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Posted by: David Welch on March 29, 2009
General Motors Chairman and CEO Rick Wagoner is out. Treasury Department officials confirm that he was asked to step down and he accepted. And it is the right thing to do. As I have written before, Wagoner was dealt an incredibly difficult hand, one that almost no CEO in corporate America would want. But GM is a company plagued by decades of mistakes and a culture always thought there was a tomorrow no matter how bad things got. GM needed someone to remake the company. Wagoner was a measured incrementalist who didn’t have the chops to overhaul one of the largest and most entrenched companies in the world. Given the circumstances, it’s hard to know who could have made the drastic changes to fix GM. But it’s now clear that Wagoner’s pace of change made him the wrong man for the job.
There are the easy mistakes to pick at. He and predecessor Jack Smith spent $2.4 billion for a 20% stake in Fiat, which got them a couple diesel engines and some shared parts. Then they spent $2 billion to get out without having to buy the entire company and its problems. Wagoner killed the EV1 electric car, thus ceding the technology race to Toyota. While union wages, work rules and retiree costs were sapping GM’s ability to develop cars, new technology and market them, Wagoner never confronted a union that didn’t want to face a reality that GM could command the volume or pricing to pay what the contracts said they would pay.
While union obstinacy was something Wagoner didn’t challenge with much success, his organization never wanted to face how bad things were. At various points, GM sold 25% or more of its cars to rental fleets. As much as 10% were sold at deep discounts to employees or their friends and families. Throughout the decade, GM would push market share back toward 28%, where it started in 2000, if it spent thousands a car on incentives. Whenever the company pulled back on rebates and cheap finance deals, market share plummeted. Despite such poor quality of sales, Wagoner and his staff always figured that they could hold or even grow market share. That almost never happened. In fact, the company for years made most of its profits from writing loans as opposed to making cars. Its forecasts for sales became a joke among the parts makers who had to tool up to make components for GM’s cars.
He does get credit for bringing in Bob Lutz to spruce up the cars, and Lutz’s hand has helped GM make some impressive new models. But there, too, Wagoner needed prodding. His board pushed him to find a car guy. And it was former GM CFO John Devine (Who was not Wagoner’s first choice for the finance job. He picked a GM insider first and was turned down) who helped bring Lutz in.
Wagoner didn’t create the entire mess (though he certainly owns plenty of it) but he wasn’t the man to unwind it. In 2005, GM’s problems were obvious and required a real change agent to fix them. BusinessWeek detailed them in a May, 9, 2005 cover story. Wagoner didn’t really start tearing at some of those problems until the company lost more than $10 billion that year and he didn’t get into the rest of them until GM was technically insolvent late in 2008.
In the final analysis, many chief executives going back Frederic Donner, Roger Smith, Robert Stempel, Jack Smith and now Wagoner own this mess. Wagoner just happened to be there when years of mistakes and a dreadful economy broke the company’s back. Now someone else has to fix it. And what a job it will be.
Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.