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Henderson needs to shake up GM

Thursday, July 9, 2009

Daniel Howes

Henderson needs to shake up GM

The book on Fritz Henderson is that the General Motors Corp. CEO, a company lifer, has what it takes to shape the "new GM" into what it has never been: a lean, cost-efficient automaker in its home market.

He’d better, because the "new GM," likely to emerge as early as Friday from its blast through Chapter 11 bankruptcy thanks to the intercessions of President Barack Obama’s auto task force, is more unrealized concept than competitive reality.

Proof of a new GM will be in the doing, not the saying, now that the automaker’s shrinking executive team and Team Obama have defied the experts and executed a stunningly swift restructuring under the little-used Section 363 of the bankruptcy code. Without it, the strong-arming of bondholders and some $50 billion from the U.S. Treasury, the moribund GM and its rival, Chrysler Group LLC, would be in liquidation.

And Michigan would be facing the kind of brutal economic free-fall that would make the past three years look and feel like the mere warm-up acts they would have been. As it is, the Big Mitten’s climb out of a very deep hole will be slow, uncertain, marked by lower per capita income, less tax revenue and fewer jobs in the traditional auto space.

Whatever your politics, you cannot dispute the notion that the Obama administration "saved" the Detroit auto industry more or less as we have known it, notwithstanding the plants and people cut or the list of bankruptcies that grows each week. (Can you say Lear Corp.?) No, the dispute centers on the cost of the rescue in cash and principle:

More than $50 billion of public money poured into GM alone, with the prospect of taxpayers seeing their capital returned diminished by each new plan. Bankruptcy laws stretched to the breaking point. Creditors bullied, with claims of secured lenders subordinated to the junior claims of the United Auto Workers — whose retiree health care trusts own sizable stakes in GM and Chrysler.

None of it is evidence of the "creative destruction" of capitalism so much as the creative manipulation of a particular set of economic, political and legal circumstances by a Democratic administration determined to help its labor cronies even as it averts a potential national economic calamity.

For now.

It’s not negative to say that GM — and a Chrysler controlled by Fiat SpA of Italy — face serious sets of challenges as they emerge from bankruptcy. Or to say that surviving the past few harrowing months does not guarantee financial and market success. Or to point out that automakers fresh from bankruptcy face bruising competitors, the worst car market in a generation and a national economy far from recovery.

They are all truths, however inconvenient.

There are others, such as GM’s enormous task of rehabilitating brands tarnished by repeated rhetorical lashings in the news media, by consumers weary from bailout fatigue, by congressional tirades and even by the president of the United States. Can it be done, credibly?

There’s the fact that the winnowing of GM in the United States to four brands from eight essentially creates three new competitors for the remaining stable of Chevrolet, Cadillac, Buick and GMC. Only Pontiac will be phased out, with Saturn and its world-class dealer network poised to be run by Roger Penske, one of the industry’s most successful entrepreneurs.

There’s the fact that GM will be a government-owned enterprise until it isn’t, meaning the company will be susceptible to political pressure on investment, product decisions, whether and how "green" its future lineup will be.

There’s the fact that GM cannot sell cars if would-be customers refuse to try them before deciding whether to buy them. Henderson needs to move GM’s hidebound sales and marketing operation quickly from evolution into full-scale revolution. The process, if the experience of rival Ford Motor Co. is any indication, will require fresh senior talent from the outside.

Culture change? Absolutely. The modern GM is replete with examples of outsiders crushed by the GM way — in communications, in design, in top executive jobs, in the "brand-management" assignments of the late ’90s.

GM today, seared by the verdict of failure that is bankruptcy, will struggle to muster the antibodies to fight off outsiders. Why? Because its management ranks are being purged and because the auto task force that says it won’t "micromanage" GM clearly expects fresh blood in key places, one way or another.

"It would be natural … for there to be a change in the management structure to become a bit closer to the ground, a bit leaner and meaner," Steven Rattner, the president’s top auto adviser, said this week. "We don’t pick management team members."

Maybe not. But the implication is unmistakable: The feds own 60.8 percent of GM, and the feds have concluded that GM wouldn’t have ended up where it did had management and its directors moved more quickly, been more realistic and focused on the outside world instead of GM’s parallel universe.

Fair points, albeit ones the administration must balance against its unilaterally imposed limits on executive compensation at GM. In a global market for talent, pay-and-bonus caps also limit the recruits the automaker can woo to high-pressure jobs subject to political meddling and second-guessing. And that’s before the press and industry analysts get in the act.

Still, the clearly telegraphed move is that Henderson, perhaps as soon as Friday, will announce a flattened, smaller corps of top executives and direct reports that reflects the shrunken GM and its demand for speedier decision-making. Anything less would be considered, rightly, a missed opportunity by the auto task force and industry observers.

There should be more, starting with a concerted push to rebuild key internal relationships damaged by the bankruptcy process. Left untended, alienated dealers, jilted communities and angry executive retirees shorn of much of their promised benefit packages can turn from ambassadors to petulant critics just when GM needs them most.

Tough sells amid tough times? Sure. But denying the potential problems festering among the buying public and key constituencies won’t make them go away any faster for a new GM with a new, if qualified, lease on life.

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