Ed Whitacre's Battle to Save GM from Itself
Brought in by Obama's car czar to help revive the automaker after bankruptcy, "Big Ed" fired CEO Fritz Henderson and took the wheel himself. GM's sales are bouncing back, but Whitacre's redesign is just beginning
By David Welch
This Issue
May 3, 2010
The 15 General Motors dealers who flew to Detroit last September for a dinner with GM management were not an easily rattled bunch. They had endured the worst auto sales slide in 25 years, as well as the bankruptcy of the iconic carmaker on which they had built their businesses. Only three months had passed since GM accepted a $50 billion federal bailout, announcing the retirement of four of its eight brands and the shutting down of 1,900 dealers—a third of its domestic retail network. These dealers were the survivors, some of the more prosperous people in their towns, and they wanted a little reassurance.
CEO Fritz Henderson gathered the group in a private conference room at the Westin Detroit Metro Airport and tried to demonstrate that he had a plan, according to an executive in the room who asked not to be named because he was not authorized to describe the dinner. Henderson announced that GM was going on the offensive with better models, new marketing, and a plan to remake its sclerotic corporate culture. Then he introduced the other GM boss in the room, the one the government had sent to keep an eye on the company.
Edward E. Whitacre Jr., a laconic, squinty-eyed, six-foot-four-inch Texan, had been GM's nonexecutive chairman for barely two months. He was typically blunt. "We're going to get this turned around," Whitacre promised. And if current leadership can't fix the company, he said, "we'll find someone who can." To Duane Paddock, a dealer in Buffalo whose family has been selling Chevys for 75 years, Whitacre's words weren't menacing, just matter-of-fact. He liked hearing that Whitacre would find a way to win. "We knew the world was going to change," says Paddock, one of Chevy's largest retailers and often the top seller in New York State. "We knew the personnel would change. But you don't know who will be left."
Not Henderson, as it turns out. Whitacre and the board fired him on Dec. 1, ending his tryout on day 143. The board, reconstituted in July with Whitacre and seven other new members joining five from the old guard, had been skeptical that Henderson, a GM lifer, was radical enough to change the company. Whitacre—the former telecom executive who turned a broken Baby Bell into the resurgent AT&T (T)—decided he was the man to fix GM. "Fritz was moving to change things," says an executive with direct knowledge of the decision who was not authorized to speak about it. "But a lot more needed to be done."
Ed Whitacre, 68, wasn't looking to live in Detroit. He has made his home San Antonio for many years—his office there is crowded with statues of cowboys, cattle, and horses—and is involved in the vital affairs of his home state; he helped his alma mater, Texas Tech University, hire Bobby Knight as its basketball coach. His wife, Linda, stays mostly in Texas, but Whitacre took an apartment in downtown Detroit and got to work.
Within three months of Henderson's ouster, he had eased out four other executives, reassigned 20 more, and brought in seven outsiders to fill top jobs—a shock to an insular company that had long been famous for paving over failure while compensating it handsomely. The tide also swept out solid performers allied with the old regime, such as Vice-Chairman Bob Lutz, who had overseen the development of the Chevy Malibu, the Cadillac CTS, and eight other vehicles that were beginning to sell well. Lutz was marginalized by Whitacre and announced his retirement, effective May 1. "In the past," says Lutz, "GM was accused of not enough change. You have to find the balance between the pace of change and trauma to the organization."
People close to Whitacre say he would rather cope with trauma than accept the status quo at a company that lost $84.3 million a day in 2008.
Three days after taking over, he reorganized sales and marketing, and then, after just three months, let his deputy reorganize the departments again—a restructuring of the restructuring that caused middle managers to fear for their jobs and even question whether Whitacre had the right disposition for his. Some say that fear has made them more cautious when Whitacre wants them to take more risk.
Whitacre isn't big on deliberation—or on talking to the press. He refused several requests to comment for this story, though GM did provide access to dozens of employees—from Whitacre's fellow executives to assembly workers. Although some refused to speak on the record, their comments create a detailed portrait of a corporate culture in flux. "Ed's view is that the business is more complicated than it needs to be," says Vice-Chairman Stephen Girsky, a former Wall Street auto analyst who has become Whitacre's right-hand man.
Former CEO Rick Wagoner, who lost $88 billion between 2005 and 2009, used a dozen metrics to evaluate his executives. Whitacre, who holds just one meeting per week with his 13-member management team, has boiled it down to six: market share, revenue, operating profit, cash flow, quality, and customer satisfaction. He wants nimble managers who decide fast and correct mistakes faster. Vice-Chairman and CFO Christopher P. Liddell, who arrived from Microsoft (MSFT) in January, recently remarked that 12 of GM's 13-person executive committee are either auto industry rookies or new to their jobs. (The two men at the top, Whitacre and Liddell, are the car company rookies.) The two people tasked with remaking GM's image with consumers, North America President Mark L. Reuss and Marketing Vice-President Susan Docherty, are in their 40s and taking on massive responsibility for the first time in their careers. "He realizes that the biggest change GM needs is cultural," says Jim Kahan, who was senior vice-president for corporate strategy under Whitacre at AT&T. "It was always blaming the union, the government, or the economy." Says Reuss: "What we were doing didn't work. The time of providing for everybody, no matter what their performance, is gone."
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