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GM Squanders What Tax Payers Gave It

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Let me say at the outset that the GM bailout was far, far better handled than the bankster bailouts. And as a Michigan resident whose family still has ties to the auto business, I am tremendously grateful for that bailout.

That said, this is why I have not declared mission accomplished, in spite of the successful IPO last year.

You see, no one will be able to weigh the success or failure of the GM bailout for another year or so–until such time as the cars developed entirely under the leadership team picked by a bunch of people who knew nothing about the auto industry start rolling off the lines. As I noted last year, the success of the IPO was significantly premised on a number of business decisions made by Rick Wagoner and others fired during the bailout. Wagoner deserves the credit for his emphasis on China (and places like Brazil), which is the biggest source of GM’s profit these days and was widely touted as the reason it made a good stock buy. And Bob Lutz deserves the credit for GM’s improved product line.

So we won’t know whether the bailout succeeded until we see whether the guys now in charge can make decisions that are as smart as those made by the guys fired in the bailout.

Yet, as MSNBC lays out, thus far, it looks like the finance guys Steven Rattner brought in to run a car company have, predictably, made some really stupid decisions.

[GM CEO Daniel] Akerson recently told the Wall Street Journal that a GM car was just like the can of Diet Coke he was drinking during the interview.

“It’s a consumer product,” he said. “GM has to start acting like a consumer-driven, not engineering-driven, company. We sell a consumer product — our can just costs $30,000.”

Industry insiders with a memory of the 1990s immediately blasted this view as a return to [GM]’s failed [early 1990s] strategy to commoditize a product for which a strong emotional connection is important to drive sales and to cultivate brand loyalty.

“The only difference between GM then and GM now is that this is a company that has only recently emerged from the abyss of bankruptcy, one that can ill-afford a single misstep brought upon by misguided leadership, even though it has the most competitive lineup (of vehicles) it has had in decades,” [auto writer Peter] Delorenzo said.

It’s one thing to try to sell sugar water with nothing more than emotional attachment. But so long as there are well-engineered vehicles like Hondas on the road, you can’t dismiss the importance of engineering in designing cars.

In addition, Akerson (like Ed Whitacre before him) is trying to cut the time to market for GM’s cars.

Now Akerson says speed and cost are the aspects on which he will concentrate, telling the Journal that “during World War II, GM produced tanks and equipment within four years. Why should it take four years to put a car out?”

There have, historically, been two models for cutting the time to market for cars. There’s the model Chrysler used in the late 1990s, which led to the introduction of things like the PT Cruiser that were cute but which weren’t really good cars; that’s one of the things that led to a serious decline in Chrysler’s quality. Then there’s Toyota’s quality driven approach, which has served as the standard for Ford and GM in recent years as they have accelerated their own development time frame.

But as Toyota’s recent troubles show, not even Toyota can make cars in as short a time frame as they do and ensure their quality. What makes Akerson think GM can do what Toyota can’t?

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Happy GM Day.

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Wall Street and the Administration are hailing the GM IPO and claiming victory.

General Motors Co GM.UL pulled off the biggest initial public offering in U.S. history on Wednesday, raising $20.1 billion after pricing shares at the top of the proposed range in response to huge investor demand.

GM sold 478 million common shares at $33 each, raising $15.77 billion, as well as $4.35 billion in preferred shares, more than the initially planned $4 billion.

Including an option that would allow underwriters to sell more shares, expected to be exercised in coming days, GM looks set to raise $23.1 billion, making it the biggest initial public offering ever.

The strong response to the stock sale reflects a groundswell of investor confidence that GM is moving beyond its unpopular, taxpayer-funded bankruptcy in June 2009 with sharply lower costs and higher profit potential.

Now, don’t get me wrong. I will always remain grateful that Obama bailed out the auto industry, and I am a direct beneficiary of that policy. And I do think many of the decisions and actions Team Auto took last year–most notably the fast track bankruptcy–were the right decisions, incredibly well executed. And I think the cars currently in GM showrooms are good cars.

