June 23rd, 2009 at 3:54pm
Even though it’s bankrupt and the price of its stock has collapsed, General Motors is worth a lot more money than most people realize. And if the company were to take a radically new approach to how it runs its business the payoff could be enormous.
GM’s market capitalization is at ridiculously low levels. The total value of its stock is presently less than half a billion dollars. But the company is really worth a lot more than that. When you add up the value of all the land, buildings, tools, machinery, equipment, patents, research labs, proving grounds and every other asset it has, GM is worth over $140 billion. There’s even more value in the know-how, knowledge and experience of its people.
But how do you unlock all that value?
I’m fascinated with the approach that Sergio Marchionne, Fiat’s CEO who is now running Chrysler, is taking to reorganize Chrysler’s management structure. Up to now the brand managers have been little more than glorified sales managers. But taking a page of how he turned Fiat around, Marchionne is naming a CEO for each brand and giving them full profit and loss (P&L) responsibility.
This is kind of like the way they did it in the glory days when Detroit’s automakers still dominated the global automotive industry. Back then the general manager of Chevrolet, for example, ran the division as if it were a stand-alone company. He’d be in charge of everything from design to engineering, manufacturing, sales and advertising.
Yes, there were a lot of duplicate resources and overlap with GM’s other divisions. But if you want to capture 50% of the market you have to tolerate a certain amount of inefficiency. GM was able to grab that much market share because every division had a crystal clear focus on what its brand stood for and the products it had to make. The division managers didn’t have to make compromises to satisfy the “greater good” of the corporation.
Why not revive this concept and apply it to the new GM? But with a couple of modern updates.
Certain corporate functions, such as Design, Engineering, and Manufacturing should remain as centralized corporate operations. But under this scheme they would be treated as their own separate business units, with their own P&L.
The different brands, brought back as separate divisions, would contract the work they need from the centralized corporate operations. Chevrolet for example, would contract with GM Design to design the cars and trucks it wanted. It would contract with GM Engineering to develop them and with GM Manufacturing to build them. The same would hold true for Cadillac, GMC and Buick.
This would provide tremendous transparency and accuracy as to the true cost of bringing new cars to market. The budgets of the centralized operations would be determined directly by what they could sell to the car divisions. The executives running these operations would treat them more like their own business. Decision-making would be pushed down much deeper into the organization and would be done far more quickly than today.
Once this system was in place and operating smoothly, the car divisions would publish their own annual reports. The next step would be to go public with their own IPO. Investors would be able to buy stock in whichever division looked best to them, and to ensure it shared in the wealth they generated GM would retain majority ownership in each of them. And of course investors could still buy stock in GM.
The company already did something like this when it owned Hughes Electronics and EDS. Investors could buy GM-H or GM-E stock.
By providing investors with a much clearer view inside the corporation they would be able to invest their money in the most profitable parts of the company. This would truly unlock the tremendous value that is currently trapped within General Motors.
One more thing. I’d spin off GM Powertrain, and convince Ford and Chrysler to sell off their powertrain operations to it. The new Powertrain Company would build engines and transmissions for all three, achieving massive economies of scale and providing each of them with much lower costs. And then I’d do an IPO with the new Powertrain Company, with GM, Ford and Chrysler collectively holding a majority share.
We live in a brave new world. What seemed impossible just a matter of months ago is completely within our grasp today. The auto industry is going through a violent restructuring, and whoever comes to grips with the new reality first is going to be way ahead of all the others.