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Turnaround in Motor City?

Can the beleaguered Detroit auto industry manage a fiscal U-Turn?
Paul A. Eisenstein
From the Print Edition:
Catherine Zeta-Jones, September/October 2009

When Bob Lutz climbed aboard his helicopter in February, fired up the engine, and lifted off the makeshift landing pad at the now weed-choked edge of the General Motors Technical Center, in Warren, Michigan, it seemed the end of an era. With a salute learned during his days as a Marine pilot, the 77-year-old executive pulled back on the stick, lifted into the air and made a low pass over the "Design Dome," the silver-topped studio where some of the automaker's best—and worst—products have gone through the review process over the last half century.

Lutz had been brought in by the former GM chairman and CEO Rick Wagoner to help fix the automaker's broken product development system, an enterprise once renowned for vehicles like the Corvette and Cadillac Eldorado, but more recently reviled for abortive efforts like the Pontiac Aztek. After nearly seven years, the septuagenarian had pulled off some minor miracles, like the award-winning Chevy Malibu and Cadillac CTS. But with GM's fortunes failing fast, Lutz had calculated that a turnaround would take at least five more years. "I did the math and decided 82 was a little old to be dealing with these problems."

Lutz was by no means the only senior executive walking away from GM—whether by choice or coercion. Wagoner, the former college basketball star, had projected a full third of the company's top management would be gone by year's end—even before he himself was benched by the Obama Administration. The White House, which was dangling a $50 billion bailout package, became convinced Wagoner simply couldn't accept that the only way to save the 101-year-old automaker might indeed be to break it—to accept that bankruptcy was necessary to shed GM's crushing debt and restructure an unworkable cost base.

Mere months later, the once impeccable General Motors had achieved restructuring in record time. And Lutz had changed his mind about retirement, deciding the government would make a good partner and that a leaner, meaner GM was set for a turnaround. This time he would concentrate on his area of expertise—marketing—saying that his stint in product development had been "like practicing medicine without a license."

Not only were things starting to move at GM, but Chrysler, now allied with Fiat, had negotiated bankruptcy court equally as quickly. Ford has achieved its own peace, rejecting government bail out money in the belief that it could weather the economic storm by itself. Still the government-led effort to save the makers has generated a sizable measure of controversy, even triggering the threat of a boycott of GM and Chrysler products. After years of decline, there is plenty of justification for skepticism, yet there are also signs that the Motor City makers shouldn't be counted out, either collectively or individually.

GM and Chrysler are leaner, more aggressive entities than they have been in decades. Ford, meanwhile, is taking assertive steps of its own and beginning to reap the rewards. And after years of lackluster efforts, American companies are starting to turn out models that are making the auto critics approve.

At General Motors, the man called in to replace Wagoner was, to some, an unlikely hero in this scenario. Physically the Jeff to the ousted CEO's lanky Mutt, Frederick "Fritz" Henderson actually followed much the same career path as his mentor and predecessor: the Harvard MBA, the start at the GM Treasurer's Office, in New York, the overseas assignments including a stint in Brazil and Europe, and in Henderson's case, China. But the blunt and pragmatic Henderson knew that his job— and everyone else's at GM—depended on accepting the unacceptable. And on June 1st, Henderson, with the corporate board's reluctant approval, signed the paperwork that essentially ended the existence of a company that, for most of its first century, was synonymous with American prosperity and might.

No, the oft-quoted line attributed to former GM President Charley Wilson, "What's good for General Motors is good for America," wasn't quite accurate. (He actually declared, during a Capitol Hill hearing that "What's good for America is good for General Motors, and vice versa.") But choose the version you wish, for much of the 20th Century, either seemed to fit. But do they still, today? Apparently, the answer is yes, at least if you believe President Barack Obama, who is risking both his personal reputation—and tens of billions of dollars of taxpayer money—to bail out not just General Motors but its crosstown rival Chrysler.

The Arsenal of Democracy

If Detroit was the "arsenal of Democracy" during the Second World War, GM packed the heavy powder. When peacetime returned, it became the big engine of the economy. By the mid-1960s, its brands, Buick, Cadillac, Chevrolet, GMC, Oldsmobile, Pontiac, controlled more market share than all its competitors combined—triggering a decades-long battle with a Justice Department Antitrust Division that was intent on breaking up the automaker. It needn't have worried. Success was about to lead to excess, excess to complacency, complacency to failure.

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