Here we are — the 100th anniversary of GM, and here you are leading one of the world’s most-celebrated corporations … what does it mean to you leading the company into the next 100 years?
It’s a special privilege. Obviously, not many companies get to be 100, and not many people get to be in the position of leading them. So for me and for us, it’s a terrific time to look back and remember this history of the company … although, you know, our [mid-July] announcement highlights that it’s not all smooth sailing … Nobody survives 100 years without going through some tough times and, in that sense, I suspect that at some point, somebody will look back and say, “This toughened us up to be able to go on another 100 years.”
What would you want the Rick Wagoner biography 50 or 100 years from now to say about you?
Well, I think I’d want it to say that we took the steps necessary to make sure the company was well-positioned to be successful in the future. And so, that’s some tough stuff. … I think, very importantly, making sure we’re leading-edge on technology. And I think we’re on the verge of moving into the next era of automotive propulsion, and … making sure we’re building the strongest team at all levels around the world because, in the end, maybe even more than product and technology, that’s what sustains an enterprise for a long time. What would you hope wouldn’t be in a biography on you? I guess that I ran a bowling alley (which, of course, is what happened to GM founder Billy Durant).
With all of the challenges [that GM] is facing now … especially given rising energy prices, a challenging U.S. economy, and tightening of consumer-lending standards, what will be the challenges that you’ll face that maybe we haven’t even thought of yet?
We’re beginning to face it, Paul, but I think the biggest one that the industry faces — and maybe even the world — is this issue of, really, it is now time for us to develop some alternative sources of energy. Certainly for the auto sector, but maybe not just for the auto sector. … Almost all of the rest of the world is beginning to move into an era — they’re not there yet — of the same kind of prosperity and benefit that we’ve had the advantage of growing up with here in the U.S. And with that has come greater demand on the traditional source of energy and more concerns about the ramifications of that, whether it’s the risk of the supply of the energy or the emissions’ environmental impact, and so it’s really time to move to the future, and that’s what brings a lot of uncertainty. What is the technology? Do we get that right? What are the risks in doing that? How do we get consumers to embrace it, and how do we make a business out of it? [That] may be the hardest thing because some of these new technologies are amazing in a lot of ways, but as we sit here today, a lot more expensive than the internal-combustion engine, which we have been working on for 100 years, so it’s not surprising that it’s incredibly efficient, durable, high-quality, reliable, and works under all conditions that we can imagine. That’s a high hurdle, but it’s an important one for us. So I think that’s probably the biggest challenge that I see for us and our industry and, in some sense, beyond our industry.
It must be very frustrating for [you] to wake up one day and see that an analyst is out there saying things like, “Well, you know, GM going bankrupt is not out of the question.” You believe that isn’t true or anywhere close to being true.
Absolutely. … When [Merrill Lynch analyst John Murphy] said it (possible bankruptcy on July 2), … It just catches on like wildfire, and I’m sure this guy is well-intended and maybe … didn’t even realize the extent of the importance of his comment, but then he gets picked up [by large news organizations], and I remember that day, the headline initially posted on the Yahoo page [read], “GM Bankruptcy Not Impossible.” And within 30 minutes, somebody had changed that headline to “GM Bankruptcy Possible.” And so I interrupted [GM Vice President of Global Communications] Steve Harris’ vacation … and I said, “Steve, somebody’s changed the headline … and it’s got, frankly, even worse overtones. Can we get that changed?” And as of 24 hours later, the headline wasn’t changed. It tells you that there are some people who like the controversial, even if it’s not accurate or likely or plausible … because it stirs things up.
Do you have challenges that are far greater or even far lesser than other car companies?
