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GM and me (pg. 3)

By Alex Taylor III, senior editor
Last Updated: November 25, 2008: 4:32 PM ET

Immediately, a nasty and expensive strike broke out in Flint, and the new GM began to look more like the old one again. It wouldn't be the last time I allowed my personal view of a chief executive to color my assessment of a company. GM was still Balkanized when Smith took over; by his count, for instance, there were 27 separate purchasing organizations that eventually had to be consolidated into one. Smith slowly started pulling the units together so that GM could deploy its vast economies of scale.

The prosperity of the '90s helped keep GM solidly profitable until the end of the decade, although it never reached Smith's target of a 5% net profit margin. He also kept shrinking the company (helped greatly by the spinoff of the Delphi parts-making unit). Total employment, which stood at 757,500 when Smith took over, had fallen to 388,000 by the time he left office. But Smith's elfin charm wasn't enough to stop warring factions among engineering, manufacturing, and design from undermining one another's work.

And Smith failed to address such looming problems as why GM still had divisions like Pontiac, Buick, and Oldsmobile. With its market share down to 30% and falling, it didn't need all those brands, and ensuring that each model was distinctive remained a constant headache. The problem of "look-alike cars," brilliantly revealed in a memorable 1985 Fortune cover photograph, continued to bedevil GM.

* * *

Smith's most surprising flaw was his infatuation with Inaki Lopez, a Basque-born purchasing expert with whom he had worked in Europe. Smith moved Lopez to Detroit and made him global head of purchasing so that Lopez could install his proprietary system to slash parts costs. Lopez was unquestionably energetic and, some would say, charismatic, but his system sounded like smoke and mirrors when he explained it to me. Suppliers suspected Lopez of simply shopping their price quotes around town to find lower ones - a violation of industry ethics.

When Volkswagen tried to lure Lopez away, Smith made him head of GM's North American operations and called a news conference to announce his appointment. But Lopez never showed up; he hopped a plane to VW headquarters along with, as it turned out, a lot of information about future GM vehicles. GM pursued him with a criminal complaint and eventually reached a legal settlement with him.

Smith seemed tired and ready to move on in 2000 when he handed the company over to Rick Wagoner, his longtime protégé. I had met Wagoner back in the late 1980s when he worked with Smith at GM Europe. A Southern gentleman, Wagoner was raised in Richmond and educated at Duke. I've spent more hours with him than with all his predecessors combined, and I've never failed to be impressed by his depth and scope.

Early on Wagoner could be testy when confronted with bad news - he once accused me of being "thick-headed" - and I still recognize the glances he shoots when confronted with particularly thick-headed questions. Under the tutelage of public relations guru Steve Harris, however, Wagoner has learned to be patient, even playful, with the press. At the turn of the millennium GM was a stronger company than it had been ten years earlier, but it was still clumsy. Initially slow to capitalize on the SUV boom, it was churning out Tahoes and Suburbans at enormous profit. But now the market was turning to lighter, more fuel-efficient SUVs called crossovers, and once again GM lagged the industry leaders. Though Wagoner quickly shut down Oldsmobile, GM still lacked the capital to keep Saturn, Pontiac, and Buick uppermost in consumers' minds. Cost cutting proceeded at a brisk pace, but not quickly enough to offset the pressure on prices brought by foreign competitors.

And U.S. market share continued its relentless decline, down to 22% this year. Investors voted with their dollars. In Wagoner's first year, GM stock hit a high of $75.75 and went down from there. Tall, broad-shouldered, and steeped in GM lore, Wagoner still seemed a dream CEO. He accelerated Smith's work by pushing GM's disparate units closer together and expanding operations overseas, at the same time persuading the United Auto Workers to lift the burden of worker and retiree health-care benefits that was crushing the company.

***

Wagoner's signature moment remains recruiting former Chrysler executive Bob Lutz in 2001 and putting him in charge of global product development. Lutz's long tenure at GM (he is now 76, well past retirement age) tells you as much about Wagoner as it does about him. Only an executive with Wagoner's self-confidence could coexist so peacefully with the attention-grabbing Lutz. Tall, silver-haired, and immaculately tailored, Lutz combines superb biomechanical abilities (he is an accomplished jet and helicopter pilot as well as a skilled driver) with movie-star presence, great storytelling skills, and well-honed leadership chops. That makes Lutz catnip for journalists. He pretends we are equal partners in his high-level world and keeps us titillated with off-the-record gossip.

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