Why One of the "Big Three" CEOs Should Go

Editor's Note: Contrary to a previous version of this article, Alan Mulally does have previous turnaround experience.  The Fool regrets the error.

On Tuesday, former Chrysler CEO Lee Iacocca issued a statement that the sitting auto CEOs "are the only ones with the experience and the in-depth knowledge and understanding of how the car business really works. They're by far the best shot we have for success."

I disagree in one case. One of the Big Three's CEOs has in-depth knowledge and understanding of how the car business doesn't work.

Special Forces soldier, or G.I.?
I don't have a vendetta against Rick Wagoner; I'm certain he's a nice fellow and a capable manager under ordinary circumstances. However, he should step down from his position running General Motors (NYSE: GM  ) . Quite simply, he doesn't have a proven track record in turnaround management.

Auto manufacturers are engaged in nothing less than a life-or-death struggle – that requires the skills and experience of a legitimate turnaround artist, not a "business-as-usual" CEO. The difference in attitude and resolve is the same as that which exists between an elite Special Forces soldier and a G.I.

Move over and let these guys drive
Wagoner joined GM straight out of business school in 1977. I'm not saying there is absolutely no way he can pull the turnaround off; however, there is no tangible evidence that he is up to the task. In that context, continuing to bet on him is an unacceptable risk.

Who would I bet on instead?

  • Carlos Ghosn, CEO of French auto maker Renault, and CEO of Nissan, would be ideal. Nicknamed the Icebreaker, Ghosn did a stellar job turning Nissan around. In an interview with BusinessWeek last month, Ghosn was asked whether he could envision a combination with Ford or Chrysler. His reply: "Everything is lined up to push toward consolidation of the industry". However, he "[doesn't] think anyone is going to move" until normal financing conditions return to the market.
  • Wendelin Wiedeking, CEO, Porsche. At the head of Porsche, Wiedeking resurrected the iconic sports-car manufacturer in the 1990s. Porsche is now on the verge of taking a controlling stake in Volkswagen, the world's third-largest automaker. Porsche already owns a 42.6% stake with options on a further 31.5% interest.
  • Marco Tronchetti Provera, Chairman, Pirelli. Tronchetti restructured the tire maker to focus on premium lines. Pushed into optical components and sold the activity to Corning (NYSE: GLW  ) for $3.6 billion at the top of the tech market in 2000. A possible downside: it would be tough to lure this Milanese sophisticate to Motown. Tronchetti is more comfortable attending the opera at La Scala than rooting for the Tigers.

Thinking "outside the car"
By the way, the GM board shouldn't be afraid to look outside the auto sector, either. In this situation, industry experience can be just as much of a burden as an asset. It's hard to imagine new ways of doing business when all your training has created ingrained models of "the way things are done". In a crisis, bold, unconventional thinking is required. Here are some candidates who don't carry that mental burden of broken models and practices:

  • Jamie Dimon, CEO, JPMorgan Chase (NYSE: JPM  ) . Unfortunately, the probability of Dimon accepting the job is basically null. He already has a great job, and the banking sector presents him with no shortage of interesting challenges right now. Perhaps an appeal to an act of public service would do the trick?
  • Ed Breen, CEO, Tyco (NYSE: TYC  ) . One month after joining Tyco, Breen fired its board and most of its senior managers. As COO of Motorola, he suggested cutting headcount by half, shortly before being headhunted to join Tyco in 2002. Before that, he was CEO of General Instruments, which he sold to Motorola for $11 billion.
  • Mark Hurd, CEO, Hewlett-Packard (NYSE: HPQ  ) , and former CEO, NCR. Hurd is a skilled operator with a laser focus on profitability. Since joining HP as CEO in 2005, he's wrung costs out of a bloated corporate structure, turned HP's PC division around and developed the firm's software business. In three years, Hurd wiped away the Fiorina-era malaise and brought HP to the pinnacle of the industry once more.