I think it’s fair to say that each company, because of history and … their current structure, [each] has a somewhat different set of challenges, and I think that some [challenges] are unique to [General Motors]. But maybe not so different from, say, Ford, because our histories are so much the same in many ways. But our challenges are … moving from a completely decentralized business model of … the first 90 years of our existence to one that integrates our global resources effectively in product development, in technology development, in manufacturing knowledge, and really successfully applies that locally. I think we’re moving in that regard. I think other companies have different variations of that challenge. … One of the challenges we have is that, unfortunately, our balance sheet is weak. Why? A lot of reasons, but we have spent $103 billion over the last 15 years meeting historical obligations — pensions and health care for retirees. And the use of that money has, in one way or another, obviously affected the strength of our balance sheet. We’ve had to borrow to do that; we’ve had to sell assets. And so as we go into a down cycle in our most important market — the U.S. now — we don’t have a lot of … nuts stored away for the winter. We have some, but part of the reasons for our [July] announcements … we’ve got to get our business structured up so we can get into a cash-generation mode pretty quickly because we cannot continue just to draw indefinitely on our balance sheet. Some other companies are not that dissimilar from us, but I think it’s fair to say that our major competitor … some people would say it’s Toyota — and they’ve kind of been on the opposite side of this. They’ve been storing away nuts for the winter for a long time for a variety of reasons — some that reflect a fine job of running their business — some kind of history and geography — they’re in a market [that] tends to [be] protected and [that] has favorable exchange-rate policies for their exports or whatever, and so you add it all up and you say, “We’ve got to get it right now, guys. We don’t have a lot of margin for error.” Hence, frankly, sometimes [we make] some tougher moves than we’d like to make. …
Do you think that pickup trucks and SUVs will ever come back in any way, shape, or form if they’re not alternative-fuel vehicles?
I think that the answer depends … It’s a little different. For pickups, there’s some significant portion of the pickup market [that] is really work — bought because of its functionality, and I think that has been particularly hard-hit, obviously, by higher fuel prices, but also by weak housing and a weak economy. And, historically, that portion of the pickup market has been somewhat cyclical, so I suspect some of that will come back. And we can help it come back by continuing to improve fuel economy. We’ve got hybrids coming out on our full-size pickups next year. These are the kinds of things that the industry needs to do to make sure that segment can come back to consumers. There is a segment of the pickup [truck] market and a bigger portion of the SUV market [that] hasn’t been just driven by functionality, but it’s been kind of a fashion purchase. It’s the “in thing” for people [who] want flexibility space — the ability to carry a lot of stuff with them … I think with the SUVs — we’re going to be working with a market that’s significantly less than it was at its peak. The trucks will come back some, but I suspect that the fashion portion of the truck market is going to be smaller going forward.
What do you attribute GM’s long-term success to, including the company’s ability to tap early into emerging markets like China, India, Russia, and Brazil?
Actually, it’s in our history. It’s fascinating as you read [about William] Durant and then particularly [Alfred] Sloan’s early days, GM was out looking at setting up beachheads … around the world back in the 1910s and 1920s, and a lot of our businesses and relationships today overseas relate to purchasing Adam Opel [in 1929], we bought Holden in Australia [in 1931], we started up the business in Brazil in the ’30s … we had an assembly plant in [Sweden] back in the ’20s … we had a higher market share in Japan toward the end of the ’30s than we did in the U.S. So it was part of our history. You mentioned four or five countries, and what’s interesting to me is that the story [with] each one is radically different. Brazil — as I’ve said, we’ve been there for 80 years. And, in fact, Ray Young, our CFO; Fritz [Henderson], our COO; and I all ran [GM do Brasil] at one point in our careers, so it’s a longtime member of the GM family; others, more recent. I give Jack Smith … a lot of credit for sort of seeing when it was time to push hard to go in China, and when we decided to go there, we went hard. We went without reservations and with full commitment and have been rewarded. We were actually trying to get back in India before China, and we tried a couple [of] different things and, frankly, they weren’t that successful. Finally, I think we’ve got the right formula … because we’ve got the right product mix. So that’s kind of got a different story than China. It hasn’t been an uninterrupted success — our approach into India, but I think we’re finally getting our sea legs. …
I can’t believe how many GM cars I see on the road in China. I may see more GM products on the road in Beijing than I will in any California city.
Unfortunately, I think you’re right.
Is that possible?
Well, if you go to Bakersfield [California], that’s probably not a true statement. But if you go on the coast to the big cities, particularly if you’re talking cars, I suspect that the map would support your statement. As you get more in-state, we probably do a little better. But you’re right. …
What also occurs to me is the potential of 300 million more drivers in China in the years to come, which is great for you in terms of potential sales, but I don’t know how they’re going to handle the traffic. And the fuel consumption and the pollution that they have there … it’s impossible to describe to people how polluted — Beijing, for example — can be?
