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With General Motors Back in Black, Interim CEO Steps Aside

August 12, 2010 at 12:00 AM EST
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As General Motors announced a $1.3 billion quarterly profit Thursday, CEO Edward Whitacre announced he will step down on Sept. 1. Jim Lehrer talks to David Shepardson from The Detroit News and George Magliano of IHS Automotive about the company's turnaround.
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TRANSCRIPT

JIM LEHRER: There was a pair of big news stories about General Motors today. The balance sheet is in the black again, and the man in charge is leaving.

GM’s earnings report marked the second straight quarter of profit for the automaker. The company made more than $1.3 billion from April through June — its best report in six years. That’s on top of $865 million it made for the first three months of 2010.

It was welcome news for a firm that went through bankruptcy protection a year ago after receiving $50 billion in federal bailouts.

U.S. PRESIDENT BARACK OBAMA: In short, our goal is to get GM back on its feet, take a hands-off approach, and get out quickly.

JIM LEHRER: Despite that pledge, GM was derisively dubbed “Government Motors.”

Still, the company emerged from bankruptcy in just 40 days. In the process, it shed hundreds of dealerships, plus its Pontiac and other unprofitable lines. Instead, it focused on a core group: Chevrolet, Buick, GMC, and Cadillac.

Fritz Henderson was CEO at the time.

FRITZ HENDERSON, former CEO, General Motors: From this point on, our efforts are dedicated to customers, cars, culture and paying back the taxpayers.

JIM LEHRER: Henderson was replaced last December by Ed Whitacre, who announced today he will step down as CEO come September 1st. Whitacre had made clear his tenure would be brief, and today he said, “I believe we’ve accomplished what we set out to do.”

The new CEO, the fourth in just over a year, will be GM board member Dan Ackerson. He’s also managing director of the private equity firm The Carlyle Group. Ackerson will oversee efforts to ramp up U.S. sales and production of new lines, including the Chevy Cruze, due out next month.

Later this year, GM begins selling the Chevy Volt, an electric car that got a presidential test-drive last month. GM hopes the Volt will help reinvigorate and recast its image.

The federal government still owns 61 percent of GM, but the automaker plans to file soon for an initial public offering of stock. That could lead to reducing the federal stake later this year.

JIM LEHRER: And to David Shepardson, who covers the auto industry for “The Detroit News,” and George Magliano, an analyst with IHS Automotive in New York.

David, is it correct to say that GM no longer wants to be known as “Government Motors?” That’s their priority right now, right?

DAVID SHEPARDSON, “The Detroit News”: Absolutely. I mean, that label has cost them a fair number of sales, given the anger over bailouts in general and the fact that some of those customers have shifted to Ford or Chrysler or Toyota. I mean, their first priority is to launch this IPO and get the government out of the business. As Ed Whitacre said, “We want the government out, period.”

JIM LEHRER: The IPO meaning — explain what that is.

DAVID SHEPARDSON: Right. Meaning as early as tomorrow, GM will file paperwork to set in motion the public sale of its stock. It’s not currently traded publicly.

That will allow the government to sell off the first big chunk of its stake. The Canadian government owns some stock, too, in exchange for the $12 billion it lent GM, as well as the former bondholders and the United Auto Workers health care trust fund owns about 20 percent of GM.

JIM LEHRER: Mr. Magliano, how did GM do it? How did they get from where they were just a year ago to where they are today with a big profit?

GEORGE MAGLIANO, IHS Automotive: Well, they put the steps in place to become profitable before the bankruptcy. But the bankruptcy was the catalyst.

They were closing plants, trying to divest themselves of brands, trying to trim down their labor force, become a much more global player. They were moving in that direction, but they weren’t moving fast enough. And the big catalyst at the end of the day was the bankruptcy proceeding and the fact that the government –

JIM LEHRER: All right. We’ve lost Mr. Magliano in New York.

So pick up the answer there for me, David.

DAVID SHEPARDSON: Well, he was right. Part of it was before the bankruptcy. The bankruptcy allowed GM to shed $30 billion in debt. What it’s also done is allowed the company –

JIM LEHRER: Because under bankruptcy law, it was possible to do all of this. You could reshape labor contracts, you could do all of that, they that they could haven’t done through negotiations.

DAVID SHEPARDSON: Absolutely. And as the promo pointed out, they were also able to get rid of a lot of dealers, too. You know, hundreds of dealers, and get rid of these unprofitable contracts. They were able to negotiate with the UAW a new long-term agreement that allows them to hire new workers at just $14 an hour, or about $32,000 a year. All these things allowed them to shrink their costs so this company can be profitable at a far lower sales volume.

Remember, GM lost almost $90 billion between 2005 and 2009. That’s like some small countries’ GDP. It’s a lot of money. And that was when the market was selling 16 million, 17 million vehicles a year.

Now, when the auto industry signed far fewer vehicles, GM can be profitable. Today, booking $2.2 billion in the first six months, even though auto sales are relatively low, although they’re up from last year, but all these changes they’ve made and the new leadership has a big impact on where they are.

JIM LEHRER: Generally speaking, using the term — picking up on your word “shrink,” is the scale of everything more in sync now in? In other words, the scale of the labor force, the scale of the plants, the scale of everything, more in sync with what they can produce and sell and all of that?

