The new General Motors Company on Friday began operations free of bankruptcy protection with a new corporate structure, a stronger balance sheet, and a renewed commitment to make the customer the centre of everything it does, president and CEO Fritz Henderson announced in Detroit this afternoon (BST). That includes a new eBay marketing deal and the ‘unretirement’ of ‘product czar’ Bob Lutz to head both product design and customer relationships. GM is also ending its regional operating structure.
“Today marks a new beginning for General Motors, one that will allow every employee, including me, to get back to the business of designing, building and selling great cars and trucks and serving the needs of our customers,” Henderson told a packed press conference at GM headquarters in the Renaissance Centre.
“We are deeply appreciative for the support we have received during this historic transformation, and we will work hard to repay this trust by building a successful new General Motors.”
The new GM starts out with four core brands in the US: Chevrolet, Cadillac, Buick and GMC.
A competitive cost structure, a cleaner balance sheet, and a stronger liquidity position will enable GM to invest in new products, key technologies, and its future, the company said.
“One thing we have learned from the last 100 days is that GM can move quickly and decisively,” said Henderson. “Today, we take the intensity, decisiveness and speed of the past several months and transfer it from the triage of the bankruptcy process to the creation and operation of a new General Motors.
“Business as usual is over at GM,” said Henderson. “Today starts a new era for General Motors and everyone associated with the company. Going forward, the new General Motors is fully committed to listening to customers, responding to consumer and market trends, and empowering the people closest to the customer to make the decisions. Our goal is to build more of the cars, trucks, and crossovers that customers want, and to get them to market faster than ever before.
“A successful auto company needs to focus on both the cost and the revenue sides of the business,” added Henderson. “Success on the revenue side means building the stylish, high-quality, fuel-efficient vehicles that customers want – and getting them to market fast.
“The success of our recent launches and the exciting new vehicles and technologies we have in the pipeline are evidence of our ongoing commitment to excel at everything we do,” said Henderson. “Our goal is to make each and every General Motors car, truck and crossover the best-in-class.”
The core brands – Chevrolet, Cadillac, Buick and GMC – will have just 34 US nameplates (models) by 2010. This emphasis on fewer, better entries will enable the new GM to put more resources into each nameplate, resulting in better products and stronger marketing, the company said.
The number of GM dealers in the US will be reduced from 6,000 this spring to approximately 3,600 by the end of next year though it will still have the largest dealer network in the country.
“We’re also working on new ways to make car buying more convenient for our customers, including an innovative new partnership with eBay in California to revolutionise how people buy vehicles online,” Henderson said.
“Customers will be able to bid on actual vehicles just like they do in an eBay auction, including the option of choosing a predetermined ‘buy it now’ price.
“We’ll be testing this and other ideas with our dealers over the next few weeks, and hope to expand and build upon them in the coming months. In all cases, our goal is to make the shopping and buying process as easy as possible for GM customers – on their time and their terms. Stay tuned.”
General Motors Company is primarily owned by the governments of the United States, Canada and Ontario, and by a trust fund providing medical benefits to UAW retirees.
As previously announced, common stock will be owned by: US Department of the Treasury: 60.8%; UAW Retiree Medical Benefits Trust: 17.5%; Canada and Ontario governments: 11.7% ;The old GM: 10%.
“We are very appreciative of the support provided by the stakeholders through the transformation process. Though General Motors Company will not initially be publicly traded, we will be transparent in our financial and other reporting to further strengthen trust and confidence,” said Henderson.
“We expect to take the company public again as soon as practical, starting next year, and to repay our government loans as soon as possible. We are required to pay off the loans by 2015, but our goal is to repay them much sooner.”
Stronger balance sheet
The automaker said General Motors Company was launching with a strong balance sheet, a competitive cost structure, and a strong cash position, enabling it to compete more effectively with both its US and foreign-based competitors in the US, and to continue its strong presence in growing global markets.
The new company acquired old GM’s strongest operations and will have a competitive operating cost structure, partly as a result of recent agreements with the United Auto Workers (UAW) and Canadian Auto Workers (CAW).
In the US, the new GM will be a far leaner company. By the end of 2010, the company will operate 34 assembly, powertrain, and stamping plants, down from 47 in 2008, and capacity utilisation is expected to reach 100% during 2011.
Overall US employment will decline from about 91,000 at the end of 2008 to about 64,000 at the end of this year, creating a company sized to respond quickly to changes in the market, while still retaining the global scope necessary to develop world-class products and technologies.
The new GM will begin with a much stronger balance sheet, including US debt of approximately $11bn, which excludes preferred stock of $9bn, and could change under fresh-start accounting.
In total, obligations have been reduced by more than $40bn, representing mostly unsecured debt and the VEBA trust fund that provides medical benefits to UAW retirees.
“The stronger balance sheet and lower break-even point will allow the new GM to reduce its risk, operate profitably at much lower volume levels, and reinvest in the business in the key areas of advanced technology and product development,” the automaker said.
