A Conversation with GM North America President, Mark Reuss

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At the auto show yesterday, I had the opportunity to participate in a round table discussion with GM’s recently appointed President of North America, Mark Reuss. Reuss was a pretty down to earth guy who had worked his way through the engineering and product side. He described spending Fridays actually doing vehicle drives with engineers to stay in touch with the cars. Reuss had an ongoing banter–which I think had started on Twitter–with some of the auto bloggers who also attended the conference.

He listed three things that are his top challenges for 2010 (where I use quotations, they are my rough transcriptions of what Reuss said).

  • Getting through dealer legislation with integrity and transparency. As I’ve covered a number of times, as a result of pressure from Congress, GM and Chrysler are going to review the decisions about dealer closures they made last year and give dealers an opportunity to arbitrate those decisions. Reuss saw this as a huge opportunity to make sure GM had the right size of dealer network. To make these decisions, he envisioned he’d be working through every dealerhsip, working through that every day. Reuss said the criteria for the decisions would be dealer throughput, the dealer network in the area, and the customer satisfaction for a given dealer. Reuss did say he though GM’s relationship with the dealer body is very very good.
  • Change the perception of North American customers of what this company is about and what it’s going to offer. About GM’s new products, Reuss said (roughly), “We’ve got product now that we haven’t had in my career. I don’t want to say it’s competitive, I want to say it’s winning product.” He talked about the trust that GM will need to build after having gotten loans from the government and gone through bankruptcy and hoped to build that trust by using his own behavior to model a customer focus. He talked about hoping to use social media like Facebook to become more responsive to customers’ problems and concerns. “How can I ignore someone who sends a message to our inbox that they can’t get their Terrain?” he asked. He described one recent example of a person who bought a Cobalt, where a couple of engineers drive 8 hours to State College to repair a wheel house liner, and clean the car up.
  • Position the cars better from a market and advertising standpoint. Reuss talked about making smarter decisions with media and advertising. Particularly on point, given all the concerns about bailed out companies sponsoring bowl games and the like, he said, “I don’t think the most efficient [advertising] spend for us as a company is sponsoring a big event. I really do think the most efficient spend is at grassroots events. On the coasts in particular. If we show people at a Little League baseball game what the car is, there are going to be some people that are interested in our cars. There’s a whole generation of people that we have an opportunity with to teach the new GM.”

Read more →

The Lobbyists That Brought You Telecom Immunity

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Tucked into an article on GM CEO (and former AT&T CEO) Edward Whitacre’s promise that GM will return to profitability is this tidbit:

Last month, G.M. hired two former AT&T executives who had worked with Mr. Whitacre to run its Washington office.

Mr. Whitacre said he felt G.M. needed to improve its image with some lawmakers who had opposed its government bailout. “I think we need to take a new look at our relationship with Congress,” he said.

Whitacre retired from AT&T on June 3, 2007, just as the industry redoubled its efforts to win immunity for cooperating with the Bush Administration’s illegal wiretap program. So presumably, these two people are the same people who managed to win AT&T immunity for its crimes. Back on the job, buttering up Congress on cars.

Now, to be fair, I absolutely agree with Whitacre that some members of Congress opposed the GM bailout out of ignorance, particularly, of GM’s already-started efforts to turn around. As well as an overall ignorance of how the auto industry works (not that I’m confident that either Whitacre or these telecom lobbysts know anything about that yet).

That said, Whitacre seems to have tied Congressional support to reversing the decision on closing some of the GM dealers.

Mr. Whitacre also said he expected that “a large number” of G.M. dealers who had been jettisoned during bankruptcy were likely to be reinstated through an appeals process approved by Congress.

He said that G.M. made “some mistakes” when it cut more than 1,000 dealers, and that some would be welcomed back if they were reinstated through appeals.

Other dealerships that were cut might not get the same welcome, even if they win their appeals. “If they were a lousy dealer with a lousy storefront and they are put back, that wouldn’t be a good thing,” he said.

As I’ve explained before, the need to close dealers stems not only from a need to get rid of the “lousy” dealers, but also to trim a bloated dealer network to better compete with manufacturers that have newer, smaller dealer networks, like Toytoa and Honda. Yet Whitacre here seems to have given up that goal in an effort to placate Congress.

The best way to improve Congress’ (and consumers’) impression of GM is to improve the overall brand. And one thing contributing to GM’s crappy brand image (as well as its crappy profitability) is the fact that consumers expect to get huge rebates every time they walk into a GM dealer, which is partly caused by the bloated dealer network. That’s why you need lobbyists in Congress — to explain why GM needs to trim both lousy and average dealers if it wants to be competitive with the Japanese manufacturers. But it doesn’t look like that’s what Whitacre has in mind.

