Ready or Not, G.M.'s Chief Is About to Face Some Questions
06-06-2005, 01:35 PM
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Ready or Not, G.M.'s Chief Is About to Face Some Questions
une 6, 2005
Ready or Not, G.M.'s Chief Is About to Face Some Questions
By DANNY HAKIM
DETROIT, June 5 - Inside the Hyatt Regency in Dearborn, Mich., Rick Wagoner, chief executive of General Motors, and other top G.M. officials were meeting on the morning of April 17 with union leaders from around the country.
Outside, a throng of reporters staked out the front and back exits. A black Cadillac sedan and a GMC Yukon sport utility were parked at the back exit, waiting, it appeared, for someone important. Just before lunchtime, a security guard stuck his head out the door and flashed a thumbs up. The two vehicles roared off, swooped around the hotel to a third, locked exit, and collected Mr. Wagoner, executing a perfect media head fake.
On Tuesday, Mr. Wagoner, who may well have the toughest job in corporate America, will be in a place where it will be harder to avoid questions. He will be facing his company's shareholders at G.M.'s annual meeting in Wilmington, Del.
To say the least, the last three months have been the worst in Mr. Wagoner's five years as chief executive and some of the darkest for a company limping into its 2008 centennial. Sales of G.M.'s cars and trucks are sputtering, two of the three major credit agencies have cut the company's bonds to junk status and a corporate raider, Kirk Kerkorian, has started buying up chunks of G.M.'s battered shares.
In the face of this, Mr. Wagoner, 52, is taking what could be called the anti-Iacocca approach. As chief executive of Chrysler in the early 1980's, Lee A. Iacocca led the company out of bankruptcy proceedings by taking center stage: "If you can find a better car, buy it," he said, in one of his 61 television commercials.
Mr. Wagoner, a reserved Virginian who has spent his career at G.M., has long preferred to avoid the spotlight, and never more so than now. Since G.M. shocked the market on March 16 by warning of a first-quarter loss that ended up totaling $1.1 billion, he has largely avoided the press and has left it to his lieutenants to articulate a future for the company. He declined to comment for this article.
The current state of G.M. raises questions about how much the automaker has accomplished since 1992, when its financial troubles were even worse. At the time, a boardroom coup installed John F. Smith Jr. as chief executive, and Mr. Wagoner was named the top North American executive in 1994. Together, they helped G.M. make great strides in improving efficiency and quality.
But now it is left to Mr. Wagoner, who became chief executive in 2000 and chairman in 2003, to deliver on that 13-year-old promise to reconstruct a G.M. that can compete with Asian automakers. If not, his career could end as unceremoniously as that of Robert C. Stempel, the chairman and chief executive who was ousted in 1992. So far, critics say that Mr. Wagoner, like many of his predecessors, has too often had a tin ear for hearing what Americans expect from their cars and has stumbled in predicting market trends.
"Any C.E.O. only has a certain window of time to really gain the confidence of the people; he's been doing this job for a while," said Ronald Tadross, a Bank of America analyst who cut G.M. to a sell rating ahead of many other analysts, just weeks before the company's March profit warning.
In the last few weeks, scraps of a revival plan have emerged, though the pieces strike some analysts as not much different from what G.M. had already been doing. And many are skeptical that the company can turn itself around unless it succeeds in accomplishing sweeping reductions in its health and pension costs - G.M. provides medical coverage for 1.1 million Americans - and starts making cars and trucks that are compelling enough to support 25 percent of the United States vehicle market. Failing that, it must get the union to agree to allow it to scale back its operations.
Mr. Wagoner laid out four company priorities in a previously undisclosed note on May 25 to G.M. managers.
"The question on everyone's mind, both inside and outside the company, is how we expect to 'fix' G.M. in North America," he wrote. In recent years, profits from sport utility vehicles and pickup sales in the United States have been the company's main profit engine, along with its lending operations. But sales of those vehicles have fallen this year under the weight of rising gas prices and a shift to smaller, more carlike S.U.V.'s, known as crossovers, a market that G.M. has been slow to appreciate but plans to attack in full force over the next five years.
Step 1 of his plan, Mr. Wagoner wrote, was to "deliver great cars and trucks." Step 2 was to "revitalize our sales and marketing strategy," Step 3 to "intensify our focus on cost and quality" and Step 4, referring to continuing discussions with the union, to "address the health care burden."
