06 April 2009

New GM Chief Bends to Pressure

As Originally Posted to the Wall Street Journal

DETROIT -- Facing heavy government pressure, General Motors Corp.'s chief executive spent his second day on the job making a public break from his predecessor, sending a sharply different message of willingness to shake up the ailing auto maker.

In an interview with The Wall Street Journal, Frederick "Fritz" Henderson said he is prepared to do whatever it takes to reorganize the company, including taking GM through bankruptcy court. The longtime GM executive was anointed CEO after the White House pushed out his former boss, Rick Wagoner, who had resisted bankruptcy even after the auto maker determined it could probably survive a short-lived reorganization with government support.

Mr. Henderson, 50 years old, also praised what he called the Obama administration's strong voice of support for the company, saying it liberated GM to take restructuring action it had in the recent past thought impossible to pull off.

"They think that I can lead this company inside or outside of bankruptcy court," he said. He said he expects the Obama administration's auto task force to play an active role in forcing unions and surety bondholders to make major concessions.

Mr. Henderson and the company's new chairman, Kent Kresa, have little choice but to follow the administration's game plan, given the government's effective firing of Mr. Wagoner and public dismissal of GM's latest restructuring plan as too little, too late. In addition to removing Mr. Wagoner as CEO, the government also replaced him as chairman. In coming months, six more directors could be replaced.

White House officials said Sunday that Mr. Henderson will be the company's permanent CEO and they believe he can deliver a satisfactory reorganization in a timely manner. On Tuesday, one administration official said Mr. Henderson is CEO "as long as we're satisfied he's executing according to the strong wake-up call we gave GM."

Mr. Henderson will be paid a salary this year of about $1.3 million after taking the 30% pay cut that GM imposed on top management. He will not be paid the $1 a year salary Mr. Wagoner agreed to accept after GM was given government aid.

While Mr. Henderson promised "deeper and faster" action at GM, he didn't completely break with his predecessor on strategy. He played down the need for an entirely new labor contract, said the company won't kill any more brands than the three reductions prescribed by Mr. Wagoner, and said the company will work to maintain a leading market share in the U.S.

Mr. Henderson made clear that he will use the full force of government backing to extract more painful changes from GM's union and its unsecured bondholders, which together represent more than $50 billion in the auto maker's debt obligations.

Mr. Wagoner's tenure was marked by a dogged pursuit of market share. He won some concessions from the United Auto Workers, but blinked at confronting the union on more fundamental issues, such as drastically reducing retiree health care, that weighed on the bottom line.

For much of Mr. Wagoner's eight-year tenure as CEO, Mr. Henderson worked as a close lieutenant. He was dispatched to turn around GM operations in Asia and Europe, then returned to Detroit to work at Mr. Wagoner's side, first as chief financial officer and since last year as chief operating officer.

Noel Tichy, a professor at the University of Michigan Ross School of Business, said Mr. Henderson's long experience at GM isn't necessarily a recipe for success. "It's an unnatural act for an insider to be a transformational leader," he said. "He grew up in a culture that has not been able to change."

A native of Detroit, Mr. Henderson played baseball at the University of Michigan, got an MBA at Harvard and joined GM in 1984. His career at GM paralleled that of Mr. Wagoner in many ways. Like his predecessor, Mr. Henderson started in finance and did a stint in Brazil. Mr. Wagoner sent him to Asia in 2002 and then to Europe in 2004.

For part of his time overseas, his wife and two daughters lived in Miami. After he became CFO in 2005, he flew home from Detroit on commercial flights on weekends. That ended recently when he moved his family, and five cats, to a Detroit suburb.

He's still flying commercial now that GM has sold its corporate jets. Last month, to get to the Geneva car show, he passed on a direct flight and sat through a layover in Amsterdam. In Geneva, he stayed at a Ramada airport hotel.

In an interview last month, Mr. Henderson indicated he was coming to the conclusion that GM couldn't continue on the same course as it did in 2008. "I'm not doing this again," he said, referring to continually asking for more government support. "You don't want to be careening from crisis to crisis."

But even as Mr. Henderson carries some of Mr. Wagoner's strategy into his tenure, he is wrestling with ways to refine his approach to the company.

"Big is only helpful if you harness it," Mr. Henderson said of GM's position as one of the world's largest sellers of cars. "Otherwise it's just big."

Mr. Henderson said he will remake GM's U.S. lineup by de-emphasizing the longtime reliance on trucks and SUVs that led to the company's financial collapse last year. He said that, from now on, nearly every vehicle will need to "pay rent" and be a profitable venture.

For years, GM has failed to make money on smaller cars, in part because of labor costs. This led to a dependence on sales of trucks and SUVs, which generated huge profits earlier in the decade, but lost traction amid high fuel prices.

Revised labor contracts, including another employee buyout program currently being planned, will be a key ingredient in meeting this goal, he said. So will applying practices that Mr. Henderson picked up while running GM Europe, where GM doesn't sell trucks and SUVs.

Mr. Henderson has served in an office down the hall from Mr. Wagoner since late 2005, when he became chief financial officer. Since then, he has negotiated labor contracts, sold assets, and wrote viability plans needed to win government backing. He was named chief operating officer about one year ago. But his tenure has been marred by the company's performance over the past 12 months, during which it ran out of cash.

During a separate interview, GM's new nonexecutive chairman, Mr. Kresa, said Mr. Henderson is squarely focused on delivering on the administration's expectations. "Fritz understands the mandate, and he's about to do it," he said.

Mr. Kresa, a longtime board member and a former director at Chrysler LLC, said Mr. Wagoner may have been constrained in considering options for the company by the lack of clear support.

"The difference is we have a mandate from someone who has a lot of power who will back us...," he said. "Rick never had that mandate."

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