Operating on a short leash: GM CEO Fritz Henderson doesn't have much time to prove himself.
He was supposed to be the numbers guy, quietly sitting in the background, figuring out how to make things work. But the world turned upside-down for Frederick A. “Fritz” Henderson, when, on March 31st, the White House drove General Motors Chairman Rick Wagoner into an ignominious and unexpected retirement.
The company Henderson inherited as GM’s new CEO was facing a bleak future. Long struggling to halt steady declines in sales and market share, the automaker was buried under a mountain of debt and burning through billions in cash each month. A short-term infusion of federal loan money was clearly not enough to sustain GM, but from the moment he took the top office at the corporate offices, in Detroit’s Renaissance Center, it became obvious that the only likely salvation would come through a Chapter 11 bankruptcy reorganization – something Wagoner had simply been unable to accept.
Ironically, the 50-year-old Henderson had a career path that largely echoed that of his predecessor, down to the Harvard MBA and assignments managing GM’s operations in places like Europe and Brazil. But perhaps one of Henderson’s most important postings was in China, one of the few true success stories GM can point to in recent years.
On June 1st, to the surprise of no one, GM declared bankruptcy, effectively wrapping up the history of the 101-year-old company that was once as much a symbol of American might as the eagle and the star-spangled banner. With the Obama Administration’s help and guidance, Henderson hopes to steer the maker through the courts and emerge, in as little as 60 to 90 days, as a “new General Motors,” one the new CEO promised would be “a leaner, quicker, more customer, completely product-focused Company.”
Here, TheDetroitBureau.com’s Bureau Chief Paul A. Eisenstein speaks to Henderson to get an update on the bankruptcy process, a sense of how much the White House is trying to manage GM, whether Henderson is worried about a threatened boycott of “Government Motors” products – and whether he will survive the next round of management cuts now being planned for GM.
Q: You’re hoping to move through the bankruptcy process fairly quickly, but what are the next steps for GM?
Henderson: We have the sales hearing (the so-called “363 Sale,” in which GM’s good assets would be sold to a new entity controlled by the U.S. government, the UAW, lenders and the Canadian government) scheduled for June 30. So, this is a critical period…for us to get it done professionally. I hope we can get it done well. In terms of getting the business itself ready to go, we have a solution and we’ve got our breakeven down, which is fairly well documented. The key is making sure we’re as lean and fast as we can be. Then the key steps are making sure we’re ready to launch new products rallying us behind our four core brands.
Q: There’s been plenty of debate over the Chrysler and General Motors bailouts. Are you concerned that some surveys show many buyers might steer clear of you, especially while you’re in bankruptcy?
Henderson: We are concerned about it – one reason we’ve put so much emphasis on speed as we go through the bankruptcy process. Revenue perishability (the loss of sales) is a key issue. But we’ve stayed open from Day One. And suppliers have stayed with us, so we’ve not lost one day of production. We’ve used this process as an opportunity to correct issues like excess inventory. We’re open for business and we’re doing everything we can to stay aggressive in the marketplace. Still, the situation is fragile and we don’t want to take chances.
Q: Not only are some folks steering clear, but others, like conservative talk show host Rush Limbaugh, have actually suggested people boycott what they’ve dubbed “Government Motors.” Will that be a problem?
Henderson: I’m going to bet that U.S. customers will make their own choices. We had one party call for our death, but that wasn’t very credible. So, our job is to do the best we can (at home), and the same thing outside the country.
Q: President Obama has insisted the government won’t try to run GM on a day-to-day basis. Are they really not involved?
Henderson: The government will be the purchaser of GM in the 363 Sale, so they are naturally involved, day-to-day. Any buyer would want to exercise they right and make sure the sale process is being handled correctly. The second point is that they’re now getting a new board in place and has named Ed Whitacre as chairman. Ed doesn’t officially begin his job until after the sale, but we’ve had time with him, bringing him up to speed. There are four more board members to recruit and the Canadians need to recruit their board member, too.
Q: Lee Iacocca just broke his silence, in an AP interview, and he said the industry needs to get the government out of their business as soon as possible. Do you agree?
Henderson: As a management team and as a firm, our highest overriding objective is to pay back both the Treasury and Canadian government and pay the highest possible return on their equity. It’s our job to create real value for our shareholders and to repay the loans. The government said, and I believe them, that they will sell off their equity over time. My job is to do the best we can and if we do, we’ll create real market value for them.
Q: So, you don’t see their involvement as a problem?
Henderson: The Auto Task Force viewed this as a private equity investment from Day One. They need to be confident, so there will be world-class oversight, and the market will hold me and the management team accountable.
Q: That’s a word we’ve been hearing a lot, lately.
Henderson: Myself and the management team need to produce results and do it quickly. We’ll be looking at how new product launches do. We’ll have to do things as quickly as we can. We’ll have to hit our numbers. We’re planning a breakeven in 2010 and to have a small profit in 2011.
Q: But those goals could run up against some things outside your control, like the economy and the size of the automotive market, couldn’t they?
Henderson: Some things are out of your control, like the price of oil and commodities. But we’ve gotten our breakeven down to 10 million, and so, even if the market is less than that, we’ll now be robust enough we won’t bleed. Back in 2005, our structural costs were $40 billion a year. Next year, they’re forecast at just $23 billion.
Q: People used to describe GM as a behemoth, but it’s clearly now a smaller company. What exactly is GM, post-bankruptcy?
Henderson: No one wants to be a behemoth. We want to be big and successful. We want to win and do it profitably. Our aspiration is to be a product- and customer-focused company and spend our time focused on that, rather than we’re we’ve been spending it over the last year. We’ll be focused on four core brands – and each nameplate they launch will have to be a hit. GM will be a global business, but a very different type of global business. We’ll be operating in a power-sharing environment – which we’ve actually had some experience with, in places like China. So, we’ll have to leverage our global scale in places like Europe, where we’ll be working with our new partners at Opel.
Q: Let me wrap up by asking about your own future. We’re hearing that there will be more changes to come at the senior management level.
Henderson: In terms of my future, I have to prove myself. I’m on a short leash, but I’m not worried. As for the management team, we’ll be reducing our executive staff by 35% between the end of ’08 and ’09. Between now and October…we’ll have more announcements about leaning up the management team, but I can’t talk about that now.