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Can GM Keep John Devine's Promise?


Only someone as confident as John Devine, the new vice-chairman and chief financial officer of General Motors Corp., would promise that America's largest auto maker will earn $2.3 billion this year, about a third more than some analysts predict. And only someone as respected as Devine would be taken seriously.

GM is struggling to break even in the first quarter, and as the economy weakens, car sales may well fall later this year. Normally, investors and analysts would dismiss such a claim as another example of how out of touch GM is. But the 56-year-old Devine is a straight talker--during his days as CFO at Ford Motor Co. he was known for never promising more than he could deliver--so some analysts are trying to see GM his way. "Their gut tells them no, but they have a lot of respect for Devine," says Prudential Securities auto analyst Michael Bruynesteyn.

CRITICAL EYE. That's one reason GM hired Devine in December. GM's credibility with investors has been stretched thin in recent years as executives made excuses for slim margins and missed market-share predictions. During his 32-year career at Ford, Devine was one of the few executives regularly to point out flaws in the company's strategy. And he drove Ford's efforts to sell off non-core businesses--for a nice profit. One high-level insider at GM says Devine demanded the vice-chairman's title because "he wants to be taken seriously." Top management, including Chief Executive G. Richard Wagoner Jr., a 23-year GM veteran, expects Devine to cast a critical eye over a company known for its complacent, inward-looking culture and its overly cost-conscious ways. "We're wide open to letting him give input on other parts of the business," says Wagoner. Indeed, he broke with tradition by hiring Devine--rarely has GM gone outside to fill a senior job. Devine could even become chief operating officer in the next few years, according to GM insiders. As one board member puts it: "You don't bring in a guy like John Devine and expect it to be business as usual."

Good thing for GM. The company that once was regarded as the country's most innovative carmaker has been in decline for three decades. Its U.S. market share has fallen from 33% in 1995 to 28% last year. "A lot of people have gained market share at our expense," says Wagoner. GM has been squeezed on the low end by Toyota Motor Corp. and Honda Motor Co. and has been losing luxury buyers to Mercedes-Benz and BMW. Its profits don't hold up well to U.S. rivals', either. Ford, for example, made $5.4 billion last year, vs. GM's $4.5 billion, while selling 1.2 million fewer vehicles. GM has at least 15% more production capacity than it needs. Meanwhile, and perhaps most damning, many of its cars have been called dull and unrefined--particularly those sold by the Buick and the soon-to-be dropped Oldsmobile divisions. A lot has to go right at GM--and in the economy--for Devine's predictions to come true.

Still, Devine's impact has been immediate. He helped persuade Wagoner to cut production in North America by 21% in the first quarter and 17% in the second to bring costs in line with slowing sales. He's urging closer oversight of GM's minority- owned Isuzu Motors Ltd. And he's leading negotiations to sell GM's once-prized Hughes Electronics Corp. satellite business. Says GM Chairman John F. Smith Jr.: "He was up and running the day he hit the place."

That combination of financial discipline and vision is crucial for GM right now. Wagoner, who was appointed in June, 2000, has vowed to return GM to the glory days of the 1950s and '60s, when it set the tone for the auto industry. Devine is convinced that to get there GM has to worry less about pinching pennies and more about generating revenue. "We have to perform better," says Devine. "I feel very passionate about getting the products right."

So how does he plan to do that? Wagoner and Devine are counting on GM's five new sport-utility vehicles, which are as popular and profitable as ever, to boost the bottom line this year. Over the next four years, they want to chase after more first-time buyers with a lineup of new small cars and trucks, while reclaiming the luxury market with a reinvigorated Cadillac.

SOFT-SPOKEN. In GM executive meetings, Devine has been vocal about the need to expand the business, not just squeeze costs, says William J. Lovejoy, group vice-president of North American vehicle sales, service, and marketing. While Devine will certainly push managers to meet tough financial targets, he doesn't want them to skimp on quality. "John will not give you a Cadillac Cimarron just because it's the financially feasible thing to do," says Peter J. Pestillo, former Ford vice-chairman, referring to the brand's disastrous '80s-era model. Devine--always soft-spoken but direct--has also asked specifically how GM can use rebates to maximize revenue and profits rather than to just go after broad market-share gains. "These are questions a lot of people haven't been asking," says Lovejoy, who describes Devine's presence as that of a doctor. "I think by asking the right questions, he'll bring change."

Devine also wants to take a firmer stance with Isuzu, the struggling Japanese auto maker of which GM owns 49%. GM handed Isuzu a tough recovery plan, but Devine has told analysts he doesn't want to leave the restructuring solely to the Japanese executives. And at a press conference in January, he questioned whether Isuzu should be in the sport-utility business at all.

Devine has a knack for finding the weak spots in a business. At Ford, he "was one of the rare guys who was critical of the way the company was run," says Robert A. Lutz, the former DaimlerChrysler vice-chairman who worked with Devine at Ford Europe in the 1980s. Later, in the 1990s, Devine encouraged then-CEO Alex Trotman to get rid of First Nationwide Bank and spin off Associates Corp., a specialty lending company, in a hugely profitable deal in 1998.

"THIS SPARK." Helping to fix another auto company was hardly what Devine had in mind when he left Ford in October, 1999. He had just lost the race for the CEO job to Jacques A. Nasser and was ready to turn his back on Detroit altogether. GM made an overture to him then, but he and his wife, Pat, were planning to move to their vacation house in Huntington Beach, Calif. In fact, Devine spent much of 2000 commuting to San Francisco to run a tech venture-capital firm, Fluid Ventures LLC.

Devine, an intense man who seems most comfortable in a dark suit, began going to the office in a T-shirt and jeans. "I couldn't believe it was him," says Rick Leweke, a colleague of Devine's in the early 1990s. His wife says that when Devine left Ford, "a huge weight came off his shoulders." But when GM's headhunter called again in October, she says, "I saw this spark in his eye and thought: `Oh no, we're not going anywhere."' Indeed. As Devine says: "You don't get too many opportunities to be part of significant changes at one of the world's largest companies."

Last year wasn't the first time Devine took a break from Detroit. In 1974, after he earned his MBA (paid for by Ford) and was moving up quickly in the finance department, he took to the road. He and his wife had seen a John Denver television special and decided they wanted to drive across the country in a motor home. When Devine tried to resign, his boss gave him a one-year sabbatical. A self-assured, long-haired 30-year-old, Devine said he would have left anyway. "I had enough confidence that I'd wind up somewhere else," says Devine, the son of a cookie salesman in working-class Pittsburgh.

Now that Devine is somewhere else, he'll probably stay for a while. Or at least until he has done what he can to restore Wall Street's confidence in General Motors. So his two Porsches stay in the garage, and the vacation home in California remains just that. By David Welch in Detroit


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