GM’s subsidiaries outside the United States were acquired by the new company and are expected to continue to operate normally without any interruption though Henderson acknowledged GM would soon hold only a minor stake in GM Europe and would not have direct management control.
New way of doing business
With the launch of the new General Motors, the automaker said, company leaders will work to change the culture of the company, making the speed and decisiveness that GM demonstrated over the past several months the new way of doing business, and adding an intensified focus on the customer.
Edward Whitacre, who oversaw the creation of the new AT&T, will be chairman of a board with a number of new directors.
Henderson will continue as president and chief executive officer, working closely with Whitacre. He also will take responsibility for GM’s operations in North America, eliminating the GM North America president position.
To speed decision-making, two senior leadership forums, the automotive strategy board and automotive product board, will be replaced by a single, smaller executive committee, which will meet more frequently and focus on business results, products, brands, and customers.
Though he had earlier announced his retirement for the end of this year, Bob Lutz has agreed to join the new GM as vice chairman responsible for all creative elements of products and customer relationships.
Lutz and Tom Stephens, vice chairman, product development, will work together with Ed Welburn, vice president of design, to guide all creative aspects of design. GM’s brands, marketing, advertising, and communications will report to Lutz and he will report to Henderson, and be part of the newly formed executive committee.
“I am pleased to announce that we are ‘unretiring’ Bob Lutz so he can fill this important position in the new GM,” said Henderson.
“He has a proven track record of unleashing creativity in the design and development of GM cars and trucks. This new role allows him to take that passion a step further, applying it to other parts of GM that connect directly with customers.”
He also said at the press conference, only half in jest, it would avoid “recycling” Lutz to another OEM.
General Motors will also end its regional operating structure, moving decisions closer to the customer. This eliminates the regional president positions and the regional strategy boards. Nick Reilly will be named executive vice president of GM International Operations (GMIO) which will be based in Shanghai.
GM is also removing layers of management – reducing the number of US executives by 35% and overall US salaried employment by 20% by the end of this year – flattening the organisation and speeding decision making.
Additional details of the new structure and leadership moves will be announced later this month, said Henderson.
“These and other actions will simplify our organisational structure and reduce the level of bureaucracy that, in the past, has prevented GM from moving faster.”
Henderson also announced initiatives to open more direct communications between customers and GM employees at every level.
“Beginning next week, we will launch a ‘Tell Fritz’ website where customers, or anyone else, can share ideas, concerns, and suggestions directly with senior management. I will personally review and respond to some of these communications every day.”
Henderson and other General Motors leaders will go on the road regularly to meet with consumers and others with a stake in the new GM.
“In August, we’ll begin regular visits with customers, dealers, suppliers, employees and others – in the US and abroad – who impact our relationships with customers. We’ll be listening to their ideas, and acting on the ones that will improve our ability to serve our customers better. And of course, other executives and I will continue to reach out to customers through our ongoing web and Twitter chats.
“Today we launch the new General Motors, and our promise is simple. We will be profitable, we will repay our loans as soon as possible, and our cars and trucks will be among the best in the world,” said Henderson.
“We recognise that we’ve been given a rare second chance at GM, and we are very grateful for that. And we appreciate the fact that we now have the tools to get the job done.”
“In recent years, GM has been burdened by its history, making it almost impossible to be truly competitive. This government supported bankruptcy, while controversial, has created an opportunity – but not a guarantee – of success for the new GM.” said Edmunds.com CEO Jeremy Anwyl..
“GM is fortunate to get another shot, most likely its last one,” said Michelle Krebs, senior editor of Edmunds’ AutoObserver.com. “Its biggest challenge remains the same one it has faced of late; that is, convincing consumers – now also GM’s reluctant shareholders – that the company truly is changing and understands what type of vehicles the marketplace demands.”
Reuters noted earlier that the automaker’s US sales dropped 36% during June when it was deep in bankruptcy and executives had said the relaunch of the company offered a chance to try and break that negative association for consumers.
“I’m very much looking forward to the point where we’re operating in the clean air and the name of the company not being associated with bankruptcy,” GM sales chief Mark LaNeve said on Thursday.
Steve Rattner, the head of the Obama administration’s autos task force, said earlier this week that it would be “natural” for Henderson to cut layers of management to make the company “a bit closer to the ground, leaner and meaner”.
GM has burned through US$40bn over the past four years and posted losses of more than $80bn. Tthe close of the court-approved sale marks the completion of an unprecedented effort by the US administration to save GM and Chrysler from liquidation by slashing debt, labour costs and dealerships.
The White House has also disbursed almost $80bn to shore up the auto industry, including $5bn in support for suppliers.
Of that total, $50bn has been earmarked for GM, emergency financing that will give the US government a more than 60% stake in the new GM.
Chrysler exited bankruptcy a month ago after blazing a precedent-setting trail for GM by following an asset sale plan that gave operational control to Fiat.
The new GM has also moved to cut loose poor performing brands such as Saab, Saturn and Hummer.