Memo From Alfred Sloan: Heartbreak

Part I: Abrogation of the Enterprise’s Principles

Dear General Motors; this means everyone: Executives, workers, board members, retirees, investors, dealers, suppliers, buyers of our brands.

The golden goose is dead. It shouldn’t have come to this, since the General Motors enterprise was built deliberately to be adaptable to any circumstances – to seize opportunities when times were good, and to retrench effectively when times were bad. When did you all decide that this strategic policy was no longer your responsibility?

I’m not going to say that GM should avoid bankruptcy. File today rather than Monday. It is the only avenue that makes sense, and in fact is simply the now-unavoidable admission that the company has been effectively bankrupt for years, but has merely been shifting the evidence from one pocket to another: One year product would be uncompetitive; another year there would be a financial loss. The proliferation of brands and markets added more shells to the game, but eventually it came down to pulling sales ahead from the next quarter by looting GMAC to offer free credit.

There is plenty of blame to go around. It falls upon every constituency over the course of generations. The union and the dealer body are guilty of sins of commission, in seeking and instituting unfair advantages. The others are guilty of sins of omission, by angling ever for their “piece” of General Motors, even the crumbs.

But the primary failure has been lack of leadership by those who held responsibility – the management and governance bodies. Many men have held the CEO position since I relinquished it; few have led the company. Many notable executives have filled seats on the board, but none has made the corporation’s long-term survival their cause. These groups were properly in possession of the “culture” of General Motors, and they carelessly allowed it to fall from their hands.

There is no mystery to the failure, and so there is no hiding from it by those who were responsible. But perhaps even more shameful is that there was also no mystery to the great success of General Motors over the course of nearly five decades. It’s all in my memoir, My Years with General Motors. I wrote it at the height of General Motors’s success, but not so long after the Depression that I imagined our success to be perpetual. How many managers and directors have ever read it? How many of you who did read it actually studied it? It’s not without flaws, and it betrays its age as well as my own obsessions. But it maps the soul of a great enterprise. In the Introduction, I wrote:

Obstacles … and new horizons arise to stir the imagination and continue the progress of industry. Success, however, may bring self-satisfaction … When such influences develop, growth may be arrested or a decline may set in, caused by the failure to recognize advancing technology or altered consumer needs, or perhaps by competition that is more virile and aggressive.

That’s not visionary, simply in touch with the constant reality that challenges will arise whether you can identify them or not. In the 1920s, we were that more virile and aggressive competitor when we overcame Ford’s domination in the 1920s and established our industry leadership. Our success rested on a handful of core principles: That our managers understood their customers and were capable to answer their demands; that our customers made good automobile choices when given good choices to make; that each business must be competitive in its own right, that long-term growth was more valuable than short-term gain; that industry leadership meant embracing change; and that policy was formulated by consensus, while its administration was carried out by individuals.

And the one overriding principle that served as the foundation for the rest was that we would endeavor to get the facts and act upon them. I state my pride throughout My Years at the corporation’s commitment to being a fact-based organization, which I believe it truly had been in my time as CEO (1923 – 1946). Yet I must also admit that, by the time of my retirement as Chairman in 1956, our culture of facts was already being subverted by a culture of fear among the new generation of leaders. Government trust-busters became an imagined enemy. So to did a more activist union and antagonists like Ralph Nader. Leadership imagined itself surrounded – General Motors, surrounded! – and instead of confronting these facts and devising solutions to the issues based on them, they retreated behind a comfortable market share based on old technology and the greatest self-delusion that an enterprise can hold – an unchanging market. Within the walls, the old facts still obtained, and new ones were not allowed to breach.

Facts were still ascertained, but only within the accepted context, and with a patina of fear overlaying every thought and move. Thus, the utility of facts in general was degraded, and initiative to act on them dissipated. The abrogation of our fact-oriented principle has eroded the foundation that underlay all the other principles. First to be subverted, in the 1970s, was our system of decentralized management. Independent divisions, which had been free to address their market segment as they saw fit, were turned against one another in the same segments by the centralized assignment of invented product distinctions. This led in the 1980s to the perversion of our long-successful multi-brand strategy, wherein brands that had actually been meaningfully distinct, were now almost comically identical, only with different badges.

