Howes: Is GM as ‘vastly different’ as Barra claims?

Daniel Howes
The Detroit News

CEO Mary Barra says “GM is a vastly different company today than just five years ago.”

She said it Wednesday, as Detroit’s No. 1 automaker detailed record third-quarter earnings that demonstrate its operational gearing continues to drive in the right direction. But how do we know the “vastly different” part is true?

Among the many inconvenient truths of General Motors Co.’s past is a long history of sweeping now-we-get-it pronouncements later contradicted by awful financial performance, middling products, a slide into bankruptcy, the cashiering of a whole cadre of senior executives and events the nation’s largest automaker could not control.

This undeniable past is a source of frustration for Barra and her leadership team, for the legions of GM employees (salaried and hourly) who’ve heard all the snarky skepticism before and can be forgiven for thinking (or hoping) things really are different this time.

To borrow a sports metaphor, the only way to answer that frustration is to put more points on the board, every quarter. Not just in good times, like now in the U.S. market, but also in roiling markets like China, in slow-growth Europe, in a South America that continues to confound the industry, in the quickening next-generation quest to claim the lead on autonomous vehicles before Silicon Valley’s heavyweights do.

The burden of history is heavy. It weighs on GM’s share price, still trading in a comparatively narrow band near its 2010 initial public offering price of $33 per share. It weighs on its flat global market share, an aggregate metric that signals market demand for GM’s metal. It weighs on the perception that the archetype of American industrial decline cannot possibly change enough to make the changes stick.

Perception is a lagging indicator, often lazy and unhinged from evolving reality that refuses to comport with a narrative of Detroit haplessness. GM’s core financials suggest its automotive operations, chiefly in chronically troubled North America, are a turnaround story that’s for real and cannot be ignored — witness the 7-percent run up in GM shares Wednesday.

Pre-tax net income totaled $3.1 billion in the third quarter. Pre-tax profit margins hit 8 percent, up 2.2 points from the same time last year. GM’s return on invested capital, a marker detailing how efficiently it uses its cash, closed the quarter at 26 percent, more than double the same time last year.

“Market share is nice,” says David Cole, chairman emeritus of the Ann Arbor-based Center for Automotive Research and a longtime GM watcher. “Profits are critical. We have seen that adjustment at General Motors. Profitability is the critical thing.”

He sees profound change at GM, none more obvious than its willingness to trade market leadership for profitability. More than market share targets, sustainable profitability can reward shareholders and employees, finance near-term product investment and longer-term plays in alternative powertrains and self-driving vehicles. It also can reshape perception.

People drive change, both the leaders and the led, or block it. Behind the numbers and the sheet metal, contract negotiations with the United Auto Workers and executive salaries in the annual proxy statement, is a push to drive accountability deeper into a GM culture that long abhorred it.

Salaried compensation plans have been altered to tie raises, bonuses and promotions to real results, not best efforts to achieve goals. GM’s performance rating system has been changed. Its “not-my-problem” ethos, punctuated by the notorious GM nod of indifference, is now more like “your problem is my problem.”

Demotions, a time-honored GM tradition that allowed underperformers to hang around, sulk and stymie others, are being abandoned. And the space for “CAVE” people — those who are continually against virtually everything — in GM will steadily disappear if Barra gets her way.

You want change? Hit people in the wallet, and they’ll do one of two things: get on the team or quit the team. Barra understands this, fundamentally, and so does an executive leadership team that knows there are no more excuses, no more ways to point the collective finger at what the brass isn’t doing because they are the brass.

Talking about change in an organization as vast and tradition-bound as GM is just that — talk — until results match the rhetoric, until they do it with a consistency and discipline that cannot be ignored.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays and can be found here.

Catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM