Rick Wagoner tries to catch a falling knife - and fails
NEW YORK (Fortune) -- The notion that General Motors is destined to be
the eternal leader of the U.S. market seems to be embedded in the DNA of
every GM executive.
So when horrific market share declines and horrendous financial losses
reappear every decade or so, the company makes only the most minimal
trims and adjustments - in the expectation that once this temporary
downturn is over, GM (GM, Fortune 500) will regain its rightful place in
At times, current chairman and CEO Rick Wagoner has exhibited great
foresight and courage, notably in winning wage and health care
concessions from the United Auto Workers and dramatically expanding GM's
presence in China, Russia and Latin America.
But when it comes to dealing with GM's 40-year decline in North America,
Wagoner is following in the footsteps of predecessors like Robert
Stempel - addressing the symptoms but not the underlying causes.
So it was again on Tuesday, when Wagoner announced a series of actions
that seemed almost designed to be the most incremental he could take.
They were accompanied by a set of economic assumptions that Wagoner
termed "conservative," but that given recent events, appear to be
* Wagoner expects GM's U.S. market share to level off at 21%, this
despite removing about one million units of light truck capacity. A
couple of years ago, Wagoner expected GM to be cruising at 30% market
share. Given GM's ability to stabilize sales in the past, 21% is
Wagoner expects oil to prices to remain in the range of $130 to
$150 between now and the end of 2009. A couple of months ago, that would
seem outrageous. But since oil prices seem capable of violating the laws
of gravity and growing to the sky, even $150 sounds more hopeful than
* Wagoner expects to improve working capital by $2 billion by
tightening up operations, notably by reducing in raw materials,
work-in-progress, and finished goods inventory. This is the Detroit
equivalent of balancing the federal budget by cutting pork barrel
spending. If it was so easy to do, why hasn't it been done already?
Once again, GM is reacting to events instead of anticipating them.
Nowhere in Tuesday's announcement is there any mention of the structural
changes that will allow GM to compete with a smaller market share shorn
of its high-profit light trucks. No product lines were killed, no brands
were euthanized, no big budget items wiped off the books. GM still has
too many dealers selling too many individual models - and now it has
even less money than before to market them.
Wagoner likes to say that nobody could have foreseen the spike in oil
prices that made GM's old business model in North America obsolete. But
he might have picked up a report titled "In the Tank: How Oil Prices
Threaten Automakers' Profits and Jobs" that was produced by research
operations just a few miles from GM's headquarters, in cooperation with
the Natural Resources Defense Council.
It predicted that "sales, profits, and American jobs are at risk if
Detroit automakers continue with their current business strategy in the
face of higher oil prices."
That report was published in July 2005 - exactly three years ago.
Wagoner also likes to point out that GM decided not to market gas-saving
hybrid vehicles until very recently because there wasn't a significant
market for them.
That didn't stop Toyota (TM), which started work on what became the
hybrid Prius in 1993 and now has a stranglehold on the hybrid market.
Great companies must anticipate events and trends, not react to them.
That's particularly important in a long-lead-time industry where new
models need four years or more to move from the drawing board to the
When GM has tried to get ahead of the curve by anticipating trends, it
has failed. Witness its unsuccessful efforts at cylinder deactivation,
diesel engines and electric vehicles. It has to make the big leaps
better because time is running out. Halfway measures like those
announced Tuesday aren't going to cut it.