Saving GM was right, ex-CEO says

Posted Saturday, Feb. 23, 2013  comments  Print Reprints
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The book

American Turnaround: Reinventing AT&T and GM and the Way We Do Business in the USA

Ed Whitacre with Leslie Cauley (a former staff writer at The Wall Street Journal and USA Today)

271 pages

Hachette/Business Plus

$28.99

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Growing up in Ennis as the son of a railroad worker, Ed Whitacre wasn't sure he'd go to college, let alone someday become one of the nation's top executives.

But with an engineering degree from Texas Tech University, he landed a job at Southwestern Bell and proceeded to work his way up the ladder. In 1990, he reached the top when he became chief executive officer.

Quickly, Whitacre began to make his mark on the corporate world. He moved the company's headquarters from St. Louis to San Antonio and laid plans to aggressively grow the smallest "Baby Bell." He merged SBC with several other phone companies, climaxing in a deal with AT&T that adopted the icon's name. He capped off a 17-year run as CEO with a huge deal on a new device called the iPhone.

That was impressive enough. But in 2009, the Obama administration asked Whitacre to become chairman of General Motors, which had been bailed out and put into bankruptcy by the federal government. Reluctant at first, Whitacre agreed.

In his new book, American Turnaround, Whitacre describes how he encountered a thick bureaucracy at GM headquarters in Detroit, led a board decision to fire CEO Fritz Henderson, took on the CEO duties himself and uprooted decades of entrenched routines. To learn about the business and press for change, he made unannounced visits to managers, engineers, workers in the cafeteria, even the head of the United Auto Workers at the UAW's Solidarity House headquarters.

General Motors would quickly return to profitability and sell stock to the public, allowing the government to recover some of its bailout money. In August 2010, Whitacre announced that he would leave GM. The automaker is once again growing, as evidenced by the $530 million expansion under way in Arlington that is adding a stamping plant and 1,000 jobs.

Now 71, Whitacre is retired and living in San Antonio. He serves on the board of Exxon Mobil Corp. In a recent telephone interview, he discussed the lessons from his time in Detroit and as a CEO.

When you were called and went up to General Motors, you describe finding an ineffective bureaucracy. What surprised you most about the problems when you arrived at GM?

I guess how unfocused the company was on what it should be doing. And the bureaucracy that was there. But I guess the nonfocus probably got me as much as anything.

Was that just at the top, or throughout management?

It was obviously at different levels throughout. For the most part, you could ask people, "What's going on?" and they couldn't tell you, or "What went wrong?" and they couldn't tell you. So it was just no focus on what to do.

GM clearly needed an outsider to tell them what was wrong. How does a company get to that point?

You know, I'm not sure I know the answer to that. ... If people don't feel involved or important, they will make themselves more important. And they will do that by putting in another check or balance or procedure or something that has to be done en route to making a decision, and before you know it, if that goes on very long, they put other things in there that I call bureaucracy. And instead of something being simple, it's become incredibly complex. And I think that's because people aren't focused and they don't have any authority, they feel sort of left out, so they fix that by giving themselves a bigger job. They put in another procedure or something that makes them feel important, and all of the sudden, you have a bureaucracy....

Plus there was an attitude that 'Look, we're General Motors and we do everything right. We're not wrong. We've never been wrong at anything.' So rather than be flexible and change, they just continued down the same path. ... They went from 50 percent market share to less than 20. But not much changed.

There were great people up there, you know. It's just incredible. It was a management thing that caused all that to happen, in my opinion.

The UAW for many years was a common whipping boy for the problems at General Motors because of the high costs of union contracts and healthcare costs. What was your view on that?

I thought they were great. I had a great relationship with the UAW. They were very helpful to me in accomplishing what we set out to do, which was to become profitable again. They were good partners.

Management agreed to those contracts way back there. I don't know why, when or all those conditions. But as far as I'm concerned, the union did a good job and really was a big help in turning GM around. I mean, they're the ones who make the cars, you know?

In both the companies you've managed as a top executive, you've had strong unions representing workers and you've been able to be successful in both places.

I don't have anything against unions, and I grew up in a union family. My dad was a union member, in a strong union, the Brotherhood of Locomotive Engineers. So I grew up in a union family and never had any difficulty. I mean, we had squabbles and we had contracts, but in terms of getting the job done, they were good.

So you think it's unfair to blame unions for problems at companies?

Yeah, I do, for the most part. That's been my experience. I mean, management's in charge of the company, management has to deal with the unions, but the unions I dealt with, for the most part, were commonsensical.

Some free-market advocates have said General Motors should have been allowed to fail, that the federal bailout would only prolong its problems. Why do you think it was important to save GM?

I think it was ridiculous to let it go. First of all, there was no private money available to bring it back. Nobody stepped up. So the decision was either the government saves it or it goes away. You can't let an icon like that go away with not only the employees at GM but there were literally thousands of suppliers that had thousands of employees. The job impact, if it had gone away, would have been well into the millions. It would have been a disaster. ... The right thing was done. The taxpayer stepped in and saved it, you and me. And what an icon. The company is, I think, the largest manufacturer in the country.

You've said the government should sell its remaining stake in General Motors. But it would lose a lot of money if it sells right now. Why would that be a good move?

There ought to be a way to work that out. I don't think the taxpayers should lose a nickel. I think there's a way; I don't know what that way is anymore. I thought they should have sold it at the IPO time because it was oversubscribed at $30-something a share, and now it's selling for a little less than that. So it could have recouped a lot if the government had decided to sell all or more at the time of the initial public offering.

It's important to GM because they've got to get rid of that label of Government Motors. ... That's a big factor in their marketing. There's a number of people who won't buy from GM -- it's less now, but they say, "That's the company that took money from the taxpayer, and I'm not buying a car from them." It's a factor in GM sales.

While you were CEO at GM, you acquired the Fort Worth auto lender AmeriCredit, now GM Financial. At the time, AmeriCredit was a major subprime auto lender. What attracted you to AmeriCredit?

I got there and looked and GMAC, which was the primary lender to GM, would not finance anything in subprime credit. The other makers were making up to 20 percent of their sales in the subprime credit area and we were making zero. And then, all the data showed that people are more likely to make their car payment than their house payment. So the uncollectibles were low. So we somehow had to get in the subprime area and get in there quick. AmeriCredit did that for us.

You would just pop into places unannounced all over Detroit, plants and other facilities. Did you ever visit the Arlington Assembly plant down here?

I did, as CEO. That plant has been there for a long time, and I worked in Arlington at one point, so I was aware of that. It's a monstrous place. They let me put a hood on a car, I remember that, I think it was an Escalade. I remember walking around, shaking a lot of hands; they let me test-drive a car when it came off the assembly line. ... It's just an amazing process. The robots and welding and those people putting stuff together, it's just astounding.

When you were at AT&T, you wrote about doing the iPhone deal. Did you meet or know Steve Jobs?

I met him; I didn't know him well. ... Stan Sigman [a top AT&T Wireless executive] knew him well.

It was a flier for us. We pushed a lot of chips out on the table. Here's something that's unproven, there weren't many applications, this thing was expensive as it could be. We just pushed a lot of chips out there. These things weren't cheap. Steve Jobs charged us a lot of money. ... We certainly couldn't charge the customers what he charged us.

We had to get it back in increments.

Do you have any hankering to get back onto the arena in any way?

I can't say no and I can't say yes. I don't know. It just depends on what it might be and how things are at that time. You can't say no and you can't say yes.

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