The Revolving Door at GM

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General Motors CEO Edward Whitacre is at it again.  Apparently frustrated with the company's lack of U.S. market share growth (it has actually fallen 0.4% since January), Whitacre replaced VP of Marketing Susan Docherty with ex-Nissan and Hyundai marketing chief Joel Ewanick [story link].  Ewanick now becomes the fourth person to lead marketing for the company in the last 12 months.

Besides the obvious effects on motivation created by demoting or firing someone, the fear that can ripple throughout the organization when it occurs over and over again can be immense.  The rapid pace of changes in leadership positions can cause significant damage to an organization that is in desperate need to pull together and focus on rebuilding its health.  It's important to note that executive-level replacements are the only ones reported - there may (or may not) be turnover in other positions that did not make the news.

The Destructive Effects of Fear

The potential effects of the fear created by this type of situation can include:

• Teamwork:  When people fear for their jobs, they tend to shift into survival mode and focus more on their own survival than the company, as a whole.  When this happens, the level of political gaming within the company often significantly increases;
• Risk:  People tend to be much less willing to take risks if they feel that failure can cost them their jobs.  And a careful approach to business and markets is definitely not what GM needs right now to resotre its competitiveness;
• Creativity:  People need to feel relaxed and comfortable in their jobs to develop and use their creativity, while prolonged periods of stress has been shown to have the opposite effect.  Survival and growth in today's highly competitive auto industry will require GM to become much more creative and innovative in its products and processes;
• Speaking Up/Voicing Concerns:  Fear can crush the willingness to disagree with or questions someone higher in the organization.

I understand that Whitacre is trying to create a sense of urgency in a company that has apeared lethargic for many years.  Developing a clear vision with aggressive objectives, getting in front of people to build enthusiasm and urgency around them, and removing the barriers that interfere with success, however, is much better than firing people to get this point across.

Short-Term vs Long-Term

Ewanick is apparently a highly talented marketing professional with an impressive resume.  However talented he is, though, I wonder it it is possible to develop programs that will quickly increase GM's share of the U.S. market.  A clever ad or marketing campaign may increase sales in the short-term, but sustaining sales and market share increases can only occur by getting close to customers and developing products that meet their needs and wants better than any other automaker.  This is not something that can happen within a few months.

Don't Ignore the Culture

I once worked in an organization where the CEO regularly fired senior leaders (among others) for "underperforming."  As a result, fear and backstabbing became the norm as people worried more about preserving their own jobs than they did about working together to improve the company.  It was a truly bad experience.

GM has suffered from a compromised immune system for many years, and to become competitive again, it must restore its health, which requires improving its strategies, systems, processes, and culture.  These things can't be done without a certain amount of stability at the top.  Continuing to hire, fire, and demote senior leaders can frighten and confuse the organization, something that GM really can't afford to let happen in its current weakened state.

Big Changes at GM?

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With the departure of Fritz Henderson, GM's board is talking as if they are taking the opportunity to kick the changes at the company into high gear. Making changes at an organization as large and complex as GM is not going to be easy. It can be done, though, with a well-focused and aggressive plan.

In my opinion, the plan to get GM on track needs to include the following:

• Forget about being the number one producer of automobiles. This kind of focus can take the company away from its purpose of making cars that people want to buy. I believe that Toyota temporarily lost its focus in its drive to be number one and it got them into trouble. Make great cars and the numbers will take care of themselves.

• Improve the - real and perceived - quality of products offered. This is done by working on processes and products; not advertising.

• Improve relations with dealers and the UAW. The company cannot get better without everyone working together. The level of trust between management, workers, and dealers has been poor for many years, and it's up to GM management to take the responsibility to get it fixed.

• Increase innovation. The company needs to begin taking chances and develop more innovative designs and features into its cars. It's time for GM to stand out because of its products instead of its problems.

The biggest barrier the company has to address is its own culture. In general, the longer a company exists and the bigger it becomes, the more risk averse the culture becomes. It is a great time, though, for GM to refocus and reinvent itself, and I'll be watching with interest as the saga continues to unfold.

Saturn Crashes

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It was very disappointing to hear the news about Roger Penske pulling out of the deal to acquire GM's Saturn division. Of all American automakers, I believe Saturn had the best chance of transforming into the type of organization that could compete with Toyota, Honda, and Hyundai, and it's really too bad to watch it go down without a fight.

At one time, Saturn was a very interesting company. It started in the mid-1980s completely isolated from the poisonous culture of General Motors as a way for the company to compete with Toyota and Honda. They utilized a separate dealer network, built a new factory in Tennessee, and hired a completely new "non-auto industry" workforce. The division also focused on creating a positive customer experience - something for which GM has never been known.