What about and Alan Mulally (Ford) and Bob Nardelli (Chrysler)?
Why is Wagoner the only one of the Big Three CEOs I'm calling out? Mulally has legitimate turnaround experience gained at Boeing (NYSE: BA  ) , and he's taken decisive action since joining Ford (NYSE: F  ) as CEO in September 2006.

As far as Chrysler CEO Robert Nardelli is concerned, I prefer to give him the benefit of the doubt right now, because he has to answer to his private-equity masters. As a portfolio company of Cerberus Capital Management, Chrysler has much tighter corporate governance than its two publicly traded peers, even if we were to add an auto czar to the stew.

Besides, the endgame for Chrysler may not be that far away. The smallest of the Big Three may well be acquired by General Motors.

Weighing the risks of a leadership change
Some of you may disagree with me that Wagoner must go. But what gives you any confidence that he has the expertise and grit to formulate and execute a plan to turn his ward from a value trap into a value creator?

While Iacocca thinks "[changing] coaches in the middle of the game" is too risky, I think this is a case in which failing to switch is by far the greater risk.

Take a drive with further Foolishness:

If you've never heard of the first three CEO candidates mentioned in this article, let the team at Motley Fool Global Gains introduce you to the enormous opportunities of international stocks. See all of their recommendations, including the two new picks just released today, with a free 30-day trial.

Fool contributor Alex Dumortier, CFA has no beneficial interest in any of the companies mentioned in this article. JPMorgan Chase is a Motley Fool Income Investor recommendation. Tyco International is a Motley Fool Inside Value selection. The Motley Fool's disclosure policy goes from 0 to 60 in 12 words flat.


Read/Post Comments (11) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 11, 2008, at 5:41 PM, JeanDavid wrote:

    "Ed Breen, CEO, Tyco (NYSE: TYC). One month after joining Tyco, Breen fired its board and most of its senior managers. "

    How does that work? It seems backwards. Only the shareholders can fire the board. It is the board that hires the CEO, not the other way around.

  • Report this Comment On December 11, 2008, at 9:04 PM, MarkP28665 wrote:

    Alex, I do not think you have a clue to what you are talking about. Mulally was brought to Ford because of his turn-around record at Boeing. Wagner has done a fairly good job at GM. He has gotten Billions in concessions from the UAW while maintaining a working relationship. Has he moved aggressively enough, probably not; however, he has moved as aggressively as was possible with the existing labor contracts.

  • Report this Comment On December 11, 2008, at 9:37 PM, steven107 wrote:

    I'm not knowledgable in the auto-industry, but I did sleep in a holiday inn last night... I mean, I read an article that said that The Ford CEO Dude has been repositioning Ford over the past couple years, including leveraging all of their assets to grab the multi-billions needed to implement the plan. ...And this is supposedly the only reason they are in the financial position that they are, to turn down the Fed Loans. Though it does mention that now they will be using that money for operations when they intended it for reorganisation, thanks to the economy. For disclosure, I wouldn't really miss not seeing a Ford, GM, or Chrysler nameplate should they all go under.

  • Report this Comment On December 11, 2008, at 10:33 PM, Jazzenjohn1 wrote:

    Alan Mullaly has put Ford in a position that they don't even need help in only 2 years at the helm while Nardelli is clearly the captain of a badly leaking ship. Chrysler will be sold of for a fraction of what it cost within a year and that is the guy the big 3 is supposed to keep?!? I sure hope nobody bothers to listen to anything you suggest.

  • Report this Comment On December 12, 2008, at 1:54 AM, artdav wrote:

    Alex,

    Ford brought Alan Mullaly in a few years ago because they were changing directions. What I would really like to see is a quantitative evaluation of what Ford, GM, and Chrysler's current financial status would be, based on their current business plans, absent the credit crisis. That is, if credit availability for buyers of cars was average, how would Ford, GM, and Chrysler be doing? Without this analysis, all discussions regarding their long-term prospects are pure speculation. I think it is commonly believed that the credit crisis is having an enormous impact on their financials. Given that Ford is in the best shape of the three, and may not even need a bridge loan to survive, it seems odd that you would like him replaced.

