10/7/2014 GM to Shift Gears, Set New Goals - WSJ Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit www.djreprints.com See a sample reprint in PDF format. Order a reprint of this article now BUSINESS GM Hopes to Shift Gears After Recalls CEO To Outline Strategy to Deliver Profit, Quality and Satisfaction Goals By JOSEPH B. WHITE Sept. 29, 2014 8:15 p.m. ET General Motors CEO Mary Barra prepares to lay out her vision for the auto maker's future to analysts Wednesday. WSJ's Joseph White discusses with Simon Constable. Photo: Getty DETROIT General Motors Co. Chief Executive Mary Barra spent much of her first nine months in charge of the auto maker mired in a scandal over decade-old failures in the company's handling of deadly ignition-switch defects. Now, Ms. Barra hopes to change the subject. She intends on Wednesday to unveil a multi-year financial strategy to deliver the superior profits and market-leading vehicles that have always seemed to be in GM's future, never its present. Ms. Barra, 53 years old, said in an interview ahead of the investor meeting that she now hopes to move past the storm surrounding defective vehicles and decades of weak accountability that culminated in the company's failure to act on safety defects. "I hate the word culture," she says. "Culture is really just how we all behave." Now, Ms. Barra says, all GM employees need to behave differently, starting with herself. "In the past...I was too nice," she says. At a meeting with GM's top 300 executives earlier this month in a http://online.wsj.com/articles/gm-to-shift-gears-set-new-goals-1412036113#printMode 1/5 10/7/2014 GM to Shift Gears, Set New Goals - WSJ converted warehouse in Detroit, Ms. Barra told managers they could no longer confuse steady progress with winning. GM, she said, must do what it takes to be "the world's most valued automotive company," a measure that includes customer satisfaction, quality and financial results. "If you're not in line with this vision," Ms. Barra says she told the group, "you don't need to be here." Her remarks on Wednesday will revolve around the mission of growing GM's value. CEO Mary Barra wants to make GM the 'most valued' car company. Reuters Ms. Barra has been telling investors that its North American operations would achieve 10% pre-tax profit margins some time in "mid-decade," and promising to achieve break even performance in Europe in the same vague time frame. Its North American pre-tax margin last year was 7.8%. Rival Ford Motor Co. upstaged GM with a 9.9% home market operating margin last year. On Monday, Ford jolted investors, warning operating profit this year would fall as much as $2 billion short of earlier forecasts on recall costs and emerging market weakness. Ms. Barra now is promising to give investors a more specific deadline for her financial targets. A key to the North American margin target will be new lines of compact and midsize vehiclesincluding reengineered Chevrolet Cruze and Malibu sedansthat Ms. Barra insists will benefit from a new approach to purchasing. Those vehicles start launching in late 2015. The question of how GM will deploy the roughly $39 billion in cash and cash equivalents in its coffers will be covered in "great detail," Ms. Barra says. Some analysts have said some of that cash should be http://online.wsj.com/articles/gm-to-shift-gears-set-new-goals-1412036113#printMode 2/5 10/7/2014 GM to Shift Gears, Set New Goals - WSJ spent on a share buyback or a higher dividend. Ms. Barra faces a stiff challenge to achieve her goals, not least because rivals have a head start in many areas. GM's board of directors hasn't set a firm deadline for Ms. Barra to achieve these financial, customer satisfaction and quality goals and strongly supports her efforts, people familiar with the company said. But directors remain concerned about the number of inherited problems that constantly need attention, one of those people said. GM's Culture Wars Ever since GM began sliding off its perch as the world's dominant auto maker in the 1980s, chief executives have vowed to change the company's culture to make it more competitive. Roger Smith, right, and Toyota Chairman Eiji Toyoda in 1985. Paul Sakuma/Associated Press Wall Street, however, has already delivered a preliminary verdict on Ms. Barra: she isn't moving fast enough. GM shares on Monday lost nearly 3% to $32.22, below the price set for the company's post bankruptcy initial public offering. The stock has fallen about 17% since Ms. Barra took over from Dan Akerson, the former telecommunications executive who led the auto maker through its post-bankruptcy recovery and initial public offering. Even before Monday's sell-off, some analysts had cut their GM stock target price to below the $33 