General Motors Finally Gets a Clue

As you've probably heard by now, General Motors fired its CEO.

This is a big deal. In fact, when the long history of GM is finally written, this decision may well prove more momentous than the company's trip through bankruptcy earlier this year.

In deciding to part ways with Fritz Henderson, and replace him with Chairman Ed Whitacre on an interim basis, the board -- a group of high-powered outsiders installed in July -- didn't just say goodbye to a 25-year GM employee who had been the company's CEO for all of seven months.

I think they fired a whole culture.

The real problem with Detroit
As I (and lots of other industry watchers) have been saying for awhile, the biggest problem with GM all along hasn't been its relationship with the United Auto Workers, or the economy, or gas prices, or exchange rates, or any of the myriad of other things that often get blamed (especially by GM managers) for the company's woes.

The problem has been a managerial culture that seemingly refuses to acknowledge GM's real issues with product and -- more importantly -- the company's diminished stature in the automotive world.

GM doesn't own anything like half the U.S. market anymore, and it hasn't in decades. But for years, a long line of GM chief executives acted like the company's biggest problems were temporary and due to outside forces, and a return to outsized market share was just around the corner.

Sure, they paid lip service to problems with product quality, and even made some gains. In recent years, the company even took some steps to reduce dealer count and manufacturing capacity. But the culture never really changed, not even after bankruptcy, downsizing, and global humiliation. And Fritz Henderson didn't look like the guy to change it.

Apparently, that's how it looked to GM's board, too. According to a report in the Detroit News, "sources familiar with the board's thinking said directors were frustrated by the slow pace of change at GM and Henderson's apparent inability to transform the corporate culture."

So frustrated that they apparently couldn't wait another day -- GM is showing new products at the Los Angeles Auto Show this week, and this announcement will throw a wrench into the company's meticulous PR plans, which is normally a major corporate no-no.

But for the board, and those inside GM who really do Get It, it must have been maddening to watch Alan Mulally make exactly the right kinds of changes at Ford (NYSE: F  ) , to listen to pundits declaring that the new Big Three in the U.S. market were Toyota (NYSE: TM  ) , Honda (NYSE: HMC  ) , and Ford, to watch as the world changed and GM -- yet again -- didn't quite manage to change along with it.

They've got a chance to get it right now.

Copying a better idea
Ford used to advertise its "better ideas," but the best idea they've had in decades was hiring CEO Alan Mulally and empowering him to completely overhaul the company. Ford still has a long way to go, but it's made massive changes, it's hitting on all cylinders, and its future is looking bright.

GM clearly needs a touch of that magic. Of course, GM has never been afraid to copy a good idea. After Ford rocked the auto world with the megahit Mustang in the spring of 1964, GM rushed the me-too Camaro and Firebird into production. GM knew a good bandwagon when it saw one, and it knew that there was room for all of those products to be successful.

Now, GM needs to copy Ford again, and come up with their own Mulally. But it won't be simple. Mulally is often held up as an auto industry outsider, but in his prior role at Boeing (NYSE: BA  ) he dealt with manufacturing and suppliers and unions and brutal global competitors, experience he could put to work right away.

Chairman and fill-in CEO Ed Whitacre said yesterday that GM will conduct an "international search" for a new CEO, and they may well have to scour the world. Finding someone with Mulally's quick intelligence and calm fearlessness who is willing to take the job will be hard enough. Finding a similar combination of outsider-ness and applicable experience will be an enormous challenge.

But that's nothing compared to the challenges that await the person they eventually hire.

Think you're up to the task of running GM? Tell us why and potentially win a year’s subscription to Motley Fool Pro (a $1,999 retail value). Contest details can be found here.

Fool contributor John Rosevear owns shares of Ford and looks forward to the day when he can buy GM stock as well. He currently has no position in GM or in the other companies mentioned. The Motley Fool has a ZL1-powered disclosure policy.


Read/Post Comments (20) | Recommend This Article (11)

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 03, 2009, at 11:46 AM, harryhendo wrote:

    An colleague of mine was shopping for a new car to replace his "ho hum" Camry. He decided to look at a Nissan Maxima, an Acura TL, and, just on a whim, the new Buick Lacrosse.

    After managing to find a Buick dealer still open, he walked onto the showroom floor to find a new Lacrosse neatly displayed, but with a fake vinyl "landau" roof applied! The car also had 18" chrome wheels. He laughed and left, then bought the Acura.

    It is going to take a lot of culture change, and a lot of dealer "re-education" to get car buyers to even include GM on their lists anymore. That might take too long to make any difference, however.

  • Report this Comment On December 03, 2009, at 12:00 PM, harryhendo wrote:

    A colleague of mine was shopping for a new car to replace his "ho hum" Camry. He decided to look at a Nissan Maxima, an Acura TL, and, just on a whim, the new Buick Lacrosse.

