Can One Man Save GM?

[Guest Josh]

FORTUNE
Tuesday, September 6, 2005
By Alex Taylor III


"Are we serious about a coupe and convertible?" demands the chairman of General Motors as he reviews proposed Cadillac body styles. "Or are we just going to talk about it for five years?" The mood at the 7 a.m. Friday product meeting at GM’s Design Center, north of Detroit, tenses up a few notches, which is just what Rick Wagoner intends. Everyone here knows that the company is in trouble. But as Wagoner studies the projected images of cars and trucks in development, he wants to be sure his team understands that each arm of GM has to get faster, smarter, sharper—now. Wagoner zeroes in on a new target: A suggested design for Cadillac requires altering the drivetrain. He thinks the idea is a waste of his people’s time, and his voice cuts through the room. "We spent $4 billion to shift Cadillac to rear-wheel drive," he declares, "and we need to discuss this." In other words, rethink the project.

The proceedings loosen up once the discussion turns to Hummers. Although the company now acknowledges that high oil prices threaten SUV sales, GM people still love the things. No GM brand enjoys Hummer’s consumer awareness—or its profit margins. As drawings of new concepts appear on the three-sided screen, Bob Lutz, GM’s renowned product-development chief, takes an optimistic stab at what the future sales might be. Wagoner likes to kid Lutz about his tendency to fall in love with new designs—"Bob’s approved 100 programs, and we’ve done seven of them" he says later—and now he observes that when Lutz predicts the sales volume for a particular model, "you have to take Bob’s number and divide by two." Lutz smiles as the room cracks up. But Wagoner, ever the numbers guy in a company that worships car guys, has a serious point to make: He reminds the group that they have to design a Hummer that meets its price target instead of trying to engineer a perfect vehicle that won’t be profitable.

Crack-of-dawn meetings and grueling days have become routine for Wagoner, 52, as he tries to save GM from financial meltdown. He has been running fast-forward since April, when he took the dramatic step of assuming direct control over GM’s North American operations, moving one level closer to product decisions, marketing strategies, and dealer gripes. The challenges Wagoner faces read like a case study of a company that can’t be saved. Losing an average of $1,227 on every vehicle sold during the first six months of 2005 (according to a new study by Harbur Consulting), GM’s North American operations piled up $2.5 billion in losses. Wagoner has to figure out how to renegotiate health benefits with a powerful union, generate some effective brand advertising (as opposed to just price-cut advertising), keep the whole company motivated—and come up with some wheels that consumers actually want to buy. If that weren’t enough pressure, investor Kirk Kerkorian, who once tried to buy Chrysler, continues to increase his holdings in GM.

Every week seems to bring a new crisis. The latest is the collapse of Delphi Corp., the big parts supplier spun out of GM in 1999. Delphi has lost more than $5 billion in the past 18 months, and Steve Miller, its new chairman and CEO, wants GM to shoulder some of the burden by taking Delphi’s UAW workers back on its payroll. Three-way negotiations among Delphi, GM, and the UAW are underway. Miller put Bethlehem Steel into bankruptcy in 2001, when it was swamped by legacy costs, and says GM might face the same fate.

And so it goes for Wagoner. For several days in August, GM gave FORTUNE the exclusive opportunity to shadow him as he scrambled to rally his troops and save his company. Sitting in on high-level meetings rarely, if ever, attended by outsiders, we got a front-row view of a top executive at a premier American corporation coping with the challenge of a lifetime.

Far from appearing beaten down by the company’s problems, Wagoner, a GM man for 28 years, seems energized by them. "There’s nothing like a good battle to raise the adrenaline and get everyone focused," he says on the corporate jet taking him from Detroit to Washington. A former college basketball player, he’s prone to sports metaphors. Asked if he has second thoughts about casting his lot with the automaker—he has never worked anywhere else—he doesn’t hesitate: "If you are in it for the challenge, where else would you want to be than GM? I think it’s the biggest game in town."

This may be the big game, but the most persistent rap on Wagoner is that he isn’t willing to swing for the fences: make a bold commitment to hybrid cars or fuel cells, pull off a merger, precipitate a showdown with the unions. He prefers a methodical approach, convinced that better execution on all the critical fronts—cost, quality, product development, marketing —is what will save GM. On hybrids, for example, Wagoner insists GM is being prudent. "Do we have an aggressive hybrid program?" he asks. "Yes. Should we bet the company? That would be a big risk, because the economics aren’t there and it’s still not clear that in 20 years we’ll all be driving hybrids."