DAVID SHEPARDSON: Absolutely. A big problem GM had for years is underutilization of their capacity. They had lots of factories that were only working on one shift, factories that — you know, they were shutting factories for a few weeks in the summer. This year they didn’t shut nearly as many factories. They said their utilization was 93 percent versus last year, about 40 percent. So –

JIM LEHRER: That’s a huge change, is it not?

DAVID SHEPARDSON: Part of that was related to the bankruptcy since they basically shut down for a month. So the numbers are a little skewed, but certainly you have a new management team that’s come in and is running this company really like it hasn’t been run in decades.

JIM LEHRER: All right. How much of all of this, of the good stuff, should be credited to Ed Whitacre?

DAVID SHEPARDSON: Part of it. Certainly the product portfolio, the new products like the Cruze you mentioned. These were products that were launched, or the development under Rick Wagoner two CEOs ago. But he deserves a lot of credit for focusing the mission on simplicity, keep it simple. You know the mantra of GM is “Deliver, design, and sell the world’s best cars.”

And also they have accountability. People who don’t do the job, or he doesn’t like, Ed Whitacre has been willing to move out or shift or basically push out the door.

JIM LEHRER: Yes.

Mr. Magliano, you’re back now.

GEORGE MAGLIANO: Good to be back.

JIM LEHRER: David Shepardson finished your sentences for you, but let’s pick up on what I was talking about David about right now, which is how much of the positive stuff here should be given to Ed Whitacre? In other words, the credit for it should be given to Ed Whitacre?

GEORGE MAGLIANO: I think he gets a lot of credit for pushing it through. And number one, he changed the corporate culture, or started to change the corporate culture at GM.

GM was known for bureaucracy, slow-moving, very inbred. And, you know, bringing somebody in from the outside. He really shook things up. And he caused a lot of consternation, but he got the job done. And he really got them moving in the right direction.

And the bankruptcy, as we said before, enabled him to get out — close down a lot of those plants that were totally unused, and now they can match production to sales, which makes it that much more profitable. They don’t to give the vehicles away like they used to in the past when they were just sitting in the dealerships and they couldn’t sell them. So that’s a big change.

JIM LEHRER: But Whitacre, of course, came out of the communications business. He had been the CEO of AT&T. He didn’t know anything about cars.

So, how was he able to do that? What did he bring to it that was able to produce this kind of result?

GEORGE MAGLIANO: I think what you need at the top is leadership. You don’t need a “car guy.” And you saw it with Alan Mulally, but he had a lot more manufacturing –

JIM LEHRER: He’s the head of Ford, right?

GEORGE MAGLIANO: Yes. And basically, you need a guy on top to set the direction to get people moving, and then to put good people down below that know the business, and to really let them do their job. And that’s what he did, and that’s what we expect from the new CEO.

JIM LEHRER: Now, the government involvement in this, David, is there any direct government involvement in the operation of General Motors at this point?

DAVID SHEPARDSON: No. I think it’s pretty clear that the Obama administration, GM — you know, the administration is not running GM for the simple reason that they don’t want to be accused of making decisions for environmental or other political reasons like where to put plants. I mean, if they opened the door and started running GM as an arm of the government, it would make it far more difficult for the administration to get out of the company. And I think, you know, over the last 18 months, we’ve seen no evidence that the government has actually stepped in and picked the paint colors or something.

JIM LEHRER: Mr. Magliano, what’s the word within the industry about the new products that General Motors has already produced? We talked about some of them in the introduction that are coming.

Does General Motors got its product act together?

GEORGE MAGLIANO: It’s getting its product act together. When Bob Lutz was doing the product development, or heading up that team in General Motors, they got high marks for the new products and the aggression in the new products. But at the time, gasoline prices were relatively low. They shot up, and now they had to rethink where they were going.

And the new Cruze is their number one big shot in the compact or small car arena. And this is going to be a big test for them. And the jury is still out.

It’s an improvement over the replacement that they had before, the Cobalt, which was a very bland vehicle. This is much more upscale. But it’s going to go head to head with the Focus which just came out which Ford has, and that’s a pretty upscale small car as well. And, of course, you’ve got the stalwarts outs there, the Civic and the Corolla in that class.

So, it’s a tough segment to compete in. So we’ve got to see what happens.

JIM LEHRER: In that regard, when we look ahead to see what’s going to happen, General Motors is not out of the woods yet, is it?

GEORGE MAGLIANO: No. They’re off sort of the operating table, but still, there’s a long way to go.

They’ve got to keep working on costs. We’ve got a new union contract coming up. And they have to keep working on product.

And the name of the game in the industry is product, product, and more product. You can’t hound on that enough. And it’s — that’s why you’ve got to sell the best cars and trucks in the business. And then they’ve got to keep doing that. They’ve got to keep developing it and doing it to survive.

JIM LEHRER: And based on your reporting, David, the people who follow this industry would agree with you, right?

DAVID SHEPARDSON: Yes. No, I think GM is in the best shape it’s been in certainly 10, 20 years.

The company has lowered its costs, it’s bringing out new products. It’s a very competitive market, as George pointed out there. There’s lots of new vehicles, lots of competitors, all over the globe. But GM is in a very good spot, but it still has a lot of work to do in Europe and North America, to be certain.

JIM LEHRER: OK. Thank you.

Gentlemen, thank you very much.

George Magliano, sorry about the technical problems, but we got it all in anyhow. Thank you very much.

GEORGE MAGLIANO: Thank you.