General Motors chairman Ed Whitacre
When Fritz Henderson abruptly resigned earlier this month as CEO after failing to get a vote of confidence from GM's new board of directors, chairman and acting CEO Ed Whitacre wasted no time in elevating a team of young executives to power positions, among them Mark Reuss, 46, named president of GM's North American operations, and Susan Docherty, 47, named vice president of sales and marketing, making her the most influential female executive in the company's 101-year history.
Some of what the new leadership is saying sounds familiar, such as Reuss's assertion that GM can't afford more talk about being merely "competitive" with Asian carmakers but instead must build "the best" vehicles. He also probes deeper: "We have to rebuild our relationships with customers," says Reuss, who was in charge of GM's engineering organization before his promotion and now openly volunteers that he is disappointed by GM's poor showing in the recent Consumer Reports rankings of vehicle quality and dependability. Reuss blames the bad rankings on an internal GM culture in which employees were afraid to challenge the status quo or even make suggestions. "That has to change," he says.
In addition, Reuss takes aim at GM's past leadership. "We also have to do a better job of anticipating what the market wants. We have to be a little more agile," he says. Reuss's father Lloyd served as GM president before being removed in a 1992 boardroom coup that ultimately failed to change the company.
Susan Docherty is on the front lines in terms of rebuilding the company's relationship with consumers, which has been a disaster. "In large parts of this country, their cars just aren't relevant," says a former GM executive. Vehicles like the new Chevrolet Camaro show that GM is capable of building good, attractive vehicles, says a senior executive at a rival automaker, but "it's all the other stuff that gets in the way."
GM's sales in the U.S. are improving, aided by cash-for-clunkers, as well as positive consumer response to the Camaro, Buick LaCrosse and Cadillac SRX. In addition, new compact crossover vehicles, the GMC Terrain and Chevrolet Equinox, have sold so well that GM is adding a third production shift at an assembly plant in Ingersoll, Ont. Since mid-September, when it began offering to take back vehicles from dissatisfied customers, only a tiny fraction of the cars GM has sold have come back to dealers, Docherty notes. "We've sold 300,000, and we've had 163 physical returns," she says, making a pointed comparison with the old GM: "What's different from the old GM is we had a tendency to buy our market share. We're going to earn our market share. That's where the difference is," she says.
David Cole, head of the Center for Automotive Research in Ann Arbor, Mich., notes that despite the bankruptcy, GM still holds the top spot in the U.S. car market, with 20% of the market, down from more than 40% in the late 1970s and just ahead of Toyota and Ford. In addition, the new labor contracts with the United Auto Workers have helped GM trim costs by $5,000 per vehicle with changes in health care benefits and work rules. The work rules have been whittled down, giving GM's managers more flexibility and control than they've had in two generations. GM could become profitable very quickly if demand for new vehicles recovers, he says. Indeed GM has said in filings with the Federal Government that it expects to be marginally profitable if industry sales reach 11 million units.
GM plans to start paying back its government loans this month. Repaying the direct government loans well ahead of the 2015 date contemplated by the Treasury Department when it helped GM reorganize during the bankruptcy is the first step toward an initial public offering of stock in the new GM. While GM received more than $50 billion in federal aid, only about $6.2 billion will be repaid in cash; the U.S. Treasury agreed to take stock in lieu of cash for much of the remainder, which gave the government a 60.8% stake in the new GM. Earlier this week, Treasury Secretary Geithner told a congressional committee that he did not expect to be fully repaid on TARP loans made to three companies: AIG, Chrysler and GM.
GM does not foresee any more big layoffs in the U.S, even though the company posted a net loss of $1.2 billion during the third quarter, including special charges related to the shutdown of more than 2,000 dealerships across the U.S., support for suppliers and special employee-attrition programs at GM operations in Europe and Australia. Despite the bankruptcy, GM also owes $17 billion to governments in the U.S., Canada and Europe that supported the company during the crisis last winter. The $17 billion debt does not include $3.2 billion in notes or preferred stock that GM also owes to employees' health care trusts, or VEBAs, in the U.S. and Canada. GM expects to repay the notes to U.S. and Canadian VEBAs with money from the eventual sale of new stock — an IPO that will be successful only if GM returns to sustainable profitability.
With profits still elusive, one of the criteria for judging success used by Whitacre is market share, and by that measure, GM did improve in the third quarter, as its global share increased to 11.9%, up 0.3 percentage points from the first half of the year. "I took the job with a serious level of skepticism," Whitacre noted in a recent speech in Texas. "Some five months later, I am very pleased to report that my skepticism is giving way to optimism, little by little, day by day. We are much better positioned for success than I thought possible in July."