Former GM Product Boss Skewers Management And Business Schools

Auto Industry Legend Bob Lutz fires on all cylinders in his new book, "Car Guys vs. Bean Counters"

If you have noticed that the cars and SUVs General Motors make today are more stylish, have nicer interiors and crisper lines, then you are making a certain retired 79-year-old former Marine pilot very happy.

Virtually everyone with a pulse working in or around the auto industry knows of Bob Lutz, the recently retired "product boss" at GM. But there is a good chance the average buyer of a Chevy Malibu, Cadillac CTS or Buick LaCrosse has not. In short, Lutz is the guy who rode into GM in 2001 like Wyatt Earp to clean up a design and product development system that had spawned some of the worst looking vehicles to ever come out of Detroit.

In 2010, Lutz, depending on who you listen to, either retired or was retired by the new crew of management at GM ushered in by the White House as part of the tax-payer funded bailout of the automaker. In his retirement, Lutz, always one of the most outspoken and media-handy executives in the auto business, has written a book full of his gripes, wisdom and musings about GM, the bailout, and the damage he says that has been wreaked upon the U.S. auto industry by lily-livered, pencil pushing Ivy League MBAs in a book entitled Car Guys vs. Bean Counters: The Battle for the Soul of American Business, published by Portfolio Books.

The book is vintage Lutz, pulling almost no punches and making his points with good hard examples of how "finance guys" (and most of them are guys at auto companies) took over GM and tried to shape the company into a manufacturer of "perfect mediocrity."

Why shouldn't Lutz call out his tormentors? He lived through it. And at 79, he has nobody left to suck up to in the business; not that he ever did much of that anyway. It is doubtful that we will get another tell-all book from GM top management, retired or otherwise, though we have had a book from one of the White House advisers to the auto companies (Steven Rattner's Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry) and a key player responsible for the government bailout of GM and Chrysler.

Lutz's book is one that, I suspect, will be most entertaining and informative to those in the auto business. It also may perhaps appeal to those running MBA programs at universities doing their best, as Lutz sees it, to rip the spontaneity and instinct out of the brains and souls of otherwise creative business people. It is probably not a great read for the casual car enthusiast.

Old-School Attitude

Lutz is old school, and that has been a good thing for GM. When he arrived at GM, the designers -- the folks who had given the world sexy and sumptuous Corvettes, Buick Rivieras, muscle cars, as well as some of the best pickups and SUVs in the business -- were reduced at GM to the equivalent of cake decorators. New models were being hatched by a product development department led by, you guessed it, recycled finance people and consumer researchers who were planning vehicles with slide rules and exhaustive, yet meaningless, focus groups, rather than passion or a basic sense of taste about what is attractive and what is ugly.

The Pontiac Aztek, Saturn LS and Ion, Buick LeSabre, Chevy Malibu Maxx, GM's entire lineup of minivans and the Chevy Aveo were all examples of passenger cars that GM's finance-driven system created, which were then met with cold indifference from the public and chortles from the media. GM, the largest auto company in the world until a few years ago, had become the equivalent of a baseball team with the highest payroll and one of the consistently worst win-loss records.

Kill The Consultants

Lured out of retirement by then GM-CEO Rick Wagoner Jr., Lutz started turning over tables, puncturing balloons, busting fiefdoms and generally upsetting a lot of people at GM who had invested years in ass-backwards processes taught by or inspired by business schools, high-priced consultant firms, or both. He, for example, blew up a group GM had created at the behest of a consultant called the "APEX Group," a unit that was housed in a building outside GM's headquarters in suburban Detroit on the premise that they were uber-creative thinkers who need not concern themselves with the daily meeting-heavy grind of GM.

