GM's new CEO is optimistic but ready for a downturn Next time you see a Pontiac Aztek coming down the road, look carefully at who's driving. It might be G. Richard Wagoner Jr., General Motors Corp.'s chief executive officer. The Aztek is his latest company car.
It's a fitting choice for Mr. Wagoner. The quirky Aztek symbolizes what is arguably his biggest challenge for the next several years: spicing up GM's dull product portfolio, appealing to younger consumers and stemming its steady market share slide.
The Aztek was created to do just that: show the world that GM is changing, that it can produce more than just stodgy, middle-of-the-road designs. It certainly fills that bill. Unfortunately its unusual, angular looks haven't won a lot of praise. More importantly, sales of the PT Cruiser wannabe have been disappointing so far, suggesting GM still can't figure out how to make products that can create a real buzz in the marketplace.
But that's not the way Mr. Wagoner sees it. He likes the Aztek, and he's upbeat about the coming year, even though he agrees with the general consensus that U.S. vehicle sales will probably drop 5% from this year's record high.
Like everyone else, GM faces the specter of slowing sales, rising incentive costs and tough new competition from foreign nameplates in the lucrative light-truck segments. But if things should suddenly go south in a hurry, he says GM has more than $13 billion in cash and is in a good position to cope. "I think our financial situation is pretty robust," he says, although he acknowledges GM's earnings need to be better.
Even so, "The latest downturn scenario suggests we should come through pretty well," he says. "The key is that we've cut out a lot of structural costs and we've got some long-term obligations funded, such as pensions."
Compared with its domestic rivals in North America, GM may actually have an easy go of it next year. But that's not saying much.
DaimlerChrysler Corp.'s financial picture seems to get darker every day, along with the mood of its employees, and Ford Motor Co. will likely spend a good part of 2001 coping with fallout from the Firestone tire debacle.
Meanwhile, Toyota Motor Corp., Honda motor Co. Ltd. and a resurgent Nissan Motor Co. Ltd. pose a new threat in GM's most important, most profitable last bastion: pickup trucks and big sport/utility vehicles (SUVs). Plus there's growing competition in luxury SUVs and crossovers from high-line European and Japanese brands such as BMW and Lexus.
But believe it or not, GM has managed to catch a break or two lately. After initially losing an exhausting bidding war, GM gets yet another chance to buy troubled Korean automaker Daewoo Motor Co. Ltd. - this time at what should be a fire sale price. Ford decided in late September to pass on Daewoo after reportedly offering $6.9 billion for the automaker. Daewoo now is officially bankrupt, but it still is seen by many as the key to establishing a strong presence in Asia.
A potential showdown with hostile takeover artist Carl Icahn also evaporated earlier this year.
Instead, it looks like GM will be stuck fighting the same demons next year that have been plaguing it every year for the last two decades: lackluster products and shrinking U.S. market share. GM's inability to hit its market share projections has become so frustrating that Mr. Wagoner has established a new rule against making public projections.
"We will continue to strive for improved market share, but we will adopt Wagoner's new policy of not giving out market share forecasts," he says good-naturedly. "The strong market has helped us sell more than we expected to sell, but it hasn't played out in the share performance we'd like."
On Oct. 31 GM announced a new initiative to shore up its shrinking share of the small-car market. And it actually gained a whopping 2% market share in October, rising from 28% to 30%. But it was a Pyrrhic victory by most accounts because it was gained by offering huge incentives, like five years of interest-free financing - worth about $3,000 per vehicle.
GM - like its competitors - is trying to lure consumers back to buying vehicles instead of leasing them after overestimating residual values on lease cars now coming back, which cost the automakers millions last quarter.
But it's paying a steep price now to get off the leasing merry-go-round. "It's not the first time in the history of the auto industry that we've maybe charged too far down the plank. We're definitely tightening up on it. What we've done, if you look back over a couple of years, is we've made leasing such a good deal that people couldn't afford not to do it."
Mr. Wagoner also says he hasn't lost faith in GM's much-maligned "Brand Management" philosophy, either, even though it hasn't so far increased market share. "I think the concept of brand management makes sense. I think we're executing it better now. Just like a great quality initiative, it can help you if it's integrated with the right production capacity and done on the right products. But it can't do it by itself. In itself, it won't make us successful, but it can help make us successful with the right products."
So Rick, what do you think of the Aztec?
"I like it," he says. "I think it's creative. I think it's very clever both in packaging and looking at the stuff they did inside. We asked the team to just get right out on the edge and they did. People have asked me: `Are you mad?' How could I be mad? They did exactly what we told them."
GM hasn't shaken up its design department as much as rival Ford (in 1997 Ford Design Chief Jack Telnack retired early to make way for J Mays, an outsider with roots at Audi AG) but it's getting there. Last May GM announced it hired Anne Asensio, 37, the third-ranked designer at Renault for a "key design leadership position," which puts her in charge of keeping each of GM's domestic brands distinctive.
However, this isn't a signal GM is looking to push its design in a new, more European direction, or ease out GM Design Vice President Wayne Cherry, Mr. Wagoner says.
"If you look at the design staff over the last couple of years, we've brought in quite a bit of talent, and obviously we lose some, too. We had a lot of retirements over the last couple of years, and we promoted some good young designers, and we brought in some people, and we're going to keep doing that. As far as Wayne's plans, he's several years away from our traditional GM retirement age, and as far as I know he's going to plan to work until then. He brings a global perspective that's helpful to us."
"My takeaway (on the market's lukewarm response to the Aztek) is just keep pushing. We need great core products that we sell a lot of, and make a lot of money on. But we also need to be out on the edge. It's a great way to position a brand. You don't want to do stupid stuff, but you want to be on the edge because that gives you a better chance of being out in front of the next trend, or helps you find the next trend."
He doesn't come out and say it, but Mr. Wagoner leaves the impression that ultimately it doesn't matter whether he likes the Aztek or not. He wants his designers to start swinging for the fences. And he wants them to know he'll tolerate some strikeouts in the process - although he's not ready to admit the Aztek is a strikeout.
That's heady talk for GM's highly risk-averse culture, but Mr. Wagoner, named CEO on June 1, is doing his best to avoid looking like the consummate stay-the-course insider. At 47 he's the youngest GM CEO ever, but some have wondered if an executive who has spent his entire career at GM is the right choice to move the world's largest automaker forward.
So far he hasn't dazzled Wall Street, but he hasn't faded into the woodwork, either - and he's steadily chipping away at the staid image of the stereotypical GM executive.
Last summer, Mr. Wagoner surprised attendees at the University of Michigan management briefing seminars in Traverse City, MI, by sounding like "a car guy" and announcing that GM had decided to build the Chevy SSR retro pickup truck without already having developed an iron-clad business plan.
Outsiders were surprised, but insiders were stunned. That may be common practice at some other automakers, but never at GM.
But while he's trying to give GM a new image, he also appears to be doing his best to avoid ruffling too many feathers internally. There have been some high-level departures since he became CEO, but very few. Long-time GM Chief Financial Officer J. Michael Losh did retire earlier this year, in a move that was long anticipated. However, Mr. Wagoner discounts rumors that Ronald L. Zarrella, president of GM's North American operations, is leaving as well.
Instead it looks like he is planning to create his new team gradually over the next several years, without any bloodletting. That doesn't mean anyone can coast, though, he says.
"If you look at the age group, we'll have retirements over the next couple of years. The takeaway for all of this - and it includes me - is that just because you get the job doesn't mean you get to keep it. You earn the job and try to be reasonable and give people reasonable objectives to assess against the environment they deal in. We're all going to be under that scrutiny."
