It was jolting news to Wagoner. He had got his big career break in the 1992 revolt against Stempel, but now he was on the other end of things. On Thursday, March 30, he joined GM’s general counsel and its PR chief in a headquarters conference room. Both men told him that he, Wagoner himself, had become the issue, and that he had to fight back.
He couldn’t keep “paying the price like a punching bag,” the advisers said, by letting the hits against him go unanswered. The advice didn’t sit well with Wagoner, who wanted to “put a few points on the board,” as the ex-athlete put it, before speaking out in his own defense. The trouble was, his aides retorted, things were moving so quickly that he might get fired before he had time to score.
The board convened again on April 2 to approve the GMAC deal, and when that business was done, Wagoner said he had another issue to raise. He had lived through a couple of grueling weeks, he said, and the planned meeting on April 9 to evaluate his performance threatened to undermine all his efforts to get General Motors turned around.
Without a solid show of support from GM’s board of directors, Wagoner continued, he could not be an effective CEO and would resign immediately. Wagoner’s calm and deliberate tone belied the high drama and high stakes of the moment. He was issuing an ultimatum to his board in a way that he had never managed to do with, say, the UAW or the dealers who distributed GM’s bleeding brands. Having thrown down the gauntlet he left the call, so the directors could talk among themselves.
They were panicked. It was never clear just how many might have voted to fire Wagoner on April 9, but the board wanted to control the timing, the method, and everything else about the decision. The directors weren’t ready to act on the spot, but Wagoner had left them no other choice.
As if on cue, the ever-loyal Fisher came to their rescue. He had prepared, he said, three different drafts of a statement of support for Rick. They were like the old Sears catalog model of “good, better and best,” with the best, in Fisher’s view, expressing the board’s “unanimous” support for Wagoner.
A couple directors fretted that if they showed support for Wagoner now, they might have to reverse themselves and fire him later. But Fisher pressed the point, arguing that the board should act “in the best interest of GM right now.” So the board caved, approving a statement of support for Wagoner that wasn’t unanimous—Jerry York wouldn’t go for that—but was strong enough. Fisher then clinched his victory by canceling the April 9 discussion about Wagoner’s performance because the meeting, he said, had become “moot.”
The next morning, Monday, April 3, GM announced the sale of 51 percent of GMAC, a corporate crown jewel founded in 1919 that had provided most of the company’s earnings in recent years. The deal brought GM $13 billion, but it also meant GM would no longer control the pipeline of credit to its dealers and car buyers. It was a watershed moment, but buried in the press release was even bigger news. “While there is still much work to be done,” George Fisher stated, “the GM board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability.” That was a watershed moment too.
With the board publicly behind him, Wagoner launched into a series of press interviews. He told Face the Nation: “I wouldn’t be in this job if I didn’t think I was the right guy to do it.” In a more self-deprecating tone, he told other reporters: “I appreciate support from the board, our workers, my wife—anybody I can get it from these days.” Wagoner also struck a contrite tone about the accounting miscues. “While I will not offer excuses,” he wrote to GM’s shareholders, “I do apologize on behalf of our management team, and assure you that we will strive to deserve your trust.”
Wagoner was like the winner on Survivor, eating a bit of crow along the way but coming out alive. Kerkorian and York were amazed and dismayed. In their view, General Motors was hemorrhaging cash, losing market share at an alarming rate, and reeling from sloppy accounting—all indications that management didn’t have a grip on the business. And the company had responded with … a PR campaign.
At five P.M. on Friday, May 5, York hopped into his private Gulfstream III jet and flew from Detroit to London. He spent the weekend there to be fresh for a Monday meeting with someone he had long wanted to know: Carlos Ghosn. By now Ghosn was CEO of both Nissan and Renault and basically lived on a corporate jet as he trekked between Paris and Tokyo and visited other parts of the two companies’ far-flung empires. Nissan, which Ghosn had run for six years, was earning eight cents on every dollar of revenue—the highest profit margin of any major car company in the world. In contrast, GM was losing five cents on every dollar.
