Fritz Quits
Or rather, Fritz Henderson, the CEO of GM, was pushed out last night.
As part of GM’s government-led restructuring, a majority of the board of directors was replaced when GM emerged from bankruptcy, and Whitacre was made chairman.
That new board has been questioning Henderson at every turn, skeptical that a 25-year veteran of the company had what it would take to bring about real change, the Free Press has learned.
And while Henderson had shown some results since GM emerged from bankruptcy on July 10, it wasn’t enough to impress them.
They sent a clear message to Henderson that it was time to go. He obliged with a letter of resignation.
Whether it’s a good idea or not depends on whether you think GM should have gotten rid of Opel and whether you think an old AT&T/SBC guy, Ed Whitacre, is the right guy to be running GM.
The board also balked at the idea of selling GM’s Opel division in Europe, which had been put together under Henderson’s watch. They unraveled the deal in the final stages and upset the German government, which backed the deal. Whitacre’s public comments in November about when the company might go public again also seemed to be at odds with Henderson.
Now, I expect bmaz to come in here and bitch about another ignorant MOTU coming in and pretending to know how the auto business works–and he may well be right.
But I remember how similar things were said of Alan Mulally (who came from Boeing), and he certainly stirred up Ford in a good way.
Here are my thoughts. First, I was up in GM’s Tech Center just after Henderson took over. And I could tell that at least at the product level, Henderson had a great deal of support. He had said GM was going to change its focus at the product level, and people obviously were buying in. So I do believe that Henderson had the leadership buy-in–among at least some GM employees–to do what needed to be done.
But I’m agnostic on whether shedding Opel ever made sense. I can see how proposing it made sense, in the short term of bankruptcy. But as with Ford, many of GM’s best product innovations have and will come from Europe, if for no other reason because the European market looks like what the US market needs to become. Plus, in the same way you need China to be a viable auto company in this day and age, I still believe you need Europe. That said, the Opel deal crashed in amateurish fashion, pissing off Germany while making the UK happier. I’m not sure pissing off Germany, though, is the way to compete in Europe in this day and age.
There are several other issues behind the forced resignation, according to the Free Press. First, GM’s sales weren’t where they should be, according to Whitacre. I’m not entirely sympathetic to that. The Cash4Clunkers came at a really bad time for GM–just after bankruptcy and too early to use it as an intro to the Cruze (and it took them a while before they pushed the Equinox as a C4C vehicle). And GM still suffers from dispersed branding. That is, I think it’s unrealistic for GM to make an immediate turnaround when the restructuring hasn’t gone through yet. It has taken Ford two years after it fixed its own branding to turn around, after all.
And then there’s the push to bring product to market more quickly.
Following the first board meeting in August, Whitacre said the board was asking whether future products could be brought to market quicker.
Now maybe it would be possible to bring out new products more quickly. Maybe there is merit to disrupting the very complex model year and product cycle schedules that every car company relies on to manage new product introductions.
But I worry that this push to introduce products more quickly will come at a price–the price of doing it right, both from an engineering perspective (you don’t want the Cruze to come out with all sorts of recalls, after all) and from a marketing perspective (if you introduce a product but don’t have the marketing budget to support it, it’s not going to do much good).
It may well end up being a good thing to get rid of GM’s old top management. It may well be that Henderson was insufficiently attuned to the realities of being a publicly-owned company. But that doesn’t mean that Whitacre knows fuck-all about the auto business yet.
Schedule before quality. That, more than anything else, is what caused my former company to be sold, downsized, cut apart, assimilated, and outsourced.
The Microsoft credo “Get it close. Get it out. Get it right. In that Order”.
I hope GM doesn’t follow that path.
Boxturtle (I can work cheap. I can work fast. I can work well. But only two at a time)
“Boxturtle (I can work cheap. I can work fast. I can work well. But only two at a time)”
The original version of this in the context of cars is this rule concerning racing wheels: cheap, light, and strong … pick two.
Pardon the O/T.
New Docs Shed Light On White House Role In CIA Tape Destruction
Zachary Roth | December 2, 2009, 9:20AM
“Bush White House officials met with top CIA honchos to discuss the agency’s torture tapes that later were destroyed, according to new documents obtained recently by the ACLU.”
Link.
Marcy was all over that last week.
What Jim White said–I spent days looking at that already.
Sorry. I thought it was some additional info. You were all over it earlier, and most thoroughly, too.
This worry, and your reasons for it, strike me as extremely legitimate.
And I don’t know Whitacre’s background, but Mulally absolutely came out of an engineering background — and as near as I can tell, had a terrific capacity to synthesize multiple fields of engineering (materials science, mechanical, electrical, etc) and grasp how they interrelate.
Best of luck to GMers.
Whitacre does have an engineering background. But that’s not the same as a manufacturing background which–yes–Mulally brought to the table.
Let the bitching commence. Actually I agree with most of what you have said (and in my best Stuart Smalley voice “darn it you know that!”). To me at least, it was not just that the Opel deal was scrubbed, it was the hamfisted way in which it was done. I can see your point about needing Europe, but Opel has been pretty lame lately; I don’t think their value is enough to keep them any more. But I could be wrong. From my perspective Holden is much more key to GM’s innovation and engineering at this point than Opel and keeping Holden alive and well and punting Opel would work out fine. There are plenty of avenues into Europe without continuing to own a faltering Opel.
If they wanted Fritz out and to transition, they should have done just that: transitioned. Instead it was a midnight putsch by an AT&T lifer MOTU that doesn’t know shit about auto manufacturing. I guarantee you this will not sit well with engineering, design and production folks that are the heart and soul of an auto manufacturer like GM. And you are dead on the money about the fear of speed over plan and quality. The way this was handled alone proves up that fear.
GM’s new board continues to underperform its predecessor, except that with this one, the whiff of investment banker pervades even more strongly than the aroma of manufacturing, marketing or operating financial hubris.
Mr. Henderson came out of GM’s elite Treasury Operations group. He knew the company, how to make cars and how to keep the car guys loyal to a company whose future appeared to be dependent on, um, making cars. He was the keystone to GM’s remaining global, internal, car-guy network.
The “I” bankers did the traditional I banker thing: they pissed on the trees in their patch, and chased off anyone not part of their pack. They lopped the head off their internal opponent’s network, which will whither. Its members now have no choice but to cave to whatever the phone guy or the top spreadsheet guy wants, or they go elsewhere, if they haven’t already. This “new” management, with presidential backing, has taken the worst leaf from GM’s old playbook and gilded it. What next, a new PDA in the shape of the latest Corvette?
Selling Opel made no sense – only if GM had the money to reorganize and energize it, and had the ability to stand off and give the Europeans enough head room to do it. They had neither, so they decided to sell.
The I bankers, already in control when that decision was made, but not sure enough of their control, let it happen. Months into one of the most complex divestitures ever, when it was clear someone could be found to do what GM had neither the money nor self-confidence to do, they pulled the rug, alienating virtually every constituency whose cooperation was needed to achieve the goal of turning around GM Europe and, ultimately, GM international.
Being typical I bankers, the new board must think it can do the same thing, but cheaper, and with their preferred lenders (dividing the cut in a way Goldman Sachs might) and junior partners. They may find that making and moving cars isn’t as easy or as exciting as writing code for supercomputers, conning the markets or co-opting the US treasury.
GM’s purportedly precision-engineered bankruptcy remains a problem. Only the “new” GM emerged at lightning speed, obviously a result of a complex bankruptcy scheme more than a year in the making. Some 1200 real estate properties and half a million – half a million – contracts, mostly broken, remain in the part of old GM that is still subject to the bankruptcy court’s protection. It will need it. (Pity that consumers, in an act of bipartisan largesse, have been denied many of that court’s protections.)
