Fritz Henderson at GM: That's Some Tough Job

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It won't be easy. Just to get GM's debt down to acceptable levels, he will have to get the UAW to take in stock rather than cash roughly 80% of the $20 billion owed to its health-care fund, says Barclays Capital analyst Brian Johnson. The union balked at 50% in stock. Then he will need to get bondholders to agree to accept about 15% of the value of their notes in cash and the rest in stock. They, too, have rejected richer offers.

Even as he fights to keep GM out of bankruptcy court, Henderson will have to figure out when to say no to the feds. Obama has acknowledged that the government has a less-than-stellar record of running companies. Then again, he has also linked the restructuring of the U.S. auto industry to an ambitious effort to make cars more fuel-efficient and wean the U.S. off foreign oil. In the eyes of the Obama team, this isn't just about rescuing an American icon; it's about reshaping the economy for the 21st century. Already the government is pushing GM and other automakers to make cars that burn less gasoline.

So far, Treasury is not making product decisions, but it has plenty of suggestions. John F. Smith, GM's group vice-president for product planning, says the task force asked him if he could accelerate plans to trim GM's family of models from 48 to 36. It has also asked him if the company can rush the Chevrolet Cruze, a compact due out in a year, to market faster. In its report, Treasury also pointed out that of GM's "top 20 profit contributors in 2008, only nine were cars." While that is true, most carmakers have a hard time making money on small cars. Pushing more investment in passenger cars is needed, but GM will need to marry its car push with the realities of what Americans are buying. These aren't necessarily bad ideas, but it's clear that Treasury is interested in more than just GM's balance sheet.

End of the Line

After much dithering, GM agreed to ditch half of its brands, including Hummer, Saab, and Saturn, and to crunch Pontiac down to a few sports cars. Since then the government has wondered whether GM should go further. Henderson says the task force asked if the automaker should shrink itself down to just Cadillac and Chevrolet. That would have meant axing Buick and GMC, both globally big sellers. The new CEO says he squelched that in a hurry. "When we showed them our [vehicle-by-vehicle] profitability," he recalls, "that ended."

The Obama Administration has said Henderson is not an interim CEO, though of course he serves at the President's pleasure. But even if Henderson doesn't do everything the task force asks of him, the feds may think twice before pushing him aside. The new CEO is the only member of a long-ruling triumvirate still standing. At the end of April, the company's outspoken vice-chairman and product guru, Robert Lutz, will ease into retirement in an advisory role and in December will join Rick Wagoner on the sidelines.

The last thing the embattled automaker needs right now is a power vacuum at the top. "It's significant they didn't put some new guy in from outside, like they did with AIG (AIG)," says Wilbur L. Ross Jr., who has recently taken stakes in ailing auto parts makers. "It suggests they have not completely lost faith in management and realized this is not a time when you can have on-the-job training."

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With Nanette Byrnes.
Welch is BusinessWeek's Detroit bureau chief.

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