GM Seen Planning Global Reorganization Against ‘Fiefdoms’

General Motors Co. (GM) Chief Executive Officer Dan Akerson is planning a reorganization of the automaker that would move it away from long-entrenched regional authority toward a structure built on global functions, said two people familiar with the planning.

Power would shift from regional chiefs to global leaders in areas such as marketing, purchasing and product development, said the people, who asked not to be identified because the matter is private. While details are still being determined, the company is working to upgrade its accounting system to support the new organization, the people said.

The reorganization would be an extraordinary challenge for the world’s largest automaker. The basic idea is that global chiefs can make the company more nimble and efficient. Three years after GM restructured in a government-backed bankruptcy, Akerson is tackling something that flummoxed his predecessors for decades.

“Everyone knows that the changes need to be made,” said Dennis Virag, president of Automotive Consulting Group Inc. in Ann Arbor, Michigan. Akerson’s efforts are hampered by the company’s size, history, complexity and his own lack of manufacturing experience, he said. The CEO, a Navy veteran, has mostly worked in telecommunications and private equity.

Randy Arickx, a GM spokesman, declined to comment.

Fiefdom Frustration

While GM has slid 35 percent since its initial public offering in November 2010 through yesterday, Akerson has expressed frustration about the company’s splintered fiefdoms and culture of slow-moving consensus. Net income fell by 50 percent in the first half of the year as the company lost money in Europe and its U.S. market share slipped by 2 percentage points.

After GM took back the global sales crown last year, while earning a record $9.19 billion, Toyota Motor Corp. (7203) led six months into 2012.

“Poor Dan, he feels like a herd of wolves is after him and he’s out in the Canadian wilderness,” David Cole, chairman emeritus for the Center for Automotive Research in Ann Arbor, said yesterday in a telephone interview. “He’s got to do something even while he’s learning the game.”

GM gained 3.2 percent to $22.01, the highest closing price in two months. The U.S. Treasury is GM’s biggest shareholder.

Taking Shape

Pieces of Akerson’s GM are already taking shape after almost two years as CEO. He is pushing Chief Financial Officer Dan Ammann to implement by the end of this year or early next year an accounting system that will allow for greater transparency in results by country, the people said.

The CEO has appointed new global leaders for manufacturing and information technology this year. He had previously elevated Joel Ewanick to global marketing chief, in line with his plans for Cadillac and Chevrolet to be worldwide brands while GMC, Buick and Opel serve specific markets.

(Related: Bloomberg Gas Price Ranking by Country)

Ewanick was ousted last month after GM determined he had failed to properly disclose about a third of the cost of a $559 million sponsorship arrangement with English soccer team Manchester United, people familiar with the matter said. Alan Batey, who runs U.S. sales and service operations, is serving as interim chief marketing officer.

Akerson hired Randy Mott as chief information officer in February and tasked him with overhauling the company’s old IT systems. Mott has said he wants to in-source thousands of jobs as part of an effort to give the automaker greater flexibility for innovation.

Global Manufacturing

Akerson has also boosted the duties of Tim Lee, who heads GM’s international operations, which include China, India and Russia, by naming him global head of the automaker’s manufacturing operations.

Parts of GM were already globally organized under previous reorganizations. Product development, for example, is aligned globally under Mary Barra, a senior vice president.

She announced last month a restructuring of her operations to consolidate vehicle development under one executive chief engineer for each program. Previously, a vehicle program was developed under the direction of the vehicle line executive, the vehicle line director and vehicle chief engineer. The changes removed a layer of management and about 20 executive positions, GM said in a statement.

“I think they’re going back to the 1980s when they did their old reorganization,” said Maryann Keller, principal of Maryann Keller & Associates, a consulting firm in Stamford, Connecticut. “It’s very difficult to make an auto company fast moving when the chief executive officer is still learning about the auto industry.”

Company Culture

GM board members praised Akerson’s performance as CEO in advance of June’s annual meeting in Detroit, noting that the company’s culture has changed since its 2009 bankruptcy reorganization.

“The culture at the top is OK,” Robert Krebs, a GM board member, said in a June interview. “I think there’s a sense of urgency. It’s not panic, it’s just urgency and understanding what needs to be done,” he said. “But this is a giant company and somehow that’s got to work its way down and it takes a lot of effort and a long time to do that.”

During a presentation in June in Chicago, Akerson talked about GM’s old way of doing things, something he called “committee culture” that thought “they can’t fire us all if we screw it up.”

“You can,” he said. “There are times if you’re alone and in the end zone and the ball is thrown to you, damn it, you’ve got to catch it. This isn’t pee-wee football.”

‘Little Fiefdoms’

The company must act as one global entity rather than independent realms, he told employees in a town hall meeting last week.

“We’re a global company that operates as small, little fiefdoms,” he said according to the Detroit News, which cited a recording of the event. “That’s got to stop.”

The Wall Street Journal earlier reported that Akerson wants to redraw GM’s organization.

GM has been trying to centralize control, streamline management and reorganize the company to be more effective since at least 1970, said John Wolkonowicz, an independent auto analyst and historian who has worked at the automaker.

For much of its history, GM allowed Chevrolet, Buick, Cadillac, GMC, Pontiac and Oldsmobile to operate fairly independently in North America, while Opel in Europe and Holden in Australia were also their own entities, he said. GM’s U.S. market share peaked at 51.1 percent in 1962 and eventually the market dominance prompted threats from the U.S. government to break up the company for antitrust reasons.

‘Separate Companies’

“It was like six separate companies and each division was more or less autonomous,” said Wolkonowicz. As late as 1980, when he worked for Buick, Wolkonowicz said that to visit a Pontiac office, he had to sign in as if he were a worker from another company.

GM started to consolidate some of the functions in about 1970 when it created the GM assembly division, he said.

In the mid-1980s, GM combined the brands into two large units, Chevrolet, Pontiac, Canada, called CPC, and Buick, Oldsmobile, Cadillac, called BOC, he said. GM also created Saturn as a new make about that same time to compete with foreign small cars, he said. GM dismantled those groups in the early 1990s.

Brand Management

The focus shifted in the 1990s and early 2000s as GM hired executives from non-automotive companies to help bolster brand images under former Bausch & Lomb Inc. executive Ronald Zarrella. GM treated each vehicle model as its own brand, as is done in the food and packaged goods markets.

GM hired executives from Keebler Co., PepsiCo Inc. (PEP), Bausch and Lomb, and Procter & Gamble Co. (PG) They mostly left the automaker by 2005 as the company dismantled that strategy.

Most of the effort still focused on North America, with the globalization of purchasing in the early 1990s as the only formal structure tying regional units together.

Bob Lutz instituted a globalized product development system shortly after he joined the company in 2001 to help create more popular cars. Then in 2005, in the last major reorganization before the bankruptcy, then-CEO Rick Wagoner reassigned 11 executives to create new global product planning, design and engineering positions to foster more sharing among teams based in the U.S., Europe and Asia.

As GM has tried to consolidate operations, it has also eliminated brands. GM shut down Oldsmobile in 2004, and during the 2009 bankruptcy, it sold Saab and eliminated Pontiac, Saturn and Hummer.

To contact the reporters on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.