The partners, suppliers, customers, distributors and local communities stiffed by GM as it breaks or savagely renegotiates those half-million contracts – on the heels of GM’s broken (albeit not legally enforceable) commitments to Opel divestiture players – will not be uniformly enthusiastic about doing business with the new GM. Not if it behaves with the swagger and obtuseness of the old GM, with a fraction of its market power, and the stick-in-the-eye mentality of Wall Street.
SAIC and GM China remain the white knights in this SNAFU’ed environment. But Chinese money and support will not come cheap. They learned how to negotiate by competing among themselves and with the Japanese, not by lobbying a few US Congresscritters or even competing against Ford.
In reading the articles that EW provided links to, this struck me in the first.
“Part of the consideration, the Free Press has learned, was an initial public offering. If GM plans to go public again in the second half of 2010–
in order to impress potential investors with the new GM– the board felt that if it was to make a management change, it needed to occur now.”
So as earlofhuntingdon says in both 9 and 12 what cost Fritz Henderson his job had little to do with making cars, or making anything . It more likely was the I bankers telling him to make the changes in GM that will turn it into another Delphi IPO.
“In order to impress potential investors”
The ability to sort out who in the GM management can oversee a possible turnaround does not exist in the I bank community that is involved with GM.
The challenge of remaking GM is beyond the skill set and time horizon that I bankers use.
There is no tolerance for the mistakes that will be made in any GM turnaround. There is no patience for the time frames necessary to obtain meaningful results. THIS IS ABOUT GRIND IT UP AND SELL THE PARTS. Of course
the fees earned from at least one IPO are not necessarily a bad thing..
That’s another aspect of the Opel deal and the as-yet-to-be-completed reorg of GM. Bank fees. Not for checking accounts and operating loans. I bank fees; consulting & advisory fees; deal fees; stock, option and hedge fees, both in compensation and as attributes of self-dealing. The Goldman Sachs methodology at play.
Nixing an independently run Opel deal allows for it and/or the rest of GM to be restructured by different I bankers. Goldman would be the lead candidate on any deal(s) of that complexity and magnitude, including an IPO. Reneging on Opel may have been less because it wasn’t a good deal or to keep together an essential part of GM’s global ops, but because it wasn’t lucrative enough for the guys running and advising GM’s board.
Given the rapidity of the putsch, the lack of any “temporary” transition period for Fritz, and the relative newness of most of the board, it sounds like there were major personality conflicts at the CEO/board level as well as cultural and philosophical differnences.
Sort of:
Board: “You aren’t listening to us!”
Fritz: “You don’t know what you’re talking about.”
Board: “We are your Board!”
Fritz: “I am the Chief Executive Officer!”
Board: “Hasta la vista MOFU!”
Fritz: “Sayonara MOTU!”
I think that is, effectively, exactly what happened.
I think the disconnect is that Henderson thought he was running a car company. A phone guy, with Wall Street on one shoulder and the White House on the other, may not think that’s what he’s running or plans on doing. Slice, dice and sell seems a more likely scenario what’s in store for whatever remains of GM, but done according to a more lucrative plan than the fire sale of Opel.
Wall Street doesn’t own companies, it sells them. But selling Opel in a rush and letting it be seen that the divestiture was welcome by everyone but Detroit, was not a compelling way to display the new management’s bona fides or to dress up a company sufficiently so that her size thirteen foot will fit into some new acquisition prince’s glass slipper. Hence, changing their mind at the last minute to repackage the whole company more advantageously.
Part of the problem with the planned Opel divestiture may have been that the buyers wanted it all, including fewer liabilities and more key assets than the kind of package GM’s board had in mind. Everyone involved would have learned from the Delphi divestiture playbook: a badly designed divestiture that went into bankruptcy after a few years and took four years to get out, doing so only a few weeks ago.
The new Delphi has 14,000 employees, down from more than 50,000 pre-bankruptcy in 2005, and operates only four out of 44 US plants. The rest have been shut, returned to GM or sent offshore. That’s how Wall Street runs a manufacturing company.
