Overhaul

  They were more baffled when a new board member asked why an engine couldn't just be purchased from somewhere else. Automakers see engines as the core of their business and are very reluctant to farm them out, especially engines expected to be as widely used as this one. Both the executives and the old directors felt that the newcomers had a lot to learn. The new directors viewed exchanges of this sort as further confirmation that Harry and his colleagues had spoken the truth in their August 3 presentation. And the more they got to know GM executives like Smith, the more they thought that a personnel housecleaning was in order.

  Fritz eventually tabled the discussion. He told his team to proceed with the design and engineering of the Ecotec while the financial staff developed the analysis the board wanted. In part because of the unusual nature of the request and in part because of GM's hidebound accounting systems, the analysis would take two months and untold man-hours. Bonderman rejected the first version, forcing the work to be redone before the board finally voted to approve the Ecotec.

  The confrontation left a bad taste on both sides. Word of friction between management and board began to leak into the press, with anonymous executives accusing the board of wasting time and getting too involved in the nitty-gritty at GM.

  Whitacre stayed out of such debates, but the uncertainty in the boardroom about Fritz's status inadvertently seeped into public consciousness when he, and not Fritz, suddenly emerged as GM's TV pitchman. A sixty-second commercial that debuted on September 13 featured the GM chairman wearing a dark suit and a red tie and striding through a brightly lit automotive design studio in a campaign called "May the Best Car Win."

  "Before I started this job, I admit I had some doubts—probably a lot like you," he tells the viewer in his soft Texas drawl. "But I like what I found. I think you will too."

  He then launches his pitch. "Car for car, when compared to the competition, we win. It is as simple as that ... We're putting our money where our mouth is ... Put us to the test," Whitacre says, offering a sixty-day, money-back guarantee. "Put us up against anyone, and may the best car win."

  The commercial was reminiscent of Lee Iacocca's iconic Chrysler ads thirty years earlier, challenging America, "If you can find a better car, buy it." It left industry watchers wondering what was going on inside GM. Some saw it as a signal of Whitacre's interest in being more than a nonexecutive chairman. Others speculated that Fritz had put Whitacre up to it in hopes of ingratiating himself.

  In fact, the decision to put Whitacre on the air was made by the GM marketing department. Marketing was among Whitacre's passions, as he'd made clear to me during our first trip together to Detroit. He hammered constantly at the staff, complaining that GM did a poor job of selling people on its cars. He liked the "May the Best Car Win" concept, and wanted somehow to acknowledge taxpayers for the help they'd given GM. The challenge, of course, was to make the message ring true—the bailout was immensely unpopular, and taxpayers didn't like to be reminded of it. Whitacre resisted being in the commercial at first, but then told the marketers, "If you test the crap out of it, I will do it." In market testing he came across as credible. Someone with his folksy drawl obviously wasn't part of the team that had driven GM to ruin.

  The commercial ran for barely a week, but with constant replay on cable TV news and on the Internet, it created an impression that Whitacre was now in charge—or soon would be.

  For Fritz, the Opel deal was a nightmare. Negotiations dragged on into the fall. Germany's 1.5 billion euro bridge loan was keeping the company solvent, but ironically, it removed any real urgency to close the deal. The European autoworkers still hadn't fully agreed to terms. Magna founder Frank Stronach, a crusty and notoriously tight-fisted Austrian-born entrepreneur, seized every opportunity to haggle. This gave even Ron Bloom misgivings; he called Fritz repeatedly to complain that Magna was continually recutting the deal to squeeze GM.

  Then the European Union completed its review, only to kick the problem right back into Fritz's lap. Worried about the impact of Germany's loans on Opel's commitment to other European countries, it requested a formal reevaluation by the GM board. All of this was just as I had told President Obama in regard to Chrysler back in March: a deal that looks iffy at the start typically only gets worse. With so many governments involved, Opel was beyond typical. In fact, GM was on its way to creating an international incident.

