The news is awash in stories regarding President Obama recently firing the chairman of General Motors. Depending on your political bent, his action was either:
– the best thing that the government could do to ensure the billions being invested by taxpayers have any chance of being returned, or
– the beginning of the end of free enterprise and capitalism in the US, as the government starts making industrial management decisions beyond its power and capability
I believe that, given the choices, the President made the best one.
In a blog that I wrote last July, I noted that GM was due for a big tumble. At the time, some folks thought that I was overstating the potential crisis which I saw looming. But, with the results now in, Obama had to do something.
Although there’s little evidence in the US that governments at any level can run business or enterprise as effectively as entrepreneurs or trained management teams; General Motors has not shown any capacity to dramatically turn around its fortunes. And Richard Wagoner, GMs Chair and CEO, was given ample time by the company’s Board of Directors to show some vision, leadership and strength. If a boss can’t do what (s)he’s paid to do; it’s time for a new boss. And if those who are supposed to make that decision can’t or won’t (that would be the Board); someone else needs to get involved. Especially when there are billions of taxpayers’ $ at risk.
During his tenure, Wagoner showed himself to be an effective internal manager and moved up the ranks from analyst to head honcho. Externally however, he showed little of the savvy, consumer understanding, or guts required to be a market or corporate leader. He failed because he didn’t act like a leader.
When he took the helm; the company was the country’s largest employer, the world’s largest manufacturer of autos, and highly profitable. It had cool and sexy ideas for the next generation of product including the EV1 which was a good looking, fairly well built, all-electric car driven by thousands of happy customers in California and Arizona. Environmentalists saw as the future. Enthusiasts were encouraged that a car they’d drive had hit the marketplace – especially from GM! But Wagoner killed it in 2003 because, “the economics weren’t right” (and since said it was his worst mistake).
With an eye on short-term profit, he ramped up the big truck, SUV segments – including the purchase of the Hummer Brand – and backed away from development of the kind of small, sexy, well built products for which many younger or caring consumers expressed a desire. There’s a difference between optimizing a strategy or profits versus maximizing them: One is all about balancing the right amount of success now with an eye toward the future. The other is about wringing every cent out now and dealing with the future later. While I am all about optimizing profits, I disagree with any strategy that mortgages a company’s future as it seeks to maximize short term earnings. And, he not only sold those gas guzzlers, he marketed them like crazy thereby creating demand where it may not have previously existed.
Leaders make tough decisions. The best base those decisions on their own beliefs and values; not simply on figures and studies about profits and costs. Anyone with a general understanding of finance/stats can figure out production schedules based on past trends, but it takes a leader with a good gut instinct to assess the future of a segment and successfully push her/his company toward it. We never saw that from Wagoner.
Great leaders embrace change. Knowing they can’t resist the future, they run toward it, taking their teams with them. Other leaders believe that the organization’s best years are behind them and they drag their feet trying to hold back coming events.
Saving General Motors as it exists today is unlikely. Regardless of who’s running it. In the same way that America’s once-largest telco company AT&T needed to be broken to create value and encourage entrepreneurism and profitablity; so should GM.
America’s once-largest corporation does have some good products. There’s a lot of existing loyalty for several of its brands. Others – not so much. I believe that a passionate leader, without the existing structure of the existing corporation, could take charge of a small brand like Saturn as a free standing enterprise and successfully compete with auto manufacturers based elsewhere. The other big brands like Chev or Caddy would also be more likely to succeed if they were separate organizations and able to move more quickly in a worldwide marketplace.
Breaking up GM makes sense.