General Motors emerged from bankruptcy in record time—just thirty-nine days from start to finish. Some people saw GM’s fast rebirth as a victory, and in some ways I guess it was, because GM was still standing.
An even bigger victory, but one that people really didn’t talk about, mostly because they were so focused on the miracle of GM’s survival—and it was that—was the fact that the two-hundred-thousand-plus people who worked for GM still had jobs. All this was contingent on GM staying healthy, of course, and that was the armadillo in the room that nobody really wanted to talk about.
General Motors had a better balance sheet, sure. But it also had a tangle of new owners, a pervasive morale problem, and $50 billion in taxpayer money that had to be paid back. The car-buying public was still skeptical about whether GM would stick around, and employees, who were about as down and depressed as any workforce I’d ever seen, weren’t far behind. That awful “Government Motors” name, a source of shame and embarrassment for many GM employees, was not helping. Meantime, the soft US economy was continuing to depress car sales, with no end in sight. So while the “new” GM was out of bankruptcy, it was not by any stretch out of danger.
Back in Detroit, GM’s most senior managers weren’t too worried. They’d all been through tough times before, so they were as confident as ever. That’s what bothered me. The math was pretty simple: This was the same team that had driven GM into the wall, and they were still in the driver’s seat, minus Rick Wagoner, the former chairman and CEO. But the rest of Wagoner’s team, including his number two, who was now the CEO, was still pretty much intact. Nobody seemed too worried about that. But that’s all I was thinking about.
How could the same management team that stood by while GM’s stock price plunged more than 90 percent, stood by while the company racked up losses of $82 billion, stood by while the cash reserves got drained down to nothing, suddenly sprout wisdom and steer that company back to profitability again? The short answer: They couldn’t. Because if that management team could have done that, I have to believe they would have done that at some point between $60 a share—which is what GM was trading for when Wagoner took over—and less than $3 a share. That’s like asking a person who’s never played the piano before to sit down and play you a little something from Beethoven. It just ain’t happening.
Post-bankruptcy, GM’s life was more complicated than ever. With most lenders, you can pay off the balance whenever you feel like it. Not in this case. Why: Only a small portion of the $50 billion in emergency funding, around $6.7 billion, was given to GM in the form of a loan, which accrued interest, just like any bank loan. We could pay back that part at our discretion. But the rest of the money, around $43 billion, got converted into a 61 percent ownership stake in GM, and only the government could decide when, and at what pace, those 912 million shares got sold. The net effect of all this: GM was no longer in control of its financial future—the US government was.
TARP money had other conditions. Example: The salaries of top GM executives were now capped at around $500,000 a year. That sounds like a lot, and in absolute terms it is, especially when you consider that the median salary in this country is around $50,000 or so. But it’s not so much when you consider that Ford and other carmakers that didn’t have TARP money were paying double and triple that amount, in some cases, or even more. The net effect: GM couldn’t compete for top outside talent, because it just couldn’t pay. But on the plus side the talent pool at General Motors was deep and wide, and it was crammed with some of the brightest and most dedicated people you’ll ever meet. So even if the current batch of top executives at GM wasn’t right for the times, I figured there were plenty of rough diamonds scattered around the organization. It was just a matter of finding them.
GM, at that point, hadn’t posted a profit in five years—it technically recorded a profit three years earlier, in 2006, after adjusting for special items. But the real show-and-tell moment is the “unadjusted” profit, and GM hadn’t had one of those since 2004. If the company stumbled out of the gate, or showed signs of “business as usual,” it could wind up digging a brand-new hole for itself—this was one of my biggest worries. The global media was analyzing every twitch GM made; car buyers and other carmakers were also tracking closely. So was Wall Street, the White House, and lots of other constituencies. Everybody wanted to know the same thing: Can the new GM make it? To start the long process of building confidence and restoring its tarnished name, management needed to craft a strong message and plan, one that was based on the reality of GM’s new size and financial situation—not past glory days. Then they had to execute flawlessly. And they needed to do it now, not five quarters from now, or five years from now.
GM emerged from bankruptcy on July 10, 2009, a full three weeks ahead of expectations. I was in regular contact with board members, but had deliberately kept a low profile around GM’s Detroit headquarters. I figured that was only proper. Plus, there really wasn’t much I could do until GM got clear of Chapter 11. If GM had liquidated, that would have been it—all of the company’s assets would have been sold off. In which case there would have been nothing for me to do except lament the passing of one of America’s truly great companies.
