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Why General Motors Ditched Fritz: Analysis


(L to R) General Motors Chairman Ed Whitacre, Vice Chairman Bob Lutz and Ex-Interim CEO Fritz Henderson (Photo by Bill Pugliano/Gabriel Buoys/AFP/Getty Images) The painful, if brief, Chapter 11 bankruptcy GM endured earlier this year was apparently not enough to change the face of General Motors. Nor was the White House's ouster of CEO G. Richard Wagoner Jr. last March. The new chairman of GM, Ed Whitacre, and its newly minted board of directors moved to replace CEO Fritz Henderson Tuesday, Dec. 1, the day before the CEO was to deliver the keynote speech at the Los Angeles Auto Show. After less than five months on the job, the move to oust Henderson, a 25-year GM veteran, seems calculated to clearly communicate that the old GM is really dead.

Henderson had been hatcheting costs at GM since the bankruptcy, and sales since GM came out of Chapter 11 last July have been running above targets. But Henderson's fate was likely sealed the day he took the CEO job when the White House auto industry task force asked him to serve as "interim CEO." Henderson refused, saying the title wouldn't give him the teeth to get the job done if people thought he was leaving.

It appears now that the White House, which bailed out GM and provided taxpayer financing to the automaker through the bankruptcy process, never felt there was a commitment to Henderson, and let the board of directors know they could replace him with a fresh face at any time. That face will be Ed Whitacre, who starred in GM's first post-bankruptcy TV ad.

Henderson is a finance-oriented executive with a track record of cutting costs and boosting efficiency at GM Europe and GM Asia. But GM's problem now, having shed legacy healthcare costs, excess employees and debt, is growing market share and revenue. Whitacre and the board did not believe that Henderson, who apprenticed under former CEOs John Smith and Rick Wagoner for 25 years, was the person to overhaul GM's culture. "I can tell you that changing culture fast is not easy, but very necessary to deal with where the industry and our driving culture is going...we have gone through a big culture change at Ford and it is still going on every day," says Ford's America division president, Mark Fields, who did not want to comment specifically on Henderson's ouster.

Henderson did not see eye-to-eye with chairman Ed Whitacre, who was brought in by the White House after Henderson was given the job: Henderson was keen to sell off the company's Opel division in Europe, a move the board reversed. He led the selection of "preferred buyers" for Saab and Saturn only to have both deals fall apart because the would-be buyers backed out of the deals at the 11th hour. Henderson pushed back on replacing chief financial officer, Ray Young. And Whitacre looked at how much GM had budgeted for marketing, deemed it insufficient to compete against rivals Ford and Toyota, and boosted the funds by some $500 million.

Now that Henderson is gone, attention will FORD FOCUS on Whitacre's stewardship of the company, as well as his relationship with vice chairman Bob Lutz, who has led the company's significantly upgraded product line and now is the company's chief marketing officer. At a time when GM was hoping to FORD FOCUS on rebuilding trust and credibility with consumers, the search for its third CEO in eight months will undoubtedly be a distraction.

"I am very sorry to see Fritz go," Lutz said, standing in for Henderson at the 2009 LA Auto Show. "Meanwhile, we've got a large, great corporation to run," he said. "We're going to do our duty and keep the FORD FOCUS on the product because, at the end of the day, that's what's going to save the company."

Following his speech, Lutz told reporters that the announcement came as "a psychological shock" to employees. "You can dwell on what happened and let it get you down, [but] that's certainly not the way I was trained in the Marine Corps," Lutz said, "and I think the rest of the executives at GM are just going to say this is something that took us by surprise, something we wouldn't have done, something we don't necessarily like. But our loyalty is to General Motors and the shareholders and the public that buys our cars."

The board of directors may have a difficult time recruiting a top executive. GM is limited in what it can pay in salary and it can't offer stock or options until it does a new initial public offering. Whitacre and the others on the board' search committee, with advice from the head of the White House auto industry task force, Ron Bloom, will work with an executive recruiting firm and also tap Whitacre's rolodex. It is also possible, some auto executives theorized on the auto show floor, that Whitacre may choose to hold the job himself through GM's eventual IPO.

Within the auto industry, top candidates are likely to include Ford's James Farley, who is group vice president of global marketing, as well chief of its Canada, Mexico and South America operations. Another candidate is Mark Fields, president of Ford's Americas division. Ford's turnaround under Alan Mulally, who came to Ford in 2006 from Boeing, is a model that GM board members are said to admire. Hyundai Motor America CEO and President John Krafcik is also a probable candidate. Former Toyota North America chief and Chrysler vice chairman James Press has been spotted at GM's offices, according to industry sources. But Press's well-publicized personal financial problems and his performance at Chrysler leading up to that automaker's bankruptcy would make him a long shot for serious consideration for the CEO job.

The problem of not being able to offer a new CEO stock, options, a fat paycheck or even a company plane could be mitigated by the possibility for an executive to cash in later by being granted a significant award of stock when GM goes public again.

Wall Street analysts have been amused that there is still nominal trading going on of GM's shares on the over-the-counter "pink sheets"lutz in the middle despite the company being delisted from the New York Stock Exchange and the old shares being essentially worthless. If the new GM board was looking for symbolism to show that the old GM was history, perhaps asking for Henderson's resignation will push that message deeper into the American psyche.



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