a share at which the post-bailout company's shares returned to the markets in 2010. This was supposed to be the year that GM, newly freed from government ownership, put strong numbers on the 5 Things to Watch in GM's Investor Meeting board as factories ramped up production of redesigned Ford Slashes Profit Targets for Year and highly profitable Chevrolet Silverado pickup trucks and sport utility vehicles such as the Chevy Suburban and Cadillac Escalade. More http://online.wsj.com/articles/gm-to-shift-gears-set-new-goals-1412036113#printMode 3/5 10/7/2014 GM to Shift Gears, Set New Goals - WSJ Instead, the most notable numbers at GM were the size of its recalls. Since February, GM recalled 29 million vehicles for various safety problems, Ms. Barra has appeared four times before congressional committees and the company has booked $2.5 billion in recall-related costs. A Cadillac 2015 ATS compact luxury coupe. Bloomberg News The U.S. Department of Justice and other agencies are still investigating whether company officials should face further civil or criminal proceedings. Some analysts predict the company could face as much as $2 billion in additional fines. Ms. Barra's drive to more rapidly boost profitability will depend on whether she and her top lieutenants change behavior deep in the company's bureaucracy. GM product development chief Mark Reuss, for example, says GM pays more than its rivals for the materials and technology it buys for its vehicles because of its own bad habitsincluding basing parts orders on unrealistically high sales forecasts that can saddle suppliers with costs when demand falls short. Company officials wouldn't disclose their target for purchasing savings, but some analysts estimate GM could save close to $1 billion a year with smarter purchasing. "We are going to...stop paying the piece cost penalty of broken promises with General Motors," Mr. Reuss says. In a meeting with executives from some 700 suppliers last week, Mr. Reuss said the company is ready to share more financial risks with its parts makers, covering some of their costs if sales projections prove too high. GM has begun forging agreements that span two model cycles instead of the traditional one. GM's data systems had to be reprogrammed to allow for the longer contracts, says Vice President of Global Purchasing and Supply Chain Grace Lieblein says. http://online.wsj.com/articles/gm-to-shift-gears-set-new-goals-1412036113#printMode 4/5 10/7/2014 GM to Shift Gears, Set New Goals - WSJ While GM executives wouldn't disclose their targets for potential purchasing savings ahead of Wednesday's meeting, Ms. Barra says, "it's not incremental." But realizing those savings could take years, as could efforts to rebuild the auto maker's brands. The recent troubles at GM's Cadillac luxury division offer a glimpse of what Ms. Barra's up against, and what she's prepared to do. In 2012, GM launched the Cadillac ATS, a compact sedan designed to compete head on with the core of the German luxury brand lineups in the U.S., including the BMW 3series. About a year later, a larger, more expensive version of the Cadillac CTS sedan debuted, aimed directly at the Mercedes E-Class and similar German sedans whose prices start at about $45,000. Sales of both fell short of GM's expectations. By January 2013, Cadillac and its dealers had 147 days' supply of new ATS sedans in stock. By January 2014, supplies of the old and new CTS had ballooned to 183 days' worth, according to data from WardsAuto Infobank, while ATS stocks had swollen to 204 days' worth. Such high inventories undermined Cadillac's efforts to defend its effort to charge higher prices and boost resale values, which are critical to offering competitively priced leases. Who was responsible for letting Cadillac inventories get out of hand? "I would say it's unclear," says Dan Ammann, GM's president. Until last month, responsibility for deciding how many Cadillacs to build was dispersed among executives at the brand and in North American operations, he says. Now, he says, the lines of authority are "crystal clear." Johan de Nysschen, wooed away from Nissan Motor Co. 's Infiniti luxury brand, will make the calls. The changes at Cadillac are just a start, Ms. Barra says. GM should be a company where employees go home enthused about a "really cool project," Ms. Barra says, instead of complaining, "I had to go climb Mt. Stupid today to try and get the right thing done." Joann S. Lublin contributed to this article. Write to Joseph B. White at joseph.white@wsj.com Copyright 2014 Dow Jones & Company, Inc. All Rights Reserved This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com http://online.wsj.com/articles/gm-to-shift-gears-set-new-goals-1412036113#printMode 5/5