Critics say such caution will kill the company. "Rick Wagoner has made it clear that he will steer GM through this crisis with a strategy of gradual transition to a ‘new’ GM," writes Peter DeLorenzo, a former ad executive who specialized in the auto industry and now writes the popular Detroit blog Autoextremist. "I contend that all they’re really doing at this point is managing the continued downward spiral of the company while refusing to take the tough actions and make the hard choices needed." Not so, says Wagoner, who insists that GM’s biggest issues aren’t the result of management errors but structural problems, like rising health-care costs, that are damn near unsolvable. "We are down to a handful of critical issues that we really need to move the needle on," he says. "And the reason that we haven’t advanced as quickly on those, frankly, is not because they weren’t identified, it is because they are challenging issues."

Entire Read

[daves87rs]

No, No, No, Nope... <_< There is no "I" in team..

[FUTURE_OF_GM]

"Are we serious about a coupe and convertible?" demands the chairman of General Motors as he reviews proposed Cadillac body styles. "Or are we just going to talk about it for five years?" The mood at the 7 a.m. Friday product meeting at GM’s Design Center, north of Detroit, tenses up a few notches, which is just what Rick Wagoner intends. Everyone here knows that the company is in trouble. But as Wagoner studies the projected images of cars and trucks in development, he wants to be sure his team understands that each arm of GM has to get faster, smarter, sharper—now. Wagoner zeroes in on a new target: A suggested design for Cadillac requires altering the drivetrain. He thinks the idea is a waste of his people’s time, and his voice cuts through the room. "We spent $4 billion to shift Cadillac to rear-wheel drive," he declares, "and we need to discuss this." In other words, rethink the project.

No, we do not need a Cadillac Epsilon convertible.

He reminds the group that they have to design a Hummer that meets its price target instead of trying to engineer a perfect vehicle that won’t be profitable.

Anybody else see what's wrong with this logic?

Just "good enough" isn't anymore.

"There’s nothing like a good battle to raise the adrenaline and get everyone focused," he says on the corporate jet taking him from Detroit to Washington.

YES!!!

Couldn't have said it better myself!!!

Don't give up until you're dead.

Excellent read!!!!!

I think things are improving steadily and GM might just pull out of this dive.

[Simon C]

FOG,
You beat me to the punch.

He reminds the group that they have to design a Hummer that meets its price target instead of trying to engineer a perfect vehicle that won’t be profitable.

Out of that whole article, reading that one line, I actually felt a pain in my stomach.

[Northstar]

As I used to have in my sig: "Good Enough Never Is." However, I disagree with you two about the Hummer thing. That's like saying GM needed to beat the Boxster with the Solstice and still sell it for $20k. That's like saying a Pontiac "3-Series" should be just as good as a BMW 3-Series, but cost half of the price. However, you simply CANNOT make a vehicle as good as the 3-Series, sell it for $20k, and expect to turn a profit; it's just not going to happen. The goal should be to have each and every vehicle be the best in its class. That doesn't mean a $20k Solstice needs to beat a $50k Boxster. That means a $20k Solstice needs to be a $20k Miata. It means the new GMT900 Tahoe needs to beat everything in it's class, but it doesn't need to beat a $70k Range Rover. Similarly, if GM makes an H4 for $20-25k (Wrangler territory) it needs to beat the Wrangler. The Wrangler is by no means a perfect vehicle though. If you expect every vehicle to be perfect, expect ever vehicle to be priced like Cadillacs and BMWs. All you can really ask for is for GM to better what the competition has to offer while asking the same price for the product. I think they may have been talking about the next CTS in the coupe and convert quote. They have already shown they can put coupes and converts on Epsilon (9-3, G6). Overall, a good article and a great read; thanks for posting Josh.

[caddycruiser]

WOW. Awesome read overall, but that Hummer comment just kind of shot it all to hell anyway....that one line was more telling than anything else, and describes the GM mentality, period, whether they want to admit it or not. Good points on cars like the Solstice and HHR too. Though, considering that they come from GM is amazing in and of itself, the Solstice has too low of a production number to make much of any difference and, even if it does bring LOTS of new people into Pontiac, the other cars there are so pathetic in comparison (G6, SV6...) that it still won't do much to boost the brand. Same with the HHR, which can be pumped out in high volume and is a very "cool" car, but admittedly or not, clearly a carbon copy of something Chrysler already rocked the world with years ago...and is now not doing so hot with. Some of that article seems very promising, but I guess we'll have to see for sure in the coming years....you know, per GM way, "You gotta wait 5 more years, THEN you'll see... :lol: "

[hyperv6]

GM will survive, thing may change but they will not go away. As for price, I think too many under estimate it. Chevy has sold more new trucks with their employee plan at the end of it's life cycle than it did new. I think if you off a very good car with a great price it will always out sell a perfect car at a high price. I wish it was not this way but in these times the almighty dollar is very important to many. I hope the new GM pricing is only a start but I would like to see them do better. As for one man saving GM? NO! It will take a group of leaders working together and not apart as in the past. I think we are now getting thr people that can do it if given the time. Lutz and Wagoner have a lot of good people under them and they are the future.

