GM's Steve Girsky on Renewed Customer Focus, Overcapacity and the VoltPublished: July 09, 2012 in Knowledge@Australian School of Business
Stephen J. Girsky, vice chairman of General Motors, says the company has a new emphasis on the customer even as it faces such challenges as industry-wide overcapacity, strong competition from rivals both in the US and Europe, and slower-than-expected sales of the Volt. Wharton management professor John Paul MacDuffie asked Girsky to talk about these issues and others shortly before Girsky's presentation at the recent Wharton Leadership Conference. The conference also included presentations by former NASA space shuttle commander Jeffrey S. Ashby and John Kanengieter, director of leadership at the National Outdoor Leadership School.
An edited transcript of the conversation follows.
John Paul MacDuffie: This is John Paul MacDuffie from the management department at Wharton. I'm here with Stephen J. Girsky, who is the vice chairman of General Motors. Steve, welcome to Wharton.
Stephen Girsky: Thanks, John Paul. It's a pleasure to be here.
MacDuffie: First, congratulations on some of the positive news from GM in the recent past. I looked up a few statistics: $7.6 billion in earnings in 2011, global sales grew by 40%, US market shares stabilized at around 20%, more solid prices for vehicles, more solid profits. Congratulations.
You were a critic, for years, of the old GM. Now you're in the new GM. So, against a back drop of a lot of recent successes - and I'm sure some challenges - tell us what's changed, what hasn't changed, given the kind of unique perspective that you have.
Girsky: I think what's changed is the company's focus on the customer. We operate in a complex ecosystem with the customer in the middle and a lot of stakeholders around it who need to operate efficiently to make this work, whether it's shareholders, dealers, suppliers, trade union people or what have you. For the last few years, we've been able to make that work, operate in balance, keep the customer in the middle and keep everybody focused on the customer. That leads to higher revenues for our cars, stabilizing our growing share. Our shares are actually growing around the world, and satisfaction is increasing. So far, it's working, and that translates into record profits.
We're not taking anything for granted. We sold as many cars around the world as Volkswagen did, and they made twice the amount of money that we did. So while our profits are at record levels, our return on sales is something we still strive to do better at.
MacDuffie: There's a recent Wall Street Journal article on Dan Akerson, your CEO. He is quoted as saying: "The good news about the GM bankruptcy is it only took 39 days. The bad news about the GM bankruptcy is it only took 39 days." How does that map onto your experience? I guess that suggests there's still some changing to do.
Girsky: Yes, it's pretty clear when you look at our return measures that we're not where we should be or where we think we could be. So there's still a lot of work to do in changing the culture of the organization and improving and continuing the focus on the customer. Part of this is getting the new product programs to work their way through, but part of it is how you treat your customers. Today, J. D. Power quality statistics came out, and GM did the best it ever did. That's a result of a lot of hard work, and hopefully that will lead to better customer acceptance, more share growth, more revenue per car and things like that. So there's still work to do; there's still a mindset that needs to be changed, not just here but everywhere in the world ... where we're facing challenges.
MacDuffie: Let me ask you a little bit about Europe. Europe's in the news and on the minds of a lot of Americans considering the economic trouble there. And for you, with your role as chairman of the advisory board at Opel, GM's affiliate in Europe, I'm sure that's very much on your mind as well. Hark back to 2009 when GM was seriously considering selling Opel to Magna, a large supplier - I know that you were one of the advocates for keeping Opel as part of GM's global portfolio. So there's obviously a set of difficulties ahead to right the ship and fix things at Opel, but what was the strategic rationale for keeping Opel within GM then, and has anything changed since to affect your view of that strategy?
Girsky: There were two schools of thought on the board, and you're right, I was a proponent of keeping Opel because I thought it's important to have a window on what's going on in Europe. Europe is typically the market that is the most forward thinking in terms of CO2 and emissions. It's a very high tech market in terms of new technology being rolled into the car, and the customer is very sophisticated and it's very competitive. So I think it's important, because I view Europe as being somewhat of a leading indicator of what's going to come in the rest of the world. So to have a window there, it helps scale your global programs. I think that's important. And to be exposed to that technology and that market, I think, is important.
There was another school of thought that came together on the board, which said the deal as structured wasn't that good a deal. We were better off waiting until, frankly, [we could] improve the operations and create more options.