Coming in Part II: Dissolution of the Enterprise’s Characteristics

R.I.P. Pontiac: Respects, but No Remorse

Pontiac has been dragging sand for more than a year. See my essay from March 2008:
The Pontiac Problem; What Would Sloan Do?

pontiac-gravestone2Unlike Buick, Cadillac and Chevrolet, Pontiac was not one of originally independent companies that William S. Durant amalgamated into General Motors between 1908 and 1918. Durant had collected nearly a dozen automobile truck and tractor brands, which Pierre du Pont whittled down in the crisis of 1921 to Cadillac, Buick, Olds, Oakland and Chevrolet (GMC represents the amalgamation of three truck brands).

Gaining control as CEO of GM in 1923, Alfred Sloan began to parse the middle three brands, which had been competing directly with one another. His objective was to shoehorn each into one of the five distinct price ranges identified in the Product Plan of 1921, which set General Motors’ – and the entire industry’s – policy until the recent past.

Read about how Pontiac was the key to GM’s early success: The Pontiac Problem; What Would Sloan Do?

Sloan’s problem was that Oakland, which had long been the weakest brand in the line, couldn’t compete in the second-lowest price range, which was a potentially high-volume segment, vital to the Product Plan’s strategic goal of weaning the mass market away from the dominant Ford Model T.

1926pontiacsixposterlgjpg-2151Sloan’s gambit was the beautifully-executed, Chevrolet-based 1926 Pontiac. It quickly eclipsed the “damaged” Oakland brand, but never embodied the ancestral brand value that helped Cadillac, Buick, Olds, and Chevrolet endure the Depression with strength and surge after World War II, when Pontiac became stale.

Precisely because 1950s GM senior management ignored Pontiac, it was able to rise again as the emblem of the 1960s Muscle Car era. That was a great run, but like a lot of high school football stars, Pontiac has never really grown up since then. At this point, the Camaro is all that’s needed to cover what’s left of the muscle segment, and Chevy and Buick make plenty of good sedans; Pontiac lives on fleet sales.

So, Pontiac doesn’t really doesn’t have a job any more, and failing to realize that is what cost Rick Wagoner his. Born not as a brand, but as a dispassionate market stratagem, Pontiac is now on the wrong side of GM’s imperative to be leaner, and needs to take the bullet. Winner? Buick gets the Solstice.

Where Pontiac came from and why it has no place left to go: The Pontiac Problem; What Would Sloan Do?

Send Me to Washington! (by car) VIDEO

Please click to check out my YouTube video proposing that I join the Automotive Task Force overseeing the auto industry restructuring.

I think I know as much about what’s right and wrong with Detroit as the Washington Wonks.

Please forward this to anyone you know in Washington and in the auto industry. Also, please post a response or comment, and Digg it to maximize the viewings.

Thanks!
<img src=”” alt=”To the Auto Industry Task Force” />

FiAT CHANCE: (Death with Dignity, Part II)

IN PART I OF THIS NEWSLETTER (THE PRACTICAL HISTORY OF CHRYSLER, AND WHY IT HAS REACHED ITS LOGICAL END), I DISCUSSED THE EVOLUTION OF CHRYSLER’S “CULTURE OF CRISIS” THAT HAS HELPED IT SURVIVE NUMEROUS BRUSHES WITH BANKRUPTCY. AS IF ON CUE, FIAT HAS ARRIVED TO UNTIE CHRYSLER FROM THE RAILS. BUT TODAY’S DOMESTIC AUTOMOBILE INDUSTRY NEEDS TO RATIONALIZE ITS EXISTENCE IN ACCORD WITH HARD REALITY, NOT A NOSTALGIC MIXTURE OF RACE GAS AND RED PAINT.

PART II: THE CHRYSLER-FIAT ALLIANCE: WHY DIDN’T YOU THINK OF THAT?chrysler_fiat_news_image

If there’s one thing that everyone eventually is forced to admit, it’s that you get what you pay for. Daimler and Cerberus have tried their hands at spinning Chrysler into gold, until the point where all they wanted was to untie the lead from around their necks. So who’s paying for Fiat’s “free” 35% of Chrysler?