    After managing to find a Buick dealer still open, he walked onto the showroom floor to find a new Lacrosse neatly displayed, but with a fake vinyl "landau" roof applied! The car also had gaudy 18" chrome wheels. He laughed and left, then bought the Acura.

    It is going to take a lot of culture change, and a lot of dealer "re-education" to get car buyers to even include GM on their lists anymore. That might take too long to make any difference, however.

  • Report this Comment On December 03, 2009, at 12:23 PM, TMFMarlowe wrote:

    harryhendo, you're right. For what it's worth I think that's a side effect of having too many dealers. With fewer dealers (like -- I hate to say it -- Toyota and Honda have), you get more sales per dealership and less pressure to squeeze every last dollar out of every transaction with things like vinyl roofs and overpriced extended warranties. When's the last time you saw one of those roofs on an Accord, y'know?

    I saw one on a Cadillac CTS the other day. That's just *wrong*.

    Thanks for reading.

    John Rosevear

  • Report this Comment On December 03, 2009, at 12:24 PM, alamoflyfisher wrote:

    You can talk up the company all you want, but that doesn't make it compare! Quality does! GM? Not even close!!

  • Report this Comment On December 03, 2009, at 12:31 PM, TMFMarlowe wrote:

    It's amazing. A few weeks ago I got slammed for "bashing" GM, now I'm "talking them up"... but my position hasn't changed any: They need to break old habits and do the kind of big internal revamp that Ford has done or risk sliding into permanent irrelevance, period.

    I am hopeful that this is a step in that direction, but there's a long, long, LONG way to go.

    John Rosevear

  • Report this Comment On December 03, 2009, at 12:56 PM, TMFThump wrote:

    Perhaps Fritz wasn't the best guy to develop a much needed new culture within GM. After all he was an insider, unlike Mulally at Ford.

    But, give Henderson his due for recognizing that GM's quality problems weren't an anomoly and being focused on fixing it. The man had his eye on the ball, unlike Mr. Whitacre who annouced in the WSJ yesterday that GM's goal was to rebuild its market share. I have little regard for the last company he ran (AT&T), and he is clearly the wrong guy to run GM.

    This thinking is steeped in the tradition of his predecessors like Robert Stempel, who set goals like 30% market share. Fix your quality problems. Build cars that excite people. Align your manufacturing capacity to realistic market demand. And, by all means, start making money and get the government out of your board room. Setting goals for market share will cement a future very reminiscent of the past with rebates, 0% financing, and low residual values.

    Be careful what you wish for. Mr. Henderson may not have been the ideal choice to run GM, but he was a lot better equipped to move them forward that Whitacre is. They need to find the right CEO quickly.

  • Report this Comment On December 03, 2009, at 1:15 PM, euroman71 wrote:

    Mr. Henderson may not have been the best guy to run GM but to get rid of him right before the LA Auto show is a total PR disaster, in my opinion. 8 months is simply not enough to totally change the company that has been plagued with problems for the last 50 years. What GM should have done was to bring in a new person from the outside to work alongside Henderson. GM cars aren't that bad as many people try to portray them. I've had 4 GM cars and never any problems. I currently own their product as well. GM definitely need to change their perception and certainly improve quality of some of their cars as consistency is a big issue at GM.

  • Report this Comment On December 03, 2009, at 3:16 PM, TMFBritcodeftw wrote:

    "After Ford rocked the auto world with the megahit Mustang in the spring of 1964, GM rushed the me-too Camaro and Firebird into production"

    - and they did the exact same thing in 2006 when they revealed plans for the 5th generation Camaro, just one year after Ford came out with the 5th generation 'modern retro' Mustang. As someone who's been involved in the GM advertising world in the past I would say that the culture of copying instead of true innovation is a large part of GM's historical disadvantage.

  • Report this Comment On December 03, 2009, at 3:30 PM, TMFMarlowe wrote:

    TMFBritcodeftw, I think the timing of the 5th gen Camaro had a lot more to do with GM's agreements with the CAW re the Sainte-Thérèse Assembly (old F-body plant) closing than it did with the new-gen Mustang.

    If you haven't heard that story, ask around.

    Cheers,

    John Rosevear

  • Report this Comment On December 03, 2009, at 7:47 PM, TURI57 wrote:

    herryhendo... some facts...Buick lacross base price $27,000... Acura, $35,000!

    If you'll do your home work, by checking both Buick and acura website you'll find out that most of whats standard on the Buick is optional on the Acura.

    Your colleague never looked at a Buick... 17" alloy wheels are also standard on all Buicks.

    As for warranty? does anyone else have a money back satisfaction warranty?

  • Report this Comment On December 03, 2009, at 7:52 PM, TURI57 wrote:

    GM building what people want and making money? that's what they were doing until G.W.B. and his oil buddies destroyed the trunks and SUVs market with their $4.60gl gas!

  • Report this Comment On December 03, 2009, at 8:50 PM, TMFMarlowe wrote:

    TURI, I'm glad to see that you've discovered your computer's "shift" key. I think henryhendo's point was that the ugly 18" rims were tacked on by the dealer to justify a markup, and that dealers can't expect to get away with that nonsense in the current market.

