General Motors' recently installed CEO, Frederick A. "Fritz" Henderson, has had just one board meeting with his new slate of directors. And already they are giving him pressure to show better results.
At the new board's first meeting, which was held in Detroit on Aug. 3, some of the new group pressed him on how the company plans to build revenue, Henderson said in an interview. The conversation went further, according to one source in the meeting and another who was briefed on discussions. The board also said that GM's revised recovery plan filed on Apr. 27 isn't quite good enough. "They don't consider our viability plan to be winning," says one GM executive. "We're going to be under a lot of pressure."
Even the first board meeting shows a stark contrast from GM's old board. With a few exceptions, the previous directors showed a lot of patience with ousted Chairman and CEO Rick Wagoner. He racked up some $80 billion in losses since 2005 but kept solid backing. The old board also had to focus mostly on costs since the automaker has been in nearly constant restructuring mode for years.
Safeguarding the Bailout Money The new board will be under pressure to scrutinize management more than the prior board, experts say. The previous board showed plenty of leniency with Wagoner; some critics say far too much. So the new directors will have to show that they are tougher than their predecessors and they are safeguarding the public funds that kept GM from failure and liquidation.
Since January, the federal government has made $50 billion available to GM, most of which has been converted to a 60% ownership position in the company. For taxpayers to break even, GM will have to eventually issue new stock and the company's value will need to reach $69 billion, more than it has ever been valued. "The public and the government will be watching very closely," says John Paul MacDuffie, associate professor of management at the Wharton School of Business. "The fact that the bailout was unpopular means that they have to have a turnaround story that overcomes the bailout story."
That's what the board is pushing for. At the meeting, new Chairman Ed Whitacre, who had previously been chairman and CEO of AT&T (T), and several other directors pressed Henderson on how the company would build revenue, strengthen its brands, and communicate the message that its new products are competitive. "All of their questions were on revenue," Henderson said, adding that they asked, "What are your metrics? How will you hold yourself accountable?"
Growth Is an Issue One key point from the new board is that GM's revitalization plan alone isn't good enough. That plan, which cut four brands, downsized the company and its dealer network, and led the way into bankruptcy to clean up the balance sheet, only keeps GM above water. It doesn't show growth. Some directors were concerned GM wouldn't push to grow beyond the sales and market share laid out in the plan, say two sources familiar with the discussion.
That's where Henderson's challenge comes in. The plan said that GM can break even, at least before interest payments, in a car market of 10 million vehicles and market share of 19.5% this year. GM said in the plan that market share would stabilize between 18.4% and 18.9% in the next few years. GM's share through July was 19.5%, but slipped to 18.8% in July.
But keeping the share above 18% could be a challenge, analysts say. GM is either selling or ditching Hummer, Pontiac, Saab, and Saturn. Pontiac will be phased out, and GM is in the process of selling the other three. Together they account for 3% of the market. GM will need to keep some of those buyers or fall to 15% share.
Product Plan Could Hurt Market Share GM's new product plan will replace 45% of its sales volume with new models between now and 2013, according to a report authored by Banc of America Securities-Merrill Lynch (BAC) analyst John Murphy, although it is unclear at this point how many new models will be introduced.
That's below the industry average and well behind the Korean automakers as well as Ford (F), Toyota (TM), and Honda (HMC). Unless GM comes up with some more new models, the thinner pipeline could knock GM's market share to 15% or 16% in the next few years, Murphy's report said.
The day after the board meeting, on Aug. 4, Whitacre told reporters in a conference call that the board adjusted GM's plan and pulled some new models ahead, though he declined to give specifics. He also said GM would try to retain and grow market share.
Plenty of GM executives have made that brazen call before. But GM executives say Whitacre's comments don't mean that the company will resort to tired old plays such as using deep discounts and cheap sales of profitless cars to rental fleets to boost share. Whitacre and the board want to see a comprehensive strategy to win in the market while building pricing and profits.
Lutz Pushing Design A lot of that responsibility will fall on Vice-Chairman Robert A. "Bob" Lutz, the 77-year-old executive who rescinded his retirement plan and came back to oversee GM's design, marketing, and communications efforts. Says Lutz: "This is a highly capable and intellectually curious board."
Lutz will be in charge of pushing chief designer Ed Welburn to come up with designs that lure buyers and craft a brand image for GM's cars. Then he will have to communicate to buyers who have ignored GM that Buick, Cadillac, Chevrolet, and GMC are worth looking at. "That falls on my area," Lutz says. "I accept it."
While there are five carryover members from the old board, the new directors are expected to be tougher. Some, like Whitacre, former Coca-Cola (KO) Chairman Neville Isdell, and retired Burlington Northern Santa Fe (BNI) Chairman Robert D. Krebs, ran large companies with great success. Isdell in particular may have some good marketing advice, since Coke is considered one of the best brands in the world.
Lutz has already started working up buzz for GM. The company generated big headlines with news that its Chevy Volt, which uses an electric motor and gasoline engine, will get 230 miles per gallon in the city. GM is also off to a great start with its Chevy Camaro muscle car. The company plans to aggressively market the new Chevy Equinox and Cadillac SRX crossover sport-utility vehicles and the Buick LaCrosse sedan. Lutz has started reviewing GM's advertising already.
Ultimately, he and Henderson will have to find a way to overcome the perception that GM is a troubled company with poor products. But Henderson is never one to show that he feels pressure, even from a new board. "It was a refreshing discussion, actually," Henderson said. "Coming out of bankruptcy, they want to know how we will win." Treasury officials have said the job is Henderson's to lose and he has every chance to turn the company around. What he doesn't have is unlimited time.
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