The new GM was a lot smaller. Bankruptcy got rid of Hummer, Pontiac, and a couple of other brands, leaving it with just four nameplates: Chevrolet, Cadillac, Buick, and GMC. (Buick almost got shut down, but strong sales in China argued for keeping it.) The reorganization plan, which had been worked out among all the parties that GM owed money to, called for the US manufacturing workforce to shrink by more than a third. About 40 percent of GM’s dealers also got handed their walking papers. Debt got slashed by 70 percent. And the executive ranks got thinned, from 1,300 to 1,100. A lot of other things got trimmed back, shut down, and reworked, and when it was all done the result was a slimmed-down company that was known, officially, as the “new” GM.
The new GM had a complicated ownership structure: 60.8 percent controlled by the US Treasury, 17.5 percent owned by a retiree trust fund affiliated with the United Auto Workers (UAW), and 11.7 percent owned by the governments of Canada and Ontario. About 10 percent was owned by Motors Liquidation Co.—that was the post-bankruptcy name of old GM, which still existed on paper. The old GM, which had always been traded on the New York Stock Exchange, was moved to the OTC after its bankruptcy filing; by then even those shares were no longer trading. Value at the time of suspension: around seventy-five cents a share. The new GM was not publicly traded at that point; its only shareholders were the big stakeholders I just listed, the biggest being the United States of America, which was really code for US taxpayers. The “Government Motors” name was a constant reminder of GM’s compromised financial condition and history. Not that anybody at GM needed reminding.
With GM finally out of bankruptcy, I figured it was time to get myself on out to Detroit and get to work.
So, in mid-July, I headed out. On the flight to Detroit I had some mixed emotions, I will admit. On one hand, I felt excited to be going to GM, and very much hoped I could be helpful. But it was also a little scary. I didn’t know a soul at the company. Didn’t know cars. And hadn’t stepped foot in Detroit in years. The last time I’d been there was to meet with Rick Wagoner, GM’s then-CEO, in the dead of winter. GM owned a big stake in DirecTV, the satellite TV operator, and we at SBC Communications (formerly Southwestern Bell, later called AT&T) were interested in buying that interest. I was chairman and CEO, so I went along with my top deal guy, Jim Kahan, and our general counsel, Jim Ellis, to help pitch Wagoner on the idea. Wagoner was cordial. But he also seemed to think we couldn’t afford that stake, which would have cost us a few billion or so. I assured him that financing was not an issue; that SBC had plenty of money and good credit. Wagoner and his chief financial officer—he was in the room, too—seemed unconvinced, like we were some small Texas company that couldn’t play in GM’s league. Or at least that’s how it felt to me. I remember looking out the window in Wagoner’s office—he had a corner office on the thirty-ninth floor that had a clear view of the Detroit River, which was frozen solid—and thinking to myself: This meeting is going nowhere. And it didn’t.
Now Wagoner was gone and I was GM’s chairman. The irony of all that was not lost on me as I made my way back to Detroit, and to that same building and corner office where that conversation had taken place. By then I’d already called on Wagoner to let him know I was going to GM. I put in that call right after the White House announced my appointment. I figured he already knew, but I also thought it was the respectful thing to do. Wagoner was cordial, but didn’t have much to say, which I could certainly understand. So once again it was a very short conversation.
I touched down in Detroit and was met by a GM driver. We immediately headed downtown to the Renaissance Center, a mixed retail-and-office-space complex where GM’s world headquarters is located. The building, nicknamed the RenCen, is impressively large: five and a half million square feet with seven towers, dozens of stores, four movie theaters, two foreign consulates, and a thirteen-hundred-room hotel that rises seventy-three stories. GM has almost four thousand people there; another four thousand or so work for other businesses. The place is a beehive of activity; people are always running around going somewhere. GM’s offices are housed in a series of glass towers that have color-coded reception areas, connected by circular walkways and banks of escalators. The first time I went there, for that meeting with Wagoner, I remember thinking that the RenCen was the perfect metaphor for General Motors: overblown, overdone, complicated to the max. Walking into the RenCen again that morning, I had that same feeling all over again.
I made my way up to the thirty-ninth floor for my first meeting of the day, with GM’s new CEO, Fritz Henderson. I was the “outside” chairman of GM—that’s just a fancy way of saying that I was not an employee—so theoretically I had no day-to-day responsibilities. I say “theoretically” because my intention, all along, was just the opposite—to be a very involved chairman. Most outside chairmen preside over board meetings, and that’s pretty much it. But I had not accepted the job to sit on the sidelines—I’d accepted with the understanding, and promise, that I’d do my best to help GM get turned around. And that’s exactly what I intended to do.
