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GM Readying Another Major Reorganization

Insiders brace but many hope for the best.

by on Aug.22, 2012

GM CEO Akerson tis expected to soon launch a major corporate reorganization.

General Motors appears to be heading towards a major reorganization, numerous sources indicate, one that Chairman and CEO Dan Akerson apparently hopes will shift the maker to a more global focus – and help it eliminate the sort of “fiefdoms” that have long stymied its efforts to become more efficient and competitive.

GM has been taking a number of baby steps towards this new vision in recent months, such as a realignment of its design operations meant to focus more on individual brands than specific global regions.  But the strategy has also suffered some unexpected setbacks, notably including the sudden ouster of worldwide marketing chief Joel Ewanick last month.

A reorganization could yield huge benefits if it results in a leaner and more efficient GM.  And CEO Akerson is clearly under pressure to improve things at a company that suffered a major drop in earnings during the second quarter – and which has seen its stock drop by as much as 40% since its November 2010 IPO.

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On the other hand, some observers caution that after years of turmoil, capped by the maker’s 2009 bankruptcy and subsequent federal bailout, GM’s leaders could trip the company into chaos if they’re not careful. The massive and largely dysfunctional 1984 reorganization is a clear example of what could go wrong.

Another reorganization now is “both risky to do – but risky not to,” suggests analyst Jim Hall, of 2953 Analytics.  “The question is why it has taken so long to recognize the trouble they’ve gotten into.”

Since taking the helm at GM barely a year after it emerged from bankruptcy in July 2010, Akerson has billed himself as a no-compromise change agent.  He has followed a no-excuses policy and repeatedly ousted, demoted or reassigned managers who haven’t delivered.  Most recently, that led to the departure of the hard-charging Ewanick who reportedly failed to follow company policy by trying to cover up the actual cost of a huge European soccer league sponsorship.

But much of the CEO’s attention has been focused on Europe and the near-collapse of the maker’s Opel subsidiary. That was a major factor behind the 40% decline in GM’s second-quarter earnings and, in turn, a significant reason why GM stock has been hovering in or under the $20 range lately, down from its $33 a share IPO price.

Opel’s losses are expected to run several billion this year – which would mark the 13th consecutive year in the red.  Top management in German was unceremoniously ousted earlier this summer, Akerson assigning GM Vice Chairman and former Wall Street analyst Steve Girsky to get things straightened out.

Girsky has made no secret of the fact he plans to reorganize the Opel subsidiary. He has already negotiated plant closings and other changes – though some of the moves will take several more years to implement.

But few observers, either inside or outside GM, expect things to stop at Opel.

“There are some big changes coming and it will impact the entire corporation,” a ranking executive, asking not to be identified by name, tells TheDetroitBureau.com.

Indeed, GM recently announced a major realignment of its global design operations and that, several sources stated, gives a clear indication of what is to come.  The move was meant to put more of a focus on General Motors’ individual brands – those that survived the 2009 bankruptcy.

Some believe that Opel could eventually see itself become less and less important to GM while the carmaker puts more of a focus on Chevrolet.  Its biggest global brand has been growing substantially, in recent years, both in emerging markets like China and more established regions such as Europe.  About 60% of Chevrolet sales now come from markets outside North America.

According to one executive with some knowledge of the process shaping the reorganization, “We’re modeling what we’re doing more after Volkswagen than Toyota.” That fits because VW is a company that operates numerous brands – 12 in total – and has gone through many of the challenges and changes GM faces.

But specific details of GM’s plans are a closely-held secret. Akerson, a former telecommunications industry executive, has shown little tolerance for the automotive world’s tendency to let inside information leak out.  In fact, the one-time Navy officer recently told GM employees during a corporate-wide conference call that such activities are tantamount to “treason.”

(Ironically, tapes and notes from the conference call quickly were leaked to the media.)

What seems certain, according to chief analyst Rebecca Lindland, of IHS Automotive, is that, “There are a lot of questions about the competency of many of GM’s leaders.  So a reorg would likely cut very deep.”

That would fit with Akerson’s stated goal of making GM a leaner, faster-acting company with less layers of management.  The executive also appears to be trying to ensure that GM functions as a corporate whole rather than a collection of individual fiefdoms overseen by executives more interested in their own power than the corporate good.  That was a problem similar to what Alan Mulally faced when he joined Ford Motor Co. six years ago.

“There are definitely many opportunities to reassess and realign,” says analyst Lindland.  But, for his part, consultant Hall stresses that those who ignore the past are doomed to repeat it.  And the last thing GM needs, he contends, is a repeat of what has come to be called “Rogerama.”

That’s a derisive reference to the GM reorganization conceived by former Chairman Roger B. Smith and consultants McKinsey and Company, more than a quarter century ago.  It also attempted to reduce layers and consolidate the empire by doing away with such corporate fiefdoms as Fisher Body.  But the result was the virtual paralysis of the company for nearly two years.

Considering the potential problems GM is facing, especially in – but not limited to – Europe, Akerson and his top management team likely have no choice but to make some major changes.  But they also have to ensure that a reorganization frees the maker up to become leaner and more efficient and doesn’t effectively shut it down.

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2 Responses to “GM Readying Another Major Reorganization”

  1. Ragtop Man says:

    While the following quote is usually attributed to Petronius Arbiter (author of Satyricon) it really comes from Charles Ogburn, who wrote an excellent book on Merrill’s Marauders. See if it rings a bell with anyone:

    “We trained hard, but it seemed that every time we were beginning to form up into teams we would be reorganized. Presumably the plans for our employment were being changed. I was to learn later in life that, perhaps because we are so good at organizing, we tend as a nation to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency and demoralization.”

    • Paul A. Eisenstein says:

      A wonderful quote, Ragtop. I clearly remember the 1984 GM reorganization. It paralyzed the firm for two full years. On the other hand, Alan Mulally has quite effectively reorganized Ford in ways that have made the company moves faster and more efficiently. A reorg is a tool and not an end in itself. Those who miss that are doomed to failure.

      Paul A. Eisenstein
      Publisher, TheDetroitBureau.com