Mr. Wagoner's note focused on product development, and he conceded that "you've heard the phrase 'great cars and trucks' many times before as a key element of G.M.'s overall strategy, so you might be wondering: 'What's new?' "
He reiterated that the company would raise its capital spending this year to $8 billion, from $7 billion last year, most of it for product development. And he said resources were being redirected to what he called "the largest, fastest-growing and most profitable" parts of the market - big pickups, S.U.V.'s, luxury vehicles and crossover vehicles.
Other parts of the plan have been elaborated on publicly. G.M.'s new marketing chief, Mark LaNeve, who has been the company's most visible executive in recent weeks, said in a recent speech that Cadillac and Chevrolet would be the only G.M. brands to offer a complete lineup of cars and trucks, while the six other G.M. brands sold in the United States - Pontiac, GMC, Buick, Saturn, Hummer and Saab - would focus on varying market niches. No more, Mr. LaNeve said, would the company produce the same basic vehicle for four or five of its brands, diluting all their identities.
But asked about G.M.'s strategy, John Casesa, a longtime auto analyst at Merrill Lynch, responded, "They haven't talked about one, have they?" The initiatives that had been described, he added, were "an acceleration of the same strategy they've had in place for years now."
He went on, "I can't argue with anything they are doing, but the question is: Is that enough given how rapidly the market is becoming more competitive?"
Few analysts see the company's position as comparable to that of Chrysler in 1980 when it had to come hat in hand to the government for a bailout. G.M. still has about $20 billion in cash; it has hundreds of billions of dollars of debt, but much of it does not come due for decades. Still, a large automaker can burn up huge amounts of cash quickly. Heading into the year, G.M. projected it would generate $2 billion in cash this year. In March, it said it would instead spend $2 billion. In April, G.M. officials said they were no longer sure how much they would use this year.
"The question is: Can they create attractive product at rational pricing and still produce the volumes necessary to absorb their fixed cost structure?" said Mark Oline, the chief analyst covering G.M. for Fitch Ratings, which cut G.M. below investment grade last month. Mr. Oline expects the company to have cash outflows through 2006.
In part, G.M. was derailed by a strategy in the 1990's driven more by marketing than product development. As part of the boardroom coup, John G. Smale, who came from Procter & Gamble, became G.M.'s chairman, and a few years later, Ronald L. Zarrella was brought in from Bausch & Lomb to be the top North American executive. Both are gone now.
Robert A. Lutz, a former Chrysler president, was brought in by Mr. Wagoner at the end of 2001 to head up product development and restore flair to the company's cars and trucks. His results have been mixed, but remaking so many troubled brands is not quickly accomplished.
"Soap people and contact lens people don't necessarily make good car people," said Barbara Lupient, a G.M. dealer in Minnesota and Wisconsin who is a member of the company's top dealer group. She said she was comforted by the fact that Mr. Wagoner had spent his career at G.M.
Still, some hits and more misses bear Mr. Wagoner's fingerprints. On the upside, the company was early to get into China. On the downside, it poured more than $4 billion in 2000 into a partnership with Fiat, culminating in an embarrassing $2 billion divorce settlement with the Italian automaker earlier this year.
The company's European operations have lost money every year Mr. Wagoner has been chief executive. At home, G.M. lagged Ford in getting into the large sport utility market in the 1990's and then compensated by flooding it. Rather than hedge their bets, Mr. Wagoner and Mr. Smith doubled down by buying the rights to the Hummer brand in 1999 from the Humvee manufacturer, AM General. Now, the company is making a huge bet that a new generation of its Chevrolet Suburban, Cadillac Escalade and other full-size models will revive demand for such vehicles.
Mr. Wagoner has also been reluctant to embrace the predominant environmental technology of the day, the hybrid electric vehicle. By the time G.M. unveils its first hybrid comparable to Toyota's Prius hybrid, in 2007, it will be nearly a decade behind Toyota and Honda and three years behind its crosstown rival, the Ford Motor Company.
Jim Press, Toyota's top North American executive, said in a recent interview, "We invested in hybrids and another company invested in a large S.U.V. manufacturer. You make a decision and you live with it. Gas may go back to $1.50 and hybrids may be dinosaurs and Hummers may rule the world."
http://www.nytimes.com/2005/06/06/bu...gewanted=print
Ready or Not, G.M.'s Chief Is About to Face Some Questions
By DANNY HAKIM
DETROIT, June 5 - Inside the Hyatt Regency in Dearborn, Mich., Rick Wagoner, chief executive of General Motors, and other top G.M. officials were meeting on the morning of April 17 with union leaders from around the country.
Outside, a throng of reporters staked out the front and back exits. A black Cadillac sedan and a GMC Yukon sport utility were parked at the back exit, waiting, it appeared, for someone important. Just before lunchtime, a security guard stuck his head out the door and flashed a thumbs up. The two vehicles roared off, swooped around the hotel to a third, locked exit, and collected Mr. Wagoner, executing a perfect media head fake.
On Tuesday, Mr. Wagoner, who may well have the toughest job in corporate America, will be in a place where it will be harder to avoid questions. He will be facing his company's shareholders at G.M.'s annual meeting in Wilmington, Del.
To say the least, the last three months have been the worst in Mr. Wagoner's five years as chief executive and some of the darkest for a company limping into its 2008 centennial. Sales of G.M.'s cars and trucks are sputtering, two of the three major credit agencies have cut the company's bonds to junk status and a corporate raider, Kirk Kerkorian, has started buying up chunks of G.M.'s battered shares.
In the face of this, Mr. Wagoner, 52, is taking what could be called the anti-Iacocca approach. As chief executive of Chrysler in the early 1980's, Lee A. Iacocca led the company out of bankruptcy proceedings by taking center stage: "If you can find a better car, buy it," he said, in one of his 61 television commercials.
Mr. Wagoner, a reserved Virginian who has spent his career at G.M., has long preferred to avoid the spotlight, and never more so than now. Since G.M. shocked the market on March 16 by warning of a first-quarter loss that ended up totaling $1.1 billion, he has largely avoided the press and has left it to his lieutenants to articulate a future for the company. He declined to comment for this article.
The current state of G.M. raises questions about how much the automaker has accomplished since 1992, when its financial troubles were even worse. At the time, a boardroom coup installed John F. Smith Jr. as chief executive, and Mr. Wagoner was named the top North American executive in 1994. Together, they helped G.M. make great strides in improving efficiency and quality.
But now it is left to Mr. Wagoner, who became chief executive in 2000 and chairman in 2003, to deliver on that 13-year-old promise to reconstruct a G.M. that can compete with Asian automakers. If not, his career could end as unceremoniously as that of Robert C. Stempel, the chairman and chief executive who was ousted in 1992. So far, critics say that Mr. Wagoner, like many of his predecessors, has too often had a tin ear for hearing what Americans expect from their cars and has stumbled in predicting market trends.
"Any C.E.O. only has a certain window of time to really gain the confidence of the people; he's been doing this job for a while," said Ronald Tadross, a Bank of America analyst who cut G.M. to a sell rating ahead of many other analysts, just weeks before the company's March profit warning.
In the last few weeks, scraps of a revival plan have emerged, though the pieces strike some analysts as not much different from what G.M. had already been doing. And many are skeptical that the company can turn itself around unless it succeeds in accomplishing sweeping reductions in its health and pension costs - G.M. provides medical coverage for 1.1 million Americans - and starts making cars and trucks that are compelling enough to support 25 percent of the United States vehicle market. Failing that, it must get the union to agree to allow it to scale back its operations.
Mr. Wagoner laid out four company priorities in a previously undisclosed note on May 25 to G.M. managers.
"The question on everyone's mind, both inside and outside the company, is how we expect to 'fix' G.M. in North America," he wrote. In recent years, profits from sport utility vehicles and pickup sales in the United States have been the company's main profit engine, along with its lending operations. But sales of those vehicles have fallen this year under the weight of rising gas prices and a shift to smaller, more carlike S.U.V.'s, known as crossovers, a market that G.M. has been slow to appreciate but plans to attack in full force over the next five years.
Step 1 of his plan, Mr. Wagoner wrote, was to "deliver great cars and trucks." Step 2 was to "revitalize our sales and marketing strategy," Step 3 to "intensify our focus on cost and quality" and Step 4, referring to continuing discussions with the union, to "address the health care burden."