  By November 3, as the directors assembled for the monthly board meeting, their sentiment had clearly swung toward keeping the European unit. Pat Russo, for example, noted that other automakers make money there, so perhaps it was just a question of improving Opel's management. She also observed that Opel was strategically positioned to take advantage of the growing central European market.

  Fritz, who'd run GM Europe and Opel, doubted that the business could ever generate a profit. He believed that GM should finish the deal it had started. Wasn't jettisoning money-losing operations the kind of tough decision the new GM should embrace? Europe was a mature auto market where competition was as ruthless as in the United States, or more so. And tough restructuring moves were harder to make in the heavily regulated EU. The board's resistance started to feel to Fritz like a pretext to run him out of his job.

  Kresa and others, meanwhile, were surprised that Fritz didn't respond to the board's increasing skepticism of the Opel deal. The world was different now, and GM actually had cash and no longer needed a fire sale. What the board wanted were options. But all Fritz offered was the Magna transaction.

  No one in Detroit appeared concerned, or perhaps even to be aware, that Chancellor Merkel was in Washington that day, where she was to address Congress. This was her first visit to the United States since her reelection in September. Perhaps mindful of that, the Opel union announced that morning it had agreed to concessions that would have saved 265 million euros a year if GM proceeded with the deal, thus removing one of the final obstacles. But none of this seemed of consequence to the GM board, which now voted to back out. Just hours after the union announcement, GM declared that it had decided not to sell Opel, and that it would restructure the company instead.

  Merkel was completely blindsided, much to the Obama administration's chagrin. Fritz called her aides to convey the news just before she was to board her plane home. By all accounts, she was furious. She made no public statement, but by the next morning her ministers blasted GM, and one of her aides called for the company to repay the bridge loan. The autoworkers threatened mass demonstrations. Other European leaders, as well as Russian Prime Minister Vladimir Putin, chimed in. And Treasury spokesperson Meg Reilly said in a statement, "The Administration was not involved with this decision, which was made by GM's board of directors."

  After that November board meeting adjourned, Fritz and Ed sat down to strategize. Fritz told Ed it "would be hell" in Europe following this decision, but volunteered to cancel a planned trip to Brazil to go to Europe "and take all the bullets on this thing."

  It was hard for Fritz not to believe that the unraveling of the deal might cost him his job. So he asked Whitacre point-blank, "If you're going to get rid of me, let me know now because I've got better things to do with my life."

  Ed reassured Fritz he was not being fired and should fly to Europe. All the same, rumors continued to swirl, even after Whitacre publicly expressed support for Henderson a week later, telling Bloomberg News, "The Board is fully behind Fritz; he's working hard."

  In reality, opposition to Henderson was mounting, especially among the new directors who had always been skeptics. Bonderman and Akerson were thoroughly disenchanted. Girsky was unhappy with what he saw as disarray in GM's sales and marketing. Carol Stephenson, the Ontario business school dean who occupied the Canadian board seat, had arrived under the influence of officials who had negotiated her nation's share of the bailout. The GMers had struck the Canadians as highhanded and dismissive of outside ideas. While generally quiet in board meetings, Stephenson expressed concerns that GM wasn't giving the board the data a
nd details it needed to make informed decisions.

  Change—or lack of it—had become a major sticking point. Many directors felt that GM's presentations remained too optimistic, just as the task force had warned. And even though Wagoner was gone, board members saw some of the old arrogance, including a resurgence of the view that GM's bankruptcy was not its fault but rather was due to the financial collapse and economic downturn. Patricia Russo was so put off that she suggested to Fritz that he tell his executives to quit talking as though GM were such a top-notch company; it still had a long way to go.

  Some members of the old board, including Laskawy and Kresa, were inclined to give Fritz more time. Compared to Wagoner, he was a believer in change. During his brief tenure as interim chairman, Kresa had coached Fritz about the need to bring in new blood. Fritz had duly read up on other companies and cultures. But recruiting outsiders for top posts wasn't his strength; he remained doggedly loyal to GM people and ways. Ray Young was still CFO. His decision to bring back Bob Lutz left many on the board scratching their heads. And when Katy Barclay, the head of human resources, finally resigned, Fritz proposed a GM manufacturing executive to take her post.

