Overhaul (33 page)

Among the slides that the human-resources executives showed our team was one entitled "GM's Values." It listed all the right buzzwords—innovation, speed to market, teamwork, and the like. But as Harry and his colleagues looked at it, they realized that the company didn't practice most of those things. The lack of accountability meant that words, not actions, were paramount.

A top-down, hierarchical approach pervaded those upper floors, where real life dared not intrude. Wagoner, Henderson, and Lutz involved themselves in decisions that should have been left to executives several layers beneath them. It was well-known lore inside GM's communications department that in the 1980s, a brochure called "This Is GM" could not be completed until CEO Roger Smith okayed a final color change.

The GM treasury, esteemed though it once was, was famous for meddling. As one of the few GM departments that could peer into every silo, from manufacturing to marketing to purchasing, it challenged small-bore capital allocations at the plant level and dictated how purchasing should handle a small, troubled parts supplier. When a supplier went into bankruptcy, which happened with great frequency in 2007 and 2008 as auto sales slowed, the treasury would hold up minor contract modifications that the supplier was trying to finalize—a process more in line with the duties of a midlevel supply-chain manager. As a result, Rick, Fritz, and other officers faced a mountain of daily decisions. Trivial issues loomed large while big ones got lost. Presentations on major issues to board meetings and executive meetings were often reduced to one or two PowerPoint slides and then put off or passed over lightly. A general aversion to decisionmaking permeated every meeting.

GM's inability to cut bait on poor brands exacerbated the problem. Sales executives complained of spending too much time trying to figure out what to do with Saab, with its tiny thirty thousand units of sales a year. Or devising PR campaigns defending Hummer against
New York Times
columnist Thomas Friedman, who at one point wrote of the stagecoach-sized SUV, "[Hummer] gets so little mileage you have to drive from gas station to gas station."

The command-and-control culture produced managers unwilling or unable to question bad decisions. In meetings with Team Auto, when asked about areas under their direct supervision, executives would typically defer to Fritz or ask to wait until they'd checked with a senior colleague before answering.

This dysfunction hurt GM's products. A prime example, unearthed by BCG, was how the company designed a vehicle's interior—the place where the consumer spends the most time. The interior is usually among the last elements of a design to be budgeted and completed as a model nears launch. So if a design went over budget, as it often did, financial metrics dictated that the instrument panel or the cup holders be cheapened. A typical cost-cutting measure, which could save about $150 per vehicle, was to use hard plastic inside instead of soft plastic, which consumers strongly prefer. At other automakers, midlevel design chiefs or product planners would be able to block such a false economy. At GM, it took an edict from Bob Lutz to make the cheapening of interiors less than the norm.

Harry was forced to end the second day's inquiries early—at 6
P.M.—
because he had invited Cal Rapson, the head of the United Auto Workers' dealings with GM, to dinner. Labor relations had been a relative bright spot at the company. After a crippling strike in 1998, management had dropped its belligerence and worked to cooperate. And while executives were still condescending in their attitudes toward the union, GM had enjoyed relatively peaceful labor relations for years. Critics thought Rick Wagoner had given away too much in the process, however, and with him gone and GM in crisis, Harry saw tough negotiations ahead. He'd sought out Rapson on Ron Bloom's advice.

Having Googled Harry, Rapson arrived at dinner wary. A florid, heavyset sixty-four-year-old with a brushy white mustache, Rapson was a machinist who'd grown up in Flint and worked with the UAW for nearly forty years. He knew that Harry had contributed generously to Republican candidates and had gone to Harvard—two strikes against him, in Cal's mind. But as they sat in an Italian restaurant on the RenCen's ground floor, overlooking the river, Harry described his working-class roots. He also talked about how he thought automaking was a great American industry, which could be fixed if people made the tough decisions to get it back on track. Right now, he maintained, there was a historic opportunity to do that, and Harry was willing to give up a portion of his life to help. Cal began to relax. Hearing Harry's motives made it easier to ask the questions he had to ask.

