A generation ago, then-Chrysler Corp.’s manufacturing guru, Denny Pawley, told me something I’ve never forgotten:
We’re not afraid of the Japanese, I was surprised to hear him say. We’re afraid of General Motors. If they can ever get that place turned around, they’ll crush us all.
General Motors Co., for much of the past generation a financial laughingstock amid much of the investor, media and Silicon Valley classes, is blowing the doors off — principally in the North American market that proved so fraught in the 1990s and 2000s. And its Sick Old Man in Europe, aka its Opel brand, appears finally on the mend.
All it’s taken is a taxpayer bailout-turned-epic bankruptcy, the ouster of a whole cadre of senior executives, five CEOs over the past seven years, board churn and the clarifying heat of the deadly ignition-switch scandal. It’s taken euthanizing four brands, cutting jobs and plants, reviving design, rationalizing product portfolios and patiently implementing Toyota-based manufacturing methods.
More, it’s required a new generation of leadership — much of it culled from GM’s ranks — prepared to embrace the world, labor and competition as they are, not as headquarters wants them to be. It’s a generation of leadership committed to running the company according to widely accepted financial principles, not economic laws known only to Detroit institutions forged in Motown’s bygone Golden Age.
With each passing quarter and each new product launch, each new set of record revenue and record North American profits, and each new foray into the “mobility” space of the fast-approaching future, the machine of Pawley’s prophecy looks to be coming closer to realization.
GM hasn’t arrived yet, however frustrating that may sound to insiders who push every day to escape a past they know well but cannot change. Burying that kind of automotive history, deeply etched into many American minds, comes only with performing consistently in the present (which GM is doing) and making the right bets on the future (which remains TBD).
“We see a significant opportunity,” CEO Mary Barra said Thursday, referring to the mobility spaces defined as shared, electric and autonomous vehicles. “That’s why we’re moving aggressively on all fronts. It builds on top of a strong core business.”
For evidence that skepticism of the New GM is real, look no further than its share price. The automaker delivers record first-quarter revenue, record adjusted earnings, record average transaction prices (the bottom line paid by real people) and return on invested capital of 28.5 percent and — what?
GM shares gained 45 cents to close at $32.64, a 1.4 percent gain on a down day but still more than $4 below their 52-week high. Not quite a yawn, that, but close for a company that returned to shareholders $600 million in dividends and $300 million in share repurchases on the quarter even as it pumped $2 billion into its U.S. pension plans over the first four months of the year.
Net revenue of $37.3 billion outstripped expectations by roughly $2 billion; profits doubled in the quarter; adjusted earnings-per-share outperformed expectations; adjusted operating margins exceeded 7 percent and are on track to average 10 percent or more for what is likely to be another record year, CFO Chuck Stevens says.
I know: we’re at the top of a long-running business cycle — the longest, in fact, since the Golden ’60s. Low gas prices and low interest rates, pent-up demand and a fleet averaging roughly 11 years old all combine to create ideal conditions for GM (or Ford Motor, or Fiat Chrysler, or Toyota Motor or any of other majors) to sell, sell, sell.
I know, too: GM booked runs before, only to fall on its collective face once the market slowed, the cash-flow dwindled and all the bad, undisciplined decisions exacted their vengeance. As someone who’s covered the company in nearly 25 countries on three continents, heard the promises and seen them broken, this time feels different.
Cynicism is easy, often grounded in experience unwilling to acknowledge change. It’s easy to look at the pedigrees of GM’s current leadership, think “Old GM” and conclude nothing’s really changed there. But it has.
Old GM would never have abandoned Russia because the prospects of continuing instability dramatically affected the new car market and effectively trashed the company’s expectations. Old GM would have persevered and absorbed the losses; not New GM, who decided open-ended uncertainty did not justify continued investment.
Old GM would have kept building vehicles in Australia, convinced that being a global automaker means assembling product on every continent save Antarctica. Not New GM, whose decisions increasingly acknowledge the core principle that the company is in business to make money, not justify its presence in every corner of the world.
Old GM would have stuck with the last-generation Chevrolet Malibu long after it became abundantly clear the midsize sedan simply was not competitive with the best of Ford, Toyota, Honda and Nissan. Not New GM, whose willingness to acknowledge mistakes and move quickly to correct them evinces a maturity the company long lacked.
Old GM would have redeployed executives from the same cadre of insiders to lead revivals of Opel in Europe or Cadillac in Detroit. Not New GM, whose top leaders have aggressively courted senior executives from Volkswagen AG and Audi AG by way of Nissan Motor Corp.’s Infiniti to lead turnarounds of Opel and Cadillac.
The machine of Denny Pawley’s conjuring is in the process of turning. It’s just not there yet.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.