Monday, June 1, 2009

General Motors … troubled past, troubled future

Today we will see a different General Motors. It is a sad ending to a state of affairs that should never have happened. There are many reasons for what occurred, some like union issues were truly beyond GM’s ability to resolve. But most were of GM’s own making. I’ll touch on a few.

The seeds of GM’s downfall came from a management culture that was bureaucratic and averse to self criticism. But it was Roger Smith, a clueless yet arrogant Chairman and CEO, who did the most damage. Smith was an accountant who saw his role as reorganizer and a cost cutter and failed at both. He took over in 1981 in the depth of a recession that had devastated car sales. His first mistake came in early 1982 when talks were reopened between GM and the UAW to address the massive financial losses. The UAW expressed willingness to permit short term give backs in exchange for profit sharing when times got better. But GM did not exhibit the sense of urgency the talks should have had, probably from a sense of distrust Smith had for the UAW. It came to a fiery conclusion when the UAW obtained a copy GM’s annual report for shareholders, outlining an enhanced and very generous incentive program for management. The UAW accused GM double dealing, and not willing to make shared sacrifices. They cut off negotiations with GM and moved over to Ford, letting them set the industry pattern on terms more beneficial to Ford.

In another misstep, to save money Smith produced essentially identical top of the line cars for different divisions by simply rebadging them. The new 1985 Cadillac, Buick and Oldsmobile large front wheel drive “C” platforms were so nearly the same, Lincoln ran a commercial spoofing them using a parking lot attendant who couldn’t tell the difference between the Cadillac and the less expensive models.

The new compact size 1982 Cadillac Cimarron was essentially a gussied up Chevrolet Cavalier ”J” car shared by all 5 car divisions. When they unveiled it at the Waldorf Astoria, the dealers let out a collective groan. It was a sales disaster in the making, and the dealers saw it in an instant. Another error was the new 1991 Chevrolet Caprice, a large rear wheel drive that could only be classified as ugly. When they began assembling it at Ypsilanti, one of the line workers quipped to a reporter, “It will never sell.” He was right. The fact that these two cars even saw the light of day is a result of corporate culture that stifled open discussion of the obvious.

When Roger Smith bought EDS in 1984, he got Ross Perot as part of the deal. Becoming the largest single shareholder in GM, Perot warranted a seat on the board. EDS wasn’t a particularly good fit for GM, nor was Perot. His abrasiveness soon began to get to Smith. Perot would visit dealerships incognito only to discover inept and uninformed sales people, which he promptly brought to the attention of the Board and the media. He publicly accused Smith of fostering a do-nothing corporate culture. The press had a field day. Finally, they had an insider who felt as they did, that GM needed a housecleaning. Smith’s answer was simple, expensive and self-serving. To get Perot off his back, he spent nearly a quarter of a billion dollars to buy back Perot’s shares at a substantial premium. GM fell back into “a blanket of fog that keeps these people from doing what they know needs to be done,” as Perot described the management culture at GM in a Fortune Magazine interview.

Aside from the corporate culture, GM’s biggest problem has been living in the past. They have wanted to experience again the glory days of the mid fifties, when they flat out killed Ford with the ’55 Chevy and the brand new “small block” V8, as it became known. The car was a styling hit with the public and available in two-toned scheme - an option normally only available in more expensive lines. One color option was pink and charcoal grey to match the popular pink button down shirt and grey flannel pants combination worn by preppies of the day. The lightweight and powerful engine became a hit among hot rodders and boat racers, outperforming the prevalent flat head Fords. So ingrained was the worship of the “small block” that when Corvette went to an outside company (Lotus Engineering, UK) to design and develop a high tech, lightweight DOHC, 32 valve, 400hp engine for the 1991 ZR-1, they ran into a problem. At a design review conference, one of the GM executives noticed the bore spacing didn’t match the 4.400” of the “small block.” He was told Lotus was aware of it, but needed larger bores and wider bore spacing to achieve the 400 hp target – and anyway it wasn’t going to be produced on GM tooling. It was to be made by Mercury Marine. But tradition won the day and the ZR-1 engine put out only 375 hp, 25 less than planned.

Another throwback was Harley Earl, GM’s chief stylist in the forties and fifties. You really had to live through his era to have a feel for his influence. It was an orgy of chrome. It was tail fins, Buick portholes and sweepspars; it was the buck-tooth Buick; it was Dagmars (you can guess) on the Cadillac; it was wrap-around windshields, hardtops (a two-door with a fixed metal roof, simulating a convertible), and fake airscoops. Many found his styling tasteless and were driven to imports when they became available. But his adoration continued at GM and in 2002 his ghost returned, this time in Buick commercials, extolling some of his styling cues on the current Buicks.

Bob Lutz, GM’s Vice Chairman and former number two at Chrysler and a true “car guy,” noted GM’s decline in tasteful instrument panels and interiors about two years ago. He attributed it to designers who just weren’t familiar with the tastes of those buying prestige European and Japanese nameplates. They simply reverted to form. I noticed it on the 2008 Cadillac SRX, I lease. The SRX is well designed, with appealing crisp and clean lines. It is the antithesis of a Harley Earl design. But compared to the one I leased three years before, the newer one had a number of reversions to “good old GM.” In particular the interior came with plastic fake burled walnut trim, a feature every car buff magazine since 1950 has told GM spells CHEAP. Now I know what Lutz was talking about.

I will be brief on technical disasters at GM, of which there have been too many. One of the worst was the Oldsmobile diesel engine, which eventually resulted in offers to all the diesel owners convert them to gasoline by replacing the engine and complete fuel system, a very expensive procedure. The disaster occurred because of GM’s efforts to maintain excessive commonality with the weaker Olds 350 gasoline engine from which it was derived, and the failure to include a water separator in the fuel system.

What does the future hold for the new GM? That depends on how it is run. If the new board consists of politically motivated members, it will fail. If the administration tries micromanage it, mandating models and killing models based on its vision of what a car should be, it will fail. If the administration fails to support the $60 billion annual cash burn, it will fail. On the other hand, if the intent is to make the new GM a profitable enterprise by responding to the market, it could succeed. But that means putting someone in charge that knows cars and can diplomatically resist the inevitable pressure for politically correct decisions for cars no one will buy. None of the existing GM management need apply. All are tainted by their exposure to years of poor management.

My choice is Roger Penske. He was mentioned as a possible successor to Jack Smith who stepped down as GM’s Chairman in 2003. He has a long affiliation with GM as a Chevrolet dealer and now head of a major dealer group, Penske Automotive Group. He bought a controlling stake in GM’s troubled Detroit Diesel Allison in 1988, nursed it back to health and sold it twelve years later to Daimler. He is a partner with GE in Penske Truck Leasing. And of course he is the successful head Penske Racing. He is 72 (doesn’t look it) beyond the normal mandatory retirement age for GM, but one advantage of bankruptcy is the rules can easily be changed. Above all he won’t be bothered by the $500,000 salary cap, he makes many times that through his enterprises.

1 comment:

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