Staffed with researchers and "creative types" from different disciplines, and furnished, says Lutz, with orange beanbag chairs, the group was supposed to think outside the box about new models and features for vehicles that might excite the public. Lutz recalls with scorn that one of the ideas was that GM should build a flying car. Really? How about a mid-sized family car that people outside of the Great Lakes states would want to buy? Maybe this kind of thing can work at a company like BMW, but at GM, Lutz rightly pegged it as a navel gazing exercise for people who wanted to work half-days, travel a lot to cool places with an open expense account and produce a lot of Powerpoint presentations.

Lutz paints a dim and dreary view of so-called "Total Quality" consultants GM and other companies hired in the 1980s and 90s in an attempt to catch up to the quality and productivity scores of Toyota and Honda. The mantra: "Do It Right the first time," spawned a system at GM that sought to dumb vehicles down to be manufactured easily with the fewest number of mistakes, and would have to fixed later. Lutz rightly points out, though, that the consultants didn't get that quite right, asserting the mantra should be: "Do the right thing right the first time." GM had spent huge sums of money trying to create "Perfect Medicority," which could, in fact, be the title of the book as it relates to what helped bring GM to its knees in 2009.

One example was that Lutz felt GM had about the worst looking car paint he had ever seen, making the cars look extra drab. Yet, Lutz was told that GM's scores for paint quality by research firm J.D. Power & Associates were sky-high because there were few runs or imperfections. "Perfect mediocrity."

Lutz strong-armed a new way of thinking at GM that has led to better cars. While bean-counters were worried almost exclusively about the cost of a car as it was being built, and apt to approve only the worst grades of plastic and fake woods for vehicle interiors, they were blind to the back-end costs of paying consumers thousands of dollars in rebates to buy the unwanted thing once it was built. Lutz attacked by demanding, for example, that $500 in additional cost be designed into GM's vehicle interiors. The higher level of styling would allow GM to increase a sticker price and reduce an average incentive cost from say $3,000 to $2,000 or less, thus increasing the revenue per vehicle, and improving GM's declining reputation. His strategy has worked.

The finance dept. at GM, which was singled out by the White House as perhaps the most inept part of the company at the time of bankruptcy, had a lot of difficulty seeing Lutz's point.

"Drab By Design'

One of the more amusing anecdotes from Lutz involves the case of the Saturn LS, a car that was originally given no chrome or adornments of any kind. It was meant to be literally "drab by design." Saturn was to become a showroom of vehicles that only a Chinese communist could love.

Another GM whopper born from its organizational system was the GMC XUV, an overly complicated piece of work that involved a movable center partition that could morph an SUV into a pickup with a flat bed. Lutz told the group that spent two years figuring this SUV out that it would not come close to the 90,000 sales a year GM staffers expected to sell. The XUV sold about 10,000, and in the world of GM, you could trace most of those sales to employees and dealers.

The "perfect mediocrity" at GM that Lutz chronicles in the book is not entirely what brought GM down in 2009, though it didn't help. GM had been run for years to produce cash-flow, not profits. Enormous amounts of cash were needed to cover the companies gargantuan healthcare obligations to employees and retirees. The company also had too large a manufacturing footprint to support given its shrinking market share.

For most of the decade before the bankruptcy, GM made very little in annual profit. When the financial markets crashed in 2008, followed by auto sales, GM, Chrysler and Ford in particular started burning through cash reserves at a shocking rate. Ford had enough cash and credit lines to weather the storm, but GM and Chysler were screwed and needed a government bailout or face liquidation.

More than GM's own mediocrity, Lutz lays a lot of blame for the collapse of GM and Chrysler on a collaborative set of policy failures agreed upon between auto companies, governments and the United Auto Workers union that allowed for runaway healthcare costs, as well as a Japanese yen that was kept artificially weak by the Japanese government, thus inflating the profits of companies like Toyota and Honda. But don't get the idea he is letting GM managers off the hook.

Whose Fault Is It Anyway?

