Overhaul (48 page)

When Whitacre delivered the news to him a few minutes later, Fritz had two reactions. He told Whitacre he didn't want to stay on if the board didn't want him. And he asked, "Could I have done anything differently?"

For some reason, Whitacre answered "No."

A little later, Whitacre pulled Girsky aside. "You with me on this?" he asked. He offered the former auto analyst a full-time job as a top adviser, with the title of vice chairman. Girsky was elated, but since his responsibility on the board was to represent the UAW, he said that Whitacre should call Gettelfinger to get his approval.

Whitacre reached the UAW leader, who asked, "When are you doing this?"

"In about thirty minutes," Whitacre replied.

"Nothing gets done at GM in thirty minutes," Gettelfinger said, laughing. But he readily agreed. It couldn't hurt to have the UAW board designee doubling as consigliere to GM's CEO.

Before the public announcement, Whitacre assembled many of Fritz's direct reports in a thirty-eighth-floor conference room—executives such as Ray Young, the global head of manufacturing and labor relations Tim Lee, and GM's new head of human resources Mary Barra.

"Fritz Henderson has decided to step aside and the board has accepted that decision," he told them. "I will step in as interim CEO."

There were few happy or relieved faces; mostly the executives responded with a mix of anger and sorrow. "I was handpicked by Fritz, so if you had a problem with him, then you probably have a problem with me," Lee said and offered to step down on the spot.

"Hey, hey, I am not taking anyone's resignation tonight," said Whitacre. "Fritz is the least surprised person right now. This is the way it has to be. We all have to stand together." The last thing he wanted was a mass exodus, which would look really bad in the media. A little later, in a hastily arranged press conference, the company released the news to the world. Fritz Henderson, the first CEO of the new General Motors, was gone. It had been 247 days since I had asked Rick Wagoner to step aside and Fritz Henderson to take his place.

Fritz's ouster drew headlines. "GM CEO Fritz Henderson Abruptly Sent Packing," declared
USA Today.
But for the most part, bigger issues like health care reform and stepping up the war in Afghanistan had long since eclipsed the bailout on the front page.

The company retained Spencer Stuart to search for a permanent CEO, determined to secure a superstar like Mulally. But the target list was small, because the board wanted only candidates who had already served as chief executives, which of course Mulally had not before joining Ford. Living in Detroit was another turnoff for candidates, as was the prospect of facing the government's pay czar. Not a single candidate had been interviewed when Whitacre did an about-face and told the board, "Hell, I'll do it." But he refused to make the two-year commitment that the board requested, promising instead to stay long enough to carry the company through an initial public offering. To the outside world, the announcement in January 2010 that the GM board voted to remove the "interim" from Whitacre's title confirmed the impression that Ed had, indeed, flunked retirement.

Whitacre's impact as CEO was dramatic. Within days of taking command, he reorganized the company's sprawling sales and marketing operation and announced Mark Reuss as president of GM North America, the position that Fritz had resisted creating. Soon afterward, Ray Young was gone as chief of finance, replaced by a surprise recruit from the tech world, Chris Liddell, the former CFO of Microsoft. Liddell was appalled at what he found, from GM's inability to assess its cash position to its habit of delivering data without insight—he told his three thousand staffers worldwide that such data were useless. He ordered an immediate and sweeping overhaul of the company's financial systems.

The changes at the top accelerated, and by the time he had been in place ninety days, Whitacre had eased out four top-level executives, reassigned twenty more, and brought in seven outsiders to fill top jobs. Vice chairman Lutz announced his re-retirement on March 3 and Whitacre cut back on direct reports. GM's executive committee now consisted of twelve people, nearly all of whom were either new to their jobs or auto industry rookies, like Ed Whitacre himself.

The shakeup caused growing consternation inside GM, to the point where Whitacre felt it necessary to send a calming message to the troops. "I want to reassure you that the major leadership changes are behind us," he wrote in an e-mail in late March, after reorganizing the marketing department for a second time. "The team we have in place today is the team that will take us forward."

