Saturday, July 15, 2006

Wagoner and Ghosn at center court

GM CEO Rick Wagoner loves to boast about his basketball career. Based on his relatively weak management of GM, it looks like the better performing Nissan/Renault’s Carlos Ghosn should win when the two face-off at center court over the next 90 days. GM needs a turnaround general manager like Ghosn, not a finance expert like Wagoner.

Their respective track records suggest that Ghosn will win hands down. Since taking over Nissan in 1999, Ghosn has overseen a 7.6% compound annual increase in sales to $79.8 billion, a turnaround from a loss of $216 million to a profit of $4.8 billion, and a 156% rise in stock price to $20.45. By contrast, since Wagoner took over in 2000, GM’s sales have risen at compound annual rate of 1% to $199 billion, it’s gone from a $4 billion profit to a $9 billion net loss, and its stock has lost 64% of its value tumbling to a current $29.79.

How did Ghosn do it? According to
BusinessWeek, Ghosn is great at cutting costs, developing new product lines, working with dealers, and listening to employees. He sets out specific plans and overcomes resistance to change that comes with the territory when a Lebanese-Brazilian-French executive tried to make headway in a Japanese company with proud traditions. Moreover, he demonstrated a skill at identifying where in the world core activities – such as manufacturing, design, and purchasing – are best performed to achieve optimal outcomes.

As part of his "Nissan revival plan", Ghosn closed five factories, reduced the workforce by 21,000, sold non-core assets, paid down debt and redesigned the cars. More importantly, he set specific targets and not only met but surpassed them – winning over even his most vocal critics.

Why has GM faltered? According to BusinessWeek, under Wagoner, GM’s relative costs remained high, its SUV and truck-laden product line generated profit when gas prices were low and then failed to adapt when gas tripled and steel prices climbed. Moreover, Wagoner’s background in GM’s highly profitable finance arm has not helped him figure out an effective strategy to fix the car business.

Kirk Kerkorian is clearly forcing the center court face-off between Ghosn and Wagoner. With his investment in GM just about at breakeven, he would be better off with Ghosn in charge. Turning around a moribund global automobile company is a task for a general manager like Ghosn, not a finance guy like Wagoner.

Wagoner should be able to realize this intellectually. The challenge for him will be overcoming his understandable desire to keep his job.

But for GM shareholders’ sake, the 6’ 4” Wagoner should let the diminutive Ghosn get the ball.

1 Comments:

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10:39 AM  

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