The alliance supposedly augurs a slew of synergistic potentialities that no one noticed before they were conjured: Chrysler gets economical products and satisfies North America’s pining for Fiats; Meanwhile, Fiat gets to buff the top of its line with Chrysler truck platforms, and bestow Chrysler-badged products on a clamoring worldwide market. It all works out great on a napkin, but how about in the strategic context of today’s automobile industry? It seems like a good idea to ask questions such as these:

Does America want Fiats and Alfa Romeos?
Fiat left the U. S. in 1984 to taunts of “Fix It Again, Tony.” Its products were caricatures of European quirkiness and poor build quality. It’s true that in the 25 years since, the whole European automobile industry has transformed itself. But in the same period, the low-production cost Asian makers have taken over what will always be the “economy” car class in this country, while the VW Golf/Rabbit and Mini hold on to the small “premium” slice of Oddfellows who don’t buy more car at their first opportunity — but who will also never buy less. The lovable little Fiat Chink-O-chento might catch a wave during sorority pledge week, but the Mini is already known as The Italian Job to anyone who lives cute.crysler-fiat

Today’s Fiat seems to make great cars – for Europe. In every generation, America responds to an economic crisis by embracing small hatchbacks – the basic characteristic of the Fiat lineup – until times get better, when they happily give up 5 mpg for mid-size roominess and a “normal” profile.

The presto answer to that “challenge” is Alfa Romeo. Lots of people (including me) like the idea of Alfa coming back to the U.S., after slinking away under its own cloud “only” 14 years ago. But Gottahavitism as a life-philosophy is over, and so how many premium import buyers are going to make it past the BMW, Mercedes, Audi, Lexus, Acura, Infiniti, and even Cadillac dealerships? Only the surviving remnants of a tiny, Alfisti community can be relied upon to buy in a down market where competition is more intense than ever.

Do Fiat/Alfa/Lancia/Maserati/Ferrari buyers want Chrysler-based trucks and crossovers?
Large SUVs are falling back into the utility category, but despite the economy and a probable upward trend in fuel prices, crossovers have become a permanent part of the landscape, and are de rigeur in any brand’s lineup. Still, the trend has peaked, and the current entries are girding to keep their corner of the shrinking turf. Are Chrysler’s crossover platforms refined enough to put say, a Lancia or a Maserati badge on? To play in Europe, they will need new exterior panels, new interior, and new powertrains – in particular a large, advanced diesel and appropriate transmission. In the desperate, show-me-the-money crash that always follows a Synergy high, will Fiat be forced to hitch a crossover behind Ferrari’s prancing horse? In North America, any Alfa crossover will have to face off directly against the BMW X5 and Audi Q7, as well as all the others, and will have a hard time overcoming customers’ impression that they might as well just buy a Jeep.

Are the home market dealers going to be able to sell their transatlantic ally’s products?
Chrysler has been trying for decades to sell cars and trucks in countries around the world, and except for a thirst for Jeep Grand Cherokees in the time before European manufacturers figured out how to make their own utilities, it has never really worked. Chrysler has never had the resources to make the many subtle but important changes that make a car broadly acceptable to a different culture.

There are a myriad of qualities and features in any car that seem brilliant in one market, but inexplicably dumb in another. In the 25 years that Fiat has been absent from North America, they have missed out on the continuous refinement of peculiar American tastes and the countless subtle accommodations that their future competitors have made to suit American’s continuously-changing idea of what kind of vehicle they want.

THERE ARE TOO MANY BRANDS AND NAMEPLATES IN THIS MARKET, NOT TOO FEW. THIS DEAL CORRECTLY VALUES TWO THINGS: HOW MUCH THE CHRYSLER CORPORATION (AS DISTINCT FROM JEEP AND MINIVAN) IS WORTH, AND WHAT FIAT AND ALFA WILL ADD TO THE NORTH AMERICAN MARKET. THE TAXPAYERS SHOULDN’T HAVE TO PAY ANY MORE THAN THAT.