Now that he was a full-time auto executive, Whitacre got an apartment in downtown Detroit, in the same complex where Steve Girsky lived. He used a hefty chunk of his new compensation package of $9 million a year to charter private jets to fly up to the city from San Antonio on Sunday night and back on Friday afternoon or evening, a cost of government oversight that irked him no end. As he revamped the leadership, Whitacre made it a point to mingle with rank-and-file employees. He would show up in the RenCen's food court to eat a fast-food lunch among GM middle managers, and used the same elevators as they did, often greeting a fellow rider with, "Hi, I'm Ed. Who're you?" In May, he showed up unannounced at the Detroit-Hamtramck Assembly Plant wearing jeans and a sweatshirt and with no corporate ID. After waiting in the lobby for twenty minutes while someone tracked down the plant manager, he was let in to wander around and chat with workers. Getting out to meet employees, he told his lieutenants, enabled him to ask if their bosses were delivering on promises they had made. He was equally down-to-earth in his interactions with Gettelfinger, having breakfast with him at Gettelfinger's favorite diner.

Simplicity was Whitacre's favorite message. He crusaded to eliminate meetings, streamline reports, and drive down decisionmaking to lower levels of management. At a "future product design" meeting, a quasi-ritual assembly of senior design directors traditionally attended by the CEO, he abruptly stood up and said, "You are all smart guys, right? You know what to do," and left the room. Whitacre liked to remind people that the CEO did not have to be involved in every single issue. His job was to set long-term strategy—like whether GM should create an in-house finance company now that it was no longer tied to GMAC—and to offer inspiration and guidance. After that, if he was smart, he would get out of the way.

Board meetings changed too. They ran hours shorter, wrapping up by 11:30
A.M.
so directors could catch planes home in the early afternoon—very much as Whitacre had described to me over dinner in Washington back in May. He seemed to know what information the board wanted to see, and they seemed to agree with the majority of his decisions. Whitacre also made it clear he wasn't looking for or encouraging much oversight, even from Bonderman and Akerson, who'd been such thorns in Fritz's side. Some directors, recalling the confrontations with Fritz, laughed privately that the board was now almost as deferential to Ed Whitacre as the prebankruptcy board had been to Rick Wagoner. In the minds of the directors, they didn't have much choice: Whitacre was the only man to do the job, and he was only going to do the job on his terms.

The simplicity mantra didn't always go over well with battle-scarred GM veterans, however. Just before he was named CEO, Whitacre attended a town-hall-style meeting at the Tech Center in Warren. He told the engineers that the job of GM was "to sell more cars and more trucks for more money. Period." This sounded simplistic to the engineers, and they bombarded him with questions on process and protocol, which he batted away. By the time he addressed another gathering of engineers a few months later, he had sharpened his pitch: "If your bosses are asking you to do something that is not about selling more vehicles or fixing quality, question what they are doing." The engineers were pleased;
this
was the sort of simplicity mandate they could relate to.

From the perspective of selling cars, Whitacre's timing could hardly have been better. Not only did the recession seem to be ending, but on January 21, four days before his CEO status was made permanent, Toyota found itself in the largest product safety scandal in its seventy-seven-year history. It recalled millions of vehicles and suspended sales and production on more than half its U.S. models, including its best-selling Camry, because of faulty accelerator pedals that could stick, causing uncontrollable acceleration.

The problems marred the sterling reputation of the world's largest automaker. By February, Toyota executives were facing congressional hearings and grand jury inquiries as consumers came forward with heart-wrenching tales of vehicles accelerating out of control and killing loved ones. All three Detroit carmakers benefited from Toyota's crisis: Ford sales jumped 43 percent in February, and GM's rose 12 percent. Chrysler's also rose, just 0.47 percent, but its first monthly increase since 2007. More importantly, the Detroit automakers continued to pull back on rebates and low-interest offers—narrowing, at least slightly, the incentive gap with Toyota.