MacDuffie: So does that mean that if things don't improve enough, GM could be out looking for a better deal for Opel?
Girsky: I think the basic message is, we're in this, we're going to fix this, we're going to do what it takes to fix this. And it's important. Opel's a critical part of GM, and frankly we need to make them more a part of GM. Opel's a 6% share company trying to compete with a 20% share company, namely Volkswagen. How does a 6% share company compete with a 20%? Well, one, they rely on the scale, the resources of the global organization. And two, they rely on partners, where they can, to fill in holes where they can. And that's the strategy we're executing. Opel can't be an island unto itself. We have big resources in the global GM organization, and Opel needs to leverage that to be successful.
MacDuffie: So bring it closer rather than further away.
MacDuffie: Let me build on that with a question that's a bit more region specific for Europe. I think you were quoted as saying the problems of GM in Europe are more than a company problem; they're an industry problem, more than can be solved by GM or any company alone. And so given that there are problems of both overcapacity and depressed consumer demand, what can competitors in a very competitive industry in a region where - with Europe trying to get its act together about the eurozone and the Greek situation - it is tough to get a coordinated view? How can competitors in an industry and a region work together on a problem like this? And how does GM take some leadership in that effort?
Girsky: Well, excess capacity is an industry wide problem. We can deal with some of it on our own, but others have to own up to it as well. There are some ideas being put forth that maybe there should be an EU fund, so to speak, an industry-type fund to basically create the safety net that's needed to facilitate this excess capacity coming out of the industry. It's been slow to gain traction, but I think, in a way, the worse it gets over there, the more ideas like this will gain traction.
MacDuffie: Are there any similar ideas around stimulation of demand?
Girsky: Europe did this stimulation of demand - we call it Cash for Clunkers - a few years ago. It artificially boosted demand and, some would argue, it basically prolonged the issue. So, demand is pretty weak, frankly. In some markets, it's actually continuing to get weaker. At some point, the companies or the players are going to have to own up to this. And yes, decisions are going to be difficult, but more difficult is continuing to lose a billion a year, and more difficult than that is putting the enterprise at risk. We don't want to do that. So we'd rather take steps now.
MacDuffie: My last question that touches on your Opel experience is really more a culture and change question. I understand that one of the things that you worked on with the Opel management was canceling some raises for white collar employees in advance of talks with the union and the blue collar workers about wage and benefit cuts. That seemed, to me at least, like a reasonable way to emphasize the message that, "We're all in this together. We all have to have some shared sacrifice," and to break down some of those barriers between white collar and blue collar workers, which are all too common certainly here in the US
But I understand that the reaction was pretty negative. I'm wondering, did you imagine a different outcome? And how has that experience affected your thoughts on bringing about change in a big company, big ecosystem, either in Europe or in the U.S?
Girsky: It all goes back to how do you change the culture of an operation that's lost $14 billion over 10 years? The last thing you want is for them, the people, to think that it's OK to lose a billion a year. Everything we do revolves around communicating that it's not OK. So we changed the leadership of Opel. We changed the supervisory board, where we put a lot of GM insiders, senior insiders, on the supervisory board, basically to make sure they knew Opel is not an island unto itself; it's part of the GM family.
We started to change the management team over there, put new faces on the ground, bring in people from outside to get new perspective, perspective that they haven't seen before. We did zero out their bonus. It was a shock to the system. And yes, it didn't go over well. I wouldn't expect it to go over well. But how do you look at your labour constituents across the table and say, "Well, we need help from you, but oh, by the way, we're giving raises on the other side." It's something that's almost disingenuous. So we need to - and we're going to - continue to see actions that will challenge the status quo and challenge the conventional way of thinking over there.
MacDuffie: Let me ask you, to change the topic here, about a product in a new area, the Volt [Chevrolet Volt, GM's electric vehicle with range extension provided by a gasoline engine that can recharge the EV's battery]. In January, when you spoke at the automotive conference, you said it would probably take until May or June to see what the trend was going to be with the Volt and whether consumers were starting to respond. I looked it up. By the end of May, [there were sales of] 7,000 Volts, outselling Corvette, which a number of news outlets have commented on. I saw one speculation that maybe we needed a new song about "Little Red Volts" [to add to Prince's song, "Little Red Corvette."]
