Rays of Hope at General Motors

A guest post from Bill George, Author of "7 Lessons for Leading in Crisis"

Humiliated by a federal government bail-out and a forced bankruptcy declaration, General Motors (GM) experienced the worst ordeal in its history across the spring and summer of 2009.

Yet today – less than five months after emerging from bankruptcy – there are rays of hope on the horizon:

Billions of dollars in liabilities have been successfully unloaded and August 2009 month-over-month sales were up 21%. Definitively GM’s highest total and retail sales performance of 2009, GM delivered 246,479 vehicles, many by virtue of the controversial but generally successful “Cash for Clunkers” program.

Tom Stephens, GM’s Vice Chairman of Global Product Development, foresees more advanced technologies and better cars in the works, including a new line of appealing plug-in hybrids are projected for 2010 release.

An ambitious and confidence-inspiring ad campaign has been rolled out with Board Chair Ed Whitacre stamping his face and reputation on the GM brand (shades of Lee Iacocca and Chrysler in the 1980’s).

On September 22, 2009 GM announced that “third shifts” would be added for workers at three Midwest plants, ramping up production on customer-desired vehicles and putting 2,400 employees back to work.

If GM re-emerges as a great automobile company, it will be due to the wise leadership of three people: CEO Fritz Henderson, Board Chair Ed Whitacre, and unsung hero Steve Rattner, President Obama’s former auto czar.

However, the great American car company is not out of the woods yet. And unfortunately, GM has a long-standing tradition of ineptitude and unrealized promise to overcome.

For decades I have been highly critical of GM leadership. Growing up in western Michigan as the son of an automobile supplier president, I witnessed the festering complacency of GM leadership. Success bred insularity, arrogance, and ultimately hubris at what was once America’s largest employer. As ex-president Charles Wilson declared to Congress, “For years I thought that what was good for our country was good for General Motors, and vice versa.”

Styling, size, and comfort took precedence over safety, air quality and fuel efficiency. When outsiders dared to challenge this approach by proposing innovations like seat belts, catalytic converters, air bags, and gas mileage standards, GM management rallied its loyal Michigan delegation to squash the measures in Congress. When consumer advocate Ralph Nader began his lonely crusade, he was viewed as merely one more roadblock on the Interstate highway to GM’s success.

GM was so successful financially that its loyal board began a tradition of appointing finance leaders as CEO rather than “car guys” who had grown up immersed in the details of design and manufacturing. These finance leaders hit their short-term numbers but moved GM steadily away from standards of operational excellence set decades before by legendary CEO Alfred P. Sloan.

Even the growing power of the United Auto Workers didn’t sufficiently alarm GM management. Without real threats from foreign producers, GM, Ford or Chrysler would negotiate “sweet heart” deals for union workers, expecting the other companies to fall into line. Then, the Big 3 raised prices to cover added costs such as lucrative pension plans, 100% health care coverage, limitations on outsourcing, and even a “jobs bank” that provided laid off workers full compensation and benefits.

Pity former chair and CEO Rick Waggoner, a decent leader who inherited these traditions and associated legacy costs in 2000. Trained in GM’s finance tradition, Waggoner worked to preserve the short-term bottom line, but never acknowledged that GM no longer made the automobiles Americans wanted. And as GM’s market share plummeted from its high of 54 percent to 19 percent, there were always excuses why: cheap Japanese imports, rising gasoline prices, and skyrocketing health care costs. Meanwhile, no one ever got fired except for Robert Stempel, the one interloper from operations who lasted less than two years.

Of course, all this changed amid the specter of bankruptcy. With President Obama’s approval, auto czar Rattner unceremoniously fired Waggoner in March and promoted operating chief Fritz Henderson to CEO. Superficially, Henderson appears in GM’s finance mould, but there the similarity ends.

It’s little known that Henderson left GM for six years to work for Delphi, GM’s former parts company spun off in 1999. There he gained first-hand understanding of the high quality standards of Delphi customers, like Toyota, the engineering excellence of German producers like BMW, and the razor-thin margins automobile suppliers face day-to-day.

Henderson saw Delphi heading for bankruptcy and understood GM could be next. And upon becoming CEO, he faced that reality and prepared accordingly. He undertook painful cost reductions and oversaw plant closures as well as staff and executive cuts. He terminated 30 percent of GM’s dealers, dumped five major product lines – Pontiac, Opel, Volvo, Saturn, and Hummer – and began revamping GM to be more fuel efficient and attractive to American consumers. He also brought back 77-year-old Robert Lutz, America’s premier car designer, as vice chair.

With Rattner’s backing, he has gained support from UAW boss Ron Gettlefinger to make sharp cuts in wages and benefits, narrowly winning majority vote from the rank-and-file. For the first time in many years, a light is appearing at the end of the tunnel.

Henderson’s partner in rebuilding GM, Ed Whitacre, became board chair in July. Whitacre is the former CEO of AT&T, saving the company by successfully integrating it with SBC in 2005.

Aggressive and performance-focused, Whitacre came out of retirement to take on this massive challenge and will transform the formerly-complacent GM board into an active monitor of GM management. He is providing Henderson cover by serving as a buffer between Washington politicians and company management and ensuring the U.S. government doesn’t overreach.

GM faces uncharted territory. Never before has a company of its size and reputation fallen so far from prominence. Luckily, the leadership of Henderson and Whitacre is precisely what the company needs to compete in the global automobile market. We owe these men a debt of gratitude if they can restore this formerly great company.

If they cannot, what may be “good for our country” is to rid ourselves of GM. For good.

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Bill George is professor of management practice at Harvard Business School and author of "7 Lessons for Leading in Crisis", "True North", and "Authentic Leadership".

The former chair and CEO of Medtronic, he currently serves on the boards of ExxonMobil and Goldman Sachs and previously, Novartis and Target.

Read more at www.BillGeorge.org, or follow him on Twitter @Bill_George.

Bill will be an introductory speaker at the Oct. 6th-7th World Business Forum at New York’s Radio City Music Hall.

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