Whitacre wants to stay a while (what a shock) and does not plan any more firings. From Bloomberg News:
Executive wordsmithing, like political speechifying, is an art. Scenarios aren’t the same as plans, contingencies, intentions or protocols. They all change in a heart beat, even assuming the statement isn’t an outright lie. No one from the outsourced executive washroom janitor to the floor of vice presidents will take comfort from such pro forma denials.
Ridding the new board of Fritz Henderson without having his replacement identified – or so employees are told – is typical reorg behavior. Cut the root, let his working network wither, imply everyone’s job is on the line. It makes it much easier for the new guy to establish his and the board’s own. Odds are good he’s already been privately identified.
I dunno about that; Whitacre and Treasury may want to run this all their way for a while, and Whitacre has already demonstrated his arrogance by doing that commercial, which, quite honestly, is the shittiest car commercial I have ever seen from an auto CEO. By a good measure. Remember, all their protestations to the contrary, the new GM Board are the direct tools of Geithner, Summers, Obama and, therefore, the other MOTUs.
And, back to Marcy’s post, I think the point about Mulally is a good one; but Whitacre is no Mulally, either in relevant background or charisma. Not to mention that Mulally was shepherded in by the Ford family member in charge at the time himself all nice, orderly and pretty like. Not so with the Whitacre putsch.
I agree about that commercial. The script is silly; the flow, photography and music are poor. Whitacre’s body language is stiff. He can barely walk, let alone get in or out of a company car. He looks like a hit man who’s done too many jobs, not a character who would reassure lenders or employees, host governments or potential car buyers.
This is the start of the slash and burn.
This is Whitacre telling the gullible via Bloomberg he intends to “learn about the car business”. That’s not what new CEO’s do when taking on formidable challenges in an industry they know nothing about, and under a short time line imposed by himself and new, private shareholders. They do what they already know, what got them the job as an outsider who didn’t know the industry already.
I agree that Whitacre wants to make GM “his baby”. He wants a no. 2 executive who will say, “How high?” when he says “Jump”, someone who won’t have superior knowledge of the company and how it works and how it might be “turned around as a going concern” – an oxymoron to Wall Street. Henderson would have always been a competitor for employee loyalty and board influence. Now he’s not. Whitacre is about to make Sherman’s march to the sea look like a picnic.
I actually think that, between everything GM had long had in the pipeline, both production wise and streamlining/efficiency wise, coupled with the advantages they have received by the bankruptcy windfall the government engineered, GM will still do okay in the short run even if Whitacre screws the pooch. There are a lot of positives there (let’s be honest some negatives too, but the positives outweigh I think); but the long term I fear for. And the short term performance is not of Whitacre’s doing; that is, again, due to the BK advantages and what GM was already doing. I dunno, hopefully I am wrong, but I really don’t like this so far.
There is one other consideration. With Fritz gone, the only marketable face GM has left to the actual auto people is Bob Lutz, and he will bolt in a heartbeat if he thinks the wrong car decisions are being made. Lutz is very comfortable with the big money wheeler dealers, but he is, first and foremost, a car guy all the way. And he does not need the money or grief. If they were to lose Lutz in any short order in addition to Henderson, they will have a potential real mess.
His time horizon may be the most revealing issue related to Whitacre’s tenure. Telecomms are about government contracting for infrastructure investment, revenue and licenses (especially given the demands of the national security state). Product and consumer-wise, they are about short turnaround, disposable products and very sensitive, short-term cash flows. And they are about reaping and commercializing increasingly greater data flows from customer activity.
Automotive has much longer lead times, and product and manufacturing complexity, and more durable, earned customer loyalty. Whitacre is more likely to impose what he knows on the “new” GM than to learn much from it or about its industry.