[caddycruiser]

As I used to have in my sig: "Good Enough Never Is."

However, I disagree with you two about the Hummer thing. That's like saying GM needed to beat the Boxster with the Solstice and still sell it for $20k. That's like saying a Pontiac "3-Series" should be just as good as a BMW 3-Series, but cost half of the price. However, you simply CANNOT make a vehicle as good as the 3-Series, sell it for $20k, and expect to turn a profit; it's just not going to happen. The goal should be to have each and every vehicle be the best in its class. That doesn't mean a $20k Solstice needs to beat a $50k Boxster. That means a $20k Solstice needs to be a $20k Miata. It means the new GMT900 Tahoe needs to beat everything in it's class, but it doesn't need to beat a $70k Range Rover.

Great point, but something I remember reading in an article years ago comes to mind, like this...."We're not saying build a an equal to the MB C-class and charge half price for it, but WHY not make a C-class AND charge a C-class price?"

Yeah, it can be hard to get significant $$$ for a new design, especially if you have as bad an image as GM, but it would eventually work if you REALLY DID make cars that were EQUAL or better, and not just try and pass them off as much--you know, cars that are actually WORTH the price they go for. http://www.cheersandgears.com/public/style_emoticons/<#EMO_DIR#>/AH-HA_wink.gif

[Northstar]

Meeting a price target shouldn't be the first thing on the engineers mind when designing a vehicle. Make it perfect then do only what's needed to meet the price target.

[post="11907"]<{POST_SNAPBACK}>[/post]

That would be a total waste of engineering efforts and development time. Why engineer something to be perfect when you aren't planning on making it perfect in the first place? It just takes more time to get it to market and costs more to develop.

GM should make the most perfect vehicles it can at the price of the vehicle. If the vehicle is $20k, it should be as perfect as is humanly possibly at the price point.

[Northstar]

Great point, but something I remember reading in an article years ago comes to mind, like this...."We're not saying build a an equal to the MB C-class and charge half price for it, but WHY not make a C-class AND charge a C-class price?"

Isn't that the point of the CTS?

[Diognes56]

Interesting read. I think things have been moving in a good direction recently and I hope the pieces continue to fall into place. I would like to see GM as the force they once were. David

[I hope GMRULES again]

"We’ve been around way too long, and people have heard all our lies," he says in a strikingly candid admission. "We just have to deliver." That's an impressive statement coming from the chairman and something most of us have known for 20 years. Now Rick, how much longer is it gonna take for you to deliver?

[Carguy]

No Epsilon ((AKA FWD)) Caddy!! :angry:If anything do a sub CTS cpe. sdn. on a modified KAPPA useing the CTS's 2.8L & 3.6L V6's then do the next CTS with the 3.6L V6 and 4.6L NS V8 with a MANUAL TRANS OPT. Move the CTS slitely up market and drop the V6 model from the STS line. A smaller ATS model in RWD form would be better then ANY FWD CADDY!! They spent 4 BILLION to do the CORRECT THING DONT MESS THAT UP NOW GM!!---((((NO BLS!!)))

[Newbiewar]

WOW.  Awesome read overall, but that Hummer comment just kind of shot it all to hell anyway....that one line was more telling than anything else, and describes the GM mentality, period, whether they want to admit it or not.

[post="11869"]<{POST_SNAPBACK}>[/post]

okay, who did Wagoner have to tell that to? about the Hummer comment? Lutz?

if it was Lutz that means Lutz is trying to get things to accually mean something...

all stipulation, but if that comment was direct to lutz, then Lutz is on the side of the consumer, and Wagoner (obviously) is on head honcho corperate's side... we want lutz to build cars that are supposed to do what they say...

we Dont need people like a friend of mine, who are part of a jeep car clup with the name of "Hummer Recovery Team"... Jeep is not better, Hummer is, and always will be until They have to meet a target price

[Northstar]

Not really. The public is never going to hate you for making a well designed vehicle. I didn't mean it in the sense of making the Cobalt a Mclaren killer; I meant it like if you are designing a compact car, make it the best compact car possible. If you go over the designated price point, install a cheaper version of something and offer the better one as an option. For example, the sport suspension, the nicer stereo, the better seats, the more powerful engine. That way when the car magazines order their fully loaded cars for their COTY awards the car can get rave reviews in the magazine and when you go to buy the car in real life you can get the more affordable one.