Two problems that had beset his predecessors remained intractable for Whitacre. Opel was still losing money—$500 million in the first quarter of 2010 alone—leaving unanswered the question of whether the board had been right to keep the European operation. Not only was GM obliged to pay back the bridge loan Germany had provided, but also the German government declared it would offer no longer-term support. This meant GM was now on its own to face restructuring costs estimated at 3.3 billion euros. Whitacre believed that the new labor agreement in Germany would cut the losses in half, and if the German government continued to play hardball, production could be moved to places like Poland to further reduce costs.

Dealers posed a more difficult problem. Their proponents and lobbyists on Capitol Hill had drowned out the automakers' arguments as well as a firm declaration from the White House: "The Administration strongly opposes the language in the bill that attempts to restore prior Chrysler and General Motors franchise agreements," it began. In December, as part of a $1.1 trillion spending bill for 2010, the House and the Senate tucked in a provision guaranteeing to every dealer closed as a result of the bailout the right to seek reinstatement through arbitration—laborious and distracting for the companies. Sergio immediately threatened to sue, though the new law would have a far smaller impact on Chrysler, which had cut off unwanted dealers so quickly and brutally that it would end up having to reinstate only a handful.

General Motors, however, was paying the price for having been considerate. It had given franchisees eighteen months to wind down, so almost all of the 2,000 dealers slated to be closed were still in business. Whitacre had no choice but to relent. In March, GM said it would retain some 660 dealers it had initially planned to shut down. By August, another 65 had gotten a reprieve.

This left the domestic dealer network at 4,500, well north of the 3,600 that GM and Team Auto had concluded, a year earlier, made sense. Officially, Whitacre maintained that a bigger network would be good for business: more dealers should equal more sales, especially in rural and suburban areas. I wasn't so sure. If more dealers were better than fewer, then why weren't the transplants seeking to add more dealerships? I had heard many industry experts emphasize the need to reduce the number of stores. And in our conversations, Fritz had agreed.

Any criticism of Whitacre's management shakeup or of GM's ongoing problems was muted by the company's better-than-expected performance. It posted its first quarterly profit in almost three years in the first quarter of 2010, exceeding Team Auto's projections handily. Its net income of $865 million wildly outpaced a first-quarter 2009 loss of nearly $6 billion. Revenue jumped 40 percent globally, despite the elimination of the Saturn, Hummer, and Pontiac nameplates.

Business had turned around so demonstrably that by spring Whitacre was having regular conversations with Ron Bloom about a public offering. The goal of many in the Obama administration, including Larry Summers, had long been for a stock sale in late 2010—not coincidentally around the time of the midterm elections. Now Whitacre embraced the idea. He felt an offering that got the government back some more of its money and reduced its ownership stake would ease animosity among the car-buying public toward "Government Motors." This animosity wasn't just in GM's imagination: Ford had reams of data showing that consumers were considering its Focuses and Explorers because Ford was the sole Detroit automaker that hadn't taken a handout.

Looking toward a November IPO, the U.S. Treasury issued a public request on May 10 seeking a bank to serve as GM's underwriter. This was a plum opportunity in the wake of the financial crash. Not only did GM have a shot at becoming the largest IPO in history, but in the future it would also need lines of credit, revolving loans, and other services. All the top banks threw their hats in the ring, each dispatching to Washington on May 19 a team of no more than five people and a pitch book of no more than twenty pages, as the Treasury had carefully specified.

Ordinary sales teams these were not: Bank of America and Morgan Stanley brought their CEOs, Goldman Sachs brought its president, and Citi had its CEO, Vikram Pandit, call in. Each presentation had an unabashedly patriotic tenor, emphasizing what a great advertisement for America it would be to cap a fast, successful government bailout with a triumphant return to the public markets.

As might have been expected, Jimmy Lee's pitch took the cake. A year earlier, during the Chrysler talks, he had angrily declared that he would steer clear of doing business with the government and that JPMorgan was "making a list" of industries, like autos, that it would avoid in the future because of government interference. But a brightening economy, an uptick in car sales, and an auto industry newly freed of leverage and legacy costs had prompted Jimmy to reconsider. To underscore the importance of the deal to JPMorgan, he'd brought his CEO, Jamie Dimon, down with him on the Acela.