Mr. Wagoner's note focused on product development, and he conceded that "you've heard the phrase 'great cars and trucks' many times before as a key element of G.M.'s overall strategy, so you might be wondering: 'What's new?' "
He reiterated that the company would raise its capital spending this year to $8 billion, from $7 billion last year, most of it for product development. And he said resources were being redirected to what he called "the largest, fastest-growing and most profitable" parts of the market - big pickups, S.U.V.'s, luxury vehicles and crossover vehicles.
Other parts of the plan have been elaborated on publicly. G.M.'s new marketing chief, Mark LaNeve, who has been the company's most visible executive in recent weeks, said in a recent speech that Cadillac and Chevrolet would be the only G.M. brands to offer a complete lineup of cars and trucks, while the six other G.M. brands sold in the United States - Pontiac, GMC, Buick, Saturn, Hummer and Saab - would focus on varying market niches. No more, Mr. LaNeve said, would the company produce the same basic vehicle for four or five of its brands, diluting all their identities.
But asked about G.M.'s strategy, John Casesa, a longtime auto analyst at Merrill Lynch, responded, "They haven't talked about one, have they?" The initiatives that had been described, he added, were "an acceleration of the same strategy they've had in place for years now."
He went on, "I can't argue with anything they are doing, but the question is: Is that enough given how rapidly the market is becoming more competitive?"
Few analysts see the company's position as comparable to that of Chrysler in 1980 when it had to come hat in hand to the government for a bailout. G.M. still has about $20 billion in cash; it has hundreds of billions of dollars of debt, but much of it does not come due for decades. Still, a large automaker can burn up huge amounts of cash quickly. Heading into the year, G.M. projected it would generate $2 billion in cash this year. In March, it said it would instead spend $2 billion. In April, G.M. officials said they were no longer sure how much they would use this year.
"The question is: Can they create attractive product at rational pricing and still produce the volumes necessary to absorb their fixed cost structure?" said Mark Oline, the chief analyst covering G.M. for Fitch Ratings, which cut G.M. below investment grade last month. Mr. Oline expects the company to have cash outflows through 2006.
In part, G.M. was derailed by a strategy in the 1990's driven more by marketing than product development. As part of the boardroom coup, John G. Smale, who came from Procter & Gamble, became G.M.'s chairman, and a few years later, Ronald L. Zarrella was brought in from Bausch & Lomb to be the top North American executive. Both are gone now.
Robert A. Lutz, a former Chrysler president, was brought in by Mr. Wagoner at the end of 2001 to head up product development and restore flair to the company's cars and trucks. His results have been mixed, but remaking so many troubled brands is not quickly accomplished.
"Soap people and contact lens people don't necessarily make good car people," said Barbara Lupient, a G.M. dealer in Minnesota and Wisconsin who is a member of the company's top dealer group. She said she was comforted by the fact that Mr. Wagoner had spent his career at G.M.
Still, some hits and more misses bear Mr. Wagoner's fingerprints. On the upside, the company was early to get into China. On the downside, it poured more than $4 billion in 2000 into a partnership with Fiat, culminating in an embarrassing $2 billion divorce settlement with the Italian automaker earlier this year.
The company's European operations have lost money every year Mr. Wagoner has been chief executive. At home, G.M. lagged Ford in getting into the large sport utility market in the 1990's and then compensated by flooding it. Rather than hedge their bets, Mr. Wagoner and Mr. Smith doubled down by buying the rights to the Hummer brand in 1999 from the Humvee manufacturer, AM General. Now, the company is making a huge bet that a new generation of its Chevrolet Suburban, Cadillac Escalade and other full-size models will revive demand for such vehicles.
Mr. Wagoner has also been reluctant to embrace the predominant environmental technology of the day, the hybrid electric vehicle. By the time G.M. unveils its first hybrid comparable to Toyota's Prius hybrid, in 2007, it will be nearly a decade behind Toyota and Honda and three years behind its crosstown rival, the Ford Motor Company.
Jim Press, Toyota's top North American executive, said in a recent interview, "We invested in hybrids and another company invested in a large S.U.V. manufacturer. You make a decision and you live with it. Gas may go back to $1.50 and hybrids may be dinosaurs and Hummers may rule the world."
http://www.nytimes.com/2005/06/06/bu...gewanted=print
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