[post="11959"]<{POST_SNAPBACK}>[/post]

It doesn't matter if the public loves you for making a better car; there's no need to engineer a Pontiac Kappa to be equal to the BMW 3-Series because no one is going to pay you enough money to pay off the investment you made to make it so good. That's why the CTS costs what it costs. It is the 3-Series' equal from GM(or at least the closest GM has to a 3er). A Pontiac Kappa would be in the same spirit as the 3-Series, but I fail to see why it would make good business sense to engineer to where you have to charge $30k for it, because no one's going to buy one over the BMW.

[CaddyXLR-V]

The only problem I see with GM building cars to a price point, is that GM has higher costs than most other auto companies, and that meeting that price point means less of a car than the other companies can make for the same price.

[Flybrian]

Maybe if the one man is Harley Fucking Earl (the real one, btw).

[daves87rs]

The only problem I see with GM building cars to a price point, is that GM has higher costs than most other auto companies, and that meeting that price point means less of a car than the other companies can make for the same price.

[post="12047"]<{POST_SNAPBACK}>[/post]

Price points mean nothing unless GM has cars that people want, not just buy
just because it is a good deal.

I'm waiting to see how the new cars now out there sell, though it looks like they
are going to do well.

If the trucks can add the "wow" factor like they did back in 99, then GM can worry
about what they need (or want ) to charge for their cars.

Too many people jusy laugh at their prices now.

Wagoner needs to make sure these cars are getting respect of there, or don't
even waste the time to keep building them. (lacrosse, G6, Ion)

Most of the cars/trucks in the lineup do play well againist others..but there needs
to be constant improving, Now.

If they can pull a good price of the reabte off of these cars, and they still sell,
Then I can say the Wagoner can have a little victory party...

I think he might be on his way, but you never know with GM...

[evok]

It doesn't matter if the public loves you for making a better car; there's no need to engineer a Pontiac Kappa to be equal to the BMW 3-Series because no one is going to pay you enough money to pay off the investment you made to make it so good. That's why the CTS costs what it costs. It is the 3-Series' equal from GM(or at least the closest GM has to a 3er). A Pontiac Kappa would be in the same spirit as the 3-Series, but I fail to see why it would make good business sense to engineer to where you have to charge $30k for it, because no one's going to buy one over the BMW.

[post="12021"]<{POST_SNAPBACK}>[/post]

NS: You have been for a while beginning to sound a lot like me, for good or bad. Keep up the good posts and analysis. Good work and thought. Keep it up.

[Newbiewar]

people will likely pick an H3 over a Jeep... because of Hummers expectations, Hummer isnt the Underdog for working hard. The price point of a HHR is a wonderful start. The Price point of the Solstice is right on The Price point of the z06 is probably too low, but whatever thats good :) The price of the GTO... BAD Sure the GTO might sell, but its too expensive for what you are getting, there isnt a legacy that someone ought to pay into the GTO... (atleast not a realistic tie between the new and old) The Colordo I think is over priced, the Silverado probably a bit overpriced, Aveo Cobalt are probably the right price maybe a bit lower, but nothing outstanding like the HHR or Solstice

[Northstar]

Are you sure you responded to the right post? I wasn't talking about the Kappa or the 3-Series, but you do make some good points.

[post="12322"]<{POST_SNAPBACK}>[/post]

I guess you didn't say they should make a Pontiac Kappa 3-Series, but I was just giving an example of why you shouldn't engineer a vehicle to be perfect unless it's for Cadillac (or Buick maybe) and can demand the price you need to pay off your investment.

[capriceman]

