Henderson: GM needs ‘right dealer in the right spot’


Keith Crain
and Peter Brown and Dave Guilford

Automotive News | April 20, 2009 – 12:01 am EST

 

Henderson: GM needs ‘right dealer in the right spot’
 

Fritz Henderson, General Motors’ new CEO, must carry out the "deeper and faster" restructuring demanded by President Barack Obama’s task force overseeing automotive bailouts.

Installed in office after the task force forced out his predecessor, Rick Wagoner, Henderson talked with Editor-in-Chief Keith Crain, Editorial Director Peter Brown and News Editor Dave Guilford on April 3.

What can you do to speed up GM’s consolidation of dealerships?

It’s not about just achieving a number. It’s about having the right dealer in the right spot.

We know where our dealer issues are. It’s basically in metro areas with Cadillac and Chevrolet. That’s where we have a lot of work to do. There has been a lot of work done on Buick, Pontiac and GMC already, so it’s about completing that work. We know what’s in front of us in terms of Hummer, Saab and Saturn.

And the core brands survive?

Yes, with Chevrolet, Cadillac and Buick-Pontiac-GMC under basically one franchise agreement. So, yeah, that’s what the plan said. Dealers are difficult to consolidate because there’s no single entity to negotiate with, and they all have the state franchise laws. So how do you speed up the process? It involves more of your people working, and it invariably involves more money.

Is it going to cost GM $2 billion to consolidate dealerships?

We have resources in the plan, but we don’t have a number like that. I don’t know where that number comes from, actually.

Oldsmobile’s demise cost GM $1 billion in dealer compensation, right?

Oldsmobile was a billion. The situation today is considerably more difficult than it was when we did Oldsmobile, without a doubt. Not even close.

With Hummer, it appears as though you’re days away from having a deal.

I actually wanted to get it done by March 31. But as with most things, it takes a little bit more time. We’ve had several parties come to the process late who had interest.

Is there a similar sense of urgency with Saturn?

It’s a different process with Saturn. Basically, the Saturn dealers are [asking]: Are there other [automakers] in the future that they might be able to contract with for supply and product?

Outside of General Motors?

Yeah. And so we’re supporting that process because these are good dealers, very good dealers.

We could see a GM board with UAW members, bondholder members and maybe some feds on the board, too, or federally appointed board members.

[The U.S. Treasury Department] asked [board Chairman Kent Kresa] to work with them to reconstitute the board. This timing coincides with our own annual meeting.

Their view was that the board of directors needs to be reconstituted — not completely replaced, but reconstituted. But at least going into the fall, the question is that we need directors who are capable of applying the right governance over General Motors. So Kent’s doing that, not me.

How much revenue will you lose when you get rid of Saturn, Pontiac and Hummer?

The revenue is actually less than the volume effect because the vehicles tend to sell for lower average transaction prices than our regular vehicles. If I remember correctly, Saturn sold about 100,000 retail cars in 2008 after you pulled out fleet and employee sales. Pontiac was similar. Hummer and Saab were a fraction of that, a very small fraction.

So you will lose about 250,000 units?

Yeah. Even then, we’re not conceding that. In the case of Saturn, they were heavily driven by leasing, which we’ve exited. So the question is: Can we bring the customer back into a Chevrolet or a Buick?

GMAC halted leasing last summer. Does General Motors need more leasing programs, or are you happy with the leasing level you’re at now, which is virtually nil?

Our leasing level is virtually nil. Leasing was by far and away the most expensive form of incentives that we had. And so, in some sense, I don’t regret it at all. I’d like to have some leasing flexibility, particularly for premium brands. We have people actually working on changes in order to get this accomplished, but we have to do it in a different way. The truth today is I couldn’t finance it anyway.

If and when we get to the point where we could do leasing on a different basis, we’d do it ourselves as opposed to having a financial institution keep the residual risks. Then it would stay on our books. We’d have systems ready to support it. But today we don’t have that, and we couldn’t finance it anyway.

So, do I lament the loss of leasing? In some cases, yes. In general, no.

During your press conference, you said each nameplate has to pay the rent. Is there a review going on?

Yeah. Every operation we have around the globe has some vehicles that are more profitable than others. But only here in North America did we have a situation where our profit model was so focused on pickup trucks, full-size SUVs and — when they were strong — mid-SUVs. And then we had a large number of nameplates, many of which were not, at least in my judgment, paying the rent.

Now what do I mean when I say "paying the rent"? I want to maximize the aggregate contribution margin, or the aggregate profit potential of every single model.

So you want no loss leaders?

Sometimes you have a loss, but you’re not going to simply accept it, OK? I know I’m going to make less money on an Aveo than I’m going to make on a Silverado — I know it. But I’m not going to let anybody off the hook on the Aveo’s profitability. I want to make sure that we get the maximum profitability on the Aveo, too. And so, if the Aveo is less, that’s fine. But I’m not going spend all my time on the Silverado.

Everybody pays the rent. This is one of the things I learned in Europe. I saw it in Asia and in Latin America, Africa and the Middle East. Basically all we did was sell small cars. Every small car had to make money because that’s all we sold.

How can the Chevy Volt pay the rent in its first and maybe even its second generation?

On some products, the costs — particularly in advanced technologies — are high. The Volt is the case study. We have been very clear with the task force. In first-generation technology like the Volt, the cost is high. That means it doesn’t necessarily pay the rent. It actually consumes rent when it’s launched.

We want to make sure we launch the car well, that we get the maximum learning from it, that it’s successful in the market. So that when we get to generation two, we’ve got the most cost out that we can. And when we get to gen three, get the most cost out that we can.

We need to do things like this. That means we need money to pay for it. Not from the taxpayer.

There are some concerns that liberals in Congress and the administration are going to say, "This is great; we control General Motors, we’re going to make sure they sell nothing but hybrids and flying hydrogen cars."

Those magnificent men!

Are you seeing any pressure to do things that would make you less economically viable?

Honestly, no. Good question. Could be in the future, but not yet. Moreover, the government has said they don’t really want to run our business. They’re going to be involved because the taxpayer is involved.

The day we took taxpayer funds was the day our business fundamentally changed, and it was regrettable. It was one of the saddest days of my career. But we ran out of money, and so we had to ask the government for support.

We’re grateful for what’s been done. We’re grateful for the support we’ve received from the Bush administration before and now from the Obama administration. We’re grateful for the very professional work from the task force. And now we have to prove — first to our customers, our people and to the taxpayer — that it was worthwhile, that it was the right thing to do. So that’s our job.

How would you like to see a scrappage program work?

The German program is remarkably well-structured. It’s worked well. One of the things they did is the person actually scrapping the car has to have been a registered owner of that car for one year beforehand. I think it’s very well-structured, and we think it can have a benefit.

Would it offer a long-term benefit or only for a couple of months?

We’ve got to get the consumer back in the game now.

So revenue would be good?

Revenue is really good.

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