GM Head Gives Extensive Interview To Newsweek

[Perian]

Link: www.Newsweek.com

Fighting Back

Critics are calling for Rick Wagoner’s head. But the feisty CEO of General Motors isn’t ready to give up just yet.

By Keith Naughton - Newsweek - April 10, 2006

This is a tough time to be Rick Wagoner. The embattled chairman and CEO of General Motors is facing a growing chorus of critics calling for his head. With his company losing $10.6 billion last year and Toyota on the verge of overtaking GM as the world’s No. 1 automaker, Wagoner has become the personification of Detroit’s declining fortunes. He’s struggling to engineer a turnaround by closing a dozen factories, offering buyouts to all 113,000 of his blue-collar workers and trying to jump-start sales with new SUVs at a time of high gas prices.

Last week his job got even harder: first, GM revealed a widening probe by the SEC and a federal grand jury into its accounting practices. And then Delphi, the bankrupt car-parts maker once owned by GM, asked a judge on Friday to toss out its labor contracts. That could ultimately spark a strike that could drive GM into bankruptcy, analysts say.

Wagoner, 52, has kept a low profile as the criticism has mounted. But now he’s decided to come out swinging. In an interview with NEWSWEEK, he offers a passionate defense of the job he’s doing and rejects the notion of replacing him with an outsider. Excerpts:

NEWSWEEK: How secure do you feel in your job?
Wagoner: Completely. Because I know in the end all of us are going to be judged on accomplishments, whether we address issues and take advantage of opportunities. And I think we’re moving on both fronts frankly pretty well. So I feel very confident.

Some say that because you grew up in the GM culture you’re unable to engineer the radical overhaul that’s required and that new blood is needed. What do you think of that?
That is so simplistic. These are sophisticated problems with historical tails that run back 80, 90 years. The chance of someone coming in and not understanding our business, making the right calls and doing them in cooperation with key constituencies like dealers and unions, is absolutely microscopic. That would be the biggest risk I’ve ever heard of.

The newspapers lately are filled with criticism of GM and you: are you reading it?
I look at the pictures. [Smiles] Obviously, I flip through all the major papers, but frankly, I don’t dwell on it.

What about the coverage has annoyed you the most?
They talk about that we are not moving to address the problems. I want to say, “Excuse me, what part of $15 billion in health care [cuts], 12 plants [closing], 30,000 people [cut], attrition programs, salaried health-care and retirement [cuts], salaried head-count reduction, a new sales and marketing strategy, advancing product programs—what part of that doesn’t exhibit not only a sense of urgency, but most importantly a sense of urgency in doing what matters?”

This urgency question arose when Jerry York (adviser to GM’s largest investor, Kirk Kerkorian) said in a January speech that GM needs to go into “crisis mode.” Are you moving fast enough?
It’s easy to announce stuff. It’s not so easy to do stuff, particularly if you can’t do it yourself, if you’ve got to do it in cooperation or in conflict with unions, if you do it with Delphi, if you need partners to consider a partial sale of GMAC. What has been done in the last six months borders on unprecedented accomplishments and advances. This stuff didn’t happen because
somebody decided on Jan. 15, why don’t we do stuff? This stuff happens because we’re
working on it, we’re ready to do it, we’re talking to people, and then when we have it ready, we announce it.

How’s your relationship with Jerry York since he went on the board in February?
He’s a proactive participant in the board process. Beyond that, I don’t think it’s appropriate for me to comment.

If Delphi does go on strike, does that make it inevitable that GM will file Chapter 11?
No, there’s a lot of footnotes on that. If one plant at Delphi goes on strike for a week? No. I mean it’s inconvenient, but conceivably minimal impact on us. If the whole of Delphi goes on strike for a long period of time, well, I don’t see why they would do that. It’s not in Delphi’s interest. It’s not in the UAW’s interest. And it’s not in our interest.

Why is bankruptcy a poor way to solve GM’s problems?
First of all, look at Delphi. That’s exhibit A. People assume that just because you go into bankruptcy you can all of a sudden walk away from all your historical liabilities to creditors and to workers. And it’s not clear that it’s just that simple. Because workers and unions do have the opportunity to participate in negotiations, it’s not a one-way cram down.

You’re a former CFO: how did GM’s accounting errors happen on your watch?
Well, to be perfectly fair, I was last CFO in 1994. But it doesn’t mitigate the fact that, hey, mistakes were made.

Is it embarrassing?
Sure, absolutely. I didn’t like it at all. But once you discover that something is awry, you need to fix it. We went through something like 20 million documents to put all this stuff together.

You played basketball at Duke and you’re very competitive. Would it bother you if GM fell to No. 2 behind Toyota?
From the priorities, the challenges that we’re addressing today, this isn’t at the top of my list. I’d say our focus at this point is getting our business right and profitable.