:unsure: this is one of those articles that can go both ways yes right or no wrong. its through the eyes of the reader. yes and no can be said about this article. i could go on and on but il mention a few points, if GM wants to suceed they need to make the cars they already have sell not make a new one. Dealers arnet helping with that. and medical they should have only things that are nessisary like heart stuff no fat lossing pills or weight loss programs or pay for viagra or plastic surgery unless the person will die from it. only certain medical and denistry. like no ciropractor just for relief only if you need it to survive. take more out of pay checks for it and offer plans like basic health for younger employees and advanced for older like nursing home care and stuff like that. or make there own medicine and save billioins a year. also they need to stop wasting money in companies like delphi and fiat. keep wut you have and treat kirk like shit tell him to go f him self he'll drop his shares to get rid of him. also slow prodution rates dont make 50,000 cars a day make wut is need if somthing is built slowly the quality too most likely so you dont have millions of worthless inventory and steel wasted on the lot. and improve dealers wright ont the sticker that you put on the factory if they charge you more than the msrp and wut it is said on our website call us email us and we will personaly come to your house with that same car and sell it to you for a less price of wut the dealer takes out that will stop car price raping from dealers. Expand GMAC. Expand EDS. Expand other companies like goodwrench come inter changeble like make quailty parts for like other domestic cars. also try non intended marketing ( like have a GTO CHARGER AND MUSTANG GT race like drag then on a auto track or have all truckss like a 1500 silverodo dodge ram f-150 tundra ridgeline have a weight pulling contest and dyno tests then at the end of the comerical post the results and end it.) no one at first would relize who made it and see like the Gto winnig and thinmk its the better car. it would be to me better than hearing "buy gm buy chevy buy pontiac". start campaigns that speach how bad out sorcing and buying from other countries and having free trade agreements is to our country and Workforce future. say if you buy a import car that means 20,000 americans dont get a check this week. or how is you SSC is depentent on only american companies. if you buy a improt car that means you should go to that country and try to get your SSC check from them. be radiacal but do it in private. i could go on and on but "I" or "me" (capriceman or C&G just poeple with the power we were given the right to say what we want and who r we to say we are right how are we right to say democracy is right) is not a team..........

[capriceman]

(also build refinerys do to the lack that we have that will drop prices in gas.)just try to stay even with losses an gains profits r always good but to much is bad. Toyotas day is coming dont worry remember GM was the richest company ever then they lost billions they can come back just aplly yourself. they will lose billions one day.) but who "am i" to say im right i just have radical ideas that i think will save are country not only GM but all small bussiness that want to compete in the global market stop having wallstreet fat cats run this country try to stopp them but im not a team thats just me..........................................

[Mule Bakersdozen LS]

The HHR is going to sell and I'm seeing quite a few in my area-I'm seeing a good number of H3's, a couple G6 coupes on lots (they wasted so much space in that its not even funny-too expensive as well), and I'd like an Opel Rekord Kappa, over the Pontiac. I bet it would look good if done right. Maybe send it over here, but have it emulate the 3-Series, but at a much lower price, and have equivalent or more passenger and cargo room.

[-Camaro-]

Same with the HHR, which can be pumped out in high volume and is a very "cool" car, but admittedly or not, clearly a carbon copy of something Chrysler already rocked the world with years ago...and is now not doing so hot with.

Some of that article seems very promising, but I guess we'll have to see for sure in the coming years....you know, per GM way, "You gotta wait 5 more years, THEN you'll see... :lol: "

[post="11869"]<{POST_SNAPBACK}>[/post]

Yes and a Malibu is a carbon copy of an Intrepid.....

In case you don't get what I'm saying, it means just because it's in the same class does NOT mean it's a copy. I guess all sedans are carbon copies, because they all have four doors and compete in the same market..... The HHR CLEARLY has no design cues from the PT Cruiser, except it's the same type of vehicle in the SAME class. Using your logic a CTS is a copy of a Taurus....

[IbuyGM]

You know, it would be great for GM to come out with all these cars that are awe inspiring to us, like a Camaro, or an old Nova, but seriously, we are one fraction of what GM markets to. We are car guys and women. The number 1 and 2 selling vehicles are the Toyota Camry and the Honda Accord. The majority of people who buy are vehicles are familes, looking for family cars. FWD, great gas mileage, and a distinctive look. Thnk about it, it costs 1 billion dollars to start an assembly plant. So Wagoner and company can say, yeah, lets build a Camaro at the plant with a possibilty of selling 40,000 a year, or a family sedan, that will sell 400,000 a year. We have to think like that. The average GM assembly plant produces roughly 16,000 (2 shifts) vehicles a month. So after 3 months, the Camaro plant has nothing to build. But okay, so you add a couple of other niche products to be assembled there. They are a success for awhile and then bam, the market is no longer there, so you add crazy incentives and then layoffs. Unfortunately, that plant is still costing money along with the workers. GM needs to build profitable vehicles, not play catch up with whats popular right now. The GMT 900 should be a success, if gas goes down or if/when the hybrid comes out. I think Wagoner is on the right path. Mark Laneve did wonders for the Cadillac brand and is currently leading GMNA towards the right path. GM has been much worse off before, and they will survive. Like a report I read said, GM has third most amount of cash on hand at 30billion dollars, well 27.5 after the 2.5 billion loss of the first two quarters. I have faith Wagoner will get the job done and he will be forever named as a GM legend.