(c)2009 Joshua Davidson

Death with Dignity: The practical history of Chrysler, and why it has reached its logical end – Part I

WHILE IT HAS PUT MANY EXCITING PRODUCTS INTO THE MARKET IN ITS 85-YEAR HISTORY, CHRYSLER CORPORATION HAS ALWAYS EXCELLED IN PARTICULAR AT SELLING ITSELF. FOR THE THIRD TIME IN 10 YEARS, CHRYSLER HAS ATTRACTED A NEW PARTNER TO DANCE WITH, FIAT. BUT IT’S TIME TO ACCEPT THE FACT THAT THE MUSIC HAS STOPPED PLAYING. PART I: CHRYSLER, A GREAT AMERICAN ENTERPRISE In 1924, Walter P. Chrysler made a stir with his new car during the New York Automobile Exposition by placing it in the lobby of the nearby Commodore hotel, where he could buttonhole the journalists and financiers without the distraction of the other makes on the Exposition floor. But good as the car itself was, what Walter P. was selling was his management of the successful Buick brand until 1920, and the prospect that his new Chrysler Corporation would emulate GM’s success. Walter P. got the investment to put the Chrysler B-70 into production. Continue reading ‘Death with Dignity: The practical history of Chrysler, and why it has reached its logical end – Part I’

Beyond Viability: Conceiving a GM strategic identity for the 21st Century

(c)2009 Joshua Davidson

 

Viability is only the first step in General Motors’ marathon to save its position as one of the world’s leading automobile manufacturers. Long-term success demands a visionary strategy implemented through forward-looking policies, which together will express a 21st Century strategic identity for General Motors.

 

In approaching a 21st Century strategic identity, GM should consider its history as the world’s most dynamic industrial company for nearly four decades. Most historical analysis concentrates on the mistakes GM has made since the 1970s, and attributes them to the policies established in the 1920s. While those policies’ obsolescence did indeed fail to meet the dramatic changes that arose five decades after their conception, the fault lies preponderantly in the failure since 1958 to effectively act from established principles of policy creation and recreation – one element of a solid core of timeless enterprise principles originally developed by GM, and which endure as the framework for successful business around the world.

 

Unquestionably, it is imperative to keep a spotlight on past mistakes and guard against their repetition. But focus on avoiding its past failures has also prevented GM from appreciating its own historical success, and obscures the philosophy from where that success originated. Indeed, the great value of GM’s history is less in ensuring vigilance against past mistakes than in illustrating the principles that fueled GM’s success through such volatile times as the Great Depression.

 

General Motors is unique in having the history of its long success captured in Alfred Sloan’s universally admired memoir, My Years with General Motors. While the details of GM’s advance are fascinating as history, the true value of Sloan’s book to GM’s future is its crystallization of the techniques for creating a current culture of enterprise. In explaining how he and his colleagues approached General Motors’ emergence from its 1920 existential crisis, Sloan writes:

 

“Thus [we] took the opportunity that comes rarely in the initial stage of a business, to stand back and review aims and deal with the matters at hand, both in particular and with a considerable degree of generalization. It was not going to be easy to get willing agreement on specific and immediate issues … I believe it was for this reason that we first idealized the problem.  We started not with the actual corporation but with a model of a corporation for which we said we would state policy standards.”

 

From that perspective evolved the strategies and policies that catapulted GM from a near-bankrupt also-ran in the 1920 automobile industry to its undisputed leader, characterized by these durable principles:

 

·         Consenting to Creativity within the organization

o        Mass-marketing the genius of Kettering and Earl

o        Shaping dissent into initiative


·         Arranging an integrated line of products

o        Products that mean something individually and in relation to one another

o        The product line as competitive advantage


·         Creating event-proof policy

o        Aligning efficiency with market demands

o        Responding to circumstances, not acting on them

 

·         Rendering a service to the community of customers

o        Escaping the “Transaction trap”

o        Industrial efficiency serving individual expectations

 

·         Devising a current concept of the global automobile industry

o        What distinguishes GM from other manufacturers?

o        Approaching the market through value, not price

 

In the current crucible, GM must appreciate that it is once again at that rare “initial stage of a business,” and that management is newly obliged to “stand back and review aims.” The Plan for Viability should properly focus on freeing GM from government support for its survival over the next several years. But for that plan to work even in the short-term, GM must project a long-term basis for succeeding in a new era, and in the face of changes yet to come.