Fritz was hunched over his desk working when I arrived. He welcomed me warmly and said he’d be most willing to help me find out anything I needed to know. I had never met Fritz, but I’d heard a lot of good things about him. People described him, universally, as a smart guy and very hard worker. He was also a devoted company man—he’d worked at GM his entire career, twenty-five years. Like other senior managers, Fritz’s salary had been cut a couple of times—part of GM’s cost-cutting efforts, this stuff had been going on for years. I respected his sense of duty and commitment. Fritz was relatively young, just fifty. Young to me, at least. When you’re sixty-seven, everybody looks young to you.
I started out the conversation by asking Fritz how things were going—he said fine but busy. We also talked about his background: Fritz was the son of another GM company man, and he’d been born and raised in the Detroit area. So he had cars in his blood, you might say. Fritz had been working overseas in GM’s global operations—did a good job, too, from what I understand—when Wagoner called him back to Detroit to help clean up GM’s financial mess. Fritz was an encyclopedia of facts and figures. He also knew the global car business cold—he could quote numbers backward and forward, which was impressive.
But the CEO’s job is about a lot more than numbers. You have to be able to lead and inspire people. You also have to be willing and able to make hard calls, even if it means moving out an executive who also happens to be your friend. (And if you work shoulder-to-shoulder with people long enough, they’re all friends.) In addition—and this is really important—you have to be able to recognize, from somewhere within, when things aren’t hanging together just right. All this tracks back to this thing we call “management,” and that is squarely in the court of the CEO—to make sure his or her management team is delivering.
I had strong views as to what Fritz needed to do: To get GM back on track, and employees out of their funk and reengaged, he was going to have to communicate a clear and compelling vision to the entire company that people could believe in, and rally around. Hard financial targets needed to be established, and met. GM’s days of just moving the pieces around the chessboard and making excuses when things didn’t work out were over—the bankruptcy saw to that. I was on board as chairman and willing to help in any way he wanted, but it was up to Fritz, as CEO, to make sure his team delivered. Did Fritz have the management skills to pull that off? Listening to him talk that morning, reeling off all those facts and figures, I could only wonder to myself.
Fundamental to me is how a business is organized, so I asked for a copy of GM’s organizational chart. Also known as “org” charts, these documents diagram how a business is laid out, who reports to whom, the interrelationships of different business units, that sort of thing. Big companies like AT&T and GM have multiple business units. Org charts help you keep track of all that. At AT&T, I always had org charts on hand, and I referred to them frequently when talking with direct reports, who also had copies—just to make sure we were all on the same page, literally and figuratively speaking.
But Fritz didn’t have an org chart. He said GM had done away with them—to help save money, no doubt. Fritz said he was tracking everything in his head.
That was the first red flag.
Red Flag Number Two: Fritz had fifteen or twenty senior executives reporting to him directly. That’s a huge number of direct reports. CEOs typically speak with their direct reports daily—it’s one of the main ways you stay plugged in to what’s going on in your business. I was mystified as to how Fritz found the time to talk with fifteen or twenty people daily and still deal with all the other things that were on his plate. GM, as I mentioned, had all that taxpayer money that had to be paid back, a crushing morale problem, a tarnished image, lots of other problems rattling around—and Fritz was the point person for all of it. How could he juggle all those balls and keep everything straight?
Since there was no org chart, I asked Vivian Costello, Fritz’s assistant, to print out pictures of all the senior managers. I figured Fritz could just talk me through the details. I wanted to know about GM’s business structure, and to get a firm understanding of the specific jobs and responsibilities of the senior management team: who was responsible for what, exactly, and how the various divisions stacked up from a reporting and organizational standpoint. So Vivian got me those photos, and Fritz and I started going through them.
And it was then that I got my first inkling of why we were in trouble. Fritz could not explain, in a clear, concise fashion, what these people did. Don’t get me wrong, he had answers for all of it. And I have no doubt that Fritz knew, instinctively, exactly what these people were doing in their day-to-day business lives. But the descriptions he gave me were so general and so vague as to be completely meaningless. I’d say, “What does this person do?” And Fritz would respond, immediately, with a long explanation that didn’t make any sense to me. And I was really leaning in and listening when he was talking, because I was really trying to understand the path he was taking me down. But the path, as best I could tell, went nowhere; it basically dead-ended. And that’s how it went for the entire stack of pictures. By the time we got down to the last picture, I still had no idea how GM was structured or what his senior managers did, exactly.
