16 September 2009

GM Chief Talks Tough as Board Is Set to Meet on Opel, New Marketing Push

By The Wall Street Journal

The board of General Motors Co. on Tuesday kicks off a two-day meeting that is expected to determine the fate of the auto maker's ailing Opel unit in Germany. The meeting also is likely to solidify a major shift in the balance of power at GM.

For years, GM management ran the company with little interference from the board. But after the company's reorganization in bankruptcy, and the emergence of the U.S. government as GM's largest shareholder, its new board under Chairman Edward E. Whitacre Jr. has become the dominant power. It is keeping management on a tight leash and exerting increasing influence over the company's operations.

On Tuesday, the board also will review a major marketing campaign the company plans to unleash later this month. The marketing push is linked to Mr. Whitacre's insistence that GM find a way to boost revenue and halt its declining U.S. market share.

Edward Whitacre Jr GM Chairman"He's said to us that 'you've been given a clean balance sheet, now apply the same focus to market share and sales,'" said one person familiar with Mr. Whitacre's views.

Mr. Whitacre declined to be interviewed for this article.

Having such an activist board and chairman would be unusual at many large corporations. At GM, it is a sea change. In the past, the company's directors almost always went along with the strategy of its former chief executive and chairman, Rick Wagoner. Rarely did the old board question management's assumptions or forecasts, people familiar with the matter said.

The hands-on style of Mr. Whitacre and other new board members carries some risk. But so far, there have been no signs of serious friction between Mr. Whitacre and the company's new CEO, Frederick "Fritz" Henderson.

After its 40-day stay in bankruptcy court, the car maker has to jump-start sales, end a streak of billion-dollar losses and formulate a global strategy while operating as a considerably smaller player in North America.

GM also has to re-evaluate their Michigan medicare and prepare for a public offering of stock to raise money to pay back some of the $50 billion U.S. taxpayers have given it. The offering is supposed to take place in the middle of next year, leaving GM only about 12 months to whip itself into shape.

Medicare Michigan and the future stock offerings of GM puts the spotlight on Mr. Whitacre. As the former CEO of AT&T Corp., the 67-year-old Mr. Whitacre came into the job with no auto experience. The straight-talking executive with a bulldozing style was selected in June by the Obama administration's auto task force, and given broad authority to safeguard the government's GM investment.

The task force also selected Mr. Henderson to serve as CEO, but made it clear to Mr. Whitacre that it was up to the board's discretion whether Mr. Henderson and his team would remain, said people familiar with the matter.

The mandate puts considerable pressure on Mr. Henderson and three of his top lieutenants: Vice Chairman Robert Lutz, Chief Financial Officer Ray Young and Vice President Mark LaNeve, who oversees sales.

Probably the clearest signal so far of the board's new power came Aug. 21, when directors convened via teleconference to discuss GM's ailing Opel unit and British sister company Vauxhall.

Mr. Henderson hoped to get a green light to sell a majority stake in Opel/Vauxhall to a group led by Canadian auto supplier Magna International Inc., the only deal the German government was willing to help finance. Mr. Henderson also was open to selling a majority stake to RHJ International Inc., a Belgian private-equity group, although it would be more difficult to fund that deal without Germany's help.

But before Mr. Henderson got very far, the board brought him to an abrupt stop. How, the directors wanted to know, would GM compete in Europe if it relinquished control of Opel, according to people familiar with the call. Did GM have to settle for the Magna deal? Why couldn't the company consider alternatives -- including keeping all of Opel?

"They needed a lot more information than we could give in a one-hour phone call," one person familiar with the meeting said.

Since then, Mr. Whitacre has continued looking into GM to understand how the company thinks and operates, even at levels well below the executive suite. The chairman spent Sept. 1 and 2 meeting with employees at GM headquarters in downtown Detroit, said people familiar with the matter. The discussions involved groups of 10 to 15 GM workers from various levels and disciplines, these people said.

The sessions are known inside GM as "diagonal slice" meetings, meant to cut across the organization and provide a view of the company's inner workings. Each lasted about 45 minutes.

While the meetings aren't a new idea -- Mr. Wagoner held them as well -- Mr. Whitacre doesn't have the management duties of a CEO that Mr. Wagoner had. And the new chairman had a tough new message for employees: deliver results or leave, said people familiar with the sessions.

Mr. Whitacre "stressed accountability at all levels" of the company and made it clear that "if we think it's going to go back to being business as usual we are mistaken," said a person who attended one of the meetings.

"People kept talking about Ed's impatience when he was first named to the job," another person familiar with Mr. Whitacre's meetings said. "Well, we're seeing that first hand."

Two areas where Mr. Whitacre wants to see progress quickly is boosting revenue and halting the decline in U.S. market share.

In August, GM's share of U.S. auto sales fell by five percentage points, to 19.5% from 24.5% a year earlier. Executives blamed a particularly strong August 2008 as one reason for the decline. GM also cut its customer-incentive spending by 8% during the month compared to August 2008.

Mr. Whitacre has told GM executives to figure out a way to lift market share while keeping inventories lean and trimming incentives such as rebates, said people familiar with the discussions. Conventional wisdom in Detroit holds that cutting incentives and inventories usually results in lower market share.

No comments: