General Motors Death Watch 166: The Unaccountable Accountant
In 1968, a book called The Peter Principle argued that large organizations promote employees past their proven abilities, until they reach their natural “level of incompetence.” As a remedy, Dr. Laurence J. Peter suggested a rigid corporate caste system. For example, a talented accountant could rise within his field to become the company’s The Chief Financial Officer (CFO). And that’s it. Promoting the successful beancounter to the head of the company risks evoking The Peter Principle, and threatens disaster. Or, in the case, of GM, creates it.
It’s ironic. As a Harvard-trained MBA, Rick Wagoner possesses the exact forensic accounting skills needed to prove that he's been a lousy Chief Executive Officer. While we can debate whether or not GM's former CFO has “set the stage” for GM’s “turnaround,” any halfway decent pencil pusher will tell you that General Motors’ financial health has deteriorated rapidly during Wagoner’s administration.
When Rick Wagoner became GM’s CEO in June 2000, the automaker’s market capitalization was $36b. The previous year, it banked a $6b profit. Today, GM’s market capitalization is $19.21b. Last year, the company lost $38.7b. Yes, the majority of the ‘07 red ink spray was a “paper” loss involving deferred tax credits (which will never be taken). So call it a $1.6b hit. And don’t forget that GM has lost billions of dollars over the last three years while selling off billions of dollars worth of assets and adding tens of billions of dollars in debt. GM’s currently paying more than $2.6b per year in interest.
When Wagoner took the helm of what was then the world’s largest automaker, the company’s North American market share stood at 28.2 percent. GM’s freshly-minted CEO promised a return to a 30 percent U.S. market share. In the last eight years, GM’s piece of the American pie has shrunk to 22.7 percent. If you remove sales to rental fleets, government agencies and customers within the GM “family,” GM’s American market share may well be in the teens.
And speaking of shares, yesterday afternoon, GM was trading at $22.35 per share. That’s down 48 percent from the $43.20 per share peak set after the “landmark” United Auto Workers’ agreement. Taking a longer term perspective, in May 2000, GM was trading at over $90 a share. At the turn of the last century, GM paid stockholders dividends worth .50 a share. Since 2006, GM has paid its stockholders .25 a share.
This series has chronicled the myriad of missteps during Wagoner’s tenure at the top. Lackluster products. Incoherent branding. Mistimed, muddled marketing. Production problems. Catastrophic supplier relations. Abject capitulation to union demands (including a VEBA worth more than GM's market cap). Suffice it to say, Wagoner has never publicly declared a hard target for GM’s return to profitability. He is the unaccountable accountant.
GM apologists maintain that Wagoner’s made the best of a bad situation not of his creation– forgetting that his minions missed the switch from SUVs to CUVs and cars. Instead, they point to the CEO’s relentless cost-cutting, a handful of “proper” cars (e.g. Cadillac CTS, Chevrolet Malibu) and forthcoming Hail Mary (e.g. the Chevrolet Volt). The fact that Wagoner’s radical downsizing hasn’t realized any savings and the new products haven’t stemmed GM’s market share slide is, supposedly, a short term issue.
Without a target for profit, who can argue the point? Is it even worth arguing? Ultimately, a company’s culture– not numbers on a balance sheet– determines its long term success or failure.
Rick Wagoner began his career as an analyst for GM in the New York Treasurer's Office in 1977. He has hasn’t worked a single day outside of General Motors. So it’s no wonder that Wagoner hasn’t had any impact on GM’s corporate culture. The automaker is still a nest of vipers. Well, dozens of nests of vipers; all competing with each other for resources. The company lacks teamwork, coordination, esprit de corps and, I would suggest, a strong moral foundation.
That’s the GM Rick knows. That’s what he protects. After all, it’s protected and rewarded him. Just yesterday, GM’s Board of Bystanders re-raised Wagoner’s annual salary to $2.2m. He will also receive 165,563 shares from GM’s “long-term incentive plan,” 500k stock options and 75k restricted stock units. The board also agreed to pay Wagoner an addition $3.52m under GM's Annual Incentive Plan– if the company achieves an unspecified performance target. And then there’s Wagoner’s bankruptcy-proof pension, health care, cars for life, etc.
By any reasonable metric, Rick Wagoner has been a disaster for General Motors. By appointing ANOTHER Harvard trained GM lifer and former CFO to replace him, Wagoner has assured a legacy of upwards-failing executive incompetence. But it would be completely unfair to say that Rick Wagoner has been a failure as GM’s CEO. He’s the single best example of The Peter Principle of our time.
Joeaverage on Mar 11, 2008
GM quietly goes broke and they are out of a line of contracts longer than a Chevy Silverado crewcab. Then they ditch the UAW, they ditch their retirement programs, and the ditch the dealer program which demands they build the same car or truck or SUV under 5 different name plates so all of the different dealer tracks have competitive (with each other) products. I say that Saturn selling Opels (ditch the Saturn name please) is the division with the best potential future if GM could change their business model to generate some profit. No-haggle pricing, clever/interesting/frugal cars straight from European Opel, and an existing dealer network and the least number of rebadged vehicles in the company if you don't count Opel to Saturn as rebadging. They ought to expand the vehicles they sell in the USA under the Opel brand so that we get a more diverse range of vehicles - from the bigger Vue to the Zaphira and Astra, to the retractable hardtops down to the Corsa. Include the commercial versions too (delivery white vans and cars). And then, offer the WHOLE lineup to all of the GM dealers. Eventually dealers would become GM dealers selling all the GM brands. I don't go to a Sony store or a Nike store or a Schwinn bicycle store... I go to a store that sells many brands. The good dealers will prosper, the bad ones will fail. Good. Lastly attempt to unify the safety and pollution standards with the other countries that their divisions operate in so that their other divisions' products can be sold anywhere. I guess that will not likely work b/c they WANT us to buy big...
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