It Should Have Worked

The idea was good; the implementation was mediocre; and the strategy over the last 15 or so years was extremely poor. At some point, the infinite wisdom of GM executives kicked in and interfered with the development of the company. GM management decided to virtually stop the division's development of new vehicles and bring it into the company's fold. As a result, Saturn lost any of the benefits it once had and entered a death spiral from which it had no chance of escaping. The interesting experiment quickly became the stepchild of the company, and was strategically lost among the other GM divisions.

My disappointment with the latest news is that I don't believe the bad habits that Saturn has most assuredly developed since being rolled into GM's culture have been around long enough to be ingrained into the Saturn culture. It probably would not take very long to move the company back to its roots and create the type of culture that is necessary to compete with other automakers.

To survive in today's market, an automaker must be able to quickly develop new models that people want to buy while improving quality and lowering costs on a continual basis. Given the decisions and actions over the last several years, however, I don't believe that this is possible at GM because there are just too many cultural barriers in the way. The people at Saturn should know what it's like to be a small, flexible company, though, and separating it from the mother ship would give it the opportunity to rebuild without the interference of GM management.

To succeed, Saturn would need to have a flat organization structure that is light on management and heavy on leadership, innovation, and teamwork. It is not rocket science, but is only possible if the people in charge have the vision of what a customer-focused, flexible organization looks like, and the attention span to stick with it through good times and bad. I don't think GM has such a vision - but I was hoping that the Penske Group did.

When I hear people within GM say that Saturn was never viable or necessary, I can't help but think about the parallels with Hyundai Motor Company. Originally created to build cars for Ford, company management decided in the 1970s to design and build their own cars. In the mid-1980s, the Excel became the company's first car sold in the U.S. - a small, fuel-efficient model that, to be honest, was very poor quality. But the company stuck to its vision and continually improved its product offering and quality and is now a serious competitor in the global market. This could have been Saturn had GM management been patient enough to not interfere.

Just Make It Quick

The senior leaders at GM have failed in their ultimate responsibility as stewards of the company. General Motors has a colorful and interesting history that has been a major part of Americana for more than 100 years. The company that employed hundreds of thousands of Americans (and affected exponentially more), and includes the likes of William Durant and Alfred Sloan, has steadily declined through arrogance, greed and poor decision-making. As a native of Detroit, the situation makes me very sad and very angry.

Company officials announced that, with the collapse of the Penske deal, Saturn will close its doors by October, 2010. As sad as the news is for the U.S. auto industry, a quick exit may actually be better than the type of slow, lingering death that Oldsmobile and Pontiac have experienced. As we look to the future, though, I have to wonder whether a similar fate awaits Chevrolet, Cadillac, GMC, and Buick.

GM Product Development & Efficient Cars

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GM Fallout?

BusinessWeek reported in its February 23 issue that Bob Lutz, the “legendary” product chief at General Motors will resign at the end of 2009. The report states that, “The thought of designing cars to meet Washington’s fuel economy rules – as opposed to consumer tastes,” drove him to retire.

This article once again reminded me one of the key reasons GM continues to suffer. The exercise about going to Congress to ask for billions in taxpayer aid and the scrutiny they have had to undergo throughout the process has seemingly not increased their humility one bit. They have lost the auto industry’s number one spot – a position they have held since 1931 – to Toyota (and appear primed to lose the number two spot to Honda in the not-to-distant future), and have apparently not learned anything through the process.

Maybe it’s me, but I fail to see how GM has been designing cars to “meet consumer tastes,” over the last several years anyway. If they had, they would not have lost the top spot to Toyota. And to think that it is only Washington – and not the consumer – who cares about higher fuel economy, shows the culture of hiding your head in the sand continues.

Besides higher quality, better fuel economy, lower costs, innovative production techniques, and a happier workforce, Toyota’s cars are more exciting than GM. And when I visited the Detroit-area last October, the high number of Toyotas and Hondas told me that Detroiters now feel the same way. When I think of “cool” cars for different age groups, I think of the Accord, Civic, Lexus, Prius, BMW 3-Series, Mini Cooper, Scion, and a few others, but can’t seem to recall any GM cars that fall into that group.

So, as GM moves into a new era of product design, they have got to increase the cool factor of their cars. Oh, and while doing that, it wouldn’t hurt to also work on the quality, reliability, cost, and fuel economy.

On another subject . . .

Does the Government Really Want Electric or Hybrid Cars?

Like many Americans over the last several years, I could not understand the seemingly complete lack of interest that the government has in assuring the success of hybrids or fully electric cars in the U.S. The Bush administration gave token tax breaks to purchasers of hybrids a few years back, but it didn’t make sense why the incentive was limited to only a small number of people who first purchase the cars.

The reason has recently become clear to me – and it will be tested as we watch how committed the Obama administration is to the development of high mileage or combustion-free automobiles.

The U.S. and state governments collect a great deal of tax revenue on sales of gasoline ($0.47/gallon for gasoline and $0.536/gallon for diesel). If we move away from gasoline engines to non-combustible engines, this huge source of revenue will dry up. Determining what will replace the fuel tax is destined to be a hotly debated and highly charged political issue – and probably one that politicians are not ready to tackle given the current state of mind of Americans.