Focus, it seemed to me, was the issue. I also thought the large number of direct reports—fifteen or twenty—could not be helping. I asked Fritz how he could handle all that. “I can take on more,” he told me. There was not much I could say to that. Fritz was the CEO, and this was how he was running the company. So I said okay, and we moved on to other things.
That’s not to say I was done digging around. I had two full days of meetings scheduled in Detroit with all the top people—Fritz was just my first stop. So I figured I’d be getting some answers soon enough.
Next up was Bob Lutz, GM’s vice chairman. Over the course of his long and storied career—Bob was seventy-seven when I met him—he’d held senior positions at the Big Three in Detroit, plus BMW. Bob, a former marine fighter pilot, was never a designer himself. But his passion for all things auto-related ran deep. Among his many accomplishments: bringing the Dodge Viper, one of the first V-10 cars in the world, to market. Built as a concept car, the original Viper had no door handles, roof, or roll-down windows. But it had major attitude and oozed cool. The Viper caused such a ruckus at its 1989 debut that it was rushed into production. Bob, then with Chrysler, oversaw the entire project. (Door handles, workable windows, and a removable roof were added to the commercial version.) The Viper was one of Bob’s more memorable achievements, but he had many breakout moments over the years.
Lutz was firmly in residence at GM when I arrived. He’d retired several times over the years, but he’d been brought back by Wagoner as vice chairman to oversee the “creative elements” of products and customer relationships. Whatever that meant—I had no idea. So I asked Bob to fill me in. His description was pretty general, but the longer we talked the more I got the idea that Bob’s main job at GM was to weigh in with advice and opinions about anything he wanted, anytime he felt like it. This arrangement, I soon discovered, also extended to GM board meetings. Bob regularly sat in on board meetings, even though he was not actually a board member himself. This was a highly unusual arrangement, so I asked Fritz why he allowed that. He said Bob often had helpful comments to make. Plus, Fritz said, Bob might not take it so well if he was uninvited. I did not know what to say to that.
That Bob got special treatment, in one respect, was not so surprising. The car industry is full of colorful characters—that’s just part of the glamour and mystique of the business. And these types are warmly embraced, and in some cases revered, by Detroit. Consider car designer Carroll Shelby, who recently passed away; he was 89. A former race car driver and test pilot, this guy is a certified legend in the car world. Shelby’s GT350 Mustangs, created for Ford, defined the pony muscle car in the 1960s. (The Cobra 427, another Shelby creation and the inspiration for the Viper, continued the tradition.) The 1965 originals are coveted by collectors—only 522 were made—and expensive when you find them. Shelby’s signature move is taking hunks of metal and turning them into street-legal dragsters. It was Shelby who helped turn the Viper into a slingshot with four wheels that could rocket from zero to sixty in 4.6 seconds. Top speed: 180-plus miles an hour. (Lamborghini, then owned by Chrysler, supplied the aluminum block truck engine that allowed the Viper to fry rubber in spectacular fashion.) Tom Gale, the design chief at Chrysler who sculpted the Viper’s swoopy body design, is another Hall of Famer. He also gave life to the “cab forward” looks of the Ram truck and Plymouth Prowler.
In an earlier era, Harley Earl, the first vice president of design at General Motors, made a name for himself by pushing all sorts of styling boundaries. Among his many milestones: wraparound windshields, two-tone paint, sweeping tail fins, and the Corvette, which debuted in 1953 and has been going strong ever since. Earl was a flamboyant figure, and cultivated that image. His daily ride was the “Buick Y-Job,” a 1938 concept convertible that featured fender extensions, disappearing headlights, flush door handles, electric windows, and other designer details that would not make their way into commercial production for many years. Earl’s contemporary, Virgil Exner, senior designer at Studebaker and, later, Chrysler, also helped define that golden era of cars.
Automotive history is full of big personalities like that, and Bob Lutz, in the minds of many, was right up there. Media types loved Bob’s colorful, off-the-cuff comments, and his habit of sometimes commuting to work in his own helicopter didn’t hurt his cool car-guy image. Which was all well and fine except I didn’t have a whole lot of use for colorful characters right then because we had a car company that needed fixing. How could Bob help? He knew just about everything there was to know about cars—and I figured there was value to that in a place like GM. But putting him in a power position over marketing, communications, and vehicle design, to me, was not the answer. Morale was lower than sludge, and constant reminders of past failures and past glory days—Bob was well versed in both—weren’t helpful. So I pretty much knew, about five minutes into this conversation, that some changes were probably in order. As for Bob’s habit of sitting in on GM board meetings, that was about to stop. Outsiders, including senior executives, are sometimes invited to give presentations during board meetings. But the meetings themselves are limited to board members only. That’s no knock on Bob. That’s just corporate protocol.