"I gotta tell you," he said, looking out at the river, "this management plan is crazy. There's no way we can take the cuts that they're proposing. They're closing good plants. They're laying off good people. We can't stand for that."

"Cal, I have to be honest," Harry replied. "Our big beef with the management plan is we don't think it goes far enough. It's like all the other restructuring plans that GM has had over the years. It
kind
of deals with
some
of the issues, but not enough, and ultimately leaves the company unlikely to succeed. The difference between this restructuring and previous restructurings is that this has to be the last one, because there is no appetite for another."

"We can't possibly do that," Cal protested.

Harry promised to go out of his way to ask the UAW's advice: "We're working very closely with management to develop a plan. Then we're going to come to you and walk you through exactly why we came to the conclusions we came to. If you've got better ideas, we'd love to hear them—there's no pride of authorship here. If you've got better alternatives, we'll work through them."

Rapson didn't like hearing this, of course. But the decision of whether the UAW would cooperate with Team Auto or use its political power to fight it wasn't his; that would be up to Ron Gettelfinger.

Our plan called for Harry, David, and Sadiq to spend two or three days each week in Detroit, so the following Tuesday they were back, delving into GM's manufacturing. Making a car involves three stages: stamping (sheet metal into body parts), power train (building the engine and transmission), and assembly. There was a substantial mismatch between GM's assembly plants and its power-train plants. The larger of the problems that this created was excess capacity, which amounted to wasted money. But Harry and his team also focused on the potential for inadequate capacity in some areas; this would cause bottlenecks in the event of a rebound in demand. GM's challenge would be to "right-size"—to match its manufacturing to detailed forecasts, model by model.

These were issues that the company would have to solve for itself. For Team Auto, plant closures were such a hot potato politically that we steered clear of those decisions (which tended to be dictated by things like which brands and nameplates were being eliminated). I was repeatedly questioned about this by the press, and honed another sound bite that I would repeat verbatim every time the question was asked: "No plant decisions, no dealer decisions, no color-of-the-car decisions."

Happily, when the team began touring factories, they were pleasantly surprised. For one thing, the relationship between labor and management at the plant level was truly collaborative, much better than it was higher up. For another, the manufacturing process was consistent and disciplined. GM had studied Toyota's state-of-the-art production system and replicated it, adding some improvements, at all of its plants. "Show me your oldest plant that's within driving distance," Harry had commanded his minders, leery that he was being shown only the best plants. They took him to the Flint Truck Assembly Plant, a facility opened in 1947. It was dingier and the lighting was worse than in newer facilities on their tour, but the production system was exactly the same. This corroborated the productivity data we had been studying back at Treasury. For once, GM's numbers were both rosy and real.

Harry also was struck by the pride he encountered among the UAW members, many of whose families had worked at GM for generations. The competence of the plant managers impressed him too. They seemed to be on top of their production processes, effective partners with labor leaders, and constantly looking for ways to improve operations. On the other hand, he was appalled to find that the plants had "segregated" bathrooms—one set for salaried workers, one for hourly workers—a caste system that struck Harry as wrong on the face of it and certainly a factor in GM's checkered history with labor. But the bathrooms were the exception. Overall, Harry thought, here in the guts of the operation, GM's day-to-day workings were solid. It was the head that was rotting.

When the team turned next to sales and distribution, the worries returned. GM had a dealer problem—we'd known that all along. Like Chrysler and Ford, it had way too many, a legacy of the automakers' long history dating back to a rural America. Latecomers like Toyota boasted much more modern and efficient networks. While GM sold about 30 percent more vehicles in the United States than Toyota, GM had four times as many dealers, roughly 6,000 compared to 1,450. Thus the average GM dealer sold 450 vehicles, compared to 1,500 for the average Toyota dealer. In Charlotte, North Carolina, seven GM "stores" (as dealers are known in the industry) sold roughly the same number of cars as the area's two Toyota dealerships. Chrysler's numbers were even worse. As a result, GM and Chrysler dealers were generally dramatically less profitable, had less cash to invest in their stores, and projected a substantially less attractive retail experience to customers. For the many Americans who thought the automakers owned the dealers, this affected the brand perception and ultimately hurt sales.

