How Rick Wagoner Doomed General Motors? Part 1


The former CEO of GM destroyed the structure of good governance that was that of the company when he took the reins. He took decisions as bad as each other helped in this by a blessed board of directors yes yes. General Motors’ legendary industrial management system may for once be revered by management scholars and business historians. The mere thought of bankruptcy would have been considered unlikely and sparked laughter from the audience. However, as these lines are written, the automotive giant has joined the long list of large companies that have taken refuge under the protective wing of Chapter 11 and the unthinkable of yesterday is happening today, leading to the search for scapegoats.

When we look at the fall of General Motors, the guilt of failure can be attributed to a combination of factors: the managerial blindness of the leaders, the intransigence of the corporate culture, a governance process that allowed those who are in charge of monitoring to accept antiquated working methods, very expensive ancient concessions made to employees and to demonstrate all the disdain they have for the consumer. This has generated frustration among shareholders and analysts. However, despite the complex institutional factors responsible for GM’s collapse, Rick Wagoner, the CEO who reigned at the time of the bankruptcy, will be remembered as the man who lost GM.

Surely many people would argue that the agony began since the presidency of Roger Smith, the man who ruled from 1980 to 1990. Smith was just one in a long line of those financiers chosen to lead the engineer caste and of marketing lords known as the “Auto Guys” (a tradition that dates back to Frederick Donner in 1958). Smith’s disastrous attempts to reorganize GM had far-reaching consequences later. brought to the rise of the Japanese in the small car segment has spawned the line of “x-cars” unanimously hated by consumers.

The reorganization of eight business units into two large divisions (big cars and small cars) which was supposed to improve performance and bring the units together created devastating internal competition. It became very difficult to distinguish a $9000 Pontiac from a 25000 Cadillac. This proved disastrous for the luxury car segment where GM resorted to exterior embellishments instead of emphasizing engines and anything that could improve consumer safety. When its market share plummeted, GM found itself with huge inventory under its arms.

Decline in quality

As early as 1989 General Motors began to lose over $2,000 on every vehicle produced despite structural reorganization. Quality standards suffered from Smith’s rapid launch of new models. In 1989 he launched the Saturn division with unrealistic goals (it had to sell 500,000 cars a year to break even). At the same time it allowed Saturn to cannibalize other brands in the group. Smith squandered billions on the senseless acquisition of EDS and Hughes Aircraft.

He survived, however, despite shareholder outrage, analyst condemnation and media criticism, and outright ridiculed in Michael Moore’s blockbuster “Roger and Me.”

Smith’s secret weapon was his ability to manipulate GM’s board of directors, which he pocketed into three of his underlings, as well as figures such as Ambassador Anne Armstrong, the Reverend Leon Sullivan a social activist, two college professors and a local GM banker in Detroit. All council meetings were ceremonial ratification events because the council members controlled by Smith complied with all of his wishes.

The sorry state of GM’s corporate governance was chronicled in a 1998 internal memo by former vice CEO Elmer Johnson who was recruited from a GM law firm. “Our culture discourages open and candid debates around General Motors leaders seeking solutions to our problems. There is a clear perception across company personnel that management does not take bad news very well. Our most serious problem has to do with organization and culture”.

Johnson complained that GM was jeopardized by the 1950s mindset of a “very stable and predictable world” and “a culture unprepared to deal with new realities.” GM derives its overwhelming competitive advantage from its “monumental economies of scale.” »

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