With all the progress you’ve made in quality and productivity, you still lag Toyota. Will you ever catch up to them?
You could ask me, “Will they ever catch up with us in China where we started on a level playing field and we’ve grown to be twice their size and radically more profitable?” I look at that and say, “Well, when we all got to start at ground zero and nobody had an exchange-rate advantage or a health-care disadvantage, frankly we did very well. We showed we could compete with anybody and, in fact, up to this point, better than anybody.”

I don’t think they’re giving up over there. And I would say that by the same token here, we started in some of these areas behind. And we made huge progress and we just need to keep doing that. So yeah, if we keep playing our game, I think we can.

GM’s stock-market value is less than a tenth of Toyota’s. Why is there so little confidence in GM among investors?
I think people are waiting to see what happens with [the partial sale of] GMAC and Delphi. And they’re waiting to see some turn in our business results.

When that turn is coming is a question you won’t answer, right?
You got it.

And why won’t you say when you’ll be profitable?
People are going to be judging us on the basis of our actual results. If there ever was a time when [former GM CEO] Jack Smith’s famous “Deeds, not words” is relevant, it’s right now. Until we get several of the overhang issues resolved and some clarity, we really don’t think it’s appropriate to put out a forecast. Once we get those resolved, we’re going to take a look and decide what would be best for our investors and our business.

When might that happen?
That depends on when Delphi will be resolved. I hope that will happen reasonably soon. I don’t think it’s going to happen next week. I think it’s going to take longer than that. I would hope we would be speaking in terms of weeks, rather than many months. It has the potential to move reasonably expeditiously.

On new models, the question has been raised about whether you swing for the fences in your designs or just go for singles and doubles. You told Barrons last year: “Our strategy is to produce good cars that are pleasing, but not at the edge.”
I’d like to see the context of that quote because that’s never the context of what we’ve talked about. We’ve said that the fact that we have a broad portfolio, if we play it smart, we can take full advantage of that. So with Cadillac, we don’t have to do me-too luxury cars, we can push that out. And we’ve done that.

Does it make sense to go for a radical new exterior design on a Chevy Tahoe, which is a dominant vehicle in its category? In that case, I think the design is a dramatic improvement and upgrade. Is it radical? No. Should it have been a radical change? I don’t think so based on its current sales.

But why has Cadillac been successful? Because we’ve been incredibly bold. If you talk to [GM product czar] Bob Lutz and asked, who is the guy sitting in design meetings saying, “Hey, have we pushed the needle enough?” It’s either him or me all the time, I can tell you that.

Cadillac has been a great turnaround story. Why can’t that same formula be applied to the whole company?
It’s not just Cadillac that we’ve done that with. Hummer, I think, has been extremely successful. The Pontiac Solstice. The Chevy HHR. I think you see it coming out on a regular basis. And just stay tuned for Saturn. This is rolling out as we speak.

So are you getting the gotta-have cars Lutz talked about when he arrived in 2001?
I think it’s coming very well. Just go back and look at the write-ups on our new products five years ago, three years ago and then over the last six months. Just the overall tone has been remarkably changed.

There’s been a lot of focus lately on the jobs bank that allows laid-off GM workers to receive full pay. People wonder how you can pay people to do nothing. In this day and age, how can the jobs bank be justified?
I don’t think it’s my job to justify it. It’s not something we particularly like. But it’s there. It’s part of the contract. It’s been there for a good while. So we need to work around it as best we can by encouraging or offering people the option to retire or to move to other plants.

Does the United Auto Workers union understand how dire things are at GM?
Yes. I think it’s clearer than ever that our fate is somewhat shared with the union’s. We’ve had pretty good cooperation working through some very, very difficult issues. We are essentially changing the history of the domestic business at General Motors. It’s not easy, but it’s very worthwhile and important. And we’re going to do it

This is an incredibly stressful time; how do you sleep at night?
There’s been a lot of work, so there hasn’t been a lot of time to sleep. The issue has been as much allocating time to sleep as sleeping when one gets to the allocated time.

That’s the physical load, but how about the psychic load? How does it weigh on you?
I think everybody feels better when your sales are strong, your earnings are great, your cash generation is great and your stock price is going up. These periods are obviously easy on you. But by the same token, your ability to contribute is greatest when times are most unsettled and people look for leadership. And people provide you very candidly their views on your leadership.

If nothing else during this difficult time, having had to take difficult actions which hit right at the benefits, compensation and employment of our own people, and affected our dealers, it’s been very gratifying to see people come up and say, “We’re lucky to have you leading this company.” If things were good, you probably wouldn’t be hearing stuff like that.

Do you ever get depressed?
Some days you feel better than others. But people count on me every day to be out there and drive the business and be positive. I find when I get out with people, I easily respond to that.