Note: I’ll be spending quite a bit of time early next week with GM folks at Detroit’s North American International Auto Show. Anything you want me to ask about your taxpayer-owned auto company?

GM Brings Flint, MI to China

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In one of my favorite posts on the risks of a GM collapse, I described the risk of GM’s Chinese partner buying up GM’s American brands.

I was talking with mr. emptywheel about what one of the bad–but by no means worst–case scenarios in a GM bankruptcy would be. This scenario is just one of several that might happen–by no means guaranteed, and Congress would fight the scenario at every stage, though with increasingly less leverage. But it is a scenario that follows a great deal of logic about possible outcomes. It is this scenario, though, that explains why both Toyota (I’ve seen reported–looking for the link) and many in Congress want to bailout GM before it gets to bankruptcy.

Here’s the short version: more details below.

  1. GM files for Chapter 7 bankruptcy
  2. GM’s Chinese partner, SAIC, buys much of GM (Buick, Chevy, Cadillac)
  3. GM/SAIC starts importing Chinese-made Buicks and Chevys, undercutting Toyota’s cost advantages
  4. GM/SAIC owns the Volt technology, requiring US firms to lease it if they wanted to use it

Which is why my stomach turned at the news that GM is about to cede majority control over its Chinese operations to SAIC.

G.M. has become the second-largest automaker in China mainly through a 50-50 venture with S.A.I.C. that makes a wide range of G.M.-designed cars. Under the deal being completed, G.M. would sell a 1 percent stake in the venture to S.A.I.C., raising the Chinese automaker’s share to 51 percent, although G.M. would retain equal voting rights in company decisions and have an option to buy back the stake later, people with knowledge of the transaction said.

Michael Dunne, an auto consultant specializing in Asian markets, said that for G.M. to accept a minority holding in its main joint venture marked an inevitable decline in G.M.’s influence in China, which has overtaken the United States as the world’s largest auto market.

“Dropping below the 50-50 partnership is huge — there may be a way to preserve voting rights, but symbolically, it is a step down,” Mr. Dunne said.

G.M. is separately putting its Indian operations into a new joint venture with S.A.I.C., effectively selling about half of the operations to S.A.I.C. as well.

China will continue to use this moment of weakness (for the country as a whole, not just for GM) to take over our equities in international trade. And few people seem to be watching.

Fritz Quits

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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. Read more →

Trashed: Formula One No Longer Made In Japan

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As you all might know, we here at Emptywheel are car people. And one annoying thread ran common as a persistent undercurrent through all of our auto and auto bailout coverage over the last year, and that was how pitiful and incompetent the American marques were, how much they deserved their fate and how awesome the Japanese brands, especially Toyota and Honda, were in comparison. This was incredibly disturbing because, as rudimentary as rolling iron seems on the surface, the automotive industry is incredibly complex and vertically integrated; it simply is not amenable to to simplisms and truisms that were bandied about in those tumultuous days.

Sadly, it is a meme that persists even today in spite of the fact that all manufacturers, very much including those in Japan, are sucking air and taking on water. And, no, their cars are not that much better either, they have quality and safety problems too.

For all of its ballyhooed efficiency, quality control and supposed relative superiority, the Japanese auto industry always was built on the shoulders and technology of the American manufacturers; they wanted the sales sector of the Americans and the aura of the Europeans. Since the Japanese marques first started their meteoric rise in prominence in the 70s, the holy grail for them was to compete and win on the highest stage in the world. Formula One. But the wake of the global financial meltdown has trashed their fortunes, and their goals, every bit as hard as it pounded the American car business. The pursuit of the holy grail is over, first for Honda last December, and now for Toyota:

Toyota announced Wednesday that it would give up its prized Formula One racing team in an effort to slash costs, refocus the company on green cars and turn a profit amid continued weakness in the auto sector.

Toyota, the world’s biggest automaker, joins a growing exodus of Japanese auto companies from racing, highlighting the woes facing the country’s once cash-rich manufacturers. Honda pulled out of Formula One racing in December, while the tire-maker Bridgestone said this week that it would not renew its exclusive deal to supply tires to the series when its contract expires in 2010.

Subaru and Suzuki pulled out of the World Rally Championship before the season, citing concerns about the global crisis, while Kawasaki is quitting MotoGP, the top motorcycle competition.

“I hope you will understand that based on the current business environment we have no choice but to make this very painful decision,” Akio Toyoda, the Toyota president, said at a news conference in Tokyo on Wednesday. “To all fans, I apologize from the bottom of my heart.”

Akido Toyoda literally cried as he made the announcement. Make no mistake, there was cause; he, Toyota and Japan had all lost face with the withdrawal from Formula One. The Japanese do not take Read more →

Building the New Economy Conference

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A couple of days ago I pointed out how Steve Rattner, Obama’s auto czar, was absolutely blind to the degree to which his impressions of the auto industry were true, too, for Rattner’s own finance industry. That highlighted an issue I’ve been trying to focus on (between covering Obama’s cover-up of Dick Cheney’s crimes): the huge imbalance in our economy.

I’ll be heading to DC tomorrow for a conference that tries to address that issue, “Building the New Economy.” As Scott Paul, who’s been leading these issues, says,

But chalking up the blame to a few bad apples on Wall Street and their risky financial instruments, and responding by simply providing appropriate regulation in the financial services sector, will ultimately be unsatisfying. There are much deeper, structural issues which must be urgently addressed. Otherwise, the absurd positive feedback loop will continue: consumer debt, subsidized Chinese imports, American job loss and factory closures, the growing U.S. current account deficit, burgeoning Chinese currency reserves reinvested in American debt … These will only inflate new bubbles and reinforce our current problems.

Some of us warned that this day would come. We knew that an economic strategy predicated on replacing wage growth with debt and credit to maintain a certain standard of living was doomed to fail. We knew that this nation could not replace manufacturing jobs and their multiplier effect, as well as their positive impact on the trade balance and wealth generation, with lower-wage service and retail jobs.

If you’re in town, stop by–some cool bloggers–and people like Sherrod Brown and Richard Trumka will be there.

Hopefully, we can fix health care then start talking about how Americans can make something again.

Biden To Announce Fisker Auto Plant In Wilmington Delaware

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imagesVice President Joe Biden is set to make an appearance in his home state of Delaware today to make an announcement that Fisker Automotive will be purchasing, retooling and opening up operations in a shuttered former General Motors facility in Wilmington. From the Washington Post:

Vice President Biden will make the announcement that Fisker Automotive of Irvine, Calif., is expected to invest $175 million to retool the plant.

Fisker, which will pay the old GM $18 million for the facility and equipment, is getting tax incentives from the state of Delaware, although officials there declined Monday to say how much.

Fisker plans to make a car in Delaware that is being developed under the name “Project Nina” after the ship belonging to explorer Christopher Columbus. Russell Datz, a Fisker spokesman, said that the project’s name is meant to be “symbolic of the transfer from the old world to the new in terms of auto technology.” The car is expected to cost about $39,900 after tax incentives.

The Fisker facility is expected to create 2,000 jobs and will likely be operational by 2011. Administration officials said the deal will indirectly create another 3,000 jobs once the plant is fully operational, expected in 2014. Administration officials say that Fisker expects many of the jobs will go to former GM or Chrysler auto workers.

Time will tell, but on the front end this looks like a wonderful deal in a lot of ways. Fisker is a company that has been putting the pieces together behind the scenes for a couple of years for a major production move, and their initial prototype, and soon to be production model, the Karma, is absolutely stunning and, from all reports, technologically sound. Wilmington is an area that, while not as hard hit as Detroit, is certainly depressed and has been further decimated by the recent closing of the large GM plant there as well as a separate Chrysler plant. When fully up and running, the Fisker Nina plant in Wilmington may Read more →

Rattner’s Bailout

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One key to reading Steve Rattner’s long narrative on his role in the auto bailout is this passage:

I was stunned by the suggestion that the government, GM’s only source of fresh capital, was somehow out of bounds for asking for the resignation of a CEO who had lost $13 billion of taxpayer money in three months and was now asking for more. But rightly or wrongly, the concept of Washington extending its iron fist to an industrial icon proved unnerving to more than just the Wall Street Journal editorial page.

It’s a thoroughly uncontroversial statement, presented as it is out of context. Of course the government had a right to ask Rick Wagoner to step down. Of course it made sense to ask for the resignation of a failed CEO sucking at the federal teat.

What didn’t make sense, of course, is that similar demands were never made on Rattner’s own industry, the finance industry, when it not only sucked far more federal dollars but laid the final straw that broke the auto industry’s back. And Rattner, who describes the outraged response to his complete lack of automotive experience as well as his close friendship with Jimmy Lee, who managed the Chrysler negotiations for JP Morgan Chase, seems utterly oblivious to that double standard (in spite of the frequency with which it was raised by those complaining about the bailout). Rattner mocks the arrogance of GM’s top management–with their private elevator–but doesn’t note that the auto execs, but not the bank execs, were forced to give up some of those perks by the government.

