Friday, September 23, 2005

Charles V. Tines / The Detroit News GM Vice Chairman Robert Lutz checks out the 2007 Chevrolet Yukon at the General Motors Tech Center in Warren. The new Yukon is just one of the vehicles Lutz is pegging his corporation's return to profitability on.

Lutz: Better cars not enough

Turnaround also requires reining in retiree costs

By Daniel Howes / The Detroit News

Charles V. Tines / The Detroit News Lutz says, "I don't think it's going to take 20 years to turn around, but it's not going to happen in 20 months." Error processing SSI file Comment on this story Send this story to a friend Get Home Delivery

If it's possible to be positive and negative about General Motors Corp.'s fortunes, Bob Lutz is both.

"I don't for a minute believe that what we're doing is not going to work," Lutz, GM's vice chairman for global product development, told me Thursday. "The image turnaround of General Motors is under way. But there is a lag effect."

Yes, there certainly is.

That turnaround depends on what Lutz & Co. can deliver to GM showrooms. But their effort is hampered by a record of safety recalls, a 25-year reputation for big talk and passionless products, formidable competitors with deep pockets and the punishing $6 billion-a-year pension and health care obligations -- so-called "legacy costs" -- that GM has to its employees and retirees.

"Nothing is going to do any good if we can't do something about our legacy costs," Lutz said. "With the magnitude of our legacy cost burden, it would be difficult to concoct a scenario of sufficient shareholder return."

Translation: Building better cars and trucks is necessary to making GM's car business profitable again, but it's not sufficient. The old adage that "product, product, product" cures all is being turned on its cylinder head at GM.

Good product isn't enough to offset the scary reality facing Detroit's automakers and the United Auto Workers. Not if revenue can't cover mammoth costs, shareholders don't make money and would-be buyers aren't willing to take another look at GM.

Could GM's long-overdue bid to regain its car and truck cred be coming too late to make a difference to American consumers?

"Needless to say, I worry about the same thing," Lutz said. "But the other strategy of staying at about the level we were at is sure defeat. I don't think it's going to take 20 years to turn around, but it's not going to happen in 20 months."

The cars and trucks coming from Detroit's largest automaker, which GM will showcase next week to the news media, are better than ever. There are all-new full-size SUVs, the Pontiac Solstice sports car, the Chevy HHR crossover and the Chevy Impala. More are coming -- an all-new Cadillac CTS sedan, midsize crossovers from Saturn and Buick, gasoline-electric hybrid-powered Tahoe and Yukon SUVs by early 2007.

GM's union-built portfolio for North America is better looking, offers higher initial quality, garners more enthusiastic reviews from critics, dealers and customers, and showcases the kind of design, interior sophistication and emotional pull that the General hasn't delivered in a long time.

The simple response would be to give the 73-year-old Lutz -- yes, the top product guy for the world's largest automaker was born during the Hoover administration -- all the credit or, if you're in the vocal anti-Lutz camp, all the blame.

Both would be wrong.

He unleashed the talents of GM designers and engineers. He made it cool to push back, to say "Who says?" in response to "They don't want ..." He legitimized passion in design, pushed for world-class interiors -- glosses, grains, touch and feel -- and leveraged GM's expertise in engines and transmissions into smoother, more powerful and more responsive products.

You can feel the attention in the new cars and trucks. It is still, however, not sufficient, as GM's abysmal financial results attest.

Four years is roughly one product-creation cycle in the car business, but it's a long time in American business today. That's why critics say Lutz, who joined GM on Sept. 1, 2001, is past it, that he's more flash than cash, that his vision for where GM should go is clouded by his age, experience, biases and not insignificant ego.

I'd say "perhaps" to the denunciations of Lutz if I didn't see real improvement in GM products, or if others didn't, too. Such as:

Cadillac's "STS is, in short, one of the best-engineered, most well-rounded sedans ever to come out of Detroit," James G. Cobb wrote in The New York Times. "This ambitious new Cadillac stacks up well against the Audi A6, the BMW 5 Series and the Mercedes-Benz E-Class, and it should put up a fight against the new wave of luxury sedans from Japan."

Or, Automobile Magazine's "Solstice Rocks" cover story for its October issue. Or the generally positive, if private, reactions from journalists and analysts to the dozens of coming cars and trucks GM has shown over the past few months at its design dome in Warren.

That said, if there's a year to begin assessing whether the Lutz era will make a difference in GM's financials and product lineup -- from Detroit and Germany to Shanghai and Brazil -- this is the year to start looking. Hard.

Don't focus on the global restructuring of GM's product development organization, which collapses the North American, European, Asia-Pacific and Latin American regions into areas of expertise -- trucks, SUVs and specialty vehicles in Detroit, midsize and compact cars in Europe, small cars in South Korea and rear-wheel drive vehicles in Australia.

Focus on what's hitting the road.

Lutz says he wants GM products to represent good value (a base-price Solstice sells for less than $20,000); customer excitement; emotional styling; respectable shareholder return; more expensive looks than the price tag.

The Pontiac Solstice, a two-seater that is more Mazda MX-5 than anything you'd think GM could dream up, is all Lutz. So are the new Chevy Impala and the HHR, a retroish crossover-cum-PT Cruiser; the coming generation of full-size pickups and SUVs; the all-new lineup of German-inspired Saturns, which could make Saturn a truly different kind of car company.

Lutz hears the critics, but chooses to let the new cars and trucks serve as his answer. But is it too late for GM to get its mojo back?

If revenues don't cover expenses, the best products GM can muster won't solve what ails its business. For GM, those ailments are so painful and their alleged cures even more so, that the sickness threatens to be terminal.

Not next month, and almost certainly not next year. But at the highest levels of the company there is a clear recognition that "business as usual" is as outdated as the driver of a '57 Chevy looking into the rearview mirror, remembering the good ol' days, and then remembering they're long gone.

GM's market share, which drives revenue, isn't really moving. Ever since the September 11 terrorist attacks, GM has needed fire-sale programs to move its metal. Its credit is rated "junk," which makes running the business more expensive and signals a lack of confidence among investors.

A Las Vegas billionaire, Kirk Kerkorian, now owns nearly 10 percent of GM and wants a board seat. And the UAW isn't eager to help GM because its options for doing so are different versions of political suicide -- bad, worse and horrible.

Given that litany of woes, it's a wonder Lutz is as positive as he is.

Daniel Howes' column appears Sundays, Wednesdays and Fridays. He can be reached at (313) 222-2106 or at dchowes@detnews.com. Catch him Fridays with Paul W. Smith on NewsTalk 760-WJR.