Other Editorials

Fueling the Fire

Peter DeLorenzo
Thursday, March 23, 2006

Exerpt from www.autoextremist.com

Time is running out on the Rick Wagoner Era at GM
by Peter DeLorenzo

"Last week, with GM restating its earnings for 2005 at the last possible minute - which increased its loss by $2 billion to $10.6 billion - Rick Wagoner's hold on the reins at General Motors began to slip. Even though a few analysts equated the restatement to a "no big deal" announcement, a majority of financial analysts weighed in with a double-barrel dose of negativity - most of which was directed at the GM Chairman.

It is important to remember that Wagoner's background is financial. It has been traditional for GM's Chairmen to come from the financial side of the aisle, even though GM's most profitable years were fueled by some of the greatest designers, engineers and marketing people the industry has ever seen. In a company that was in the business of making money first and foremost ("We're not in the business of making cars, we're in the business of making money," as Alfred Sloan so emphatically put it once), the title of Chairman was always reserved for the Supreme Pooh-Bah Bean Counter who was carefully groomed through GM's career advancement labyrinth created for bright young financial prospects, with the last stop being a stint at GM's financial offices in New York - a stop that Rick Wagoner dutifully made after his stints overseas.

This system served GM well in its glory years, when it controlled 48 percent of the U.S. market by itself. But the last 25 years have been brutal to GM and the rest of the Detroit-based domestic automobile business - and even the brightest financial minds at work have been unable to stem the tide of rapidly deflating fortunes for "Detroit." Make no mistake - Rick Wagoner is one of the best and brightest financial minds in the business today. But in these perilous times, that isn't enough. GM is now scrambling to hold on to 25 percent of the U.S. market. And with health care costs, pension issues, obsolete union contracts, an intransigent trade imbalance situation and relentless pressure from foreign brands in the U.S. market led by Toyota, which is about to supplant General Motors as the largest car company in the world, Rick Wagoner has had everything thrown at him and then some - and bad timing has now become his most daunting foe.

So given GM's financially-dominated background and history, and given the current lack of confidence in GM's situation and its seeming inability to pull itself out of it fast enough, to have a financial restatement happen under Wagoner's watch and to have it happen in this day and age of corporate witch hunts and the Sarbanes-Oxley Act, was, well - let's just say it was Not Very Good. This wasn't some massive, bad publicity product recall or something else that could be blamed on other parts of the corporation outside of Wagoner's control. No, this had everything to do with GM's financial numbers - the traditional bedrock of the company and Wagoner's area of expertise.

The bottom line for Rick Wagoner is that even if some sort of an agreement with the UAW and Delphi is hammered out this week, it won't be enough. Too many things have gone wrong for GM, and too many things have worked against the company in the last 24 months - and the news isn't getting better for GM (although it's refreshing to see that some of GM's new product initiatives are clearly on the right track). Rick Wagoner has been trying to manage GM's downward spiral in the most humane way possible, with the least amount of pain reaching the hundreds of thousands of people with stakes in this burgeoning crisis. And that's consistent with who Rick Wagoner is - a bright, talented, compassionate and caring man who just happens to be trying to save one of America's historical corporate icons.

To his detriment, Wagoner switched GM into crisis mode far too late to stem the tide of negativity - and some would even argue that GM is still not in the kind of true, full crisis mode that it needs to be. Jerry York, Kirk Kerkorian's representative who was recently placed on GM's board of directors, is one of them. And I happen to agree. Two weeks ago in this column I laid out a product plan for a GM in full crisis mode - a plan that deemphasized GM's "traditional" divisional structure and instead carved out a company mindful of its current status and expected future strengths in the market. And even though my plan was probably not radical enough given the situation, it was the kind of plan that should be well under way at GM - instead of just another "future think" exercise rattling around the hallways down at "The Tubes."

Rick Wagoner has had every opportunity to jump-start General Motors at this critical juncture in its history. Besides all of the issues that could be construed as being outside of his control - unions, pensions, trade policies, etc., etc., - the areas where he could have impacted the company in a major way were not addressed soon enough or deeply enough.

GM still has too many models, too many divisions and too many dealers, and the overwhelming mentality down at "The Tubes" is that the classic GM organizational model is still viable and vital today, when in truth it has been obsolete for at least a decade. Wagoner could have and should have taken drastic steps to alter that old model and refocus GM's resources on the realities of the new globally intensive automotive world.

Beyond the full crisis mode that Wagoner was too late in instilling, he didn't bring in Wolfgang Bernhard - the game-changing, fast-tempo auto executive who was perfectly suited for the monumental turnaround task facing GM - when he had the golden opportunity to do so. I deem this to be the crucial mistake of Wagoner's tenure by any measure, because Bernhard would have accelerated GM's moves under full crisis mode.

And on top of everything else, Wagoner allowed the traditional GM fiefdoms to dictate too many of his actions or inactions - which only served to delay the organization from coming to grips with the true nature of its dire straits.

GM has to do something dramatic - and soon."

Thank you Peter.