  Whitacre and the board had asked Fritz to reduce the number of his direct reports, in part by naming a chief of GM North America, a position Fritz had eliminated when GM emerged from bankruptcy. But Fritz resisted. In one tart exchange, he told Whitacre that people would simply go around the North American head to the CEO to get their way. Whitacre replied that it was the CEO's job not to let that happen.

  Throughout the fall, board members discussed among themselves what to do. I talked periodically to a number of the directors and sensed growing and widespread unhappiness with Fritz. But Whitacre put off all talk of replacements; he had promised Henderson at least 120 days—until early December—to show what he could do, and meant to honor that commitment.

  By the time of the discussion in the executive session after the November board meeting, it was clear to all that Fritz would be asked to leave in a month's time. The problem was whom to replace him with. For reasons much like our decision to replace Rick with Fritz, no one believed that GM could be left rudderless while a search was conducted. Nor, of course, were there any potential successors within the executive team.

  So the board looked in its own midst for at least an interim solution. Girsky wanted the job, but while he was well liked and highly respected, no one thought he was ready to be CEO of General Motors. Akerson, a former CEO, declined to be considered, citing his obligations to Carlyle and lack of enthusiasm for living in Detroit. Directors began to wonder whether Whitacre could be pressed into service.

  Fritz could sense rumblings, but he was in the dark. On November 30, the day before the December board meeting, he decided to end the suspense. His calendar called for him to leave right after the meeting to be the keynote speaker at the Los Angeles auto show; he asked Whitacre whether he ought to keep to his travel plan. The chairman told him to hang back. Although the board had not yet made a formal decision, Whitacre knew with virtual certainty what would occur the next day. About the same time, he phoned Ron Bloom to give him a heads-up that the board was likely to fire Fritz. This didn't surprise Ron—he'd been in the camp that had rated Fritz's chances of success at 40 percent.

  The next morning, the board plowed through its regular agenda. Afterward, in an executive session that lasted less than five minutes, the directors voted unanimously to relieve Fritz. Then the board turned to Whitacre, securing his assent to become interim CEO while a search for a permanent replacement was conducted.

  When Whitacre delivered the news to him a few minutes later, Fritz had two reactions. He told Whitacre he didn't want to stay on if the board didn't want him. And he asked, "Could I have done anything differently?"

  For some reason, Whitacre answered "No."

  A little later, Whitacre pulled Girsky aside. "You with me on this?" he asked. He offered the former auto analyst a full-time job as a top adviser, with the title of vice chairman. Girsky was elated, but since his responsibility on the board was to represent the UAW, he said that Whitacre should call Gettelfinger to get his approval.

  Whitacre reached the UAW leader, who asked, "When are you doing this?"

  "In about thirty minutes," Whitacre replied.

  "Nothing gets done at GM in thirty minutes," Gettelfinger said, laughing. But he readily agreed. It couldn't hurt to have the UAW board designee doubling as consigliere to GM's CEO.

  Before the public announcement, Whitacre assembled many of Fritz's direct reports in a thirty-eighth-floor conference room—executives such as Ray Young, the global head of manufacturing and labor relations Tim Lee, and GM's new head of human resources Mary Barra.

  "Fritz Henderson has decided to step aside and the board has accepted that decision," he told them. "I will step in as interim CEO."

  There were few happy or relieved faces; mostly the executives responded with a mix of anger and sorrow. "I was handpicked by Fritz, so if you had a problem with him, then you probably have a problem with me," Lee said and offered to step down on the spot.

  "Hey, hey, I am not taking anyone's resignation tonight," said Whitacre. "Fritz is the least surprised person right now. This is the way it has to be. We all have to stand together." The last thing he wanted was a mass exodus, which would look really bad in the media. A little later, in a hastily arranged press conference, the company released the news to the world. Fritz Henderson, the first CEO of the new General Motors, was gone. It had been 247 days since I had asked Rick Wagoner to step aside and Fritz Henderson to take his place.