Which is another way of saying that the rest of the narrative tells of Rattner’s team’s shrewd use of financial arm-twisting to pull off the fast-track bankruptcies, without giving much confidence that the auto task force ever came to understand the auto industry well enough to weigh what came next. Did the auto task force really not understand the auto supply chain going into the bailout, with its huge impact on the economy? Did the task force really not know that Chrysler had no product in the pipeline? Did the task force really only weigh Fiat based on Sergio Marchionne’s “drive to win” and Fiat’s “advanced products … small, stylish cars and fuel-sipping engines,” with no consideration of Fiat’s own quality problems, not to mention how long it takes to adapt a European car to the US market? Was the task force unaware that GM’s huge debt load came partly from attempts (however inadequate) to conduct a turnaround? Did the task force really not account for the political meltdown that dealer shutdowns would cause–and did they really not factor the need for shutdowns both into brand turnaround and the need for bankruptcy? Does Rattner really believe the halo effect of a car like Prius or the Volt is no more than PR?

In short, even after the auto task force pulled off what I consider a least worst solution, I’m not convinced Rattner, at least, fully understands the market.

Which means this is a very informative narrative about how the banksters pulled off the auto bailout–a perfectly targeted story for Fortune’s readership. But just as much it is a testament to the ignorance of the banksters–not only about the real economy, but of how their own management is just as horrible and arrogant as that of the auto industry.

The Congressional Oversight Panel Report on Auto Bailouts: Dealer Closures

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I’m reading the Congressional Oversight Panel’s report on the auto bailouts (COP is the oversight entity headed by Elizabeth Warren). I’ll have more to say in a bit, but I did want to point to one of the most coherent explanations for why the manufacturers had to shut down so many dealers.

First, the Chrysler details (footnotes removed):

Chrysler announced that it would retain an “overwhelming majority” of its suppliers and would close 789 of its nearly 3,200 U.S. dealerships. These dealerships employed more than 40,000 people. State governments heavily regulate the relationship between dealerships and automotive companies, usually claiming that close oversight is necessary to equalize the bargaining power of dealerships and automakers. Generally, states only allow an automotive manufacturer to terminate a dealer contract if it has good cause. However, the bankruptcy process provided the automotive manufacturers with greater flexibility in terminating dealership contracts. Congress is currently considering a number of bills to restore the terminated dealers‟ contracts.

Both Chrysler and GM maintain that their dealer networks were oversized and that downsizing was necessary to regain viability. Domestic brands in 2008 accounted for about two thirds of U.S. dealerships, but only 48 percent of new vehicle sales. Chrysler, for example, has less domestic market share than Toyota, but even after its intended closings will have many more dealers [Toyota has 1502 dealers].

In 2008, Chrysler‟s dealers lost on average $3,431. By consolidating dealerships, the companies argue, they can drive more sales through more profitable businesses that can afford to invest in their businesses. The remaining dealers may also be able to negotiate more favorable terms with their floor-plan financers. This may in turn help dealers acquire more stock and sell it to consumers at lower prices, thereby increasing sales and profits for the dealers and for Chrysler and GM.

And here are the GM details:

GM subsequently notified 1,300 of its approximate 6,000 U.S. dealers that they would be closing by year end 2010, aiming eventually to trim its total to about 4,000. GM provided approximately $600 million in financial assistance in return for the dealers‟ selling down their existing inventory over the subsequent twelve months. These payments could vary widely based on each dealer’s situation.

Now, the report misses one key element–the one that dealers complained about constantly when I was doing a US dealer consulting project for an American manufacturer in 2007. If you’ve got a GM Read more →

Hell Loses Its Guard Dog

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cerberus.thumbnail.jpgAtrios baited me to weigh in on Cerberus’ imminent demise.

Investors in hedge funds run by Cerberus Capital Management LP, whose audacious multi-billion dollar bet on the U.S. auto industry went bust, are bolting for the door, clinching one of the highest-profile falls from grace of a superstar in the investment world.

Clients are withdrawing more than $5.5 billion, or nearly 71% of the hedge fund assets, in response to big investment losses and their own need for cash, according to people familiar with the matter.

"We have been surprised by this response," Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late Thursday.

And while I suggested I would keep my schadenfreude in check until such time as I got to see Cerberus’ Senate defender, Bob Corker, weep, I just couldn’t resist two points.

First, who the hell thought a financial institution in which John Snow, 43’s failed Treasury secretary, and Dan Quayle, 41’s laughable Vice President, had significant management roles would succeed? Sure, having Snow and Quayle on board promised that people like Corker would subvert the national interest in favor of his buddies at Cerberus. But even an institution wired into the best crony network must exhibit some basic competence.

And, too, I take some joy that this model of financialized predation has failed. Yeah, Cerberus is not singlehandedly responsible for Chrysler’s failure. But it is nice to see Cerberus pay for its efforts to suck some value out of a company by extracting its financial wing at the expense of its productive core.

It’s just a damned pity that so many real human beings have suffered in the interim.

(Photo credit: http://www.flickr.com/photos/puyo/ / CC BY-ND 2.0)