GM needs vision beyond balance sheets

December 10, 2009 http://detnews.com/article/20091210/OPINION01/912100339

GM needs vision beyond balance sheets

History can guide Whitacre in hunt for future CEO

JOHN SCHNAPP

Edward Whitacre Jr., the government-appointed General Motors chairman, is a man with a sense of urgency. He ensured that former Chief Executive Fritz Henderson left the automaker in a hurry, and seems to want to see a rise in market share and a decline in profit-depleting sales incentives in fairly short order.

Meanwhile, longtime telecommunications executive Whitacre has made himself CEO pro tem. If he doesn’t already know it, he should recognize that automaker turnarounds are rare events, and he may find useful clues from the experiences of the executives who have turned the trick. Above all, Whitacre, an engineer out of Texas Tech, seems unlikely to replace himself at the helm by reprising the traditional GM penchant of subjecting itself to the leadership of a finance executive.

GM’s management idiosyncrasy traces back to its principal architect, Alfred Sloan. When Sloan, a tidy well-organized man, became a vice president to founder William Crapo Durant, he discovered to his horror that Durant was a devotee of wing-it decision-making.

When this led to a financial crisis in 1910, Sloan — as one of Durant’s eventual successors — made sure it would never happen again. He set in place a strict financial control system and a governance structure using a finance executive, originally himself, as chief executive to tamp down the testosterone-fueled enthusiasms of the company car guys.

Sloan first begot Albert Bradley who begot Frederic Donner who begot James Roche who begot Richard Gerstenberg who begot Tom Murphy who begot Roger Smith. Then in 1990, with Sloan safely in his grave for 24 years, the GM board departed from his governance model and appointed engineer Bob Stempel as CEO and chairman.

Within less than two years, a hiccup in the market caused it to regret its heresy, jettison Stempel and replace him with the first of three more finance executives, the last being Henderson.

In retrospect, the Sloan leadership model worked well during good times — that is, right into the 1970s. Then GM was rocked by a pair of challenges from which it has never recovered.

The two oil price shocks of the decade prompted the federal government to create its fuel economy regulations, to which GM responded clumsily or worse. They also opened the door wide to fuel-efficient Japanese cars. By the early 1980s, Consumer Reports and J.D. Power & Associates were saluting Japanese cars extravagantly for their reliability, durability and workmanship.

An ironic footnote about GM CEOs from Smith onward — including engineer Stempel — is that they all have earned MBAs, which are usually regarded as entry tickets for becoming masters of the universe. Whitacre doesn’t hold one of these credentials and is unlikely to worship at that shrine.

Another paradox is that the 1970s was the last time GM scored its last blockbuster product success — the A-Body Special. It was a stylish coupe body lowered onto GM’s midsize sedan chassis and issued in nearly identical Chevrolet, Pontiac, Oldsmobile and Buick configurations — the Monte Carlo, LeMans, Cutlass and Regal, respectively. The A-Body Special reached highly profitable sales levels of 1 million units a year.

The car’s architect was John DeLorean, then the chief engineer at Pontiac. When GM’s board rejected development money for the A-Body Special, DeLorean and his boss Elliot Estes went ahead anyway, skimming what they needed from other budgets. It was probably GM’s last adventure with real entrepreneurism.

It’s all about product

Given Whitacre’s sense of urgency, he should note that automaker turnarounds typically take three years — with one exception — because new products take longer to develop in the auto world compared with other industries. In the telecom world, a snazzy cell phone can be cobbled together in three months and packaged with a dazzling call plan overnight. Even the most souped-up vehicle development program — based on new computer-aided engineering — usually requires at least two years.

The turnaround of Fiat, led by Sergio Marchionne, is a good example. So is the escape from the near-grave of Nissan, engineered by Carlos Ghosn. Ford, under ex-Boeing executive Alan Mulally, seems to have an embryonic revival, and Mulally has been on the job three years.

The only quicker picker-upper was performed in the late 1970s by Chrysler’s Lee Iacocca, who improvised snappy variations of existing dull cars to provide breathing space while he and Hal Sperling rushed development of the first front-wheel-drive minivan for its 1983 debut, a concept they had championed unsuccessfully at Ford.

The minivan soon raised Chrysler’s rate of profitability to the highest of any large automaker, demonstrating that one breakthrough car or truck can turn automaker profitability upside down.

Lee Iacocca is now 85, probably too elderly to make Whitacre’s candidate list. He does, however, have an outspoken opinion or three on just about anything and might have a few good ones for Whitacre on restoring GM to past glories.

Engineered for success

Of the four automaker saviors in recent memory, three are engineers and one — Sergio Marchionne — is a lawyer. The car business is still based on making things that attract consumers, not on the counting house. While Marchionne is also an accountant, he likes to talk compare cars to computer products — he calls the successful Fiat 500 "our iPod" — not to financial spreadsheets.

When GM’s board was sniffing around two years ago for bright ideas, Nissan’s Ghosn showed some interest, promoting the idea of a global triumvirate under, of course, his own leadership. He was waved off by former CEO Rick Wagoner.

Marchionne has been outspoken about the future need for automakers to be bigger companies, even admitting candidly that his thriving Fiat is not big enough to flourish in the future he foresees. No wonder he took on the seemingly thankless task of trying to pump new life into Chrysler without pumping Fiat cash into it.

General Motors would provide the kind of scale Marchionne advocates. But a prior deal for GM to acquire Fiat and combine their European operations was bungled, forcing GM to pay a $2 billion buyout to avoid an option commitment.

Offering Marchionne the opportunity to lead an updated GM-FIAT combination might prove appealing given Chrysler’s dim prospects. As jazz great Fats Waller’s tagline went, "One never knows, do one?"

Meanwhile, the new GM will most likely continue deploying the amiable Howie Long in its ads to flog the premise that its product line has arrived at parity with Toyota and Honda. Whitacre, though, will surely discover that it’s a tough sell, and he’ll need a dynamic CEO to try to make it happen. Buyer opinions stand for a long time before they begin to dissolve.

Mail letters to The Detroit News, Editorial Page, 615 W. Lafayette, Detroit, MI 48226 or e-mail them to letters@detnews.com">letters@detnews.com.

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