GM's ‘Dog Ate My Homework’ Must End, Barra Says, as Recall Fades

  • CEO seeks to change corporate culture from survivor to winner
  • Investors skeptical as stock drops 27 percent in her tenure

About a year ago, Mary Barra gathered General Motors Co.’s top 300 executives at the company’s test track west of Detroit. The chief executive officer asked them to suggest one thing they would change about GM’s notoriously stifling culture.

They gave her five, such as more candor and more accountability. Perhaps most important was instilling the “tenacity to win,” Barra said in an interview.

That’s proving Barra’s top challenge so far as she pushes the company to switch from survivor mode -- a bankruptcy and safety recall -- to winning in the marketplace. Investors skeptical about prospects have pushed GM stock down 27 percent since Barra took over in January 2014, even as she has refocused her company on profits rather than chasing sales like the old GM did.

“We used to be a company of best efforts and there was a ‘dog ate my homework excuse’ for not showing results,” she said, acknowledging that more change is needed. “I’m working hard to drive a can-do entrepreneurial spirit.”

That will be vital for GM as it executes several initiatives as the recall debacle recedes. The company has earmarked $5 billion for emerging markets including China, at a time when growth is slowing there and competitors like Ford Motor Co. push hard to win customers. Barra also sees Cadillac as a growth brand and India as a new market for the taking, efforts that are struggling. GM could benefit from troubles at Volkswagen AG, which has admitted to cheating on emissions tests on its diesel cars. On Oct. 1, Barra will deliver a more detailed strategy plan.

‘No-Win Job’

Investors don’t buy the story yet, said Morningstar Inc. analyst Dave Whiston. While profits in North America have doubled to $5 billion this year, investors are concerned about the slowdown in China and skeptical about prospects. GM’s U.S. market share remains about the same as last year’s 17.7 percent.

“She’s in a no-win job,” Whiston said. “She’s CEO of a company people love to hate, but I still have it in our list of best investment ideas.”

Just three weeks after Barra took over GM, the company found itself dealing with charges of a faulty ignition switch that would be responsible for 124 deaths. The company settled on Sept. 17 with the Justice Department for $900 million and agreed to pay more than $600 million in settlements with families of victims so far.

Barra has made progress in trying to shape the company around profits. More than a decade ago, executives at GM used to wear pins with “29” on them -- representing the company’s target U.S. market share percentage. They chased it even as profits fell. The old GM didn’t even track which cars made money, according to President Dan Ammann, a key player in the cultural overhaul.

Accounting System

Ammann spent a year installing systems worldwide that pinpoint how much money GM makes or loses on every car in every country. That was one reason why the company all but pulled out of Russia, Thailand and Indonesia earlier this year. If a car or a business unit isn’t pulling its weight, it can be cut, Ammann said in an interview.

“This is a big change from where we were 10 years ago,” he said. “We don’t subscribe to the belief that we need to be all things to all people.”

In the U.S., Ammann said, GM has slashed sales of low-margin cheap cars to rental fleets, a practice that not only yields slim profits but later hurts pricing on new models when rental agencies dump cars on the used market.

Barra is also trying to bust up GM’s famous fiefdoms. Gruff and with gasoline in his veins, Mark Reuss, who heads up product development, is forcing GM’s many global regions to build cars using common engines, platforms and parts. Toyota and Honda build cars that way, while GM has practiced the system less so.

Common Parts

GM’s new compact cars, which sell as the Chevy Cruze in the U.S. and Opel Astra in Europe, were put together under the refashioned way. Reuss’s team in Michigan arrived at one common structure for the car after meeting with regional designers and engineers from around the globe. He then directed that common parts be used for the compacts and family sedans.

When the Cruze, Astra and Chevy Malibu hit the market in the next six months, they will be $1,500 more profitable to build than the last generation of cars, Reuss said.

“We’re tired of engineering everything two or three times,” Reuss said.

Producing cultural change deeper in the company is more stubborn, Barra said.

“The middle in any culture is the hardest to change,” she said. “I want our people to think about the art of the possible and act like entrepreneurs.”

Interface Troubles

Barra is bringing in many employees from outside GM. About one quarter of GM’s salaried staff has been at the company for less than five years. Of the 19 top executives, nine worked elsewhere.

Life can still be tough on outsiders. Last year, GM hired Dave Townsend, a lead designer on the Samsung Galaxy S phone, to work on connectivity features like Cadillac’s troubled Cue system, a touch-screen that controls heat, air conditioning, audio and infotainment.

Townsend wanted to open a studio and develop for GM the kind of expertise and creativity that smartphone companies have. His goal was for GM to set trends for consumer electronics companies like Apple and Samsung, but he was met with resistance, said people familiar with the matter. GM executives instead asked him to improve the existing Cue, one of the people said.

Cadillac Test

He left after seven months. Townsend declined to comment in an e-mail. GM spokeswoman Pam Flores also declined to comment. Reuss said GM has updated Cue and fixed many of the problems that consumers had.

Cadillac may be GM’s biggest test for culture change. Management of the luxury brand has been moved to New York from Detroit and is now run by former Audi of America boss Johan de Nysschen. More than half of its 100 employees in New York are new to GM.

De Nysschen has been trying to get GM and Cadillac dealers to stop discounting prices to get sales volume. Some dealers have objected but De Nysschen said he’s holding the line on pricing as Cadillac rolls out eight new models over the next five years. That will grow sales, he said.

He and Reuss also have a running debate over Cadillac’s edgy styling. De Nysschen wants something softer and “sophisticated,” he said, and would even delay some of Cadillac’s new models if he isn’t satisfied with the styling.

Healthy Debate

Reuss said he doesn’t want a radical overhaul and favors a style that is uniquely American, and adds that he, not De Nysschen, is authorized to delay new models.

“Johan and I spend a lot of time together, but I’m accountable for that,” Reuss said.

Cadillac spokesman Andrew Lipman said Reuss and De Nysschen work closely together and would only delay models if everyone agreed they would need to make changes to get styling right.

In an e-mail, De Nysschen said the entire team works closely together to establish the Cadillac brand’s direction. So far, they have never had a deadlock about a future model. While Ammann would be the deciding vote if that happened, usually the direction has been set well before the top managers sign off on a car’s final design, he said.

Andrew Smith, Cadillac’s head of design, said the styling debate is healthy. He said it’s his job to come up with future Cadillacs that evolve beyond the knife-edge looks that the luxury brand started with in the late ’90s. While Cadillac will not radically change its styling, "we need to make sure we don’t get stuck in a rut and do repetitive design."

Silicon Valley

Barra wants designers to dare to do things differently. When she ran product development before becoming CEO, she told the company’s engineers to push their metal-bending capabilities to let designers get more aggressive.

To push the case, she took her top managers to Silicon Valley in July to meet with venture capital firms and some of America’s top technology companies to hear how they approach business.

“In Silicon Valley, people can accomplish great things because they think they can accomplish anything,” she said. “I want our people to think like that.”

Barra said that overhauling the culture will take a lot of time. Meanwhile, Fiat Chrysler CEO Sergio Marchionne is pushing her for a merger she doesn’t want. Retrofitting GM to include his troubled company would be a distraction, she has said.

“We looked at it very, very carefully and in tremendous detail,” Barra told reporters during the Frankfurt International Motor Show earlier this month. “It’s just not in the interest of GM shareholders, and I think that message is resonating with shareholders.”

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