But this IPO is no great reflection, one way or another, on the success of the bailout.

Indeed, it may be something far worse. It may be a propaganda stunt that will allow the banksters–the ones in charge of the bailout, as well as the current private equity CEO, as well as the firm which consulted on the IPO whose Chairman is auditioning to take on a top advisory role in the Administration, as well as the big banks involved in the IPO whose TBTF status the Administration has fiercely protected–to claim victory. And of course, every single one of those banksters has a huge incentive to create a stunt that will allow the Administration to claim victory. But that won’t say much about or do much to ensure GM’s long-term value.

Mind you, I hope that’s not true. I hope the universe of possible car buyers believe that GM’s cars reflect a value of $33/share or more (the banksters think they’ll be able to drive up the share price in the coming days). More importantly, I hope GM sustains recent improvements in their product line even as the new top executives–particularly the ones who had nothing to do with the currently improved products who have changed the process and people that produced those cars–remain in charge.

But we won’t know the answer to that question for another 2 years or so. And we won’t know whether GM will improve its brand image enough to make cars more profitable for some time yet, either.

And, too, I hope those banksters driving up the price of GM’s stock keep that stock for the long term. I hope this doesn’t resemble a 90s style, pump and dump, IPO. But we won’t know that for a little while either.

What we know is that the bankster-CEO pointed to lower costs (which the bailout did make possible) and GM’s strong position in China (which the purportedly failed Rick Wagoner implemented long before the bailout but which didn’t, by itself, do much for GM’s value before the bailout) in his pitch for the IPO.

In a road show for investors spearheaded by GM Chief Executive Dan Akerson and Chief Financial Officer Chris Liddell, the automaker has emphasized both its sharply lower costs and its exposure to key growth markets like China.

But it’s not clear he said much about the cars. The cars that, one way or another, will ultimately determine the success or failure of the bailout.

In other words, what this IPO seems to reflect is the successful sale of a new balance sheet tied to a market mix that, before the bailout, Wall Street was none too impressed by. It seems to reflect the enduring belief on the part of the banksters that the only value worth measuring is that determined by Wall Street, and not that value measured by the ultimate consumers of a product.

The GM products shepherded through by Rick Wagoner and Bob Lutz are selling well at stores. The GM balance sheet shepherded through by Steven Rattner is selling well on Wall Street.

But what remains to be seen is whether the cars produced in two years by the development process implemented by Ed Whitacre and Dan Akerson will sustain and increase the value of cars in showrooms to match the $33/share value pitched by the banksters.

Good luck and happy GM day.

Bob Lutz Hangs Up On Ed Whitacre’s GM

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The inevitable has been announced; Bob Lutz is leaving Ed Whitacre’s new General Motors. From the New York Times:

Vice Chairman Bob Lutz will retire from the automaker effective May 1, people briefed on the plans said on Wednesday.

Lutz, 78, had been serving as a senior adviser to GM Chairman and Chief Executive Ed Whitacre after shelving retirement plans to take charge of the automaker’s marketing after it emerged from bankruptcy in July 2009.
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The announcement comes a day after GM shook up its sales and marketing operations in its home market for the third time in five months.

Lutz was charged with overhauling GM’s marketing efforts under former CEO Fritz Henderson, but he appeared to have been sidelined by Whitacre, a former AT&T executive brought in by the Obama administration.

In late February, Whitacre named Stephen Girsky, a former investment banker, as special adviser and vice chairman in charge of corporate strategy, a move that raised questions about the tenure and role of Lutz.

And it really was inevitable. Last December when Fritz Henderson was unceremoniously dumped in a midnight putsch by Ed Whitacre, the former corporate phone boy from AT&T, we had some things to say here. Marcy, noting Whitacre’s professed desire to ram products to market quicker – to do everything quicker – observed:

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).

And I commented that the Whitacre putsch had other consequences too:

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.