After Bob, I had a succession of meetings with the members of the senior management team. One by one, they came to see me, as I’d requested. And one by one we sat down and talked—about their jobs and responsibilities, about GM’s problems, as they saw them, about anything they wanted to talk about, really. I began every conversation by posing a few simple, direct questions. Among them: What do you do? Who do you work for? and What do you think went wrong at GM? We talked about a lot more than that, of course, but those were my baseline questions, and conversations sort of meandered off in different directions from there.
Mostly, though, I just listened. These are some of the things I learned:
1. The place was far too complicated. Put a gold star by this observation, because this was my biggest takeaway by far. Nothing at GM was simple or straightforward, and the complexity affected everything. Take basic job descriptions. When I asked people to tell me what they did, answers tended to be rambling and/or incredibly general, with no specificity or accountability. This really concerned me.
2. People seemed unclear, in many cases, as to how their particular business units interrelated to the rest of the team, and to GM broadly. Again, this suggested a lack of understanding about the basic organization of the global business. Since there was no org chart to refer to, people were basically going on their own understanding of GM’s structure—and those understandings were not always in sync.
3. Managers, in most cases, reported to several bosses—or to nobody if they didn’t feel like it, it seemed to me. So nobody was really accountable or responsible if things went wrong. On the flip side, managers were not clearly empowered to make decisions, making it difficult for them to take real ownership of problems, or solutions.
4. A few managers seemed like really bad fits for their jobs and needed to be repotted.
5. Some had clearly been in the saddle for way too long and needed a change of scenery.
6. Some needed to be moved out of GM entirely. People who hate their jobs, or constantly grouse about their jobs to other people, or threaten to leave if they are not given raises, which is what one individual at GM actually did, are not people you want in leadership positions. At least I don’t. The message of senior managers was clear: GM’s collapse was not our fault, not a thing we could have done about it. I probably don’t need to tell you what I thought about that, but I will anyway: Management is 100 percent responsible for what happens to a business. One hundred percent.
7. To remind you, GM’s collapse was not an overnight occurrence. This had been building for decades. Yet management did not make a correction to alter the path going forward—or if they did it wasn’t dramatic enough, because the path wasn’t altered. Instead, they just kept going along the same curve, and they didn’t bend that curve.
8. There was no identification of what we had to do going forward to get GM back on track, and there was little interest in even discussing this. That all tracked, I guess, because as far as they were concerned nothing at GM was broken, so what’s to fix?
All of these meetings I have described, with the exception of the one with Fritz, took place in a big conference room that I was using as my makeshift office. In hindsight, it now seems a little odd that nobody ever offered to let me use a regular office. But I also think it was indicative of how I was generally viewed: as somebody who’d be in and out of Detroit in a flash, with no intention of doing any serious work while I was there. As I have explained, most times non-executive chairmen are not very involved in the companies they work with—those are often arm’s-length relationships. So the fact that I was showing up and getting so involved, on its face, was most unusual. I suspect some of these senior managers thought I’d back off after a short while. But I knew walking in the door that I was just getting started.
I fully appreciated that I was an unknown quantity around the RenCen. I was from Texas, so I didn’t sound like anybody from around there. I wasn’t from the car world, so I didn’t speak that language, either. And the government had just appointed me as chairman, so I had the double whammy of being a Washington appointee on top of all that. My takeaway was that senior management was going to tolerate me for the time that I was there, but otherwise they’d keep doing what they were doing, just like they’d always done. Everybody was really nice, like I said. But that vibe—let’s humor him until he goes back home—was there, you could just tell. Or at least that’s how it felt to me.
And I could certainly understand why they felt that way because, when you got right down to it, all that stuff was true. So I didn’t get too upset. Except I did think to myself: It’s a mistake. You guys don’t know what’s going to happen here. I was giving a lot of hard thought to every member of that GM management team, as well as the organizational structure of the company and how all those parts fit together, or didn’t fit together. I didn’t have a fix-it plan, at least not right then. But this much I did know: I wasn’t going to pull out of there until GM was back on track and profitable again.