DETROIT – To sayCo. President and CEO Fritz Henderson would like to put 2009 in his rearview mirror would be an understatement.
Certainly not alone in his disdain for a year when the auto industry witnessed its sharpest and most prolonged downturn in the post-war era, as head of the now-defunctCorp. it’s unlikely anyone saw the carnage more closely or came under greater scrutiny for the breadth of its impact.
“Look,” he exhales, “it’s been a tough, tough year; 2009 is a year I’ll be happy to finish.”
As chief operating officer of the old GM until his former boss Rick Wagoner was pushed aside by President Obama, Henderson was at ground zero for development of company viability plans twice shredded by the government.
At the same time, he remained responsible for the efficiency and effectiveness of the old GM’s sprawling operations as the global new-vehicle sales market languished at record lows.
After Obama’s team ousted Wagoner the last weekend in March, Henderson took the wheel at the old GM with a mandate from the president to shake off billions of dollars of debt and gain big labor concessions from the United Auto Workers union or steer the industrial icon into bankruptcy.
The UAW played ball, but big bond holders did not. Shareholders were wiped out. Factories were shuttered, and thousands of hourly and salaried jobs disappeared. Thousands more employees have, or will, soon lose jobs at dealerships across the nation as GM shrinks its retail footprint.
During the new GM’s first financial update, Henderson characterized damages from the 39-day bankruptcy as “substantial, and under no circumstances should be minimized.” If quantified financially, he speculates those damages would reach into “the tens of billions of dollars.”
Washington critics of the government’s support to the auto maker suggest the damage is not over, pointing to GM’s $1.2 billion loss in its first quarterly financial report released in November. The partisan rhetoric overshadowed news of the auto maker’s surprisingly solid cash flow and its plan to reimburse $6.7 billion in taxpayer loans early.
Just days before, a report from the Government Accountability Office speculated taxpayers never would be fully reimbursed for the total $50 billion two presidential administrations extended to GM over the last 11 months.
But inside his office atop GM world headquarters here, where a clear day affords the view of iron ore and coal freighters plying the Detroit River as they have for all of the auto maker’s 101 years, the 50-year-old Henderson says he looks forward to disproving critics.
“I’m highly confident we’ll be able to repay,” the 25-year GM veteran tells Ward’s.
Henderson draws much of his confidence from GM’s squeaky clean balance sheet – newly unencumbered by pension, health-care and other debt obligations yoking the previous company.
“There are a lot fewer claims on the cash flow of the firm before you get to the shareholder,” he says.
But Henderson also banks big on a turnaround in new-vehicle sales. Most emerging markets sped out of the global recession and now are operating as if nothing happened. For instance, GM expects 12.0 million new-car sales in China this year, an astonishing 1.5 million units ahead of the U.S.
“I certainly would not have seen China exceeding the U.S. in volume in 2009,” he says incredulously. “It is just remarkable. I thought it would happen in the second half of the next decade.”
Brazil and India also continue to outperform expectations, although Henderson believes Russia remains a year away from regaining some of the tremendous promise it showed before commodity prices plummeted this year.
However, continued high unemployment and lackluster new-home construction continue to stifle any sales rebound in the U.S., GM’s biggest revenue-producing market.
For perspective, Ward’s data shows GM sales hit their low point in February at 126,198. That’s down 59% from February 2005, one of the industry’s peak years.
“In order for GM to achieve real success, we need to have all these engines running and most notably, most importantly, North America,” Henderson says. “The North American business must get rolling in order for us to be prosperous.
“It will recover,” adds the Detroit native with degrees from Harvard Business School and the University of Michigan, where he pitched for the varsity baseball team as an undergraduate.
“With 300 million people, credit coming back into the market, the number of licensed drivers going up every year – there’s no reason the U.S. should be at the same levels as post World War II in terms of per-capita demand,” Henderson says.
GM plans for a modest recovery next year, predicting total U.S. industry sales of 11.5 million units, with Canada contributing another 1.5 million. The auto maker forecasts between 800,000 and 900,000 sales for Mexico.
Much of GM’s success in the U.S. in 2010 hinges on whether its four core brands – Chevrolet, Cadillac, Buick and GMC – can assume the market share now controlled by its four lame-duck brands. GM has agreements to sell its Hummer SUV and Saab car divisions, while it will phase out Saturn and Pontiac by the end of the year.
In October, the core brands commanded 90% of GM’s total volume for the month. Part of the results came from GM shifting all of its advertising, except for a new marketing program designed to clear out the dead brands, to its core portfolio.
Longer term, Henderson expects to retain share because the core-brand vehicles today, as well as those down the road, are far superior to models previously found spread across eight divisions.
For example, he expects the new-for-’10 Chevy Equinox and GMC Terrain cross/utility vehicles to make up for volume lost with the Pontiac Torrent and Saturn Vue. “We hugely traded up,” between the models, Henderson says.