Driving around on weekends, I began to look out for dealerships and would often see older, smaller, shabbier Big Three stores a short distance from large, gleaming dealerships belonging to Toyota or Honda or another of the transplants.

In typical GM fashion, its effort at dealer streamlining had been too little too late. It had cut about four thousand dealers in the ten years between 1995 and 2005. But during that period, GM's share of the U.S. market had tumbled from 33 percent to 26 percent—meaning the downsized network was not much more efficient than the one with which GM had started. The treatment of dealers in GM's viability plan was more of the same. It called for the elimination of two thousand dealerships by the year 2014. Like a morbidly obese man who doesn't see why dropping twenty-five pounds in five years isn't enough, GM was too slow at shedding its flab.

In fairness, the problem wasn't merely GM's ingrown culture; it was legal too. American car dealers are protected by state franchise laws that essentially require the dealer's consent to terminate the franchise—a one-sided arrangement if ever there was one. Thus closures were not just slow, but expensive; franchisees basically had to be bought out. GM had budgeted almost $2 billion for the proposed next phase, an average of about $1 million per dealership. From our perspective, with bankruptcy came the silver lining that, under court protection, the company would have the right to tear up whatever franchise agreements it needed to.

On April 22 Harry and his lieutenants ended up at the Tech Center, where some of us had gone a month earlier to drive the Chevy Volt. That experience had been fun but irrelevant to GM's near-term survival. The briefing GM delivered to Harry was a lot more practical. It centered on the 2008 Malibu, a midsize Chevy that was competing successfully, for a change, with the likes of the Toyota Camry.

The presentation compared the 2008 Malibu to its mediocre 2006 predecessor. In redesigning the car, GM's product group had, under Vice Chairman Bob Lutz's leadership, for once defied the finance department and won approval to spend an extra $300 to $600 per car on flourishes like higher-quality interior moldings and best-in-class finishing. Those little upgrades struck such a chord with consumers that GM was able to hike the average selling price of a Malibu by $3,200. Retail sales went up by almost 50 percent. The
New York Times
described the Malibu as "a super Accord, but from GM." The Detroit auto show voted it North American Car of the Year. This simple but important redesign would generate hundreds of millions of dollars of additional profits for GM every year.

At the Tech Center Harry had his first encounter with Lutz, who had godfathered the redesign. An industry legend, Lutz was known worldwide as the quintessential American car guy. He had worked for each of the Big Three (this was his second stint at GM) as well as for BMW, and had been the impetus behind such iconic vehicles as the Dodge Viper and the Ford Explorer. A seventy-seven-year-old onetime Marine Corps fighter pilot, Lutz still drove fast cars and flew his own single-engine military training jet. In GM's bland culture, he stood out like spiked hair at a church picnic.

Harry had admired Lutz ever since hearing him speak at Harvard Business School, and it didn't take long for the two to bond over lunch in the food court. They traded notes on the Marine Corps (Harry had gone to Officer Candidate School at Quantico). As Lutz pulled a Swiss Army knife from his pocket and used the blade to open his sandwich, Harry asked, "If you had to fix GM, what would you do?"

"I'd hire three guys just like me but twenty-five years younger," Lutz growled.

"Who out there is like that?" Harry persisted. "Who could be the change agent for GM?" Lutz could come up with only two names in the entire company.

Lutz, whose years at Chrysler had been under Lee Iacocca, had preferred the Chrysler culture because if people didn't like what you did, they'd tell you to your face. GM was more civil. Middle managers would smile, nod, and keep doing what they had been doing for years. The expression "grin-fucking" was popular around GM.

Also remarked upon was the "GM nod," which referred to the dynamics of big meetings. A decision would be made. The supervisor in the room would ask, "Does everyone agree on this? Have we made a decision?" All the GM people would nod. But afterward, e-mails would pour in from the attendees or their subordinates, questioning the decision, its implications, or how it would be carried out. This would prompt a restudy of the issues. Weeks or months would pass until the once final decision eventually came undone.