New Blood? It's Another Important Issue for Big Three

New Blood? It's Another Important Issue for Big Three

By Dale Buss

The president's expected short-term bailout of the Detroit Three automakers will leave the industry with lots of short- and long-term issues. One of the biggest is who will lead them.
 
As they pulled the plug on their own rescue deliberations last week, some in Congress seemed to believe they could run the Detroit Three automakers better than the CEOs do. President-Elect Barack Obama also has suggested that some top auto executives have a "head-in-the-sand approach" and should lose their jobs. And the American public, at least as measured by polls, don't seem to want to give a break to the automakers' current leadership either.
 
Could others actually perform better as CEOs of General Motors, Ford or Chrysler than Rick Wagoner, Alan Mulally or Robert Nardelli have -- and will? If so, where would these executive savants come from? And will we ever see any of this new blood in Detroit?

"Certainly leaders can come in from other industries, because at the end of the day, these are capital-goods manufacturing organizations," said Rich Folts, partner in Battalia Winston International, a Chicago-based executive-recruitment firm.

And fortunately, said Fariborz Ghadar, "The fundamentals of business are the fundamentals of business." The director of the Center for Global Business Studies at Penn State University added, "Sure, you'd like to find someone with some international experience and someone who is in manufacturing, rather than the financial or service sector. But there are lots of candidates.

"Remember when they brought in [former Boeing CEO Mulally to Ford in 2006]? He's now doing relatively better than the other two. Once you get inbred, it works to your disadvantage."

But Mulally's relative success aside, most folks inside the auto industry scoffed at the idea that outside leadership could fare better than the existing CEOs in a business that is so complicated, with so many government mandates and other hurdles, and in a U.S. market that has turned against them so quickly and severely.

"It's a complex business -- it's not a Rust Belt business anymore," said Jason Vines, former vice president of communications for Chrysler and sometime Washington lobbyist who recently has been helping the Big Three's case in the nation's capital on a volunteer basis.

And Vines is among the many who believe that it's lawmakers -- not the CEOs -- who have proved largely incapable of making good decisions about Detroit's direction. "One of the Congressmen asked [a supplier], 'What is a receivable?'" Vines said. "Those are the people making decisions about the industry's future right now, and that's scary."

The possibility of a government-appointed "car czar" to oversee the Big Three after any rescue only enhances the importance of this question.

How Hard Can It Be?

So, czar or no czar, whether under bankruptcy filings or an eleventh-hour reprieve from President Bush or Congress, the issue of new blood in the auto industry is front and center. But it's not a simple one.

Those arguing for an infusion of fresh leadership into the Detroit Three largely regard as a convenient myth the idea that the car business is significantly more complex and more difficult to master than other major industries.

"It's not that complicated," said a consultant to Fortune 100 CEOs and a former high-ranking executive of several major corporations. "You get good people who understand the business to work for you, with lots of knowledge and cycles of learning in the engineering and finance departments."

Several industries and companies with capable and compatible talent present potential pools for auto-industry headhunting. Heavy manufacturing is one, including steel and machinery; that's why Boeing's Mulally made sense for Ford. Fertile companies might include talent factories General Electric and  Honeywell, or diversified manufacturers Danaher, Dover and SPX.

This argument likes to use Lou Gerstner, the CEO of RJR Nabisco who was recruited in 1993 -- with no computer-industry experience -- to turn around a quickly ailing IBM. Over the next nine years, that's exactly what Gerstner did.

"The board of IBM said, 'We need someone with change skills,' and so they were smart to do what they did," said Dennis Zeleny, former head of HR for Dupont and PepsiCo. "The same thing could occur in the auto industry."

Golden Invitation

But even if you identify such potential outsiders who could revive any of the Big Three, would they come to Detroit? Top executive recruiter David Nosal believes they would.

"There are individuals who would be willing to come in and take nominal cash and tie their performances to the shareholders' returns, to appreciation," said the CEO of Nosal Partners, a West Coast firm.

But one longtime auto executive was skeptical. "If you were to take the top 50 or 100 executives who would fit the general MO that you need," said this top-level industry insider, "what would you possibly do to entice them to sign up for something like the auto industry, when there probably are 10 other jobs waiting for each of them that probably would be lots more attractive from a financial and a success standpoint?"

And would they succeed if you could attract them? "There are some nuances about the auto industry -- particularly when it's in serious trouble -- that bringing in executive leadership from other industries might present too steep a learning curve," said Folts, who mainly recruits talent to the auto industry, including CEOs of Tier One suppliers.

But Nosal suggested that an executive with an established, larger-than-life reputation from any industry could make a big difference in Detroit. "What's needed today is someone akin to how Obama was regarded when he won the election," he said. "People need to be inspired and need to believe in someone, something different than what has been there."

