By: Peter Wittwer
Chapter 13
– GM’s market share is going down, their market share is projected to decrease from 24% to 20% within the next five years, they are also being forced to buy out employee contracts and pensions, which is costing them billions of dollars.
– Jerry York is campaigning for the removal of Wagoner his criticisms of GM include no fire or passion in the engineering process, engineers and employees at GM aren’t excited about the production of cars. He also criticizes GM for trying to prevent bankruptcy and make changes when 3/4 of the damage was already done to their company, and he believes GM’s strategy of unloading excess inventory by selling cars at a discounted price to rental companies is like putting a band-aid on a fatal wound.
– Wagoner is carrying out “the plan,” a strategy developed by the best and brightest GM employees to avoid bankruptcy and start to grow again. “The plan,” is to shrink North American operations, improve and diversify the product lineup, and start to grow overseas.
– In 2005, GM was racing to file their annual report with the SEC. Cash flow numbers from the GMAC mortgage business had been misclassified and GM was forced to get an extension. GM management came under a lot of criticism from the board and the media for looking unprepared and foolish. Wagoner’s credibility was brought into question since he was on a business trip to Asia during a time when he should have been in Detroit to deal with the crisis.
– Wagoner decides to approach the board giving them an ultimatum, either give them his support or he will resign. The board minus a few detractors such as Jerry York vote in favor of keeping Wagoner as the CEO and shortly thereafter Wagoner successfully orchestrates the sale of 51% of the share of the GMAC Commercial Real Estate Unit.
Discussion Questions
– York and Wagoner represent the two extremes of management, who do you think has a more successful approach, the more passive Wagoner who is taking a long term approach to the turnaround of GM, or the aggressive York who only cares about the bottom line and immediate results?
– Was the extension needed on the annual report as big a deal as the board and media made it out to be? Did Wagoner deserve to be put on the hot seat due to such a trivial mistake
Important Quotes
– “Now the company was hurting, but Wagoner was convinced it was on the right path. GM would not turn around overnight. It required patience and persistence— something York just did not appear to have.”
– “He described Wagoner as a good guy who sweated the details but too often missed the big picture. ‘It’s basically what’s been wrong with GM for the past thirty years,’ Lutz said. ‘It’s all analytical, businesslike and risk avoidance— keep everything on an even keel at all costs.'”
Chapter 14
– March 31, 2006 Delphi in bankruptcy court, they want to close 21/29 factories in the U.S., cut 1/4 of their workers, freeze pensions, and void all labor agreements. Delphi felt their future was in Brazil, India, and China.
– Gettelfinger and the UAW threaten to fight back with strikes, if Delphi goes under GM will go under, if UAW strikes GM will be crippled and nearly bankrupt.
– Auto manufacturers and the UAW managed to workout a deal. Ford and GM were both allowed to engage in buyout deals with employees, since Gettelfinger realized they were inevitable. However Daimlerchrysler was not given the same break on healthcare since they were turning a profit.
– Jerry York wanted to merge GM with Renault-Nissan and have Carlos Ghosn be the new CEO. The GM-Renault-Nissan merger would have created a three headed monster that could almost monopolize the auto industry and eliminate the growing and serious competition from the Japanese powerhouse Toyota.
– The merger was met with serious hesitation from Wagoner and the rest of the board, which caused Kerkorian and York to go public with the possibility of the merger, which increased the GM stock by 9%.
Discussion Questions
– Do you think the merger between GM and Renault-Nissan would be beneficial for both parties?
– Would Renault-Nissan benefit disproportionally by gaining one of the largest manufacturers in the auto industry? – Should GM stick with their plans for long term growth and see if they can recover? Or should they execute the merger and hope Ghosn can restore GM to its former self?
Important Quotes
– “The news hit Ron Gettelfinger like a kick in the teeth. ‘This is a travesty, and a concern for every American ,’ he said. It didn’t take long for the UAW to threaten a counterattack. If its labor contract was canceled, the union said it would be ‘impossible to avoid a long strike.’”
– “As Detroit got weaker, the union’s muscle withered along with it. The best Gettelfinger could do was extract as much money as possible from the companies to buy out some workers so that jobs would be left for others.”
– “Paul Ballew, GM’s top market analyst, concluded that GM’s current 24 percent share would fall to 20 percent within five years. It was a disturbing decline considering the company had lots of new products coming.”
Chapter 15
– Ford’s sales consistently decreasing, in the first half of 2006 they already had a net loss of $1.4 billion. The luxury brands under Ford such as Jaguar couldn’t compete with foreign luxury cars like Lexus, Mercedes, and BMW.
– Two top tier executives, Mark Fields and Don Leclair were in a huge feud that was dividing the leadership team. They constantly fought over money and control.
– Bill Ford was completely overwhelmed and decided to step down and hire a CEO, the top of the list was the Executive Vice President of Boeing Alan Mulally.
– In meetings with Mulally Bill Ford explained the company needed to shift from trucks to greener cars, downsize North American operations, and needed to borrow billions of dollars to do it.
– After a lot of convincing Mulally finally agreed to serve as the CEO of Ford in order to save such a huge industry from collapsing.
Discussion Questions
– Why do you think Chrysler was able to escape the legacy payment issues that Ford an GM were facing?
– Do you think the initiative to focus on greener cars is a good business move, or should Ford continue to focus on bigger cars?
Important Quotes
– “Some people think the United States can’t compete in the design and production of sophisticated products,” he said. “I personally think we can.”
– “I want you to go to Seattle and don’t come back until you have him,” Bill said. “I mean it. Do not bring your ass back to Detroit without Mulally. And if you don’t come back with Mulally, don’t come back. I don’t care if you have to buy a house out there. Get him.”