Another Toyota Advantage

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Toyota has announced a $250 million ad campaign to introduce 0% financing on 11 of its models. At first glance, it looks like another attempt by an automaker to generate business during the latest slowdown in U.S. auto sales. After all, Toyota sales have been hit hard during the last several months – last month showing a 32% drop over September 2007. Digging a little deeper into this campaign, however, gives a little more insight into the Toyota way of doing business and how they are able to offer a type of incentive that would be very difficult, if not impossible, for its U.S. rivals to match.

Toyota has approximately $19 billion in cash, while Ford and GM are hemorrhaging. While the growth in Toyota sales over the last several years, as well as sales of high margin cars like the Prius, is part of the reason that the company is sitting on such a large amount of cash, it doesn’t give the whole picture. It wasn’t very long ago that GM and Ford were selling SUVs and pickup trucks at record levels and hauling in huge amounts of profits. The difference is that Toyota holds on to its cash so it can weather a downturn in business while Ford and GM (as well as many other U.S. businesses) give theirs away as bonuses to executives. Toyota executives are paid well, but their compensation does not come close to the amounts received by their counterparts at U.S. companies.

Although reading reports from analysts would make one think otherwise, it is ridiculous for any company to assume that it can achieve growth and profitability every year. Toyota understands this and puts away a portion of its profits every year to provide a cushion for years when business drops off. Fortunately for Toyota, it has been a number of years since they experienced a downturn, so their level of cash reserves has grown to enormous levels.

Keeping cash from the good years enables Toyota to offer 0% financing to its customers now while GMAC and Ford Motor Credit struggle to find the cash to stimulate sales. And this situation has even more far reaching consequences than are visible at first glance. If, for example, GMAC does not have the cash to offer customers financing, its sales will continue to slide, causing a further decline in profits which forces it to use more cash to finance its operations. This results in further declines in the amount of cash available to offer customers and further reduces sales and profits. This type of downward spiral is difficult to escape. This type of situation appears to be driving the move by GM to purchase Chrysler which, at the moment, has several billion in cash reserves.

Another benefit to Toyota’s cash position is its ability to keep paying workers while it temporarily shuts down production in its factories. Workers at the Toyota plants affected by the shutdown are still paid to come into work. Instead of building new cars and increasing inventories, however, they attend training classes in safety, quality, and productivity, and work to improve the processes so when production starts up again, they are even more efficient. This practice also keeps employee morale high and increases the level of commitment people have to the company.

Time will tell if Toyota’s 0% financing offer will work to stimulate sales. It may be that people are not willing to buy a new car when they don’t know if their jobs are secure or their investments will recover. About the only certainty in the foreseeable future, though, is that “The Big Three” will be GM, Toyota, and Honda. By purchasing Chrysler, GM will hold onto the top spot for a little while longer.

The American Auto Industry Does It Again

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Here we go again. General Motors announces further plant closings and layoffs. It makes one wonder how much longer this can go on. Eventually, GM executives will run out of plants to close and people to fire and have to look in the mirror at the true cause of the problems they face.

A manager’s ultimate responsibility is to build the health of the organization so that it can withstand the external pressures that cause decline. Just like people, organizations have an immune system. A weakened immune system may go unnoticed as long as there are no external influences or stressors that can cause disease or decline. Organizations and people with compromised immune systems may even feel strong and healthy as long as the environment is friendly. Once exposure to an external event or stressor occurs, however, disease sets in and decline begins. At this point, drastic measures need to be taken (e.g., layoffs/plant closings for an organization or surgery/chemotherapy for a person) to attempt to stop the decline. It is during times like these that people realize how much easier – and enjoyable – it is to work on improving health than fighting disease.

General Motors and Ford claim that legacy costs and an unexpected shift in demand to fuel efficient cars are the causes of their problems. After all, both were fat and happy a few short years ago when they ignored the market signs and raked in huge profits from SUVs and trucks.

Things have gotten to the point where Toyota is also facing declining sales in the U.S. market. A first for Toyota, they are responding by closing down their truck and SUV factories for three months in an effort to reduce the inventory of large, slow-moving vehicles. The difference? Toyota is NOT laying off any of the 4400 employees affected by the closing. Instead, they are keeping workers on the payroll and using the time for productivity, safety, and quality training.

Imagine the loyalty that Toyota is gaining from its workforce by taking this action. This gives the workers the feeling that they are just as much a part of the company as management. Do you think GM and Ford workers that remain after the layoffs and plant closings feel the same way? Do you think that Ford and GM executives care what the workers think?

An executive who continues to layoff workers because of economic problems is like the captain who runs into rough seas and throws crew members off the ship. Isn’t this the type of leadership we used to see in stories about pirates?

It’s no secret why Toyota continues to improve and innovate in its manufacturing process while Ford and GM continue to . . . well, be Ford and GM.