Well it turns out the thoughts may have been prescient. And make no mistake, Lutz is in fine health and as active and ornery as ever; he is leaving because Read more →

GM's Dick Cheney and TARP Loans and Chinese Cars

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Yesterday, GM announced that Ed Whitacre would stay on as CEO, meaning Whitacre had pulled off the same stunt Dick Cheney pulled in 2000 when Cheney searched and searched and searched only to discover he was the best man for the job.

“I certainly didn’t come into this with that intention,” Whitacre, 68, told reporters yesterday in Detroit. “You sort of get pulled in. I didn’t know this was going to happen to me. In fact, I planned for it not to happen.”

[snip]

“The longer Whitacre was in that role, the more comfortable he became,” said Maryann N. Keller, senior adviser with Casesa Shapiro Group LLC in New York. “Circumstances propelled this decision. No one else would take that job with Whitacre in that role as an aggressive chairman and with a new CFO already in place.”

Directors reviewed the progress of the CEO search at the Jan. 13 meeting in Detroit, their regular monthly gathering, two people familiar with the matter said.

Initial efforts by GM’s search firm, Spencer Stuart, didn’t turn up any top prospects with manufacturing experience whom the automaker wanted to hire over Whitacre, said the person familiar with those deliberations. The board also concluded that Whitacre had taken critical steps for GM’s recovery and that more change would be disruptive, the people said.

Directors held a special meeting last week by telephone during which Whitacre’s hiring was made official, the people said. Whitacre said the search for a permanent chief had gone on for a “pretty good while” before being called off.

Michael Millican, a spokesman for Spencer Stuart, said the firm “never comments on a search.” Ron Bloom, the chief adviser for the U.S. Treasury’s auto task force, told reporters the government wasn’t involved in Whitacre’s hiring as CEO. Chris Preuss, a GM spokesman, declined to comment on the process.

Which I guess makes it high time for me to share my sinking suspicions from the North American International Auto Show.

The (crappy) video above is the Chevrolet Press Conference–which introduced the new Chevrolet Aveo. Though no one much commented on the visuals, it was the story many Americans want GM to tell: there they were with four viable small cars, all with the styling that has long been missing from GM’s smaller cars. When the Cruze is introduced later this year, it will even lead the segment in gas mileage until the new Civic, with the same mileage, comes out a few months later.

Sounds great, doesn’t it? Just what people have been demanding from GM.

But then, just after the press conference, I asked Margaret Brooks, who is in charge of Chevy’s small cars, how the Aveo and the Spark would be differentiated, when they would be introduced into the US market, and where the Spark would be made (in the announcement, GM boasted that the Aveo will be built in Orion Township here in MI), I got no answers. (In a follow-up, they later said that Aveo would be introduced in late 2011, which is pretty aggressive for something that is at concept right now). So I asked Brooks, straight out: “But the Spark won’t be made in China, will it?” Brooks: “We haven’t decided yet.” “But not China?” “We haven’t decided yet.”

As you might recall, the Spark was introduced in the US in early 2009. At the time, GM told its federal overlords that it would be importing 51,000 Sparks into the US starting in 2011. But once UAW balked, they negotiated a promise to build subcompacts here in the US.

General Motors Corp. agreed not to import Chinese-made subcompact cars to the U.S. as part of its concession deal with the United Auto Workers, union President Ron Gettelfinger said Thursday.

Instead, the company will build up to 160,000 of the cars per year at an existing U.S. factory and sell them in the U.S., Gettelfinger said in a telephone interview with The Associated Press.

GM had said in documents submitted to Congress that it planned to produce up to 51,000 subcompacts per year in China and ship them to the U.S. starting in 2011.

But now they say they don’t know–which is not at all credible if they really plan on importing the Chevy Spark by 2011, which is what they initially announced. If they don’t have the factory picked (as they have for the Aveo), then they’ll be building it in one of their existing factories.

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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 →