Back to the Well

Another option for fresh leadership, of course, would be tapping back into the auto industry. Former high-level GM executive Mark Hogan, for example -- who was president of mega-supplier Magna Corp. for awhile and now is an entrepreneur -- is often mentioned; he was unavailable for comment.

Or, said the Fortune 100 consultant, any of the Detroit Three "could get some super-terrific person at Honda or Toyota, where they have a different culture, and I think they'd be fine."

Of course, as Nosal pointed out, each of the three automakers retains "exceptional talent up and down the ranks." A top industry source agreed that "you can find" capable leaders there. "But they would have to be willing to lead change and also be given the latitude to run the business the way they think they can."
 
Perhaps the machinations of bankruptcy proceedings or rescue politics wouldn't require digging down too far within an OEM to find an acceptable new boss. For example, because Wagoner is considered the most endangered CEO, discussion of this sort of prospect has focused on GM's COO, Fritz Henderson. "He's a GM lifer and incredibly capable," said Joseph Phillippi, president of AutoTrends Consulting, in Short Hills, New Jersey.

Actually, Mulally himself provides hope that outsiders can come in and be effective. After presiding over a revitalization of Boeing, he came to a beleaguered Ford Motor Co. that had run through a series of CEOs -- most recently, including scion William C. Ford Jr. -- who couldn't right the ship. Mulally applied his fundamental management skill, manufacturing acumen, and low-keyed charisma in accelerating an overhaul of Ford's product lineup, ratcheting back its fixed costs relatively gradually, and restoring its cash position.

Today, Ford stands as the only one of the Detroit Three that doesn't actually require an immediate infusion of government cash to avoid filing for bankruptcy.

"He had all the credentials that any of these companies would like to see" in a CEO, argued Maryann Keller, a long-time analyst of and consultant to the industry. "But when he came to Ford, everyone said, 'He's not a car guy,' as though learning this industry requires some kind of Masonic ritual.

"It's cars -- the guy made airplanes. He was in a globally competitive business, against big, entrenched, government-supported competition overseas, where technology was important; it was capital-intensive; it had long lead times. He is an engineer. And he appreciated the Toyota Production System and understood it," she added.

Marshall Goldsmith, a top-flight management consultant and Mulally's former "coach," agreed. And now, he noted, Mulally "doesn't have the same degree of baggage because he wasn't there eight to 10 years ago. And the general consensus is that, of the three CEOs, he's the strongest. He's also a great leader of people, and inspirational."

To be sure, everything that Mulally has accomplished so far seems to amount only to a fragile stabilization of Ford. Yet it's possible in any recovery scenario that he eventually could emerge as something of an industry hero who writes the book on how outsiders can achieve success running an auto company.

In a more ambiguous way, Nardelli also illustrates the point that a "non-car guy" can come in and run an auto company. The former high-flyer at General Electric seemed to get off to a good start last year when he retained Chrysler President Tom LaSorda and brought in veteran industry insider Jim Press from Toyota as his other top decision-maker.

Nardelli certainly hasn't moved Chrysler to higher ground. And unlike Mulally, he is seen by many in the industry as a mere carpetbagger because he's doing the bidding of Cerberus Capital Management, Chrysler's private-equity owner. Nardelli, of course, also leaves a general bad taste in the mouth of many because he pointedly didn't turn around Home Depot, his CEO assignment previous to Chrysler, and left nefariously with a $250-million severance package.

Nevertheless, said Nosal, Nardelli "gets a pass from me based simply on the fact that he stepped into everything that everybody else created."

Bad Memory

Of course, the idea that any savior from outside could come in, dramatically shake up, and revolutionize any of the Big Three is an ancient yearning. But it's also proven a chimera. Recall the case of Ron Zarella to remember how illusory such hopes have been.

Zarella was president of Bausch & Lomb, the eye company, when then-GM CEO John "Jack" Smith recruited him in 1994 to overhaul GM's brand and marketing structure. Zarella rose to president of GM's North American operations, but he disastrously focused on individual vehicle nameplates rather than on the company's stable of well-established brands.

His accompanying lack of attention to engineering and design severely set back GM's product lineup before Zarella was eased out in 2001 -- only to return to Bausch & Lomb, this time as CEO -- in favor of Bob Lutz.

Photos by Manufacturers

1 - In a rare moment of togetherness, the Big Three executives cut the ribbon for the opening of the 2008 North American International Auto Show in Detroit in January. From left to right, they are Chrysler CEO Robert Nardelli, Ford CEO Alan Mulally and GM CEO Rick Wagoner.

2 - GM CEO Rick Wagoner

3 - Ford CEO Alan Mulally

4 - Chrysler CEO Robert Nardelli

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.