 

Examining the strategies of the past for this purpose doesn’t portend their resurrection; looking through them as a lens into the conception, implementation and evolution of successful enterprise philosophy provides a singular resource in devising a 21st Century strategic identity that will propel General Motors in a new, lasting era of success.

 

Bailout report: Shaking out Chrysler

  • Bye-bye Chrysler passenger cars
  • Bye-bye Dodge Truck
  • Bis morgen Minivan
  • A new mission for Jeep

GM and GMAC have received between them enough of the magic liquid to sustain GM until March, whereupon it will have to prove that it is truly committed to the radical surgery necessary to save itself. The $13.4 billion (plus $6b for GMAC) is enough, seemingly, to hold GM’s position as it makes the tough deals with labor, dealers and bondholders that are imperative to its survival.

But let’s face it, $4 billion for Chrysler is just about enough to wind things up in Auburn Hills. Nardelli has said as much in his grovels, and Chrysler has no hope of ever being a global company, which is going to be the key to salvaging the North American industry. So what’s going to happen? Here’s my take:

Chrysler, LLC declares bankruptcy – stop kidding yourself, you know it’s the first best choice for amputating excess industry capacity. But is there anything to salvage? No and yes. Chrysler, LLC is in possession of five meaningful brands, Chrysler passenger cars, Dodge passenger cars, Dodge Trucks, the minivan, and Jeep.

First of all, Chrysler and Dodge passenger cars cease production, and that asset loss is the grounds for a “structured” bankruptcy, wherein the Federal funds and whatever else is rattling around in Chrysler’s piggybank are used to give salaried and hourly workers some kind of “buyout,” to pay suppliers most of the money they are owed, while Cerberus gets a chunk of newly-issued stock in a new entity, explained below.

Dodge Truck also ceases production. Forget about an Indian or Chinese company buying it. Toyota and Nissan can tell them that the North American light truck market is a lot tougher scrum than they ever imagined (ask Cerberus, too). So, as fine as the new Ram pickup is, the light truck market is so overstocked with good products that the competitors might call a truce, take a collective breath and duck the next product cycle.

Volkswagen already has a piece of the Chrysler minivan, and maybe takes the whole ball of wax for a billion or so more mop-up money. If they can keep the price down, Volkswagen gets a competitive platform in a reliable high-volume segment, and closes in on becoming a real mainstream U.S. competitor. The minivan market becomes an exclusive Honda-Toyota-VW playground. And with the way things look in terms of the VW-Porsche tie-up, we will no doubt see a Porsche minivan by 2012.

That leaves Jeep. Who gets that prize? Furriners need not apply for this totem of American greatness. Jeep lands under the GM umbrella (dump Hummer), and Cerberus and the Fed end up with GMJ stock. Ford won’t bite because Alan Mullaly is too smart to distract Ford from its current plan, which seems to be functioning. And believe it or not, within the GM orbit, Jeep will serve as the key element in achieving the drastic change that is necessary for GM’s long-term survival.

No Way? Way. The key for GM is to not cast Jeep into the stew from which the General is trying to extract whatever of its brands are still identifiable. Instead, GM leaves Jeep to function as an autonomous division, continuing to design and develop its own platforms down in the old Detroit Nash-Kelvinator plant, where Chrysler has had the good sense to leave it be since absorbing it from AMC in 1987. Strategically, Jeep becomes the fulcrum of GM’s long-term strategy for success as the pathbreaker for GM’s return to the decentralized operating structure that made it the most dynamic company in the world for decades.

So there you go.

The Ghosts of GM’s Past: Where today’s crisis began

It is unfair and plain ludicrous to blame GM’s current management for the condition of the company. If anything, Rick Wagoner and his team have had more positive effect on GM’s fortunes than any CEO in the last 50 years. He’s stuck with the job of undoing decades of mismanagement, and frankly, he’s done a lot so far.

