A White-Knuckle Grip on GM
By David Welch
Ever since General Motors (GM ) said in mid-March that its North American business would slide deep into the red this year, Chairman and CEO G. Richard Wagoner Jr. has kept mum about how he plans to solve the intractable problems. But he took a big step toward shaking things up on Apr 4.
Wagoner has seized the reins of GM-North America from his two most high-profile deputies. Vice-Chairman Robert Lutz and GM-North America President Gary Cowger will both immediately hand over the control of the all-important North American business to the boss. Lutz will continue to head GM's vehicle development operations, including North America, and Cowger will go back to his old job running GM's manufacturing business and labor relations.
REBATES AND REGRETS.
Clearly, Wagoner is holding himself responsible for fixing GM-North America. Cowger and Lutz are still involved, but Wagoner will take over such day-to-day operations as marketing, advertising, pricing control, managing production of the plants, and making all personnel decisions. By assuming control, Wagoner has put himself on the line with both investors and the auto maker's board. "Rick has put his neck in the noose to turn the North American business around," says David Cole, executive director of the Center for Automotive Research in Ann Arbor, Mich.
As head of the North American business, Wagoner will take a more hands-on approach to GM's product planning and pricing strategy. The carmaker is trying to get away from the kind of heavy rebates that have hammered profits and hurt the image of GM's brands. He'll also have to develop a product plan to reclaim lost market share, something analysts don't see as Wagoner's strong suit. He started at GM as a financial analyst in 1977.
Lutz still lords over global product development, including North America. A GM spokesman says Lutz has wanted to shed some duties and focus on developing new cars for some time. And Cowger will face off with the United Auto Workers union this spring, as GM tries to get concessions on health-care costs from the union and its retirees.
STUCK IN THE SHOWROOM.
Wagoner has plenty of fixing to do. GM's market share has fallen to 25.7% in the first quarter, vs. 27.2% for all of last year. The auto maker's 5% sales drop this year is a huge reason that GM-North America expects to lose $850 million in the first quarter and between $1 billion and $2 billion this year.
While Lutz and Cowger still have vital roles within the company, it's clear that Wagoner saw the need for a change. The two executives ran GM-North America starting in 2001, when GM had a 28.3% market share. The newest cars haven't changed the giant's fortunes.
Wagoner has run the business before. He had Cowger's job as head of GM-North America from 1994 to 1998. But he didn't have much better success in the market. GM's share fell from 34%, to 30%, though it's profits did improve, notes UBS Securities analyst Robert Hinchliffe.
Wagoner clearly ripped the stripes from Cowger's sleeve, but he still needs Cowger, whose upcoming union meeting could result in at least $1 billion-a-year savings. He had been GM's point man with the UAW since 2001, cutting deals to make GM's plants far more productive.
Now, Wagoner must find a way to energize GM's sales in the U.S. "He's saying that if his career is based on the success of GM-North America, he's going to make all of the choices," says Hinchliffe. To get GM back on the right track, Wagoner will have to be smarter about hitting the market than the company has been for a long time.
Welch is BusinessWeek's Detroit bureau chief
Edited by Phil Mintz