GM's Wagoner: Right to go but questionable timing

Well I suppose if you're tenure in charge sees a drop in U.S. market from 32% to 18% you can't complain if you are shown the door. Rick Wagoner is out as GM chief. The action is not that surprising – the company lost $80 billion in the past four year, but the timing might be questionable.

The benefits of pushing Wagoner out might include:
1) It sends a very strong message to GM partners – employees, shareholders, suppliers (God help them), customers that things must change fast
2) The Obama administration is SEEN to play hardball. If nothing else (and there is a lot more) this is a great PR move
3) Improved strategy. This one is a bit more questionable. GM has a relatively good strategy plan geared towards fuel efficient vehicles which are built well. The problem has been the speed with which it moved. The government is obviously forcing a faster pace but GM is as much an ocean liner as the economy that Obama spoke about last week
4) It forces change in the boardroom. One of the real mysteries of the whole GM story is how the board did not ask for change at the top some time ago. Wagoner may be a very competent, intelligent (obviously persuasive) manager, but there are few industries where a CEO with his results would have maintained board confidence.

There are a number of ironies.
GM’s Chevy Malibu is rated by most auto journalists as comparable to the best selling Toyota Camry. It is a very good car but one that just does not have the brand credibility of anything from the magnificent Toyota stable. So Wagoner at least leaves with the satisfaction of knowing GM can produce good cars.

The drive to fuel efficient vehicles might cause GM even greater problems. To succeed in the long term, fuel efficient vehicles must be priced competitively and must be profitable for the manufacturer. Even with the Toyota Prius neither of these elements apply. The Prius is a relatively expensive vehicle and there is much industry skepticism that it generates anything but minimal profits for Toyota.

GM’s major play on the electric car – the Chevy Volt, is a huge investment and an even bigger gamble. The car likely will command a $3-5,000 premium over a regular vehicle with comparable features. The regular consumer will not pay that premium until gas hits $4-5 again. However, you can be sure that the government focus will be on this type of vehicle. Despite all the hype about fuel efficiency, consumers are not buying these vehicles in large numbers.

Toyota sold 143,000 Prius last year. Vehicles that outsold it include, Camry, Civic, Corolla, Altima, Impala, Honda CR-V. In fact, hybrids account for less than 5% of total vehicles sold in the U.S. Some of this is due to limited supply but the real reason is that the consumer is not as interested in these vehicles (at current prices) as government and media would like us to believe.

A final word on Wagoner. Industry sources suggest he is a genuinely OK guy. Today he is just one more number added to those in job search. No matter how financially well off you are, getting the bullet is not easy. I wish him well. Given his knowledge of restructuring and cost cutting, he may well be a great resource to other companies.