Lutz's over-arching criticism of his former employer, and of business schools, is that both have been obsessed with the perceived complexity of running a global company the size of GM. B-schools thrive on teaching systems and approaches that "align goals" so that over 100,000 employees spread across the globe have common purposes and proper integration. Yada yada yada, Lutz says. Consultant firms like McKinsey & Co. and Boston Consulting make huge pots of money convincing companies that they have terribly complex enterprises that need these systems to manage them. The customer being asked to buy the vehicle wasn't even in the room at GM before he arrived, Lutz gripes. He rightly lays out in the book how companies are easier to manage than the B-schools teach as long as the customer is the focus.

Is Lutz brilliant or merely cranky? He complains bitterly about what he sees as a hapless sheep-like business media that covers the auto business, too often lionizing Asian carmakers like Toyota and Honda while ignoring their mistakes and weaknesses. He also dismisses global warming, and cuffs around critics who complain GM made, and still makes, too many pickups and SUVs and too few small cars.

Lutz, who has an MBA in marketing and got passed over at Chrysler to succeed Lee Iacocca, says his mantra has long been ... "Often wrong. Never in doubt." When GM CEO Rick Wagoner yanked Lutz out of retirement at the age of 69 to run GM's product development apparatus, the CEO had a sense that it was in bad shape, but no idea how to fix it. After all, Wagoner had spent his whole life at GM perpetuating a bad system and culture, handing it down as it had been handed to him like it was a genetic marker for a fatal disease.

Lutz has held big jobs at Chrysler, Ford, BMW and at GM back in the 1960s. In all his jobs, Lutz's biggest asset was his presence. Those who have worked with him say that he fills up any room he is in with his ego, his whiskey and sandpaper voice, and the cock-sureness of his opinion. But he also can fill it up with undeniable credibility.

On the topic of how a vehicle ought to look, feel, smell and behave, Lutz has few peers in the business and everyone at GM knew it. And they know it still. It would take a lot of nerve for any mid-level staffer to contradict him. And so it went. And that' s why, despite the lagging reputations of models like the Chevy Malibu, Buick LaCrosse and Cadillac CTS, these cars can, on the facts and hardware, if not their reputation, stand toe-to-toe with competitors from Toyota and Honda, as well as Ford and Chrysler.

A few Lutzian business principles and jabs at the conventions taught by business schools:

Stop the PMP madness: Take that, Human Resources! "Another ritualistic time suck was the annual creation and cross-checking of of the so-called PMP (Performance Management Process). Whole mornings would be devoted to 'aligning goals,' among the meeting participants to ensure that each of the dozens of of individual objectives were consistent "across functions." ... I submit that the whole idea of annual 'management by objective' (the generic form of PMP) schemes is hopelessly flawed, an exercise in abject futility, possessing not a smidgen of customer value ... The 'value' [of this] is only to the small army of human resources personnel who keep track of the whole mess."

Don't go with the flow, promote anarchy: Upon arriving at GM, Lutz asked then-North American President Ron Zarella who had been drafted by GM's board from packaged-goods company Bausch & Lomb to shake things up at the carmakert, about why GM "allows the clerks to run the enterprise." Zarrella answered, defeated, "You fight it at first; then you see you can't change it; and then you go with the flow."

Don't be too impressed with grade-point-averages from school: "In a large company, the real talent often lies among those with specialized skills but no MBA, doomed to toil in relative obscurity while their more managerially trained colleagues get the promotions."

Elevate the designers: "Research won't find the consumer turn-ons without creative designers at the top of the process."

Bottom Line: "Car Guys vs. Bean Counters" is a very useful read, especially for business school instructors and students, as well as the hundreds of thousands of people working at car companies. It helps to care about cars so you understand the examples.

But there is a larger, universal teaching here for anyone trying to run or manage a company, or the significant part of a company: Don't fall too deeply in love with management processes, mission statements and aligned objectives. Objectives and processes are needed, but only if they are focused like a laser on a better customer experience. And if you are attending meetings to nowhere at your company, then scream about it. Don't just lay back and take it.

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