At one-thirty P.M. that Monday, York and Ghosn lunched in a private room at the Dorchester Hotel. They talked about turnarounds, strategy, and the workings of the alliance between Nissan and Renault. It really was pretty simple, Ghosn explained. Whenever either company contemplated a new model, it invited the other partner to make it a joint project. That produced enormous economies of scale by eliminating the expensive duplicate engineering that would be required to develop a similar car separately.
Neither company was required to participate in the other’s projects, but senior management pushed for as much cooperation as possible. And because Ghosn himself happened to be the most senior manager at both companies, he had unique leverage to make the arrangement work.
York was enthralled. A system like this, with a leader like Ghosn, could work wonders for General Motors, he thought, just as it had revived Nissan. Might the Frenchman be interested, York asked, in adding a U.S. partner to the Nissan-Renault alliance? Absolutely, replied Ghosn, under the right conditions, which would include a genuine commitment from General Motors. After two hours of conversation Ghosn headed back to Gatwick Airport for the next stop on his corporate jet journeys. That afternoon, back in Detroit, GM made a major announcement.
The first-quarter loss of $323 million that the company had reported three weeks earlier suddenly had morphed into a profit of $445 million. It was really just an accounting change—allowed by the SEC at GM’s request—related to the prior year’s healthcare deal with the UAW. GM’s publicists, nonetheless, said the profit provided proof that the company’s turnaround was “gaining traction.”
York didn’t believe it. As a former CFO at two major companies, he knew that earnings reflected all sorts of accounting assumptions, but that cash flow—which excluded calculations for depreciation of equipment, product development costs, and a host of other things—was a purer measure of corporate performance. GM’s cash flow remained negative, and York figured that gaining traction was a synonym for bullshit.
On June 15 at seven-thirty P.M. York and Ghosn met again, this time for dinner in Ghosn’s suite at the Vanderbilt Hotel in Nashville, home of Nissan’s North American headquarters. They were joined by a third person, Kirk Kerkorian himself. As the evening progressed, lubricated by fine red wine, a meeting of the minds emerged. Kerkorian and York viewed a tripartite alliance as a way to get Wagoner off the dime, and Ghosn saw it as a way of extending his global automotive empire.
The delicate part, though, was what to do next. York and Kerkorian knew full well that they were violating corporate protocol in a big way. Proper procedure would have meant York raising the idea at a GM board meeting and asking the board to direct Wagoner to evaluate it. But York figured that after the GM board had caved in to “Risk-less Rick,” as he had taken to calling Wagoner, the company would continue dallying toward disaster unless somebody applied a corporate cattle prod. So he made an appointment with the CEO.
At three P.M. on June 22—his sixty-eighth birthday—York was ushered into Wagoner’s office in the Renaissance Center’s 300 Tower, with a commanding view of the Detroit River and the Ambassador Bridge to Canada. He described the lunch in London, the dinner in Nashville, and the idea of an alliance and said that, by the way, maybe Rick should call Kirk to hear from his largest individual shareholder directly. Wagoner appeared surpris
ed but outwardly calm. His pique was evident, however, in his conversation with Kerkorian the next day.
Billionaires tend not to like being scolded by people who work for them. But Wagoner peppered Kerkorian with questions. Why had he acted on his own? Why didn’t he bring the alliance idea to management and the board first? Why didn’t he have faith in the turnaround plan that Wagoner and his team were implementing—and that already was showing results? Kerkorian was angry with Wagoner’s message and, especially, with his tone. “Fuck that son of a bitch,” he barked at York, when he called him to report on the conversation. “If we have to, we’ll hang a fucking 8-K on him.” And so on Friday, June 30, Tracinda made a public regulatory filing, called a form 8-K, with the SEC, disclosing that Kerkorian wanted GM to explore a Nissan-Renault-GM alliance. All hell broke lose.
GM’s stock jumped 9 percent. The company’s board convened an emergency conference call. PR people at all three companies found themselves besieged with phone calls. GM’s lawyers in Detroit, New York, and Washington parsed every word of the 8-K filing. They concluded that if GM’s board rebuffed an alliance out of hand, it would be vulnerable to being sued by Kerkorian for breach of fiduciary duty. Wagoner groused that York hadn’t acted like a loyal board member, but the directors bowed to the inevitable and issued a statement saying they would study Kerkorian’s proposal. On cue, Nissan and Renault said they stood willing to consider the idea. The dance had been scripted with exquisite precision.
