dealers is expensive. Carmakers have to train all of them, for one thing. Also, there are certain costs, such as “dealer holdback” (an amount given to dealers from the automaker to offset the interest costs on loans), that are administered on a per-dealer basis rather than a per-car basis. The more dealers an automaker has, the higher its fixed costs. So the object for the carmaker is to maximize sales per dealership. To look at GM’s dealer body prior to offloading its four hobbled brands, you’d think it still owned half the market. No, make that one-and-a-half of the market.

Q: Why can’t GM follow the successful leads of Toyota and Honda, offering a mainstream brand and a luxury brand? Wouldn’t Cadillac and Chevrolet suffice? What’s the point of keeping Buick and GMC?

A: There is now alignment between GM and Toyota on this front. Toyota actually has four brands if you look hard enough: Scion, Toyota, Lexus, and Toyota truck. Chevy will soon comprise a very Toyota-like 70 percent of GM’s sales, with the rest split among premium-priced Cadillac, Buick, and GMC. Buick sticks around because it sells well in China, and because there are those American customers who won’t buy Chevrolets. GMC lives on because it demands premium pricing without much corporate heavy lifting.

Q: Ford didn’t take government bailouts, but it did sell off subsidiaries in the past few years and effectively mortgaged the company to raise cash. Will it soon similarly face Chrysler’s and GM’s crises/bankruptcies? Should Ford declare bankruptcy, too, so it can emerge at least as competitive as GM and Chrysler?

A: When the Big Three went to Capitol Hill last fall, my friend Jim Hall, an auto analyst, asked me: “What’s special about Ford, structurally speaking?” He went on to talk about the differentiating effect of its dual-class share structure, in which the family holds the voting rights. If the company goes bankrupt, the reputational hit—and the risk that the family could lose control—is enormous. Ford took an arguably bigger risk in mortgaging itself in 2006, but it’s paying off: The company avoided public ire by not taking a bailout, and its purchase consideration and market share are finally growing.

Q: If there had been no bailout monies, wouldn’t Chrysler and GM simply have gone into bankruptcy a few months earlier than they did? What, specifically, did the bailout money achieve other than forestalling bankruptcy for a few months?

A: According to presidential auto task force head Ron Bloom, “These were completely failed enterprises in need of restructuring.” Don’t sugarcoat it, Ronnie. Without the government’s oversight, though, it’s safe to say GM and Chrysler would have been liquidated. And without the government’s investment, GM’s and Chrysler’s chapter 11 filings wouldn’t have happened with such whiplash-inducing swiftness; the claims of complainants wouldn’t have been swept under the rug, and more suppliers to GM and Chrysler would have drowned. Bloom may be a bit self-serving here, but the man has a point.

Column courtesy of Car and Driver