He also downplays the effect of Pontiac’s absence on GM’s market share. According to Ward’s data, the brand accounted for 8.3% of the auto maker’s sales in 2008, and this year is on track for 9.5%, although inventories are getting awfully thin.
“Our biggest concern was really (the) G6,” Henderson says of the midsize Pontiac sedan, coupe and convertible. “A fair amount of it was fleet. (The) Malibu could take its place.
“But I am absolutely convinced we will be far more successful trying to manage four brands than eight,” he says. “Certainly we can at a 10.5 million-unit market – maybe you can argue differently in a 17 million-unit market – but it is unequivocal at 10 million or 10.5 million.”
That means no more duds, Henderson warns. With fewer brands and fewer nameplates, GM no longer can endure those days when 10 vehicle launches yielded “two great, three good, the other five average, or one or two that didn’t work,” he says.
“We cannot afford to do that,” Henderson says deliberately.
Each launch also must be of the highest quality, and each vehicle must pay its way, an approach Henderson hopes will keep GM especially competitive in the near term as rivals roll out more robust product blitzes.
“I am pleased with what we have coming,” he says of GM’s plans for 25 cars and CUVs over the next 24 months. “Not as much” as some auto makers, he admits, but “we’re OK with quantity. We’re really excited about the quality.”
Henderson cites the upcoming ’11 Chevy Cruze, which replaces the Cobalt compact car.
“You might say, ‘OK, you’ve got one new small car in the Chevy showroom replacing (the) Cobalt.’ But I count that as a major, major change. What car are you replacing, and does it give you a chance to make progress in the market?” he offers.
The Cruze also has a better opportunity to generate revenue compared with the Cobalt, and its potential for profit contribution is higher – key factors to all vehicles in GM’s portfolio as it shifts from a reliance on trucks to smaller, more fuel-efficient cars and CUVs.
“Every entry in the portfolio has a rent factor it has to pay,” says Henderson, who fully expects upward pressure on oil prices as the U.S. recovers and emerging markets continue to grow.
“A Cruze will pay less rent than a Cadillac CTS, just because it is priced lower. Nonetheless, the Cruze should pay a certain amount of rent. We need to have the discipline, so that everything in our lineup is paying rent.”
Gone are the days when GM could rely on its fullsize pickups and SUVs to save its bottom line. The fullsize SUV market this year is roughly 250,000 units, Henderson notes, while a few short years ago it was 900,000 strong.
“We still enjoy 60% to 70% of the segment, so it is still important to us. But the segment, itself, is a fraction of what it was four years ago, so it can’t be the profit engine for the company. We have to have far more of our vehicles generating profit,” he says.
Also gone are the days when GM kept its assembly plants running even when demand did not warrant, leading to incentive-driven sales that eroded residual values. Consumers got burned on their trade-in and never returned.
So despite appeals from the Canadian Auto Workers union to go beyond one shift for the red-hot Chevy Camaro sports car in Oshawa, ON, Canada, GM remains content with one shift and overtime. Inventories of pickup trucks, always high to meet a wide range of customer preferences on body styles and engine installation, now are at historic lows.
At the same time, GM’s CAMI joint-venture assembly plant in Ingersoll, ON, Canada, is running at three shifts and plans to invest $85 million to increase production of the Equinox and Terrain CUVs.
“The approach of running a much more lean level of inventory is absolutely the right one for us to use,” Henderson says. “We can go even leaner in our inventory levels.”
Well-known in the industry as a quick decision maker, Henderson unquestionably finds himself challenged remaking GM under a timetable measured in months rather than years.
Thus far, he has the support of GM’s new board of directors, and the auto maker’s latest products largely have been well-received by critics and consumers – evidence momentum is building just three months removed from bankruptcy.
But the full-throttle approach won’t come without a busted bearing or two, as evidenced by Henderson’s desire to take the new company public as soon as possible in order for its reluctant investors to begin divesting their stakes.
Ed Whitacre, GM’s newly installed chairman, has sought to quiet talk of a second-half IPO after Ward’s reported Henderson’s goal to at least have the auto maker’s books ready within that timetable.
Nonetheless, the sense of urgency brought on by Henderson’s bold management style is yielding more early positives than negatives.
As the sale of GM’s European Adam Opel GmbH unit to a consortium of investors led by Canadian parts makerInternational Inc. dragged on and GM’s finances started to show better-than-expected traction, Henderson floated the idea of keeping the German subsidiary.
The GM board concurred, and the deal was killed at the 11th hour.
In another bold stroke, Henderson installed Bob Socia to lead the auto maker’s massive purchasing operation after longtime chief Bo Andersson left earlier this year to lead Russian auto maker OJSC.
A GM lifer with years of purchasing experience at the company, Socia sent an early message to suppliers that his appointment did not mean business as usual – within two months he unveiled a new program promising speedier parts payments and another plan to share more generously on their cost-saving ideas.
“He has, from my perspective, the imperative to change,” Henderson says of Socia’s marching orders. “Nobody is going to know better than he what we can do to change, because it is time to change.”