June 13, 2012

Questions that should have been asked at GM’s shareholder meeting, and the back stories that go with them.

By Peter M. De Lorenzo

(Posted 6/12, 4:00 p.m.) Detroit. On Tuesday morning, June 12, GM held its annual shareholders meeting at its headquarters in the Renaissance Center, hard by the Detroit River. CEO Dan Akerson, who is continually flummoxed by the zero progress the company is making in terms of increasing the share price of its stock – even though the company is making money and executives are working overtime to make it all better – or trying to anyway, can barely contain his frustration.

Why? Things aren’t moving fast enough, and Akerson knows it. And given how the company was freed from massive amounts of debt courtesy of the bankruptcy, GM should be doing better than the $10 billion a year in profits that it is currently delivering.

I assume that the GM shareholders made little if any noise at the meeting, after all, with the “Government Motors” moniker hanging over the company like a noose there’s not much to say, or is there?

Oh, there’s plenty to say, as you might imagine. Here are a few questions...

Question No. 1: Mr. Akerson, there was a front page story in today’s Wall Street Journal suggesting that GM is still deeply mired in its own bureaucratic quagmire. What steps are you taking to alleviate the situation?

The back story: Throughout its glory years (roughly the mid 50s to the mid 70s) GM operated as a loose conglomerate made up of individual divisional fiefdoms. Divisional general managers had absolute power and the divisions retained their distinctiveness and competitive feistiness, and it worked sensationally well. First and foremost there were intense intramural battles between the divisions, with the Chevrolet vs. Pontiac dust-ups being legendary. And when the divisions got bored fighting among themselves and went after the competition, GM dominated half of the automobile market in the U.S.

But that was then and this is now. GM started to go off the rails in the late 70s when the divisions lost their power and were reined in, to their and the company’s detriment, I might add. Product mistakes were made as a debilitating sameness crept across all of the divisions in terms of design and performance. GM upper management – in their quest for command and control – had successfully gained that at the expense of destroying the will of the company. This set off an ugly chain reaction within the company where the denizens of the vast gray middle (management) decided that what was good for General Motors wasn’t necessarily good for them any longer, so they dug their heels in and became comfortably entrenched in their bucolic bureaucracy. And the company hasn’t been the same since. Today, Akerson is hopping mad that he’s still encountering this entrenched bureaucracy almost at every turn, and on a global scale as well.

The one thing Alan Mulally has been able to do at Ford is to neuter the bureaucratic fiefdoms. Oh, make no mistake, they’re still there, but Mulally has made them ineffective and weak. Akerson has been less than successful at it, but then again, GM’s bureaucratic minions are almost legendary in their labyrinthine ways and the fact that they have honed obstinate behavior into a religion. I hate to break it to Mr. Akerson, and any of the shareholders who might bring this up, but we’re talking about an endless quest here.

Question No. 2: Mr. Reuss (GM’s North American president), GM whacked the number of its divisions to comply with the reduced footprint demanded by the Obama administration during the bankruptcy. Did you go far enough? And after all of that, it seems that divisional overlap in the market is still a huge issue for you. What gives?

The back story: It’s no secret that when GM dominated the market, its divisional stair-step strategy – whereupon a customer would start with Chevrolet, progress through Pontiac and Oldsmobile, and then up through Buick, finally ending up at Cadillac for their final car-buying years – worked exceedingly well. But needless to say with the onslaught of real competition from the Japanese and German manufacturers, and now from the Korean manufacturers as well, that notion has been quaintly obsolete for 35 years. So GM got rid of Hummer, Saturn and Pontiac – after jettisoning Oldsmobile years earlier – and deleted Saab when the brand ceased to matter.

What’s left in the U.S. market for GM? Buick, Cadillac, Chevrolet and GMC truck. Buick, because of its success in China; Cadillac, because it still is one of the iconic automotive luxury brands and GM has to be able to compete in that segment; Chevrolet, because it’s the heart and soul of the company; and GMC because they’re making too much money on it not to.

But things are far from rosy. As GM adds more product entries from its brands, they’re bound to step on each other in the market, which has the eerie markings of a re-run movie no one wants to see. Back when GM started to get it all wrong, they couldn’t fight the real competition in the market because its divisional nameplates were too busy cannibalizing each other to take on the competition. When I see new entries from Buick stepping on entries from Chevrolet I have to wonder if things are on the edge of getting out of hand at GM. Mark Reuss is adamant that it will not happen. I hope he’s right.