The setup of Beijing is not that great; it’s [located near] a desert. They do get a lot of dust just blowing into the city, so the base point isn’t great. And there are a lot more cars in Beijing than there are in Shanghai, and then you get this phenomenon, which I think will sort itself out over time, but as the big cities in China have developed, there are still a lot of manufacturing plants in the city. And I think it’s fair to say that the standards of industrial emissions and things of that sort that we’re used to in the U.S. — maybe we weren’t always used to them — in some cases in China, they haven’t caught up. So those kinds of things are going to have to play out. But I think the first part of your question is ultimately the more interesting one. So you’ve got 300 million people buying cars; good for us. But, boy, that really does require sophisticated road and traffic-management systems. By the way, the world is much better set up to provide those today than when the U.S. got started in this business 100 years ago. …
How did you react when the front pages of the newspapers were acting as if Honda was the first to come out with hydrogen-powered vehicles when you’d been doing it for years?
Well, we it just sort of reminds us that it’s a competitive game, and while we may have been the very early leader in that, in the end, it’s going to be about who can stay with these technologies and who can bring them to mass market. And I think it’s now kind of fun for everybody to be jockeying for position as to who’s the leader in fuel cells. But in the end, the leader in fuel cells is going to be the company that, as my colleague Larry Burns [GM Vice President of Research & Development and Strategic Planning] says, “gets to a million units of production in consumers’ hands.” That’s when this technology really matters. So it’s going to be a race … and that’s the competitive nature of what we do, but ultimately, the race will be decided — at least the important first leg — when somebody gets it to market in volume and the consumers will say, “That company is the leader in this important technology.” Would you push General Motors harder for the hydrogen-powered vehicles than, say, the plug-in hybrids? No, I think it would be a mistake to do that. We have to push … on all fronts, ranging from biofuels to battery-powered to the whole fuel-cell concept because we don’t know yet which technology’s going to win. So we’re having to run several parallel paths, which is somewhat expensive for us, as a big company. [For] a smaller auto company, it’s probably, relatively, even a greater burden. But we don’t know which one’s going to win, and, in fact, they all may have their role … over the next five to 20 years. So at this point, we’re trying to push them all on parallel paths, although it’s clear to us, for example, that battery technology is going to play a role in the market and a bigger role — sooner — than fuel cells will. But I can’t tell you for sure that 25 years from today that fuel-cell demand might not ultimately be the winner. So for now, we need to keep riding several horses in this race, and so far we’ve been able to manage it at some expense.
How does your environmental strategy differ from your competitors’?
It depends on which competitor, but I think one of the things that maybe distinguishes us from most of our competitors is what we were just talking about. We have really put a massive amount of resources across the full range of technologies, and I think we can do it because we have a [deep] global R & D footprint, and we have the willingness to commit a lot of engineering resources to develop it. I think a couple of [our competitors] are trying to do the same thing. Toyota would be trying to attack across a broad range, as well. They obviously started out faster in hybrids than us; we’re trying to catch up. We’re ahead of them in biofuels; we’ll see who gets ahead in the battery-powered vehicles; we’re both fighting it out on fuel cells. So at this point, I can argue that we’re ahead, but it’s an academic argument and it doesn’t really matter. What really matters is who’s ahead when this stuff ramps up to production in the marketplace. What are some of your favorite moments and least favorite moments during your career at GM? I think favorite moments are always the chance to take on the new and interesting assignments. When I was first in Brazil from 1982 to ’86, that was a tremendous opportunity for me to learn; I loved that. Being in Zurich when the Berlin Wall fell — and we were pushing our footprint out to the east — that was an exciting time. I think it’s fair to say that being here in the U.S. when we were involved in the turnaround that Jack Smith led in 1992-93 — that was a very, very stimulating time. And I think some of the more recent work we’ve been doing on revitalizing product and technology here has been a lot of fun. I think the tough stuff, the hardest stuff, is when you have to do what you have to do, which is kind of restructure costs in a way that effects people who have worked hard and are well-intended and who are GM to the core. So whether you need to close plants or — obviously we’ve made moves on benefits … These kinds of [things] are not fun to do. In the end, if you’re a leader, you must lead. So you have to do what you need to do, but … it’s the kind of thing that keeps you awake at night. These are very tough decisions being made in lots of industries, and these decisions are not made lightly or taken lightly.
When you were a teenager, what was your favorite car?
My favorite car was a [Chevrolet] Camaro; my first new car that I bought was a ’73 Camaro. It was the cheapest one. It was the end of the model year, and I went in — it was really cheap. It had no air-conditioning, nothing, but it was a fun car, and I kick myself for selling it. Ironically, when I started to work for GM in New York, I couldn’t afford to park it in Manhattan. … [But] if I were going to collect some vintage cars, I would go after the Camaro. I’d probably prefer a ’69 SS.
Paul W. Smith can be heard weekday mornings from 5:30 to 9 a.m. on WJR-AM 760.
