General Motors Drops a Bombshell

Will GM's fourth CEO in under 17 months keep the recovering company on course?

John Rosevear
John Rosevear
Aug 12, 2010 at 12:00AM

When I sat down at my desk this morning, I was prepared to write about General Motors' quarter: It was a pretty good one, as the automakerpulled in a solid $1.33 billion of net income -- its largest profit since 2004 -- on revenues of $33.2 billion.

That's a sizeable increase over GM's $865 million first-quarter profit, and it was supported by gains in market share around the world. And compared to year-ago numbers, when the company (technically, its bankrupt predecessor) lost nearly $13 billion, it's a dramatic and positive change.

That's what I had planned to write about today. And later today or tomorrow, I'll dig into GM's numbers in more detail and share some observations with you.

But at the very end of its quarterly call for analysts, GM's chairman and CEO Ed Whitacre dropped one heck of a bombshell: He's leaving. He'll step down as CEO on Sept. 1, to be replaced by a board member, ex-Nextel chairman Dan Akerson. He'll stay on as chairman until the end of the year, at which point Akerson will assume that title as well.

This was planned all along, Whitacre said. But GM's IPO is widely thought to be just a few months away. And at least from my perspective, Whitacre was just looking like he was getting the hang of this gig. Is installing a new CEO -- the company's fourth CEO in under two years -- really the right move for the company to be making now?

Out with the new, in with the newer
Whitacre, of course, was brought in -- installed, really -- as chairman by the Obama administration after the company's bankruptcy reorganization last year. He took over as CEO after a Dick-Cheney-for-Veep style search in the wake of the board's removal of underperforming GM lifer Fritz Henderson, who in turn had taken over after longtime CEO Rick Wagoner was encouraged to seek other opportunities in advance of continued government intervention early last year.

When Henderson was removed, I felt that GM's board wasn't just firing one guy, they were firing GM's old corporate culture. And in retrospect, I think that's what actually happened. Whitacre wasn't an auto industry veteran -- he had been AT&T's (NYSE: T) CEO -- and he didn't seem to have much feel for the business at first. But to his immense credit, he did bring in some extremely talented outsiders and put them to work doing the right things -- imposing financial discipline and staying intensely focused on product.

That approach has paid benefits that are increasingly becoming apparent. Incentives are down, sales are up, the company has captured business from weakened rivals like Toyota (NYSE: TM), new products look very strong, low-margin fleet sales are expected to be down considerably by the end of the year, the company's long-standing European mess is near breakeven, profit per unit sold is up, market share is a data point, not a focus. If you know GM's history, you know that all of these are big changes.

As we look forward to GM's IPO, this is the $20 billion question: Will Akerson stay the course set by Whitacre? In his brief prepared remarks on the call this morning, Akerson said that he did not anticipate major changes in strategy. "[We] share a common vision of the goals and objectives for the company," he said.

Should we give him the benefit of the doubt?
GM has been a laughing stock for so long that the company -- under whatever management -- is still easy to dismiss. Lots of pundits and analysts are still laughing and dismissing them. But I think the laughter misses something big: Current management -- not just Whitacre -- has been going out and actually doing the things that past pundits have been begging the company to do for decades.

It's true that, as one of my fellow Fools pointed out on Twitter this morning before the Whitacre bombshell, this quarter's results might prove nothing more than that "just about anyone can turn a profit if given the power to reorganize and leave stakeholders with jack." GM -- huge, inept, collapsing GM -- got the mother of all do-overs last year, thanks to the federal government. That do-over has given them a huge advantage now, especially when compared to ancient rival Ford's (NYSE: F) self-financed turnaround. Does the fact that GM can make a profit now really mean anything?

Assuming that Akerson stays on the course set by Whitacre, continuing to drive improvements without declaring victory prematurely, I think it does. For years, GM has been the fattest snark target in the global auto business, and I've certainly taken my share of potshots. But while there are still some things to be leery of -- starting with this oddly timed transition -- and with the caveat that we need to learn a lot more about Dan Akerson, I think it's a mistake to underestimate GM right now.