History is written by the victors, or so the saying goes. You lose, not only do you get beaten up in real life, but also in the history books. Few losers come much bigger than Rick Wagoner. The man who oversaw the last slide into Chapter 11. Yep, there wasn’t much love out there for “Red Ink” Rick. Until a few days ago.
I was grazing the internet when I found this article from the Wall Street Journal where they talk about a bloke called Malcolm Gladwell. Now Mr Gladwell has a different take on Rick Wagoner’s legacy. Malcolm (if I may be so informal), posits that Rick’s career wasn’t the failure that history is making of it. Mr Gladwell supports this theory by pointing out that “Rabid” Rick cut hourly labor costs and improved productivity until they were in line with Toyota’s US plants. He also managed to shift health care obligations on the unions via VEBA. Then Mr Gladwell jumps the shark by saying that Wagoner delivered GM to the point where its product quality and features were competitive with those of the best auto makers in the world. Which weren’t actually “Rabid” Rick’s achievements but the Maximum’s ones. “What Rattner cannot seem to see,” says Gladwell, “is that his contempt for GM’s leadership is contradicted by the evidence of the company’s accomplishments.”
This got me thinking. Have we been blinded and maybe there was more to Mr Wagoner’s tenure than meets the eye? Or is this a load of tosh and “Rabid” Rick’s career had more failures than successes?
What say you?
29% lapel pins, anyone? Where is that market share now?
His tenure is even worse than he gets blame for. Don’t forget – This is the guy that claimed that bankruptcy was NOT an option until seconds before GM went bankrupt. This suggests several motives:
1) He’s incredibly stupid.Incredibly.
2) He’s a lying , cynical , extremely greedy martinet that at the very least decieved the true owners of the company (the now former shareholders) about its true condition,while being paid a fortune.
3) That he knew all along that the (now former) GM company was doomed and that the objective was to make the problem so big that only the taxpayers could bail him out. All the while taking a fortune in salary.
Let me tell you where our political system has put us: The founder of GM died pretty much penniless. Billy Durant didn’t run to the government to bail him out and then take millions of dollars to go away. ( Actually ,he founded another car company,something Wagoner couldn’t do if his life depended on it). Wagoner’s remaining life will be an easy one.That should scare the hell out of anyone.
You can’t blame him for saying bankruptcy was not an option. What was he supposed to say? Yeah, we might have to go bankrupt! What what that do to company morale, the stock price, etc.?
It’s no different with politicians. Barack Obama has to say something like “the voters are frustrated” or “i didn’t sell my ‘hope and change’ well enough” Nancy Pelosi has to say “we didn’t accomplish things fast enough” and “I have no regrets”. What would you expect them to say? We blew it?
You can blame Rick for a lot of things, but this isn’t one of them.
So speak of bankruptcy when there may be some other option still available is akin to dropping a snowball of self-fulfilling prophesy at the top of a long snowy hill.
Durant was a great industrialist but he also brought us planned obsolescence. I’ve always thought that set the tone at GM early on as a company that was more about _selling_ cars rather than _building_ cars.
Durant also got himself into trouble with the idea of leveraged take-overs of vehicle and component producers…
The auto industry has always been a merger of “Art of the Product + Art of the Deal”…
Planned obsolescence was not necessarily on the quality or durability side of the equation (this was competitive as measured, in the early years against everybody, and in later years against Ford and Chrysler) … this was highly evident in the style and new-technology side of the equation.
By obsoleting previous vehiles by bringing out new styling or introducing new technologies, GM created and focussed demand, and while it put pressure on the competition who could not afford an annual refresh, or a design flip every 3 years, it did nothing to diminish the functional utility of the vehicles sitting in customer driveways (although it did degrade the resale value, and therefore also promoted the idea that one should not hold a car more than 3-years, which in-turn drove repeat consumption.)
And in later years, as GM’s market-strength and margins declined, it too was unable to compete with its legacy and its refresh/redesign cycle lengthened considerably.
“…it too was unable to compete with its legacy…”
Well put, Robert!
#2. The problem though is that that is now an institutional response. If you do not lie, cheat and otherwise present a “good face” to the public as CEO, you get your ass sued off. Instead of being a driving force and proper steward for the corporation, upper management has been reduced to cheerleaders at all costs because of the lawyers and the morons on Wall St. Wagoner cannot be blamed for that.
OTOH, that is just the public face of GM. It’s obvious that the private part where he was supposed to lead has showed that he failed. Sure, he cut costs, moved health care and yadda, yadda, yadda. Problem was, he did because he was forced to and it was so obvious to everyone they choked it down.
That’s not running the ship, that’s holding on for dear life and hoping you don’t hit anything on the way by. A monkey could do that and doesn’t need millions in compensation to do it. Sorry Rick. Your legacy of a loser, stands.
He is the best thing to ever happen to Roger Smith’s legacy. Smith never bankrupted GM, and he did not sell off Delphi and watch it become a second tier auto supplier. He also diluted GM’s engineering to the point they had to go to Daewoo for their “small car” expertise.
BTW, I forgot to mention he purchase of Fiat, and what a disaster that was.
Changing the subject it would a good feature to be able to add photos to your messages here. Where is the spell check?
Rick Wagoner managed by consensus. The culture at GM was don’t make waves or rock the boat.
Any restructuring plan that could save Rick Wagoner’s legacy needed to be draconian and have happened by the 2005/06 time frame. No one that was left in the ranks of GM after Jack Smith’s tenure who could have done the job – because the management culture was one that left no one accountable for missteps.
GM by the end of the 1990’s was too slow footed to bring out competitive products when they were needed. Honda and Toyota had compact utility vehicles that created a whole new segment in the 1990’s. GM responded with the Equinox in 2004. The Trailblazer among others stayed in production way past their sell-by date. The 2005 Cobalt would have been more competitive offering in 2000 or 2001 and how on Earth did such a hideous 4 door Cobalt get internal approval.
Wagoner would have had to start knocking heads together on back in 2001 to get GM where it needed to be in 2007 to survive 2008. Rick did not rise up through the ranks of GM by making waves. He was an incrementalist.
The board of directors at GM share some blame. Jac Nasser at Ford got a severance check in 2001 for losing 6 Billion USD in one year. GM’s losses in 2006 where probably 5 times that much and Wagoner was kept on as CEO.
Wagoner spent his entire career in GM finance, and that gave him the sort of blind faith in GM’s permanence that often happens in old companies. He would have been a good CEO for GM back in the ’50s, when the money machine ran itself and all he had to do was make small incremental cost cuts here and there to nudge the profits up. Problem was that GM in the ’00s needed someone who was willing to kick the table over and do the unthinkable; creative destruction, etc. Wagoner was completely the wrong person for the task before him.
Wagoner came up on the financial side to become CEO. Weren’t GM books so inaccurate that even their hand-picked auditor wouldn’t declare them sound? Case closed.
Weren’t GM books so inaccurate that even their hand-picked auditor wouldn’t declare them sound?
If you heard that, you heard wrong. That’s ridiculous.
Its actually TRUE.. How soon we forget, GM and their auditors were SUCCESSFULLY sued for around 1/3 of a BILLION dollars by share holders in 2007, because from 2003-2006 the books were such a cluster duck that NO ONE could make any sense of them.
This is not debatable this is a fact.
See here:
https://www.thetruthaboutcars.com/2008/05/gm-admits-accounts-are-whacked/
Annual report here:
http://www.analist.be/reports/General-Motors_2007.pdf
Specifically, see page 78. That is about as close as you’ll ever see a corporation publicly disclose that its leaders lied and/or didn’t know what they were doing.
GM eventually settled a shareholders’ suit for $277 million.
So Wagoner knew neither cars nor accounting.
There is no “head scratcher” here.
I withdraw my comment.
General Motors management system was one that revolved around financial people who knew
balance sheets inside and out, but lacked any knowledge of automobiles; indeed “car” people were excluded from top management. Wagoner’s solution was not to create better cars, but to sell off parts of the company-like GMAC and EMD. If any vehicle symbolizes Wagoner’s tenure at GM it’s the Pontiac Aztek-an incredibly ugly vehicle that failed miserably. GM needed a charismatic leader who could turn the company upside down and reinvent it-and Wagoner was not
that type of leader-GM’s culture was rule by consensus and incremental changes which by year 2000 guaranteed its failure.
Not trying to defend GM, but you are not correct regarding the representation of car-people in GM’s upper ranks …
Just some car-guys that were at or near the top:
– Stempel (Chair)
– Reuss I (Pres)
– Reuss II
– Max Bob (VChair)
– Cole (Pres)
– Delorean (EVP)
– Kneudsen I (Pres)
– Kneudsen II (EVP)
– Runkle (EVP)
– LeFave
– Jim McDonald
– John Rock
– etc, etc. many Division General Managers were Car Guys…
I was and remain a Wagoner admirer. Had credit not evaporated, Wagoner would still be CEO today because he had the company on the right track. A lot of the best products GM has now were begun on his watch, and GM’s quantum leaps in materials and build quality are down to him. I think he did the best he could with a bad hand: mountains of debt, legacy benefit plans and crippling collective bargains.
The problem with “had the credit not evaporated” is that if we hadn’t had a giant credit bubble is that we wouldn’t have had a 17 million/year car market for a while, and GM would have died much sooner than it did since it couldn’t move product and make money with easy credit financing. Trying to ignore the downside of the same thing that kept them alive is trying to have your cake and eat it too.
When I look at the vehicles that GM had at the time of its demise, I think that they had one of the most attractive and possibly competitive line-ups in recent memory (whether it was SAAB, Saturn, Opel, Saturn, Pontiac, etc.) Whether these, in a better economy, would have covered the cost of capital, much less earned a profit would have remained to be seen. In comparison to Chrysler, GM was much closer (on the product-side mind you, not necessarily on the cost side) to avoid crashing and burning… Obviously, the economic collapse revealed how precipitous GM’s position really was…
That is probably the real pity and shame: either recognizing or dealing with problems after it was too late, or while you were on borrowed-time mixed with massive expenditures of cash on things that never fit into a grand-strategy conceived or realized.
Wagoner was dealt a difficult hand. As Bill Ford Jr correctly pointed out, changing a corporate direction is like doing a U-Turn in a super tanker. Unlike a carrier, super tankers can’t quickly change directions. Too many executives at the D3, believed their own press releases, and were literally there for the own edification.
The stories I could share about stupid executive level management decisions, like the idiot that looked at the door cut line and declared it didn’t look fast enough, which delayed program launch several months, or the executive that didn’t like the angle of the windshield, which not only delayed the program 6 months, it further killed the car 4 years later because it no longer met the changed FMVSS requirement. Or the executive that three times changed their mind on the look of an antenna… WTF?
I’d love to hear these stories… Maybe Ed could make a section, vetted somehow for honesty and accuracy, called “Tales from the Front” where industry insiders could reveal some battle stories…
I agree on auto executive inside stories. Two of my favorites are from the fast-and-loose days of Chrysler in the sixties.
The first is M.C. Patterson, Dodge Division General Manager. Although William C. Newburg was the guy who had Chrysler downsize their 1962 full-size line at the last minute (at great expense which nearly ruined the company), it was Patterson who was responsible for the coup de grace on the Dodge version, insisting on the warthog-looking grille. It was the finishing touch on an already bungled design.
Later, in 1968, Chrysler/Plymouth head stylist Dick McAdam hated the Roadrunner proposal on the new mid-sized Plymouth. It wasn’t so much that he disliked the car, he just hated the idea of a cartoon being plastered onto one of Chrysler’s products. When it was finally decided by someone above his paygrade that the car was going to be built (with cartoon), McAdam insisted that he would be the one to choose the cartoon to go on the car.
As you can imagine, he chose the lamest possible version. This is the reason the original 1968 Roadrunner got a black-and-white bird that appeared to be walking. When the car became a success, the cartoon was quickly changed to a infinitely better looking, more suitable, color, running Roadrunner with a dust trail.
Sorry, but GLADWELL FAIL.
You guys here know the inside baseball on this way better than he does.
Answer: Tosh.
You have be solvent before anything else matters.
+1 Agreed.
The fact is the auto industry can build more cars than customers want to buy. It should have been obvious that GM’s fixed costs were on a collision course with their sales volume. Rick Wagoner did trim costs and GM cars did improve, but not enough to avoid the inevitable train wreck. The counter example is Alan Mulally who did more to secure the financing needed to make Ford’s product line competitive. Ford may fail in the end, but nobody can say that they didn’t fight to stay relevant in a brutally competitive industry.
Or is this a load of tosh and “Rabid” Rick’s career had more failures than successes?
Successes? Did he have any of those? Lets see, he fixed the union contracts that he screwed up in the first place? He fixed the product problems that he oversaw and help create as the head of GM N/A?
Come on now… I guess we can add to his list of successes that he managed to plunge the executive washroom after he plugged the toilet with that double burrito lunch…
He just got “bit” by a credit crunch AFTER he sold off the credit division.
As I see it every one of his so called successes were dealing with self inflicted wounds.
My vote… “its a load of tosh”
Rick’s problem: He is too nice a guy to do the things that were needed
to turn GM around although I do think he gave it all he had.
The reality is that GM was improving starting in 2005 right up until today…Wagoner was not the problem and he and Lutz knew exactly what needed to be done once they got the UAW to back off and get out of the way.
Two things. One, Gladwell’s article baffled me because I can’t figure out why he wrote it. That is, an author most noted for original work about innovation and creativity and other grand topics suddenly pops up with a in-depth book review (first I have seen him write, though I am sure there are many I have missed), and spends most of it defending one particular CEO. I am not thinking of some odd conspiracy here or anything, just can’t figure out why he’d bother. Two, while I agree with Rattner re Wagoner, leaving all the pro’s and con’s of the person aside, if the CEO of a company presides — over the course of almost a DECADE — over a cumulative $50 billion in losses (or so), whether they are “his fault” or not, or “inherited” or not, then he’s gotta go. Imagine the counter-factual, if he had stayed. There are SO many comments on TTAC about GM’s hidebound introverted culture… can you imagine the reaction of middle management if GM had gone through bankruptcy AND Wagoner had stayed on? The implicit message would be: “There is no loss big enough, no disaster great enough, no corporate shame deep enough, for you to be fired from your job.” So yes, Rattner spent very little time on the Wagoner decision, which Gladwell faults him for, but to me at least it seemed an easy call to make.
What we will never know, is if he had been replaced, say in 2003 or 4, whether someone else would have been able to save the company (and “save” had different interpretations from restructuring down to what we see today, to preserving the pre-collapse size and returning it to a future with potential.)
I am equally baffled by this article. Why defend Wagoner? Just because Rattner is Obama’s guy? Wagoner may have done many things and made improvements at GM but he clearly didn’t make the game changing moves like Alan Mullaly, for example, that were needed to save GM.
All I could think about when I read these articles was, where is the Robert Farago counterpoint?
I don’t think Gladwell is defending Wagoner. I think he (as do I) thinks Steve Rattner is taking credit for something he did not do.
Who saved GM? If you consider GM saved, thank Rick Wagoner. What GM is now GM was pre-bailout. Plus $50 billion.
Like all private equity guys, Rattner thinks he walks on water. He doesn’t. Look at what he did. Fired Rick Wagoner. Put GM through bankruptcy. Went home. Then claimed the credit. Who couldn’t do that?
Since then, Rattner’s handpicked successor to Wagoner, Fritz Henderson, has come and gone. Ed Whitacre has come and gone. The guy who is in there now is such a nobody nobody can remember his name.
That GM lives on is no thanks to Rattner’s brilliance, is what Gladwell says. I think he’s right.
“What GM is now GM was pre-bailout.” Huh? Not by a long shot. So much dead baggage discarded from brands to plants to dealers to liabilities to legacy costs…
Henderson was not considered optimal for the job, but given time pressures and a seeming lack of candidates, the job became his to loose (and he did.)
It stuns me that the person who posted this article failed to mention that the Gladwell piece was a review of Rattner’s new book on his tenure at the auto task force. It can be found here:
http://www.newyorker.com/arts/critics/books/2010/11/01/101101crbo_books_gladwell?currentPage=all
Yes, my post constitutes a fifth degree of separation from the source material (Rattner to Gladwell to WSJ to Corrigan to the commentariat).
In any event, justifying his canning of Wagoner was a major focus on the book, and Gladwell, quite effectively in my opinion, critiques Rattner’s account.
I agree with Daanii2 that Gladwell’s review is more of a criticism of Rattner than anything else. Whether or not Wagoner can take any credit for it or not, every single one of the cars that even GM critics acknowledge are part of a product revival was in the pipeline at old GM.
Here’s a hypothetical for the B&B. Let’s say that when GM hired Bob Lutz in 2001, they made him CEO. I think most of us agree that Lutz had a major role in turning around GM’s product. Do you GM would have had a different fate with Lutz at the helm of the whole shebang instead of Wagoner?
Oddly, I agree with Rattner with regard to Wagoner; he had to go.
Gladwell wrote:
“In the same period, G.M.’s product line was transformed. In 1989, to give one example, Chevrolet’s main midsize sedan had something like twice as many reported defects as its competitors at Honda and Toyota, according to the J. D. Power “initial quality” metrics. Those differences no longer exist. The first major new car built on Wagoner’s watch—the midsize Chevy Malibu—scores equal to or better than the Honda Accord and Toyota Camry. G.M. earned more than a billion dollars in profits in the last quarter because American consumers have started to buy the cars that Wagoner brought to market—the Buick Regal and LaCrosse, the Envoy, the Cadillac CTS, the Chevy Malibu and Cruze, and others. They represent the most competitive lineup that G.M. has fielded since the nineteen-sixties. (Both the CTS and the Malibu have been named to Car and Driver’s annual “10 Best Cars” list.)”
So, in 2007, we have “the first major car built on Wagoner’s watch,” oh really?
Wagoner was made CFO in ’92, EVP in charge of N. American operations in ’94, President/COO in ’98, and CEO in 2000. Wagoner also brought Lutz into GM late in 2001 as the head of product development. If 2007 was the first major car “on Wagoner’s watch” one could logically conclude that he was either ineffective or too slow. Gladwell later writes: “…car companies stand or fall, ultimately, on the strength of their product…” so the glacial pace of the Wagoner-effect was a fatal flaw.
I appreciate that GM had some good, hell, even great cars, but Gladwell/Wagoner were oblivious to the parasitic losses (Monetary, engineering and brand image) incurred simultaneously producing a significant number of mediocre and redundant vehicles.
Wagoner was made CFO without evening an accountng degree. he was lackluster in purchasing, a failure running North America, and a complete disaster as CEO. IMO he was a puppet who drained the company of cash by selling anything not nailed dow, fed the capital to his bankster masters, then led GM into BK so it could be rinsed of liabilities and handed back nice and neat to those same financiers.
+1
GM and Chrysler had to be the whipping boys for the gov’t since Bush/Obama had no intentions to be tough with the banks. So a deal was struck, politically, that the automakers would be roughed up to make it appear that their were strings attached to the TARP.
Also, the auto companies represented lots of middle class jobs. The banks represented the elite class. So the gov’t had to protect the elites and put another nail in the coffin of the middle class.
GM had a lot of improvements under Wagoner, so he wasn’t all bad. But one place severely needing improvements was the balance sheet and income statements. That didn’t happen like it needed to.
Two days ago, I was happy to get a call/email from The New Yorker saying my letter in response to Gladwell’s review of “Overhaul” was being considered. Hopefully it will appear, but here it is for TTAC:
As a fan of Malcolm Gladwell, I was disappointed by his review of Steven Rattner’s memoir about the auto industry rescue (Books, November 1st).
Gladwell argues that Richard Wagoner didn’t deserve to be fired because he took positive steps prior to the bankruptcy. But doesn¹t the new majority owner of a company that has lost eighty billion dollars of shareholder money over four years have the right to demand change, especially when the management seems to feel no accountability for the losses, and simply chalks the situation up to market conditions?
The decision to replace Wagoner was no doubt a tough choice, and one that business schools will be debating for decades, but I was surprised that Gladwell declined to take the other side of that argument seriously.
Peter Engel, New York City
I’ll just add that I agree with others; too much of Gladwell’s review was about Steve Rattner, rich Wall Street private equity guy, Democratic Insider, and banned securities trader. Yes, Rattner does come across as a self-aggrandizing weasel, but that’s no excuse for Gladwell to be so cursory about the important work done by Ron Bloom, Harry Wilson and others on Team Auto besides Rattner, and the insight into how GM and Chrysler’s operations really were running. To me, that’s the best thing about “Overhaul.”