  Fritz's ouster drew headlines. "GM CEO Fritz Henderson Abruptly Sent Packing," declared USA Today. But for the most part, bigger issues like health care reform and stepping up the war in Afghanistan had long since eclipsed the bailout on the front page.

  The company retained Spencer Stuart to search for a permanent CEO, determined to secure a superstar like Mulally. But the target list was small, because the board wanted only candidates who had already served as chief executives, which of course Mulally had not before joining Ford. Living in Detroit was another turnoff for candidates, as was the prospect of facing the government's pay czar. Not a single candidate had been interviewed when Whitacre did an about-face and told the board, "Hell, I'll do it." But he refused to make the two-year commitment that the board requested, promising instead to stay long enough to carry the company through an initial public offering. To the outside world, the announcement in January 2010 that the GM board voted to remove the "interim" from Whitacre's title confirmed the impression that Ed had, indeed, flunked retirement.

  Whitacre's impact as CEO was dramatic. Within days of taking command, he reorganized the company's sprawling sales and marketing operation and announced Mark Reuss as president of GM North America, the position that Fritz had resisted creating. Soon afterward, Ray Young was gone as chief of finance, replaced by a surprise recruit from the tech world, Chris Liddell, the former CFO of Microsoft. Liddell was appalled at what he found, from GM's inability to assess its cash position to its habit of delivering data without insight—he told his three thousand staffers worldwide that such data were useless. He ordered an immediate and sweeping overhaul of the company's financial systems.

  The changes at the top accelerated, and by the time he had been in place ninety days, Whitacre had eased out four top-level executives, reassigned twenty more, and brought in seven outsiders to fill top jobs. Vice chairman Lutz announced his re-retirement on March 3 and Whitacre cut back on direct reports. GM's executive committee now consisted of twelve people, nearly all of whom were either new to their jobs or auto industry rookies, like Ed Whitacre himself.

  The shakeup caused growing consternation inside GM, to the point where Whitacre felt it necessary to send a calming message to the troops. "I want to reassure you that the major leadership changes are behind us," he wrote in an e-mail in late March, after reorganizing the marketing department for a second ti
me. "The team we have in place today is the team that will take us forward."

  Now that he was a full-time auto executive, Whitacre got an apartment in downtown Detroit, in the same complex where Steve Girsky lived. He used a hefty chunk of his new compensation package of $9 million a year to charter private jets to fly up to the city from San Antonio on Sunday night and back on Friday afternoon or evening, a cost of government oversight that irked him no end. As he revamped the leadership, Whitacre made it a point to mingle with rank-and-file employees. He would show up in the RenCen's food court to eat a fast-food lunch among GM middle managers, and used the same elevators as they did, often greeting a fellow rider with, "Hi, I'm Ed. Who're you?" In May, he showed up unannounced at the Detroit-Hamtramck Assembly Plant wearing jeans and a sweatshirt and with no corporate ID. After waiting in the lobby for twenty minutes while someone tracked down the plant manager, he was let in to wander around and chat with workers. Getting out to meet employees, he told his lieutenants, enabled him to ask if their bosses were delivering on promises they had made. He was equally down-to-earth in his interactions with Gettelfinger, having breakfast with him at Gettelfinger's favorite diner.

  Simplicity was Whitacre's favorite message. He crusaded to eliminate meetings, streamline reports, and drive down decisionmaking to lower levels of management. At a "future product design" meeting, a quasi-ritual assembly of senior design directors traditionally attended by the CEO, he abruptly stood up and said, "You are all smart guys, right? You know what to do," and left the room. Whitacre liked to remind people that the CEO did not have to be involved in every single issue. His job was to set long-term strategy—like whether GM should create an in-house finance company now that it was no longer tied to GMAC—and to offer inspiration and guidance. After that, if he was smart, he would get out of the way.