 

Turmoil at the Milestone

It’s ironic that the origins of GM’s 2008 Centennial Crisis lie in events the corporation’s 1958 Semicentennial year. Despite a deep national economic recession and sales slump, GM was far and away the worldwide industry leader.

 

So, while 1958 sales were poor following a decade-long boom, General Motors the corporation ostensibly never looked better, gifting the nation with a two-hour 50th Anniversary TV extravaganza starring dozens of contemporary celebrities. Of course, the real stars were the all-new 1958 Cadillacs, Buicks, Oldsmobiles, Pontiacs and Chevrolets – considered by many to be the ugliest GM lineup ever. The company that innovated the very idea of production car design had excreted a lineup whose unifying theme seemed to be a Jell-O mould amalgamation of all the tailfins, chromed castings and saturated pastel colors. The ‘58’s were the pinnacle of planned obsolescence, which was never a GM policy, but in fact the signal failure of GM’s policy-making principles.

 

The paradox between the slick, Emmy-nominated TV Gala Celebration and the egregious new line-up was emblematic of the corporate carnage that had afflicted GM for a decade. Externally, anti-trust rulings against DuPont Company, and rumblings of action against GM itself, had contorted the governance structure that had made GM such a dynamic enterprise. Internally, a rift had long polarized GM’s New York governance and Detroit operating staffs.

 

GM’s War with Itself

Du Pont had rescued GM from bankruptcy in 1920, taking a commanding stock position, and setting the young company on the course to industrial ascendancy as the first truly modern large enterprise. As GM chairman, Pierre du Pont recognized Alfred Sloan’s brilliant management innovations, and the steady Du Pont dominance in the boardroom backed Sloan’s methods of managing for the long term. While the government’s 1946 anti-trust suit against du Pont had not proven a restriction of trade in the automobile industry, the courts nonetheless determined to end the relationship between the industrial giants. In 1953, DuPont was ordered to divest itself of GM stock by 1958.

 

Following World War II, GM underwent a series of expansions which had yielded record sales and earnings results, which Sloan had initially supported, but the growth of which had thrown his carefully balanced relationship between finance and operations out of balance. The Detroit product men saw in the post-War era an opportunity to quench demand that had been building since 1929. They itched to commercialize wartime technology and design innovations. The Depression-bred finance staff saw only an uncertain economic outlook and a threatening legal environment that demanded prudent use of scarce capital.

Detroit was right, and sales of GM sales soared, generating huge profits that effectively liberated Detroit from New York’s grasp of GM’s purse strings. But after a peak year in 1955, the runaway train was going off the rails. Price wars and a natural decline from a new sales peak hit earnings, and hasty cost savings took a toll on product quality.

 

At the same time, GM’s management was undergoing a generational turnover that was remarkable not so much for the new executives it installed, but for the older ones whom it eclipsed. Alfred Sloan retired as Chairman in 1956 at 81 years-old (he acted as Honorary Chairman until his death in 1966). Sloan’s basic achievement – making GM the most powerful and admired company in the world – seemed set to simply accelerate on the course he had set it. But his absence was an incalculable loss at the top.

 

And while the company kept Sloan as long as God allowed, knives were drawn behind another of the corporation’s “founding fathers.” Harley Earl had essentially invented production automobile design in 1927, giving General Motors its most compelling long-term market advantage. By 1956, he had forged among the untethered production side an unofficial policy of complete yearly redesigns – seen by New York as the embodiment of the out-of-control Detroit operations.

 

Coup de Corporation

It all came to a head in 1958. Milestones often compel organizations to make symbolic changes, and perhaps that got the ball rolling. But the sales slump, along with an objective decline in product quality gave the New York governance staffs the ammunition they needed to move against the Detroit operations. With Sloan no longer in position to act as referee, and as the DuPonts abdicating their anchoring presence on Board of Directors, the time was perfect for a Coup de Corporation.