That's ahead of last year's pace but still behind your goal of 45,000 for this year. My question is a general one, not so much just on sales statistics. What do you think is affecting consumer perceptions of the Volt right now, and what do you think would be most likely to change those perceptions?
Girsky: Let me start [by saying] I think the Volt is dynamite. My wife has a Volt. My mother has a Volt. My wife's aunt has a Volt. Three of our best friends have Volts. I mean anybody who drives this car loves this car. Volt is bringing more BMW owners to the GM family than Cadillac is right now. Customer satisfaction on the Volt is higher than any product we sell, and frankly, it's higher than Porsche. So we're pretty excited about this and what it can do for GM and the brand.
That said, I don't think consumers really know how to buy a product like this, or a Nissan Leaf, for that matter, where you're paying for most of the energy costs up front in the form of a battery. So your upfront costs are a lot higher. Your operational costs are a lot lower. Fleets would get it because they focus on cost of ownership and cost of operation, but the average consumer I'm not sure gets it so fast. And so it's the early adopters who are starting to play this. I think as word of mouth gets out, as people understand how these products work and what you're paying for and how you get it - I mean my mother hasn't been to the gas station in three months and she's nervous that if the gas sits in the tank too long, is it going to ruin something? So I think it's just a different way of owning and operating a car. I don't think the economics justify themselves right now. For a certain subset of buyers it would. But it's really about new technology, it's about what's coming in the future. And I think the cost of these batteries is coming down. As they do, they will become more affordable.
MacDuffie: I was going to say, some of those folks probably have plugged into one of those calculators you can find on the Internet and seen, okay, well it's an eight-year payback and do I want to wait that long.
Girsky: I would argue [that for] the early buyers of the Prius, if you plugged in your calculator, that didn't work either. So it's a different type of consumer who is buying this, someone who's more eco-friendly at first than purely financially driven. But over time, we'll see where it goes. I guess what's important is we have to play in a number of these. We have gasoline engines which are getting better. We have diesels, and frankly we're bringing some diesels to the US We have natural gas, we have pure EVs and we have extended range. And we'll have plug ins as well. So we're going to have a variety. We're going to have to play because we don't entirely know where the consumer's going to go here. It's partly a function of government support, it's partly a function of where the infrastructure is going to be, but we want to be able to be there.
MacDuffie: It does seem like we're in an "all of the above" world for a while. You don't want to rule out any options. Just as a follow up on that, do you think the political fuss about the Volt as a symbol of various controversial topics hurts sales right now? Or is it irrelevant to the serious buyer?
Girsky: I think it's largely irrelevant. It does hang over, just like the political overtones hang over the rest of the company. So I think it's out there. We seem to get more of it than the Nissan Leaf does, although they get the same political benefits that we get.
MacDuffie: Let me jump to another in-the-news topic here and ask you a quick social media question. I understood GM pulled its ads from Facebook recently, and I'm wondering what kind of assessment that was based on. Are you concluding that social media doesn't really sell cars or doesn't sell GM cars?
Girsky: Our chief marketing officer spends a lot of time looking at payback and productivity of the different advertising media. He's not ignoring social media at all. It's just where does he want to play in social media. And given the budget constraints that he has, his view was he could get bigger bang for his buck somewhere else. Call it Twitter, call it MySpace or what have you.... It's his view, his opinion.
MacDuffie: Fair enough. So let me end with this, and I guess it's a little bit back to my beginning question. What are the one or two things about the new GM that you wish people knew that either they don't know, they don't appreciate sufficiently or they're choosing not to know'? Again, from your vantage point of having been outside and now inside this very interesting company.
Girsky: I think we make great cars. I think people don't appreciate that because people left GM and they haven't come back. And what we've seen - whether it's with the Volt or the Cruze or the Sonic or the new Spark - is if people get in and drive our cars, they will be very satisfied and amazed at how far we've come. People sit in the Volt and they drive a Volt the first time and say, "Wow, this is a Chevy?" They can't believe it. I think we've got great stuff.
And by the way, this great stuff was on the drawing board before the bankruptcy. So it's not like right after the bankruptcy, the switch flipped and GM figured out how to make good cars. They've been doing that. But now it's about the good cars getting on the road. We want to get people in the seats. We want to have confidence in our ability to sell it. We feel good about our product. We're selling with confidence. We're getting higher prices for our cars, and we're supporting the customer. Basically that's what it's all about.