So is this your Nietzsche moment, what doesn’t kill you will make you stronger?
[Laughs.] People have said that to me. I say, “I’m not sure I buy into that. I’ll tell you in 15 years.”

In 15 months do you still expect to be sitting in this office with things going better?
I have a lot of confidence in the future of this company. I don’t think I’m at all unrealistic about the challenges we face. I think the progress we’ve made in a short period of time is reinforcing the fact as to how much we can take on problems that have been around for 50 years and really move the needle.

People want the company to succeed. They understand very clearly the relevance of that to them, but it’s more than that. They feel a loyalty and responsibility—this is an icon company with a brilliant history, and everybody wants to do what they can to get it through, to get us through this tough period and get back on the path to a very bright future, and that’s what we’re going to do.

© 2006 Newsweek, Inc.

[Perian]

Boy oh boy, after months of no comment... The faucet is open.

Here's another one:

Talk about crisis management

BY GREGORY J. GILLIGAN
TIMES-DISPATCH STAFF WRITER

Rick Wagoner might be the most embattled corporate executive in America today.

But the chairman and chief executive at General Motors Corp. is not ducking his critics -- and they are legion.

"You got to get out and talk about it," Wagoner said of the automaker's myriad problems. "The story is as important when times are challenging as they are when times are easy."

The world's largest automaker and its top executive are in crisis mode -- and for good reason.

During his nearly six-year tenure as CEO, Wagoner has overseen a downhill slide at GM. The last 12-plus months have been particularly difficult.

"It has been a pretty wild ride," the former Richmonder said in an interview last week.

Sales are sluggish. GM posted a $10.6 billion loss in 2005 -- its largest ever. The value of its stock has dropped about 70 percent since 2000.

Its share of the U.S. auto market fell to about 25 percent in the most recent quarter -- its lowest level since the 1920s.

High health-care and pension costs have hampered the company's bottom line. The automaker has restated financial results because of a litany of accounting errors, forcing it to delay filing of its annual report.

It laid off several hundred white-collar workers last week in the first round of salaried cuts this year. It offered one of the largest employee buyouts to its unionized workers. And the threat of a strike at supplier Delphi Corp. could cripple GM.

Some have suggested GM may be heading toward a bankruptcy filing, and Wagoner's job may be in jeopardy.

"Like anything in life, there are periods that have been easy or difficult," Wagoner said.

"It is certainly fair to say that the last 12 months or so have been the most challenging period from my perspective, that is for sure," he said. "We are in one of those pivotal points in the history of the company."

Wagoner will talk about some of those key points -- and steps he and others are trying to take at GM -- at The Richmond Forum on Saturday night.

The 1971 J.R. Tucker High School graduate hopes to receive a hometown welcome during his talk here. "It will be a nice break from all the action," he said, adding that another key reason for his visit is his mom's fried chicken.

Elsewhere, Wagoner, 53, who rapidly rose through the ranks of GM to the CEO's job, has been under siege. His critics argue he has been slow to make changes, cut expenses and create interesting new products.

"He has not done a good job if you look at the stock performance and the economic performance of the company," said Ivan Feinseth, director of research for Matrix USA brokerage in New York City.

George Hoffer, an economics professor at Virginia Commonwealth University who specializes in the auto industry, said he doesn't believe Wagoner is confronting personal animosity from critics as have previous GM executives.

"GM's problems are clearly taking a toll on him," Hoffer said. "I don't think anyone is suggesting that anyone else could have done a significantly better job. When the ship is going down, the captain of the ship gets the blame. But nobody is blaming him personally for the current problems."

Hoffer said GM's board must have a great deal of confidence in Wagoner by putting him in charge of this latest turnaround effort.

The problems at GM, Wagoner said, are fixable.

"I tried through all of this to make sure what we are doing is what is right for the future of General Motors," said Wagoner, who slashed in half his 2006 salary. GM has yet to report Wagoner's salary for 2005, but his base pay was $2.2 million in 2004.

"If that means we have to take some bullets, that is our lot in life at this point."

The changes simply take time and have been challenging because "we are changing a lot of history."

During the past 50 years, GM's share of the U.S. auto market has gone from more than 50 percent to about 25 percent now. GM's market share was 28.2 percent in 2000 -- the year he became CEO -- then rose slightly but has dropped in the past two years.

"The flip side is that we have 25 percent of the market, or one-in-four vehicles sold in the U.S. That is a pretty good base to build on," Wagoner said.

Hoffer, the VCU professor, says GM's market share erosion seems to be accelerating rather than slowing down. The company needs to stop the decline or it could face even worse problems, he said.

GM can gain market share, Feinseth said, by selling cars consumers want. "They need to make them the car of choice for the people. That's how you fix the problem," he said.

