Car Guys vs. Bean Counters - Bob Lutz [86]
Meanwhile, things at GM itself were grim.The market stayed down in the first half of 2009. Cash was running low again, and in view of the still intractable fixed costs, the debt burden, and the ongoing health care contributions, we saw our cash dwindling. Chapter 11 was really the only viable solution, despite the fact that it would destroy the equity ownership of the shareholders as well as a good percentage of the value in the hands of the debt holders. Not sure what the timing or duration of Chapter 11 would be, or what kind of company would ultimately emerge, we were busy reducing future product investment in order to minimize cash outflow. Several near-term launches, like the Chevrolet Camaro convertible, were delayed a year, and engineering effort was minimized, all to save precious near-term cash.
The emphasis was on “shucking the losers,” not only in domestic brands, but also in GM’s international empire. Thus, the decision by the board to sell the European Opel/Vauxhall operations, wholly owned GM subsidiaries which, although accounting for two million units annually and making high-quality contributions to GM’s global passenger car programs, were a perennial money loser. Part of the problem was past mismanagement, and part was due to years of strife between Opel and the Zurich, Switzerland, headquarters of GM Europe. Opel, a proud German company, still considered the 1929 acquisition by GM a historical accident that could somehow be reversed or at least ignored. (In the mid-1990s, there was even something akin to a war of secession, with senior executives openly and publicly siding with an independent Opel. The rebellion was put down, but the operational and emotional damage would linger for over a decade.)
A major issue was the concentration of manpower and production facilities in Germany, possibly the most expensive country in the world in which to manufacture automobiles. Many GM competitors had seen the handwriting on the wall decades ago, moving ever deeper into the former Eastern Bloc: Poland, the Czech Republic, Hungary, etc. GM Europe largely missed that boat, and never did confront its intransigent IG Metall head of the Works Council, Klaus Franz. This gentleman is unique. A crafty street fighter with, I suspect, political ambitions, he enjoys the limelight and never fails to take any internal discussion or restructuring plan directly to the media regardless of potential damage to the enterprise. In fairness, we shall assume that he believes he is doing the right thing, but his strident (and unfortunately effective) defense of German jobs has robbed Opel of the flexibility enjoyed by Ford of Europe, VW, Audi, BMW, and Mercedes, who all benefit from a better balance of German costs versus lower wage facilities in countries as far away, in Ford’s case, as Turkey. For these reasons, running GM of Europe was a difficult, frustrating, and thankless task: so many of the levers that an intelligent leader would normally pull were blocked by Klaus Franz and the codetermined (50 percent labor, 50 percent shareholders) Supervisory Board. To be fair, in Klaus Franz’s Opel-centric view, the problem was not German cost, but rather the global GM bureaucracy and its sometimes manifested ineptness. His solution would have been “reverse the 1929 acquisition, make Opel independent again.” (Given Opel’s relatively small size and dependence on GM for much of its technology in engines, transmissions, crossovers, hybrid systems, et cetera, it was not a realistic solution.)
Still, there was a magic, almost fatalistic, convergence of desires: GM wanted to rid itself of the losses. Klaus Franz and a coterie of chauvinistic German executives wanted the divorce. The media, swayed by Klaus Franz, the self-appointed spokesman for Opel, chimed in. And Magna Corporation