The choreography continued on Friday, July 14—Bastille Day in France—when Ghosn whisked into Detroit for an afternoon press conference and departed shortly afterward for a secret meeting. At seven P.M. he arrived at the Renaissance Center for a private dinner with Wagoner. The two CEOs (well, three, because Ghosn was CEO of two companies) agreed to set up study teams to evaluate synergies and potential cost savings from any alliance. They also agreed (and this was critical to Wagoner) to refrain from public comment until the evaluations were completed. The next morning, before he left town, Ghosn met privately with York to fill him in on the previous night’s dinner.
Kerkorian and York appeared to have seized the upper hand, but appearances were deceiving. The real key would be who was going to evaluate the potential benefits of an alliance. They wanted the GM board to hire independent consultants, but Wagoner and Fisher argued back that the study should be conducted by management. Their position got sympathy from the other directors, who were already annoyed that York and Kerkorian were pushing them around in public. “Who does this guy from Las Vegas think he is, telling us what to do?” snapped one director at the board meeting on August 1. The board sided with Fisher and Wagoner.
York could guess what was coming, and his fears were confirmed by a most unexpected source. He found a mole in GM’s inner sanctum, who slipped him—through an intermediary—some revealing numbers. The initial analysis showed that by coordinating their purchasing operations, GM, Renault, and Nissan could save between 8 percent and 10 percent on the price of some components—an enormous number in an industry that strives to shave pennies per part.
But those savings were discounted in the analysis because GM assumed its own cost-cutting efforts would save nearly 10 percent on the same parts without any alliance. In other words, a projected alliance savings of 10 percent was being counted as zero, because GM assumed it could equal that alone. In late September York got, also surreptitiously, a GM study forecasting savings of more than $6 billion a year from an alliance. But when Wagoner presented the forecast to the board on October 2, the forecast had shrunk to $2 billion.
York couldn’t object because that would betray his “Deep Throat,” but a clear pattern was emerging. All the analysis was being skewed toward killing the deal. Wagoner wasn’t doing anything illegal, because GM’s management was perfectly within its rights to exercise judgment in projecting possible savings. In fact, conservative assumptions might be considered prudent, considering all that was at stake.
But Wagoner had a personal motive as well. It was clear that in any alliance with Nissan and Renault, the top dog would be Carlos Ghosn. He had engineered one of the most remarkable corporate turnarounds in history, while Wagoner had engineered, well, GM’s plunge into record red ink. Wagoner had been raised in an era of GM hegemony, and he couldn’t let go of that. “GM sells more than nine million vehicles a year globally,” twice as many as Nissan and Renault combined, he reminded journalists at the Paris auto show. “It’s not logical or responsible to say we must have a partner to recover.” He didn’t mention a less convenient statistic: GM had lost $10.6 billion the previous year selling all those cars, while Nissan and Renault had earned a combined $8 billion in profits by selling half as many cars.
Nonetheless, at GM’s board meeting of October 3, Wagoner took the offensive. He told the board that the advantages of any alliance were so tilted toward Nissan and Renault that those companies should pay General Motors several billion dollars up front as the price of doing any deal. In other words, the profitable companies (Nissan and Renault) would benefit more than the money-losing company (GM).
Bizarre as that sounded, it was a brilliant tactic. Had he simply opposed an alliance outright, Wagoner would have been acting too blatantly in his own self-interest. But he portrayed his request for a multibillion-dollar “equalizing contribution” from Renault and Nissan as fairness for GM’s shareholders—including Kerkorian himself. Predictably, Ghosn took a different view. In a telephone conversation the day after GM’s board meeting, he and Wagoner agreed, inevitably, that they remained too far apart for a deal. Wagoner had fought his way off the ropes again; the tripartite alliance was dead.