  • Report this Comment On December 12, 2008, at 7:37 AM, TMFBreakerRob wrote:

    Um....you need to do more research.

    Targeting Mullaly tells me you don't understand what he did at Boeing or what he's done at Ford. But, at this point, I've tired of the whole auto debate so I leave it to you if you're interested. There has been so much mis-information spewed by the media and politicians that I've pretty much had it. Let the chips fall where they may and if the results are a much more severe recession then so be it.

    Wagoner? Yeah, I've been mystified by the strategy of incremental adjustments instead of something like the wholesale transformation at Ford. He probably should go, but I'm unconvinced by your alternatives. Ghosn is probably the best choice of the lot, but probably not interested.

    Nardelli? Doesn't matter. Chrysler is history either way. Oddly enough, he'll probably personally profit the most of the three of them.

  • Report this Comment On December 12, 2008, at 7:46 AM, TMFBreakerRob wrote:

    A quick primer on Ford and its actions:

    http://www.fordvehicles.com/thefordstory/

  • Report this Comment On December 12, 2008, at 8:04 AM, TMFMarlowe wrote:

    TMFBreakerRob, I sent pretty much the same comments to Alex privately. I'm glad to see yours. I have been resisting the temptation to jump into this debate, but... I don't think I'm going to be able to resist much longer.

    One thing I will say here: Ghosn keeps getting nominated for sainthood, but Nissan's market share and reliability rankings in North America -- the world's most important auto market -- have not gone in the right direction since Nissan came under his stewardship. The designs are flashier, but the quality has slipped significantly relative to TM and HMC... and recent rankings suggest that F has now eclipsed them on that front as well.

    Though FWIW, I predict that Ghosn is going to find himself running the remains of Chrysler shortly. They have already put in place some Nissan/Chrysler product tieups (the next-gen Nissan Titan will be a reskinned Ram, for instance), and I expect Ghosn will offer to take it off Cerberus's hands momentarily. The Jeeps, the minivans, the Ram, the upcoming Phoenix engines, and the big sedans still have some value, and fit well with Nissan's existing North American offerings.

  • Report this Comment On December 12, 2008, at 8:26 AM, pvon2794 wrote:

    While I appreciate the hate for any and all things American in our "Global Economy" I mean we live much better than most of the rest of the world and that is simply not acceptable today, but would the American auto companies be in the shape they are today if they got the same type of help from our Government that the foreign companies do from theirs? or the help they got from ours for that matter.

  • Report this Comment On December 12, 2008, at 12:58 PM, TMFAleph1 wrote:

    Thanks for these comments. On further research, it's clear I was too hasty in calling for Mulally to step down from Ford. I regret the error and I have submitted a corrected version of the article which will run shortly.

    Alex Dumortier (XMFMarathonMan)

  • Report this Comment On December 12, 2008, at 3:37 PM, TMFBreakerRob wrote:

    Congrats on the update, Alex. That shows fine character.

    TMFMarlowe, I agree with your Ghosn misgivings...I was trying to at least pick somebody with a clue.

    I think one of the better choices for GM would be Jerry York...who spent some time on the GM board for Kerkorian before quitting in disgust. He understands the biz better than most and seems to understand the need for quick and decisive change....a realization that only now seems to be dawning for the GMites.

    But...I'll withdraw now to my hole. Lately I've just watched the venom being spewed toward the US auto industry instead of fighting it anymore. If the domestic industry dies, it will be missed in time and I will take comfort in that. Very defeatist, eh? <weak chuckle>

    So...go ahead villagers! Bring your torches, clubs and pitchforks. Immolate management, the union and everyone else associated with the industry. I'm almost beyond caring while I wait to see if I'll be part of the January layoff at my auto company....

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