Editorial: Mr Whitacre Goes To Washington

GM’s government-installed Chairman/CEO Ed Whitacre hasn’t been wildly popular with Detroit insiders, earning dismissive raspberries from more than a few corners of the industry’s peanut gallery. But now that his reign of executive terror is over, Detroit seems to be learning how to stop worrying and love the former AT&T man. As Whitacre prepares for his first visit to Washington DC as head of GM, the local media and other members of “Team Detroit” are making their peace with Whitacre. So what lies beneath the new united front?

GM’s Ed Whitacre is not your father’s car chief, screams the headline of Daniel Howes’ rehabilitation of the feared-rather-than-loved exec. According to Howes, Whitacre’s disruptive presence at GM isn’t a question of merely being an outsider armed with a government-sanctioned license to terminate executives with extreme prejudice. Though certain decisions, such as the re-assignment of designer-turned-Cadillac-boss-turned-designer-again Brian Nesbitt, seem to indicate that Whitacre simply sets goals and fires those who fail to meet them, there’s a method to Whitacre’s madness. Howes explains:

In a place that elevated bureaucracy and ponderous presentations to high corporate art, Whitacre is routinely moving in the other direction. Give him less data, he says, in favor of more facts, more answers and more solutions from the people closest to the problems.

It’s hard to overstate how challenging that turnabout can be to GM’s often-constipated culture, where studying something to death (products, business deals, whether to prepare for bankruptcy) too often was mistaken for actually getting things done. Not in what’s taking shape inside the GM of Whitacre, named CEO last December.

Monday meetings of his 13-member “Executive Committee” are typically wrapped up in a couple of hours — unless Whitacre is on a tear — compared with the daylong “Automotive Strategy Board” confabs of old that had a corporate ritual all their own.

Monthly sales reports have been simplified, and hourly updates on the final day of each month were abolished. Forward-looking production plans no longer are reported because Whitacre couldn’t understand why GM routinely aired such competitive information when many rivals did not.

Spending within GM’s multibillion-dollar capital budget now requires fewer approvals once the overall budget is approved. Operating executives, such as North American President Mark Reuss or product development chief Tom Stephens, are encouraged to tap resources already approved in larger budgets by Whitacre and the company’s board of directors.

The takeaway: Whitacre is a delegator, focused on creating a lean, efficient management structure that he can leave to its own devices. And in his struggle with GM’s infamous bureaucracy, he is courting rank-and-file workers with down-home Texas charm, touring plants in jeans and a sweatshirt. Even UAW boss Ron Gettelfinger appreciates Whitacre’s common touch, noting to Automotive News [sub] that both Whitacre and Chrylser CEO Sergio Marchionne are a breath of fresh air in the industry because:

they’re down to earth, not a showboat. This industry has had too many showboats.

But Whitacre isn’t making the effort to cozy up to Detroit’s workers, media and union leaders because he needs new friends to go rattlesnake killing with. GM may have had its balance sheet rinsed clean in bankruptcy, but it still faces plenty of challenges, and Whitacre needs allies in place to ensure the future of his company. The Detroit News reports that Whitacre will head to Washington DC this week to meet with members of Michigan’s embattled congressional delegation, coordinate with new members of GM’s paid lobbying staff, and hold an Earth Day pimp session with the Chevy Volt on the National Mall. What the DetN leaves out is Whitacre’s actual agenda for the trip. With Detroit now safely behind him, what will Whitacre request from his government sponsors?

One clue to the Whitacre agenda comes from the Wall Street Journal [sub], which reports that the Alliance of Automotive Manufacturers is already lobbying auto task force boss Ron Bloom for increased tax benefits for electric vehicles. Having heard President Obama’s call for 1m plug-in vehicles on the road by 2015, the industry lobby is gearing up to make sure the feds offer plenty of incentives for its ambitious goal. Having peeped a letter to Bloom by AAM president Dave McCurdy and Michael J. Stanton of The Association of International Automobile Manufacturers, the WSJ reports:

The administration has awarded funds from a $25 billion Department of Energy program to help auto makers retool plants to build electric cars. And the U.S. will offer a temporary $7,500 consumer tax credit for plug-ins. The administration has also awarded stimulus funds to electric-vehicle component makers and companies that build charging stations.

In their letter, Messrs. McCurdy and Stanton urged many of those programs to be extended, though their requests were conceptual and didn’t cite dollar amounts. The requests could add up to billions of dollars, though, given the cost of existing programs.

The lobbyists also criticized an aspect of the administration’s new fuel-economy standards, released last month, that will require auto makers to eventually score against electric cars carbon dioxide emitted from electric-power plants. The change will make it harder for auto makers to meet fuel-economy targets that call for a U.S. fleet-wide average of 35.5 miles per gallon by the 2016 model year.

“This policy discourages future production of plug-in electric vehicles by making automobile manufacturers responsible for the electric energy mix of the country or a given state,” Messrs. McCurdy and Stanton wrote.

With the Volt due to launch later this year, this is exactly the kind of issue Whitacre will want to discuss on Capitol Hill. The Volt will likely be priced at a disadvantage to competitors like Nissan’s Leaf, and (even more) government subsidies are the only realistic way for it to break into the market in any appreciable volume. And with the upstream C02 emissions issue, as well as the Volt’s official EPA rating still up in the air, Whitacre will want to be sure GM’s DC staff are going after regulatory opportunities as well as possible subsidy increases. After all, GM’s number one priority is to launch an IPO and free itself from government ownership, but that outcome is unlikely to happen until the Volt is commercially viable.

But that’s not all, folks: GM needs help from the government in areas that have nothing to do with the Volt as well. A recent GAO report exposing GM’s $27b in unfunded pension liabilities presents a similarly dire risk to GM’s long-term viability, and another entry on Ed Whitace’s DC to-do list. And once again, the advance guard of GM’s influence machine has already sprung into action. Senator Sherrod Brown and Rep Tim Ryan, both democrats of Ohio, have already written a letter to the Treasury [ in PDF format here], urging GM’s masters to prevent the dumping of GM and/or Delphi pensions onto the struggling Pension Benefit Guaranty Corporation. The congressmen write:

According to the GAO, we are now facing an even greater liability in auto sector plans. The failure of additional auto sector plans would not only cost retirees tens of billions of dollars in lost benefits, it would also require the Pension Benefit Guaranty Corporation to assume an estimated $42 billion in unfunded liabilities.

As a majority owner of General Motors, the U.S. government must not put itself in the pensions [sic]. It also would be a poor outcome for the U.S. taxpayer to sell our interests in the auto sector only to have the U.S. government to assume [sic] the unfunded liabilities in their pension plans.

We would like to request a meeting with to discuss how Treasury and the Auto Task Force plan to resolve the outstanding pension issues in the auto sector and how you will ensure that the federal funding in the Automotive Industry Financing Program will protect pension plan participants and the PBGC from assuming the unfunded liabilities.

In short, we have the beginnings of the justification of another billion-dollar bailout of GM. No wonder Whitacre is rallying support in Detroit. Snagging more Volt-stimulating handouts, and tens of billions of dollars for bad pension plans will take another epic battle on Capitol Hill, and The General will need all its allies in the media and organized labor at its side in order to emerge with what it wants. Ed Whitacre has some wind at his back going into his Washington visit, but he’s also sailing into a politic environment that shows little appetite for more industry bailouts. Forget the bureaucratic shake-ups, Whitacre needs his folksy charm to go over well in Washington if he wants his company to move towards independence and viability.