AUTO: Rick Wagoner

Excellent piece in defense of Rick Wagoner..

Mr Detroit
Dec 11th 2008
From The Economist print edition

The survival of Rick Wagoner of General Motors hangs in the balance, like that of the industry he embodies

IN THE end neither Congress nor the outgoing Bush administration had the stomach to allow two of Detroit’s Big Three carmakers to collapse into bankruptcy before Christmas. But getting the $15 billion-worth of loans which will keep General Motors (GM) and Chrysler going until March—Ford is, for now, carrying on under its own steam—has been a bruising, at times humiliating, experience for the bosses of the beleaguered firms, especially Rick Wagoner, the chairman and chief executive of GM. Not even the most trenchant critic could level much of the blame for Detroit’s deep-seated ills on Chrysler’s Bob Nardelli or Ford’s Alan Mulally, who have less than four years’ experience of the car industry between them. Both were hired to bring fresh eyes and a new approach to dealing with the industry’s woes. By contrast, 55-year-old Mr Wagoner has been at GM all his working life and is the very embodiment of the giant car company’s culture, for both good and ill. As one congressional tormentor after another took aim at the industry for its past mistakes and questioned whether it had done anything to make it worth saving, it was the tall, courtly Mr Wagoner who was squarely in the crosshairs.

On the face of it, it is remarkable that Mr Wagoner is still in his job at all. During his eight-year watch, GM’s share price has fallen from $75.75 to below $3 last month. In the past four years the firm has racked up losses of at least $75 billion. You could say that rather than running a carmaker, Mr Wagoner has been operating a giant value-destruction machine at full tilt. Yet even now, to the incredulity of many observers, he appears to be safe in his job. When Chris Dodd, the chairman of the Senate banking committee, suggested that Mr Wagoner might have to go as a condition of a bail-out, Steve Harris, a GM spokesman, responded that “GM employees, dealers, suppliers and the GM board of directors feel strongly that Rick is the right guy to lead GM through this incredibly difficult and challenging time.” He was telling the truth.

What is the explanation? Partly it is that Mr Wagoner is an intelligent, conspicuously decent man whom people cannot help liking. Partly it is that his knowledge and experience of the industry is unrivalled. Partly it is that all those who still support him signed up to the same strategy and continue to believe that nobody could have done better under the circumstances.

Mr Wagoner started well. As chief financial officer and then chief operating officer in the 1990s he helped turn GM round after three terrible years when losses had topped $30 billion. By 2003, as a result of action taken by Mr Wagoner to cut costs, modernise outdated plants and improve quality, GM’s market share was increasing and it was making profits of $4 billion a year. But the progress proved unsustainable. Each year vast retiree health-care and pension obligations diverted billions of dollars from developing new models, and added $1,400 to the cost of every vehicle coming out of a GM plant compared with rival products built in non-union Asian and European “transplant” factories. Mr Wagoner had to concentrate on generating cash rather than on making great cars. Low-interest finance and lossmaking fleet sales kept production up, and the profits that could be made churning out huge pickup trucks and sport-utility vehicles skewed GM’s model range away from more efficient passenger cars.

In recent weeks Mr Wagoner has been accused of abjectly failing to tackle GM’s problems. But within GM and the car industry generally, there is recognition of what a rotten hand Mr Wagoner had to play, and how close he came to achieving at least some of his goals. The huge losses of recent years have been a reflection of one painful restructuring after another. Since Mr Wagoner took over in 2000, GM has cut its workforce by half to 97,000 and closed 12 factories in America. That was neither easy nor cheap—many jobs have been bought out, and some laid-off workers have been entitled to almost full pay under an agreement with the union negotiated more than 20 years ago.

Expensive though it was, the surgery had begun to work. According to independent surveys, many of GM’s factories have closed the efficiency gap with the likes of Toyota. Under the guiding hand of the flamboyant Bob Lutz, brought in by Mr Wagoner in 2001 to oversee product development, GM is also now making some very good cars, among them the Chevrolet Malibu, the Cadillac CTS and the Buick Enclave. Last month the Opel Insignia was voted European car of the year. And in 2010 GM is due to launch its revolutionary Chevrolet Volt, an electric car with a “range extending” internal-combustion engine that promises to make the Toyota Prius look like yesterday’s technology.

Send for Mr Nasty

A year ago, after a deal was negotiated with the United Auto Workers union to transfer health-care liabilities to a union-run fund and to reduce the pay and benefits of newly hired workers to rates similar to those at the transplants by 2010, Mr Wagoner’s stock was high. There was a real sense of optimism that GM was at last on the home straight to being a viable business. The spike in the oil price and the credit crunch put paid to that, but Mr Wagoner was not alone in failing to see them coming.

Mr Wagoner is far from being the deadbeat portrayed by congressional grandstanders and ignorant commentators. But his courtesy and his aversion to confrontation left his beloved GM more vulnerable to this year’s shocks than it might have been if a more ruthless operator had been in charge. Brought up in the consensual GM way, he recoiled from forcing a showdown with the union, or hacking back the sprawling dealer network, when both were urgently required. It is easy to see why nearly everyone with a connection to GM is hoping that Mr Wagoner will not be forced out or subjected to further indignities by having to report to a federally appointed “car tsar”. But GM is now locked in a struggle for survival that it will not win unless it is led by someone much nastier than Mr Wagoner.