York knew he was beaten, outmaneuvered one more time by a man whose wits and resilience continued to surprise and dismay him. On October 6 he faxed a letter GM’s general counsel. “The company has made excellent progress in several areas … [but] I have grave reservations concerning the ability of the current business model to successfully compete in the marketplace,” he wrote. “To get to the crux of the matter, I have not found an environment in the board room that is receptive to probing much beyond the materials provided by management … That environment has been a puzzle to me.” With that he resigned from the board, and two months later Kerkorian sold all his shares in General Motors. He pocketed a profit of about $100 million—which by Kerkorian’s standards counted as a disappointment.
It had been a remarkable two years for Rick Wagoner, the onetime Duke hoopster and GM “high pot” who had ascended to the corner office as if by destiny. His company was suffering from record losses, accounting snafus, and a relentless erosion in market share (nearly two points in 2006 alone), all of which had occurred on his watch. A multibillionaire had become GM’s largest individual investor and tried to sweep him out of a job. At one point, indeed, Wagoner had been on the very brink of being fired. And yet he had convinced GM’s board that he, and only he, understood GM’s culture, systems, and delicate dealings with the UAW well enough to fix the company. The press began referring to Wagoner as “Teflon Rick.”
While Wagoner was saving his job during 2006, another Detroit CEO would give his own up voluntarily. Bill Ford, Jr., had begun the year by dismissing comparisons between his company and the ailing GM. “We’re profitable this year,” he told Automotive News. “We have tremendous liquidity, which is not borrowed liquidity. It’s real liquidity.” He did, however, concede that “we’re an insular company in an insular industry in an insular town.” It was an unusually frank remark, and the coming months would prove him depressingly accurate.
Despite Ford’s $2 billion profit in 2005, the company lost nearly $1.6 billion in its core North American auto operations. Ford’s planners had forecast a decline in SUV sales, but by 2006 sales had plunged to levels that Ford hadn’t expected to see until 2010. In late January, Bill Ford announced a corporate overhaul called “The Way Forward,” under which Ford would close factories and shed tens of thousands of employees, both salaried and hourl
y. The Way Forward was housed in a special “war room” (a clichéd corporate favorite) with a sign that read “Culture Eats Strategy for Breakfast.”
The trouble was, a culture of chaos was eating a strategy of confusion. In a baffling series of moves, the company dropped the venerable Lincoln Continental name in 2006 and gave Lincolns alphabet-soup monikers like MKZ and MKX. Then Ford said MKZ should be pronounced Mark Z, only to retreat from that and revert to M-K-Z. It was a too-smart-by-half episode of marketing groupthink that occurs when no one has the temerity to say it’s a dumb idea. The New York Times called the flip-flop “the first recall of car pronunciation.” Even worse was what Ford did with the Taurus. After neglecting the car for more than a decade, while Honda and Toyota had been steadily improving the Accord and the Camry, Ford now decided to drop the car entirely. The company was squandering twenty years and hundreds of millions of dollars’ worth of precious brand identity.
Bill Jr. was bright, engaging, and well educated, but he had gotten the top job at Ford Motor because he was a Ford. It was the fastest way to the top, but in many ways it was the worst possible preparation. Growing up Ford meant seldom hearing the word no (at least outside the family) or having to bang heads to get things done. Since Bill Jr. had become CEO, Ford’s executive suite had been spinning faster than a multivalve engine as winners ousted losers in corporate power struggles while the young heir remained above the fray. By the spring of 2006 Bill Jr. was telling some of his board members he needed help. Ford needed a major corporate overhaul, he explained, and maybe somebody else would make a better CEO to lead the company through it. It was just the opposite of Rick Wagoner’s attitude at GM.
But Ford had no suitable inside candidates for CEO. As for candidates from other car companies, Bill Ford had sent feelers to Carlos Ghosn and Dieter Zetsche, but they were understandably wary. Ford hadn’t hired an outsider as president in forty years, and that man—a former GM executive—had been axed after just eighteen months. Bill Jr. asked a few directors to make discreet inquiries with their corporate contacts, to see if anyone from outside the auto industry might fit the bill.
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