There is not much time for Mr. Whitacre to learn about the auto industry, nor for him to learn about the complexities of modern product development and manufacturing. So much of what a person would need to learn is the past history of what went right, what went wrong and why these events occurred; (Also the organizational issues that played into the historical events).
A person at the board level of GM should never expect to be told enough of such truths ( along with the associated credits and blames) to learn enough to be able to run a turnaround. There will never be enough honesty in any situation, much less a struggle to survive as GM faces.
On the topic of high finance and fees, an interesting thing happened when Delphi sank in 2005. There were CDS (credit default swaps) that needed to be unwound. Article head in Forbes.com “Hedge funds have gotten rich from credit derivatives. Will they blow up?” Date 10-16-2006 by Daniel Fisher. LINK http://www.forbes.com/forbes/2006/1016/040.html
From the article ; I recommend reading it in full as Delphi,GM and Ford are featured, the following quote:
“Hedge funds and other smaller players are much more exposed. Like swaps on interest rates and foreign currency, credit swaps outstanding dwarf the underlying bonds in circulation. That can be a problem when a creditor defaults, as with Delphi (nyse: DPH – news – people ) and other auto parts makers earlier this year. With most swaps, the buyer of protection has to hand over defaulted bonds to get its money, tough to do if, as with Delphi, $20 billion in protection has been written on just $2 billion in bonds. Calamity was averted by the International Swaps & Derivatives Association, which held an auction to determine the amount of cash protection buyers would get.”http://static1.firedoglake.com/common/images/editor/bold.gif
Mr Mulally had the skills and experience from his Boeing years to enable him to deal with the Ford situation. The presence of Whitacre will be a good thing if he hires Mulally, or someone with his qualifications. I do not think he will, although I hope that he does.
If GM simply follows, in a quality fashion, what they were already doing, I don’t think there is much of a “struggle” at all. The handcrafted BK the government forced through set them up to be an absolute killer if the economy turns around. But the economy is not within GM’s purview to fix and that is the wildcard.
Well.. yeah.
I have serious doubts about the ability of all the participants in this situation to work to any common goal such as is necessary for GM to significantly survive.
The economy is not their friend. How long the dealers will be able to stay in business with the debt loads they carry for their buildings and other physical investment has to already be a serious issue.
The concept that GM will proceed to hit home runs nearly ever time it is at the plate.. I’d like to think so, but..
Even aside the benefits to GM from the prepackaged bankruptcy; the necessity to rework the entire supply chain, and successfully design, manufacture and sell new product will be a challenge.
The production difficulties will be significant.
Not only is Whitacre former AT&T, he’s also a RED RAIDUH. (Hence the AT&T name on a football stadium in the middle of nowhere Lubbock, West Texas). Also, plenty of connections to the former Bush II administration, which explains the Rove/Hughes/Gonzo connection to TT.
The AT&T corporate workspace is a very different place from GM, I imagine, in that a utility simply doesn’t have to compete in the market in the same way that a car company does, although that is really changing right now. I agree with bmaz, that commercial was a big arrogant for someone who is so new.
B-bu-but swagger and bravado worked so well for Dubya …
My point is that Wall Street seems unlikely to hang around long enough to reorganize companies, let alone to revive a manufacturing company with the history, problems and opportunities of General Motors. The time frame required might be a decade rather than several quarters.
Wall Street, with few exceptions, doesn’t plant a crop, it strip mines. Politicians, the other half of the GM ownership crew, have even less patience. Product cycles don’t match election cycles and market competition among auto companies is different than among telecoms.
GM might well reorganize to success. I hope it does. But cost cutting and staffing it as if it were a corner drug store, scarfed up by CVS, would not be a great start.
Seriously folks, we should open consulting arms of Emptywheel – from Autos to Constitutional Law and sell this wisdom … I call dibs on the ‘Emptywheel Suds & Scotch Board’
I’ll just have the whisky, neat please.
For the car people. This has to do with an odd combination (Alfa Romeo, FIat and Chrysler) about which I know nothing, but I thought some of you might be interested.