Under pressure from the Obama administration, General Motors’ Board of Directors fired current CEO Rick Wagoner (who has been working for $1 a year) and appointed Fritz Henderson, a finance expert who made his career mainly at GM’s bank, General Motors Acceptance Corp. (GMAC), and who specialized in restructuring and job cuts. Henderson’s pay will be $1.2 m. a year. Previously he was GM’s CFO and COO.  

His first statement was to say that GM might actually welcome bankruptcy proceedings.

For 65 years, GM was the world’s greatest, largest industrial corporation. Founded by management genius Alfred P. Sloan, who put together a random collection of car makers (Cadillac, Chevrolet, Pontiac, Buick, Oldsmobile) in the 1920’s, GM took on and defeated the incumbent, Ford, with beautiful cars, powerful engines, closed bodies and colors other than black. 

For years GM was run by managers who loved, lived, ate and slept automobiles. Then it fell into the hands of the bean-counters. Its fate was inevitable. When companies are run by those who manage by P&L, rather than by design, quality, speed, horsepower and engines — in fact, when any company is run by those focused on numbers rather than on product — it deserves bankruptcy.  

What is especially infuriating is that GM could have enjoyed a far better fate*. Some 24 years ago, on Jan. 8, 1985, then-GM head Roger Smith announced the founding of GM’s Saturn division. The goal? “Saturn is the key to GM’s long-term competitiveness, survival and success,” Smith said. Its mission: “to develop and produce an American-made small car that will be fully competitive with the best of the imports … [and] affirm that American ingenuity, American technology and American productivity can once again be the model and the inspiration for the rest of the world.” It was the same Roger Smith who “diversified” GM into robotics, space satellites, and data processing, buying Ross Perot’s EDS and Hughes Aircraft. Roger loved cars so much he shifted GM away from them. He and his predecessors turned GM from a visionary car company into a bank. They invested in everything but cars.

For years, GM made no money on making and selling cars, because its cars were in fact dowdy and terrible, in looks, performance and repair records, relative to Japanese imports. Instead, GM made all its money by lending money at 11 % to impatient car buyers, who wanted to drive home with their new car and yielded to “just sign here on the dotted line” to GM car loan peddlers. GMAC borrowed money at low interest, and lent it at high interest. This was GM’s real business. When the global financial crisis, rising interest rates and unfunded pension debt and health care debt lowered GMAC’s credit rating, boosting its interest costs, GM’s fate was sealed. 

saturnSaturn was to emulate Japanese quality, excellence and productivity. And it succeeded. GM’s Saturn division made great, dependable cars that rarely needed repair. It was GM’s first new brand in 70 years. People loved them. Tens of thousands of Saturn owners used their vacation days and flocked to Saturn’s plant in Spring Hill, Tennessee, 45 miles south of Nashville, to celebrate Saturn Homecoming. Ever hear of Chevrolet owners doing that? Paul Ingrasia reports:

In June 1994 more than 40,000 Saturn owners and their families trekked to Spring Hill for the first Saturn Homecoming. It was the sort of “cult car” gathering usually attended by owners of 385-horsepower Corvettes, not by people who had purchased 85-horsepower econocars. The Saturn owners were feted with factory tours, country-music concerts and barbecues with the people who actually designed and built their cars. After selling fewer than 75,000 cars in 1991, its first full year, Saturn sold more than 286,000 in 1995, and topped the respected J.D. Power Customer Satisfaction Survey.

In order to make Saturn innovative and different, GM built a fireproof impenetrable Chinese Wall between it and the other divisions. The reason? GM’s bean-counting anti-innovation dull-design bureaucracy would otherwise kill Saturn. Its cost-reduction standardization made Buicks look like Chevies, or Pontiacs, and its premium Cadillac began to look like a Hyundai.  Of course Saturn had to be insulated.

Problem was, if GM could not infect Saturn, neither could Saturn teach GM to make beautiful durable cars.  That Chinese Wall vaccinated Saturn from bean-counting infection, but also vaccinated GM from Saturn’s love of quality cars. Saturn is now being treated like the same toxic sub-prime mortgage assets GMAC bought.  

“This is a real tragedy,” says Prof. Saul Rubinstein of the School of Management and Labor Relations at Rutgers University, who coauthored a book on Saturn. The lesson for GM and its American rivals now struggling to stay in business, he says, is that when they launch daring innovations, they need the will and a way to ensure that those ideas don’t get drowned by the corporate mainstream.

General Motors deserves bankruptcy. The CEO’s who led it there — Roger Smith, Rick Wagoner, and now Fritz Henderson — deserve infamy. They earned tens of millions of dollars, in return for ruining a great company. They betrayed the memory of Alfred P. Sloan. They betrayed the trust of many thousands of hard-working car workers, who worked with pride and honor.  They do not deserve a cent of American taxpayers’ bailout money. They taught the world, and generations of MBA students, a key lesson. 

If you do not love your product, if you do not innovate, if you do not manage your product and instead manage your short-term bottom line, if you cut costs instead of creating value, you may pretend you are maximizing shareholder value, but what you are doing in fact is destroying long-term shareholder value and destroying jobs. Your behavior is not only bad management, it is morally wrong. You give management everywhere a bad name, a bad taste and a bad smell.  

There is no room for Saturn in GM’s future — because GM has no future at all, thanks to those who ruined a great company.  

_______________

*What follows is based in part on: Saturn was Supposed To Save GM, by Paul Ingrassia, NEWSWEEK, April 13, 2009.