But what would GM look like if it focused on just two main brands – Cadillac and Chevrolet? What if GMC was melted into the Cadillac lineup to give the luxury brand a full range of vehicles like BMW and Audi? And what if Buick just existed in China where it thrives?

Heresy? I think not. GM devoting all of its marketing resources to just two brands would be an awesome sight and the most focused way it could go about its business in the face of withering competition from all points on the globe. That is, if the marketing troops could focus long enough to take advantage of the opportunity.

Question No. 3: Mr. Ewanick (GM’s global marketing chief), you’ve gone on record as saying that because of consolidations you’re making in the way GM handles Chevrolet advertising around the world that you will deliver $2 billion in savings over the next five years. How can that be, exactly? Aren’t you being just a tad optimistic?

The back story: Responding to Dan Akerson’s demand to wring out as much cost out of the GM system as humanly possible, Joel Ewanick has forced a new ad agency to come together called “Commonwealth” that combines the resources of Goodby Silverstein & Partners and McCann Erickson Worldwide in sort of an advertising Super Group that will handle all of Chevrolet’s advertising needs around the world. Ewanick is banking that by consolidating from around 70 different agencies down to one big one that the savings will come in bunches. As in $400 million a year bunches.

If I’m a shareholder I’m more than a little skeptical, especially since merging wildly diverse agency cultures into a cohesive whole that actually works on a day-in, day-out basis and delivers great, impactful creative work is an extremely tall order. As in, good luck with that. Ewanick admitted to the WSJ that by concentrating on trying to bring GM’s global advertising structure together that the strategic and creative work has suffered. And it shows.

Sometimes creative, memorable advertising goes a long way toward getting an organization on the same page and pulling in one direction, and in getting consumers to sit up and take notice. GM is floundering in the marketing and advertising disciplines right now and it’s hard to conceal that fact. And if I’m a shareholder, I would be more interested in moving the needle with consumers in a memorable way than I would be in the “projected” savings that have a snowball’s chance in hell of coming to fruition.

Question 4: Ms. Barra (GM’s product development chief), you’ve been tasked with streamlining the process of getting cars and trucks built in the GM system, a system that’s notorious for its recalcitrance when it comes to embracing meaningful change. Is there any hope of meaningful progress?

The back story: Referencing Question No. 1, Dan Akerson, Mark Reuss, Joel Ewanick and Mary Barra are in a race against time, inertia, “the way we’ve always done it” and a general resistance to change that exists in the quagmire that defines the vast gray middle within General Motors. Ms. Barra‘s task is especially crucial, because after all it’s up to her that the aggressive product cadence laid out for the company is met in exacting fashion and with efficiencies that make sense.

But I’m worried for the troops down at the RenCen because I believe that Akerson’s push to wring more vehicle entries out of fewer and fewer architectures is in danger of placing GM right back in The Darkness all over again. A Darkness that saw GM divisional nameplates crashing into each other in myriad segments in the market, while the competition swooped in and made huge inroads, ultimately resulting in GM’s long, slow slide into oblivion.

One thing about this crazy auto business is that it’s never easy. Ever. It’s an up-at-dawn, pride-swallowing siege (to borrow a line from Cameron Crowe’s “Jerry McGuire”) and it’s not for the faint of heart.

GM is on a precipice right now, and perhaps the shareholders don’t even realize it. (The Board of Directors certainly doesn’t, by all accounts.)

On the one side is great product, delivered with financial efficiencies and real eye-opening profits, ultimately resulting in freedom from the most negative moniker ever bestowed on a car company: “Government Motors.”

On the other side is The Darkness, fueled by that vast gray GM middle management quagmire and marked by a debilitating two steps forward, five steps back dance that has all of the mind-numbing cadence of chasing windmills.

Ms. Barra summed up GM’s predicament quite nicely with a quote she gave the WSJ:

“What keeps me up at night is that we can do this, but we need to do it faster. A customer doesn’t care that we have inefficiencies in our system or that we haven’t leveraged scale. They care about the product they see.”

Amen to that.

And that’s the High-Octane Truth for this week.