Please dont take this personally

July 26, 2006
Celebrity power won't fix GM's problems

Not long ago, less than a year, General Motors was too big. Last fall GM had too many operations, too many obligations, and too many competitive weaknesses. Fixing it demanded a judicious reevaluation of GM’s strengths and potential.

In the latest news developments, you might think GM is not big enough. Soon, the CEOs of GM, Nissan, and Renault will meet to discuss a three-way combination that key investors and directors of the two potential partners have already endorsed.

It isn’t as though nothing has improved at General Motors; the automaker lost $10.6 billion in 2005, but a restructuring plan is underway and the stock has risen 52% this year, demonstrating that CEO Rick Wagoner has convinced some investors and analysts that a turnaround is in process.

But, Wagoner hasn’t convinced everyone, and in the auto business, the ability to convince demanding shareholders is often more important than the more specific executive skills. In automaking, and in other industries, including metalcasting, the gap is widening between the insights and techniques of executives trying to improve their organizations, and the demands of investors seeking faster returns on their investments.

Wagoner defused one boardroom uprising last winter, but that’s not the end of the discord. GM’s largest shareholder is billionaire Kirk Kerkorian, who is convinced GM should team up with Nissan Motor Corp. and Renault S.A. to share engineering, optimize purchasing, and coordinate manufacturing operations into a more expansive global presence. All that cost-saving and market-dominating may be part of his plan, but the main appeal for Kerkorian and the investors backing him is that this move would put Carlos Ghosn, the CEO of both Nissan and Renault, in Wagoner’s seat at GM, too.

Ghosn (it rhymes with “bone”) is a talented executive. He revived Michelin and directed its merger with Uniroyal-Goodrich. He restructured Renault and restored it to profitability, then started an even more impressive revival at Nissan. His pattern is to create an atmosphere of urgency within these organizations, cut employment and operations without remorse, and institute “cross functional” teams as a way to force new methods to conduct necessary tasks.

How his methods might impact GM is not clear: GM is downsizing already, identifying future strategies, and pushing new designs into production to appeal to shifting consumer tastes.

Note, too, that global alliances are nothing new to automaking. GM recently bailed out of one with Fiat. It took years for Chrysler to unwind its problems with Mitsubishi. The alliance/merger/takeover that created DaimlerChrysler is eight years along, and though backers of the consolidation boasted it would become the world’s most profitable corporation it has lost over $40 billion in market value since 1998. Recently, DaimlerChrysler tossed out its original visionary executive and installed a new visionary executive. And, don’t overlook the fact that one of the biggest Chrysler shareholders in 1998, and later the loudest objector to that tie up, was Kerkorian.

It seems that what makes Ghosn more appealing for the task of fixing GM is his reputation. Born in Brazil and raised in Lebanon, equally at home in Paris or Tokyo, or Detroit, he has a global flair that GM’s big shareholders think will raise the credibility of their holding. He’s like a celebrity architect, engaged by tycoons to project visions they can claim are their own, as they bask in the limelight of his work.

Fixing General Motors may be a job for someone who has bold ideas, but Wagoner is showing that it also calls for some surgical skills — not just the agility to slice and suture without causing too much damage, but also to step outside and explain to the anxious family what’s going right and wrong, and when it’s going to get better.