Rick Wagoner, General Motors CEO, is trying to cut needless spending and create a fast-moving organization. The company can't raise prices, so costs must be cut to boost profits, he said.
Elsewhere, Covisint will not provide quick dot-com riches, but that's not why GM got into the purchasing venture, he added.
Automotive News interviewed him on Oct. 20. Following is an edited transcript:
What are you going to do to take costs out?
Increasingly the regulatory specifications and refinement expectations of customers are such that it's hard to nickel and dime (customers) with not exactly the right nods on the interior and stuff like that. So (you focus on) manufacturing, productivity, improving quality, reducing product development time, making sure you're on top of advertising efficiency, making sure you don't have too many layers (of bureaucracy), and making decisions fast. Those kinds of things aren't really coming at the expense of the product but can improve your business returns. We're constantly looking at how can we get the same or better output with less system costs. This requires a lot of attention to detail.
You have a cost freeze on now. Is this a short-term cleanup quarterly kind of thing, or is this sustainable?
We're in a different kind of environment. The days of pricing are gone. The competitive set is tough. We need to view these approaches on costs as fundamentally changing the way we think about the business. Does that mean we should say we can't go certain places because we don't want to spend the money on a flight ticket? Yeah. What it might mean is that in the past we had too many people flying to too many events. I think we do normally. We need the right person to go because that's part of business. If we need to be there, we need the right person there. We probably don't need as many as we used to have.
Do you have a hiring freeze on?
I don't have any that I've decreed. In certain business units people are saying they want to slow down hiring. We don't do very well in managing hiring in the industry, certainly in the company. We tend to open the spout wide or close it completely. We need to manage it a little bit. I think Ron (Zarrella, president of GM North America,) is putting a pretty tight squeeze on hiring in the U.S., except for new plants and new product programs. And Mike Burns (president of GM Europe) has things screwed down pretty tight in Europe right now. So I basically leave it to them.
Obviously, I have certain performance expectations for them, which I think lead them to push pretty hard on the cost side of the business. Frankly, I think that's good for us. We need to have people talk about cost efficiency.
So we should not look at this as temporary?
Not from my perspective. Generally we need a different mind-set. And it's big things: Faster product development time; use more computer simulations for crash tests, so you don't have to build these expensive models just to run them against the walls. But it's little things, too. It's no different than anybody running their own household budget. We're just trying to get more understanding of that. I think that's going to be with us. If we want to raise the profit margins in particular. If we just want to do OK in the boom times and scrape along at break-even in the bad times, I guess we can go back to doing what we use to do. That's not objectives we set in that area. It's going to require that we sharpen the pencil a little bit. Other businesses do that by the way, too.
Have the expectations of what Covisint (the business-to-business Internet joint venture) will be worth dropped?
I think in the environment we're in, the answer would have to be yes. I would have to say, in fairness, we and our partners didn't enter into it to make a lot of money on an IPO. If we can do that, hey, that's terrific. But the reason was to improve our base business, our interface with suppliers.
Obviously the fact that it had a chance to create a lot of market value was interesting. It wasn't the reason we got in the business, and I don't think our competitors did either.
You have set some aggressive goals for the company: 20 percent world market share, 6 to 8 percent annual revenue growth, return on net assets at 15 percent, 5 percent net profit margin. Are those stretch goals?
No, those aren't stretch goals. Those are vision objectives. I don't want them to be goals or stretch goals. The reason I created them is because I want people in the company to think differently. These are purely internal.
If we want to grow our revenue 6 to 8 percent per year, what do we have to do? Part of that is we have to sell more units. We have to sell more vehicle (features) per vehicle. We have to have segment-leading products so we can get price premiums.
But we also have to grow the service part of the business. We have to grow OnStar revenue. We have to grow GMAC. We have to grow service and parts. That's why I have that kind of objective. For a company our size, that's a big objective.
Global market share, I have two (goals). Our current share, in a traditional GM way of looking at it, is 15.5 percent. With our alliance partners, it's about 24 percent. So I said let's make those 20 percent and 28 percent. It's a big assignment to grow market share that much, particularly if the hot growth areas of the world are where your market share is the lowest, such as Asia-Pacific. To do that, you need to think differently. I can't tell you I know how to do that, but that's what I want people thinking about now.
Return on net assets, net margin, all of those are based on vision objectives.
I call them vision because I don't want to put a time frame on them. Some of them I think we can do nearer in; some of them are going to require a lot of plotting and scheming. But I wanted to set a tone for people. This is what we need to think about if we're going to be a top performing company and the leader in our industry.
Your last one is being in the top 25 percent for total shareholder return (on the Standard & Poor's 500 stock index)? What else can you do to get there besides be profitable?
We can grow. We have to convince people we can grow, and this isn't just a mature business. If you think about it, you sell cars in Western Europe and the U.S., and in every household there are two cars.
Well, if that's your mind-set, it's a mature industry. If your mind-set is you can grow, and China can be as big as the U.S. in 20 to 30 years, and if you can get there, get a good share of the market, you can get a lot of growth.
If you can convince people that customers would like more services in their vehicles, like OnStar. That's a lot of growth we never thought about. So we have to get growth and convince people we can sustain that. Second, we have to show that when we take their capital and invest it in the business, we get a good return - the profitability side of the equation. Because anybody can grow if you don't have to make money.
Hey, the top 25 percent of the S&P 500, the tech companies, have owned that for the last 10 years. It's a different way of thinking, but it gets people back to a view that we have a responsibility in running the company. And if we want to be around in another 100 years, we have to turn around the market share decline in the U.S. and globally; we have to retake the ground as the clear innovation leader in product and services. We have got to get out and grow in the Asia region. Basically this is rallying ourselves. We've got to do what we need to do to get back on these tracks. If we achieve all five of those objectives, that'd be pretty good.
We want to talk about stretching instead of giving you a low-ball objective I know I can make. That's not what I'm trying to do when I put those out there. I want people to think differently about vision objectives.
Are there any business leaders you particularly admire?
John Smale (former GM chairman) is an insightful business leader, and since he's retired, I can probably talk about him. He's helped a lot in thinking about, for example, the importance of product leadership and developing brands and supporting brands in the right way and how to think about developing management. So John's been very helpful.
If you look around at other businesses, you look at what a Cisco (Systems Inc.) has done: Create a culture and grow and continue to grow.
You have to say that (Cisco CEO) John Chambers and the people running the company have done a great job. In fact, a couple of people out on the West Coast have done great jobs.
I think what Jack Welch (chairman and CEO of General Electric Co.) has accomplished from the perspective of such a long engagement in leading a company and continually improving performance is a rather astounding benchmark you have to look at. It's something to turn a company around, or to be in the right industry and get good results for four or five years.
But to continue to sustain that and kind of reinvent the company, develop the culture to drive that for however long he's been doing that, that's impressive.
I think the inspiration from those examples is that it can be done. You can drive and achieve all those metrics. People have done it in other businesses. In the auto business, nobody's done stuff like that.
But people in other businesses that have the same challenges have done it. So we can think about what we can learn from them, and some of our competitors do a great job in some of those areas. We really need an open mind to do that.