The automaker has come a long way in terms of reliability and quality, and it does have some unique products, he said. But the company hasn't gone far enough in designing vehicles that consumers want, Feinseth said.

"They need to be more responsive to the demands of the marketplace and quicker to get them out," he said.

Wagoner said GM has made huge strides in bringing new and interesting vehicles to the marketplace.

"Public perception tends to lag reality," he said. "If I could wave a magic wand to get us on the consideration list of everybody, that would help out the top and bottom line."

Under Wagoner's tenure, GM plunged forward, putting money into developing and making large sport utility vehicles such as the Chevy Tahoe and Chevy Suburban. With soaring gas prices and an aging product line, sales have slowed.

Emphasizing SUVs has paid huge dividends for GM, allowing the automaker to command about 68 percent of sales in that category. They also are very profitable, Wagoner said.

"If you have profit in one big area, you want to fight like heck to keep that."

In the next 10 years, Wagoner said GM's challenge will be to continue to flourish in that segment while developing other vehicles such as SUVs built on car platforms and hybrids.

"What we are doing is dramatically rebuilding our gee-whiz," Wagoner said, adding, for instance, that the Pontiac Solstice is driving consumers to the showroom.

Wagoner said the company's critics tend to focus on the negative and forget about areas where GM has made some strides, particularly overseas.

Last year -- for the first time in its 97-year history -- GM sold more cars globally than in the United States. Although the U.S. is its No. 1 market, China is now the company's second-largest, surpassing Japan.

"We have a pretty good global footprint, and . . . it is an unbelievable business opportunity for us," Wagoner said.

"The story is just not about here. We are moving along in a good fashion elsewhere and that's a positive story," he said. "The flip side is not going to make up for not getting the business fixed here."

When Wagoner took over as CEO, he was seen as GM's golden boy for helping the previous chief executive turn the company around. He also was one of GM's youngest top executives.

Is Wagoner still a golden boy?

"I think I am too old to be a golden boy anymore," Wagoner said with a chuckle. "What hair that I had that was golden is rapidly turning to gray. Call it experience."

[nsap]

Perian, check your PM's.

[give_it_all_]

Glad to hear something from him

[steverino]

Sounds pretty encouraging, but as usual perception is lagging, not only in the usual vehicle quality area, but in the reality of a turnaround that may be taking hold.

[grayhorse]

Originally Posted by Perian

With all the progress you’ve made in quality and productivity, you still lag Toyota. Will you ever catch up to them?
You could ask me, “Will they ever catch up with us in China where we started on a level playing field and we’ve grown to be twice their size and radically more profitable?” I look at that and say, “Well, when we all got to start at ground zero and nobody had an exchange-rate advantage or a health-care disadvantage, frankly we did very well. We showed we could compete with anybody and, in fact, up to this point, better than anybody.”

I don’t think they’re giving up over there. And I would say that by the same token here, we started in some of these areas behind. And we made huge progress and we just need to keep doing that. So yeah, if we keep playing our game, I think we can.

I strongly agree! Legacy cost is GM's number 1 disadvantage compared to Toyota.

[fkh1]

Is it me or does wagner give the impression that he is trying to be something to everybody?

[drew770]

Just deliever the goods!
That's why Wall Street has not reacted to those items Wagoner mentioned like the job cuts and plant closings.
Wall Street knows about the job banks and the union contracts that basically has GM in a holding pattern until 2007. So they will not increase GM's stock price until there is a real pattern of a solid turnaround and cost reductions ie elimination of jobs banks and more layoffs. Plus, Wall Street want to see GM less dependent on SUV's and trucks because gas prices will not get any cheaper in the near future.
But, GM has made little improvement on the car side of the business so Wall Street is unimpressed!
Business Week back in the 90's was calling for GM to get smaller and to deal with the union contracts but someone was asleep at the wheel now GM's back is against the wall and they will have to fight just to survive.

[fkh1]

Just be patient everyone ..Lutz and Wagoner are readying saturn just in time...with Aura and the Lamdas..General Van Winkle will be able to launch its reassurance

[fkh1]

They just need more time...its all coming together..the guy may have made mistakes..but he is trying to right the ship before its sunk...I'm telling you Saturn will be the key...they have staked all hopes in the 900's and saturn.

[TuffG929]

I used to be part of the "off with his head" bandwagon. But now that I put more thought into it, I think he should stay.

[fkh1]

And in all Honesty..bieng in the finance, smart move to not give guidance to wall street...GM needs to get away from living quarter to quarter..smart move...by rick lets him focus on righting the ship

[Buickman]

For more on GM, watch 60 minutes this evening.

[ChevroletRevived]

Interesting. I'm giving Wagoner this chance. I believe he can pull GM through this.

[fkh1]

buickman, I've read your posts on different sites...and you have mentioned that more then once care to give any insight?