    Nobody else (except Chrysler, but they're looking more and more like a lost cause) needs a money back satisfaction warranty to move cars. If they did, they'd have one.

    As for oil prices, lots of other companies seem to have adapted. GM's failure there was not investing in cars (vs trucks and SUVs) before the crunch arrived.

    Thanks for reading.

    John Rosevear

  • Report this Comment On December 03, 2009, at 10:22 PM, TURI57 wrote:

    TMF... we live in a country where destroying what's American is fashionable... herryhendo makes no mention of a "dealer markup", just lies about an American made product thats higher quality in regard to Asian rust boxes and a much lower price.

  • Report this Comment On December 03, 2009, at 10:33 PM, TURI57 wrote:

    As for the high oil price, no one company escaped the down turn that it caused in our economy... Ford had cash on hand because they mortgaged the company... Toyota got billions in loans from the Japanese government "no questions asked", while GM and Chrysler got killed by the Toyota republicans and their comedy central show that they put up in Washington when our domestic auto asked for a loan to get by the economic mess that they themselves (the politicians) created.

  • Report this Comment On December 04, 2009, at 6:32 AM, TMFMarlowe wrote:

    TURI, I think you're a little too quick to call others 'anti-American'. It is possible to love America (and GM's products and history for that matter) while acknowledging the reality that GM got damaged by its own insular, clueless management as much as by any outside factors. The people who've been running this thing didn't do a good job, plain and simple, and I'm hoping that this is the moment where they start to change that.

    John Rosevear

  • Report this Comment On December 04, 2009, at 9:16 AM, harryhendo wrote:

    Here in the Northeast, I can count on one hand the number of GM cars I see on my one hour morning commute. Compare that to hundreds upon hundreds of Toyotas, Hondas, Nissans, and BMWs.

    This is not a fluke... those companies provide reliable high quality cars that people don't have to "deal with", but rather just get in and drive.

    In order for GM to even make a dent in this perception, whether it is justified in your opinion or not, GM cannot just put out the "just as good as", or "less expensive than" type of product, as it has been doing for decades.

    I believe the Board finally decided that Fritz wasn't the guy who could deliver the "better than" products. And the fiasco with Opel was just the type of insular second guessing that GM has always been afflicted with.

    Whether the Volt will be the salvation is not assured... and it certainly seems that GM is putting a lot of its eggs in this one basket. Personally, I think the Volt will be seen as a curious experiment, and, given GM's perception in the market, not one to plunk down $40k to experiment with.

  • Report this Comment On December 04, 2009, at 9:39 AM, TMFMarlowe wrote:

    The Volt will sell fine, but for the first few years at least it'll be a niche product, just as the first-generation Prius was. The cars that matter, the ones that will determine GM's fate, are the high-volume bread-and-butter ones -- the Cruze, the next Malibu, the next Impala. They need to be no-excuses awesome, period. The current Malibu is close, which makes me hopeful.

    Thanks for reading.

    John Rosevear

  • Report this Comment On December 04, 2009, at 9:42 AM, TURI57 wrote:

    herryhendo... "just as good as" and"less expensive than" should be enough reason to buy American by American companies. The reason we are in this economic mess is because of the Toyotas, Hondas, KIAS and huyndais on the American roads.

    five years ago Chrysler could do no wrong, its products were the best... well... those same products are on the road today... I drove a 1984 Chevy celebrity for 19 years pulling a 17" foot boat on my fishing trips, like to see a Honda Or Toyota do that. i own a 1987 Chevy cavalier z24 196,000 ml.

    no major problems... the problem with Americans buying foreign products is that it makes them feel a higher being, not because it is a better product... when a foreign rust box breaks down it is wear and tear... when a Chevy breaks down it is junk...we need to change our mentality or we'll become a third world country.

  • Report this Comment On December 04, 2009, at 9:55 AM, TMFMarlowe wrote:

    Five years ago Chrysler was completely adrift, except for the LX cars.

    12 years ago, different story.

    And the stories you keep repeating about your Celebrity just don't square with the experiences of millions of other Americans. Here's mine: I had a 1990 Corvette with 21k babied miles on it that sounded like it was going to fall apart every time it went over a bump, and cost me probably $300 a month in maintenance on average during the 3 years I owned it -- and still the factory stereo never worked right. GM's come a long way since then, but they still have an awful lot of bad memories -- not anti-Americanism, bad memories based on real experiences -- to overcome.

    John Rosevear

  • Report this Comment On December 04, 2009, at 11:29 AM, TURI57 wrote:

    "bad memories based on real experiences"?

    Check out consumers affair website and read all about Toyota owners nightmares with their repairs.. Or, did we forget the car parts falling off those Asian rust boxes at railroad crossings?

    It wasn't that long ago that Chrysler was tops in quality and style... definitely not 12 years.

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