 

The 1958 reorganization effectively subordinated operations to a regime composed of finance staff and general counsel, backed up by like-minded new board-members. They were in no position to stop the 1959 model line – considered iconic today, but over-the-top when they bowed. But they immediately started nibbling costs at the edges, leading to such decisions as deleting a chassis stabilizer-bar on the upcoming Corvair model.

 

To the public eye, GM was largely unchanged. It produced some of it most memorable products in the 1960s, but the product side was riding on past glory. Declining investment led to technical stagnation and badge-engineering. Most importantly, increasing centralization gave non-automotive staff control of product, resulting in platform proliferation that destroyed GM’s defining brand-differentiation policy. By 1968, central management was imposing designs, production methods and technical restrictions upon the divisions, resulting in the disastrous Chevy Vega, chronically eroding quality, and inability to respond to the 1974 gasoline crisis.

 

Finally, Progress

There have been some successes in the last 50 years at GM, but they were never built upon, and GM lost it industry leadership in terms of offering advanced products and meaningful brands decades before falling to second place in worldwide sales in 2007. Rick Wagoner, alone among all of the GM CEOs since 1958, has restored product to the top of the priority list, mainly by recruiting Bob Lutz and giving him real authority. The results are apparent in a new generation of competitive GM products. Thus GM’s survival into a second century begins not with removing today’s management, but with continuing the Wagoner policy of restoring balance within GM management.

Sloan on Wagoner: 51% Hero

“If you do it right 51% of the time, you will end up a hero.” — Alfred P. Sloan, Jr.

And Rick Wagoner has done it right at least that much. The problem is that he has been working against a 50-year legacy of preponderantly wrong decisions by his GM CEO predecesors. These include bad labor deals, sqaundering brand equity, failure to maintain product quality, failure to innovate, failure to compete globally, among an endless litany that is nicely summed up in “Roger and Me.”

Rick has put his shoulder against all of this, and by the beginning of this year, GM had a growing line of competitive cars, was a leading player in emerging markets, was developing a breakthrough propulsion system (Volt), had negotiated a competitive labor cost structure, and had built some of the world’s most productive and environmentally-friendly plants.

He has made some mistakes. The Hummer. Launching the two-mode hybrid system in the big SUVs. Partnering with Fiat. As far as the failure to prune the thicket of GM nameplates, brands and dealers, these were battles that couldn’t be fought at the same time as those with the UAW (win), the Kerkorian/Ghosn attempted takeover (win), the Delphi bankruptcy (still fighting), and the other dozens of constantly erupting firefights where Rick has been ever at the trigger.

His mistakes have not been out of ego or stupidity. They were poor, but not uninformed, decisions. The good decisions are vastly more numerous and strategically more significant. Rick’s major failing has been the lack of a vision for the North American market, and that is more the fault of an institutional legacy of putting financial men alone at the top of the company since 1958. Knowing that, he can get plenty of good help to turn that around — and he is magnanimous about giving good people authority to do their job.

Chris Dodd blames Wagoner for GM’s plight? That’s tantamount to attributing Dodd with the responsiblity for the economy because George Bush’s grandfather, Preston Bush once held Dodd’s senate seat.

Alfred Sloan

Memo to Wagoner from Alfred Sloan

To:       Rick Wagoner

 

From:   Alfred Sloan

 

Allow me to express my admiration for your congressional appearance, as only the latest example of three years of strenuous effort on your part to put the company on a more competitive footing, with considerable success. You are executing the CEO’s role as I conceived it, and if I could affect the matter today, you would have my support. I believe you have the vision and confidence to complete GM’s turnaround.

 

GM has been on the brink before

I know something about playing the hand you’ve been dealt. At the edge of bankruptcy in 1921, we were fortunate that the DuPont company recognized GM’s enormous potential. I can only hope that the American people come to recognize the same thing today, and instruct their representatives to make an appropriate investment. I also had to contend with a 71% sales collapse in the Depression, which required painful changes to save the situation.

 

These are new times, and I won’t impose my era’s ideas upon your actual circumstances or try and influence your generalship of the current battle. But I must urge you to focus beyond the plan you recently presented, and conceive a vision of how General Motors will, upon regaining financial viability, distinguish itself in the automobile market and resume a leading role in the industry.

 

Every successful enterprise needs a Concept of its Industry

Cutting brands, headcount, and your own salary are painful gestures that will indeed reign in spending. A lean structure with good products is a worthwhile emergency objective in the, but it doesn’t suffice as competitive strategy. Beyond your plan, General Motors needs a concept of its industry, an essential principle of enterprise that I define in my book, My Years with General Motors.

 

A concept of industry is simply a universal market principle that imbues your product with essential qualities that are valuable to buyers. Toyota’s concept of its industry is to produce vehicles which are thoroughly reliable, and thus minimize the costs of ownership; Honda’s is to produce vehicles engineered for efficiency, which accomplishes the same end. Every one of the vehicles they produce expresses their particular concept, which serves as a foundation upon which competitive features attract buyers based on individual desires.

 

GM’s Concept of its Industry 1921 – 1970s

In My Years, I describe how in the 1920s we conceived General Motors’ concept of its industry, and then activated it to overcome Ford’s commanding 60% share of the market. We began by reviewing our existing strategic assets, the most significant being: Fairly large volume spread across a variety of established brands; capability for technical innovation among some of the brands; and our new organizational idea of coordinated decentralization. We perceived the customer’s expectations to be for improved products and for choice among products. Our collection of assets was not unique, nor was our notion of customer expectations. It was our arrangement and activation of them that yielded a distinct GM concept of its industry, and which was quickly vindicated.

 

The GM concept of its industry we arrived at was to combine the advantages of volume, variety and innovation to offer a continually improving range of products. It superseded Ford’s concept of leveraging volume to continuously lower purchase price on a single, unchanging product. Whereas the Model T concept had since 1908 aligned with the nation’s technical priority of motorization, the GM concept responded to an evolution of that priority – by the 1920s, the nation wanted modernization. GM soon displaced Ford as the top producer, and became the world’s largest industrial enterprise. The principle of constant improvement remains vital, but GM’s failure to consistently adhere to and develop it stands as the essential cause of the current emergency

 

GM needs to seek out a new Concept

General Motors’ needs a new concept of its industry to be more than just viable beyond 2012. To thrive for a second century during which the idea of personal transportation will be transformed but no less in demand, GM must present itself as a vehicle for achieving not just America’s, but the entire world’s 21st Century cultural priorities as they relate to transportation.

 

What are the assets that GM can apply today? Let’s not allow nostalgia to cloud the issue; for example, multiple brands are no longer an asset in themselves (read why I wouldn’t hesitate to dispose of Pontiac). To my mind, GM’s current assets are an excellent technical infrastructure on the verge of a major breakthrough, several still-iconic brands, and a flexible manufacturing system. These, I believe, are adequate to underpin a concept of industry that might be expressed as “freedom from carbon,” and which will be manifested first in The Chevrolet Volt when it launches in 2010.

 

As you can see, conceiving a concept of industry isn’t all that complicated, but activating it requires a coherent policy of management, which I believe your GM does not have. This is a primary failure of governance, and achieving such will have to be the first order of business by the new Board of Directors; I strongly urge the entire current Board resign as soon as Congress authorizes the emergency funding.

 

A resource you should utilize

To guide the vital task of developing a new organizational policy that can effectuate GM’s new concept of its industry, management must isolate some of the DNA that in the past made the company great. I’m not suggesting that you revive any specific historical policy such as the coordinated decentralization principles I worked under, but to reinvigorate the general principles of long-range focus, fact-seeking, and flexibility that were once the hallmarks of General Motors management. I suggest you revisit my book.

 

The point is that, viability is still only a short-term objective. GM needs to define itself to thrive in its second century. If you have the opportunity to continue as CEO of General Motors, I hope that you will consider these suggestions.

 

Warm regards,

Alfred P. Sloan, Jr.

How Do You Say “Pumpkin” in Italian?

What do we get if Fiat steps in to save Chrysler (for a zero lira investment)?
More weak brands in an overcrowded market.
Continuing resistance to the imperative need to VASTLY reduce US production capacity.
Another tragicomic chapter in three to four years.