GM Gets a Fresh Start

CEO Henderson promises more management changes and faster decision making as a "new" GM hits the road

By David Welch

The new, government-owned General Motors is starting to take shape.

GM emerged from bankruptcy on Friday, July 10, and with it came a slew of changes. The company will have far less debt, fewer brands, and a leaner management team. GM also has a new chairman, former AT&T (T) Chairman and CEO Edward Whitacre, and a new board to oversee the sweeping changes being made by CEO Frederick A. "Fritz" Henderson.

GM's trip through Chapter 11 bankruptcy happened at lightning speed, requiring just 40 days to strip away the unwanted brands, plants, debt, and other liabilities to release a smaller, cleaner GM into the world. "Today marks a new company," Henderson says. "The last 100 days showed that a company not known for moving fast can do things very quickly."

It will be even more impressive if GM can master the next phase. The company has to reverse years of decline and start winning back U.S. car buyers who have fled to competitors over the past several decades. Henderson and Whitacre will have to change GM's culture and keep launching new models that will turn heads. GM also needs to get consumers who have shunned the company to give those models a chance. "Perception is the biggest challenge," says John Wolkonowicz, analyst with IHS Global Insight in Boston. "GM products are better quality and more exciting than the consumer believes."

To get all of that done, Henderson and Whitacre are reorganizing the company and trying to change how it does business. One-third of management will be shown the door, including some high-level executives.

A Bigger Job for Lutz

Just as important is who is staying: Henderson brought Robert A. Lutz, GM's head of product development for the past nine years, back from the verge of retirement, as BusinessWeek reported earlier. Lutz will get an expanded role, overseeing not only product design but also marketing and communications.

GM holds 19.6% of the U.S. car market so far this year, down from nearly 30% at the start of the decade. And it is selling a majority stake in its European Opel unit after a decade of failure there. So Henderson and his team will have to prove they can use GM's lower costs and clean balance sheet to make and market successful cars.

It will be tough. But Henderson at least starts off with far fewer retiree liabilities and debt than his recent predecessors. That's in large part because GM got the government and the United Auto Workers union to accept stock instead of cash for big chunks of debt. GM also wiped away nearly $28 billion in bond debt. "Fritz gets rid of a lot of stuff that we talked about for years but couldn't do," says Robert Stempel, the former GM chairman who was pushed out by the board in 1991. "Legacy costs were an issue for many years. It crept up on us. The push now is to get away from the doom and gloom and get down to the business of selling cars."

Henderson will be working with more manageable debt. GM had more than $70 billion in debt before filing for bankruptcy protection. But using bankruptcy to ditch most of $28 billion in bond debt, and getting the union and government to take an ownership stake in lieu of cash for their debt, wiped most of that away. GM emerges with $10.5 billion owed to the U.S. There is some other international debt, but the company's total debt load will be less than the $17 billion GM predicted before the bankruptcy filing, Henderson says.

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