Sunday, March 29, 2009

Au revoir, Mr. Wagoner

Rick Wagoner has resigned as chairman and chief executive of General Motors, under pressure from the Obama administration. That's the polite way to say it.

The slightly less polite way to say is that that President Obama fired the head of General Motors.

I hate to say it, but good for Obama. I have nothing against Rick Wagoner. He seems like a good guy, and he has certainly had an impossible job of late.

But Obama needed to make a decisive move. He needed to make a clear statement about who is in charge. I still think GM is salvageable. I still think there's a huge amount of value there. But someone needs to clean house, and it's not clear that Wagoner was capable of doing it. GM needs to eliminate Saturn, Pontiac, and GMC. It needs to sell Saab and Hummer, and it's not clear that there is a buyer for either. It needs to close hundreds, possibly thousands of dealerships.

All of that is going to be horrendously painful. At a time when unemployment levels are already very high, many more people are going to lose their jobs. Closing dealerships means more vacant real estate when there's already too much of that.

If GM had made the necessary cuts when times were good, it wouldn't have to go through this. The irony, of course, is that when times were good, there was not enough pressure to make these cuts. All of those extra dealerships stayed in business, despite GM's desire to close them, because they were making money. GMC stayed alive, despite making trucks that are basically duplicates of Chevy's.

GM's great problem is that it is not so much a single corporation as it is a bunch of small ones, all competing. Chevy and GMC make very similar trucks. Why? Because Pontiac, Buick, and Cadillac dealers (and Oldsmobile dealers, back when Olds was still around) want to sell trucks, but they don't want to sell Chevy trucks, because then they would have to also sell Chevy sedans and sports cars, which would compete with their Pontiacs, Buicks, and Cadillacs.

GM is the ultimate dysfunctional corporate family. Each division, each dealership has its own interests, and those interests are in direct conflict with the interests of other parts of GM. None of them have enough incentive to sacrifice for the greater good that is known as GM. If GM kills GMC, that will hurt dealers that have GMC and Buick, Cadillac, and Pontiac. But it will help Chevy dealers, because it will eliminate their competition. So Chevy people would love too see GMC disappear. But GMC, Buick, and Pontiac people would love for GMC to stick around. Thus are corporate crises allowed to fester.

In the long run, eliminating GMC will be good for GM. GM wastes lots of good money supporting GMC, advertising it, etc. But in the short term, it's going to be very painful.

This is why Rick Wagoner had to go. He's a product of GM. He couldn't make the tough decisions. He knows he has to kill off several divisions. He just doesn't have the support within GM to do it. All of the GMC people are going to fight like the dickens to keep GMC.

Obama knows all of this. He knows what has to be done, and he knows how hard it is going to be, how painful it is going to be. He also knows that he has the power that Wagoner doesn't.

In the long run, GM will probably be a great company again. Rick Wagoner's problem is that he doesn't have the long term. He needed to show results now, and he can't. Obama does have the long term. He has until 2012.

Obama also needed to make it clear that he was getting something for all of the taxpayer money that he is loaning to GM and Chrysler. General Motors and Chrysler don't have a lot of support in the rest of the country. GM has 18% market share. That means that far more Americans aren't buying GM cars than are buying GM cars.

GM now has a chance to clean the garbage out of its lineup. GM has something like 80+ models of cars. That's absurd. Ford has three domestic brands: Ford, Mercury, and Lincoln, and it might get rid of Mercury. Most other companies have one or two brands. GM has seven.

Cleaning out the garbage would allow the best to shine. GM does make some good cars. The Corvette is an American icon. Cadillac has regained a great deal of its lost luster. Chevy makes good trucks. I'm sure there are some good Buick sedans, but I can't think of them. Herein lies the problem: I can't think of any good Buick cars because GM makes 80+ models of cars, and they blur together. The gold gets lost in the dross. When most Americans think of "GM" they don't think "Corvette." But they should.

The immediate future is still very dark for GM. But the long-term picture just got a little bit better.

This is what accountability looks like.

1 comment:

adam hartung said...

This is what happens when you lose your position as #1. It doesn't take long for people to start envisioning a world without you. GM started on the road to irrelevant years ago by focusing internally rather than on the market - missing all major shifts and becoming also-ran. Obama's team is telling everyone (auto and banking) that if you can't prove you know where the market is heading and demonstrate you can get back in front, then there's little reason to support you. Read more