Accelerate the pain... at GM

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Recently, a Wall Street heavyweight (Steven Rattner) took over driving the auto industry's "retrofit" program as Counselor to the Secretary of the Treasury, Timothy Geithner. I gather that Mr. Rattner had a hand in the recent decision to force GM's Wagoner to resign. I believe this was the right decision. Wagoner and the rest of the "inbred" auto industry leaders in Detroit move slowly and subscribe to the "evolution" versus "revolution" approach to change. Yet the barn is burning and they don't realize it.

I spent a year in Detroit, over 20 years ago, working with a team to accelerate the market entry of the first Saturn car. We reduced NPD cycle time by 50% and set up the infrastructure for the new and innovative company ("A different kind of company, a different kind of car"). Saturn was a great success. Then we watched, over time, GM's "system" eventually consume the essence of Saturn, like a parasite consumes its host.

Saturn was never able to repeat these early successes once it was assimilated into the "Borg." The unique UAW and Management partnership dissolved and it was back to "business as usual." The flat management structure, self-directed "work unit modules," and other organizational innovations gave way to traditional multi-layer "labor-management" corporate practices.

The "executive world" of the Detroit auto industry lives in a bubble, both physically and mentally. I saw and experienced it first hand. The President accelerated the threshold of pain (for them). It was, in my opinion, the right and the only way to fix the problem and save more jobs in the long run. Left to their own, these Detroit executives would have done more of what they have done in the past--nothing--and would have achieved the same results--nothing.

The sooner the problem is dealt with, the sooner it can be fixed. This fix is not incremental, rather it must be systemic and dramatic if there is going to be any chance of saving this country's last major industrial capability. The pain must be accelerated--this is in-fact a best practice characteristic of the high performers we've worked with on successful Silicon Valley ventures.

In discussing GM with an associate, I was asked, "so what would you do if you were Steven Rattner?" My response follows. My ideas are unsettling. I would also assume that most (in Detroit) would reject, "out of hand," these ideas as too extreme and radical, however the degree of change needed is a function of the severity of the problem.

I still believe they don't know what they don't know in Detroit. That this really has nothing to do with the economy, but rather the fundamental sickness in these organizations that has finally surfaced as a result of the economy. Why did Audi make a profit in 2008 and is projecting an almost 10% growth rate in 2009? Surely someone is buying cars!

Seven Point Program to Profitability "7PPP"

Consolidate the product lines (one vehicle per segment), build a cost-benefit decision model to rank the divisions and then rank their products within each division. The ranking criteria would include both strategic and economic filters. It would consider where I wanted GM to be in five years, not just how to make it profitable today. This list would determine what gets kept and what gets sold to, for example, Indian or Chinese buyers. I would also use this to consolidate divisions and eliminate redundancy. Reduce volume, increase profit (i.e. Audi 1M car model)--focus on the winners, eliminate the losers. Finally, I would kill most of GM's North American car programs and replace the North American product line with Opel cars from Germany. My international product line is already designed and being manufactured at Opel (GM's German subsidiary). I would only sell "Opel cars" throughout the world. A single international car line (BMW, Mercedes, and Audi do it, why can't GM?). I would keep just a few of the old GM products that were worth keeping, like the Cadillac CTS and Chevrolet Corvette (these have unique brand appeal, while the rest are generic products and would not be missed). I counted over ten products just within Cadillac (each of the GM divisions have the same volume of redundant products)!

Renegotiate the UAW work rules. Flexible rules or you are out. This would require, I assume, the bankruptcy judge to do this given it has been impossible for GM to do it on their own due to the well founded lack of trust that the UAW has for management. Each plant has to have flexibility in how people are utilized on the factory floor. I would not reduce pay, just train all workers to be able to do all jobs, and then have flexibility to move them around as the work load demanded.

Renegotiate health care benefits. Make employees pay more and then get the government to underwrite a new "Auto Worker Health Care Fund" to manage all the health care needs of the big three and all their U.S. parts suppliers. Consolidate all health care for all these companies into one giant program. The buying power of the members could negotiate lower cost services and better benefits to the employees. I would get the federal government to underwrite it. A better place for the federal funds than in feeding $10B a quarter into a paper shredder (i.e. the current bailout methodology to keep these businesses afloat). The cost-structure problem at GM is not a result of high employee wages, but rather Health Care and bad product portfolio decisions. Labor cost (wages) are still a low percentage of the total cost of making a new car.
 

Renegotiate the supplier contracts and consolidate them, similar to the Tapfin approach to managing outsourcing of IT services (i.e. a single coordinator of all suppliers for the industry in order to achieve greater economies of scale). I would force consolidation of suppliers in order to eliminate the high cost producers. This would be done on an international level, not just domestic (i.e. North American) suppliers. The problem is not just at GM, it is in fact the complete supply chain that has to be considered. GM is effectively just an assembly house now, most of the work is done downstream today. So the cost-solution has to encompass the supply chain from top to bottom.

Form a single division dedicated to bringing a hydrogen-fueled car to market in 3 years. The new car would sell for less than $20k. I would get the government to fund this program with $6B of seed capital (again, a more effective use of bailout money that builds for the future, rather than pays for past failures). Further, I would force Chrysler and Ford to become joint venture partners in this separate company (like NUMI in Fremont CA where GM and Toyota are joint equity partners). I would transform the Saturn division into this new Greentech business unit. Finally, I would kill all electric-powered vehicle programs at GM (if they are even doing them now, which I doubt...) and reallocate those resources to the hydrogen fuel cell car program. Another decision-model would help make this strategic technology choice. Given resource constraints, my feeling is that GM can only fund a single future technology direction. This means that the "bet" on which direction to take has to be well thought through. My "competition to beat" would be the Honda FCX Hydrogen Fuel Cell Car. I love the comments from Top Gear about this car (below). Note the reference to GM's "hybrid car of the year"--to put my comment about "living in a bubble" in some context.

And here is their review...

Relocate the corporate headquarters to Rüsselsheim, Germany. All Detroit corporate operations would close. I would lease out the Marble Mausoleum (the term our UAW partners at Saturn called GM's downtown corporate headquarters)--view it. It represents the past, one that "was" successful, but now has failed. Without a physical change, nothing will change organizationally at GM.
 

Managing the Deployment of 7PPP--"Projectizing" the Solution

I would put one person in charge of each of the 7 programs (to program-manage the efforts). These seven would be my management team and management structure. I would eliminate the current functional (silo-based) corporate structure and reduce the levels of management to no more than three (similar to what Gerstner did at IBM when he re-engineered it back to profitability in the 1990's). I would bring the UAW into the management structure, like they did in the early years at Saturn.

Each program manager would have Freedom Level-1 authority to make decisions and take actions. They would have a schedule for each retrofit program and we'd review them every week--perhaps daily. Specific performance targets would be set every two weeks. The reserection process would be closely managed and all information would be made trasparent to the public, similar to the Obama Adminsitration's use of various websites to open up government decision-making and information sharing.

Comments

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