Detroit's Past Isn't Its Future

The history of Detroit is one of booms and busts. It's in a bust now but creative, forward thinking could result in the next boom

By Ed Wallace

It was the most obvious question I could have asked General Motors (GM) CEO Rick Wagoner. The setting was a semiprivate interview with him in a Dallas hotel on July 10. According to oil insiders and respected oil analysts, such as Charley Maxwell of Weeden & Co., the world is likely to hit a brick wall in terms of oil supply and demand by 2015. Therefore, I asked, could Detroit survive if the worst happens and oil sells for $250 a barrel with gasoline between $8 and $10 a gallon, seven years out?

Mentioning offhandedly that he speaks with Maxwell on a semiregular basis, Wagoner grabbed a piece of paper and drew a crude graph, thoughtfully suggesting that if such a gas price increase were spread out evenly over that period, instead of making a sudden jump, the public would have time to adjust to the higher energy costs. Consequently, Detroit would likely have enough time to make production adjustments.

I didn't have the heart to point out the flaw in Rick's argument: It has taken gas prices 10 years to go from $1 a gallon to $4—and even that slowly, increasing the price of gas has wrecked Detroit's business model.

Design Decline

When I asked him whether he still planned on staying at GM until age 65, thereby surpassing Alfred Sloan's reign as president and then chairman of GM, Wagoner declined to say. (On Aug. 6, the company's board of directors publicly reaffirmed their faith in his leadership.) But the first time I interviewed him, years ago when he first became GM's president, he understood his potential: He had both the time and the ability to imprint GM's future in this century just as surely as Sloan left his stamp on that company 88 years ago.

Speaking as someone who has been around the automobile industry for the past 35 years, I see Rick Wagoner as the real deal. Unlike the men who ran General Motors for the 45 years before he got there, he is a man who understands his weaknesses—which happen to resemble GM's problems closely.

Wagoner knew from the beginning that most GM cars had long lost their cachet with the public and that this had happened over decades, as the accountants gained total control of the purse strings. The brilliant prima donnas who had once defined GM styling had long since been banished or marginalized; at GM, the linear logic of those who had a way with numbers was allowed to overrule the genius gut instincts of those whose passion was great automotive design.

Rick Wagoner could solve that problem: He hired industry veteran Bob Lutz as his new product development czar.

Bob Lutz told me earlier this year that GM is still suffering the negative effects of that old system of accountability to the accountants. The case in point was the new Chevrolet Malibu. Lutz felt the company was going to hit a home run with it, but the person in control of setting production schedules and ordering supply contracts crunched the numbers and set the Malibu's maximum potential volume at 115,000 vehicles a year. Obviously, that was an accountant's mistake of huge proportions. Maybe the old adage that "numbers don't lie" doesn't always apply when it comes to cars. (Lutz also confirmed that the bean counter responsible for this decision is no longer with the company.)

Hits and Misses

When I state that if I owned a car company I would hire GM's top executives to run it, people get a blank look on their face as their jaws drop, and that's frustrating when you know the facts. Similarly, I'm tired of reading that GM constantly misses the mark on public demand and should have seen the current problems coming, because only half of that statement is true. GM has built exactly what the public demanded for 15 years—sport-utility vehicles and trucks that were parked in the best driveways in America—and did that as well and as profitably as anyone.