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GM, Break the Chains

GM should borrow a page from its glory days, when it was a holding company that owned five separate autonomous car companies.


Yes, it went bankrupt and was de-listed from the New York Stock Exchange. Yet General Motors still is large and powerful.

Even though stock in the old GM is about to become worthless and stock in the new, restructured GM won’t be available until next year at the earliest, the auto maker obviously still has enormous worth.

Despite its restructuring, GM still has a pile of debt. But it also has a mountain of assets: land, buildings, tools, machinery, equipment, patents, proving grounds and research labs. Even more valuable is the know-how, knowledge and experience of its people. How do you unlock all that value?

Back in its glory days, GM was a holding company that owned five separate autonomous car companies. The general manager of Chevrolet ran the division like it was a stand-alone company. He was in charge of everything: design, engineering, manufacturing, sales and advertising.

With this set-up, GM captured 50% of the U.S. market during the 1950s and 1960s because every division had a crystal clear focus on what its brand stood for. 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 twists? Keep certain corporate functions, such as design, engineering, and manufacturing centralized. But treat them as their own separate business units, with their own profit and loss responsibility.

The different brands, brought back as stand-alone divisions, would contract the work they need from the centralized corporate operations. Chevrolet for example, would contract with GM design to create its cars and trucks.

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 immediate transparency as to the true cost of bringing new cars and trucks to market. The budgets of the centralized operations would be determined directly by what they could sell to the car divisions. Decision-making would be pushed down deep into the organization and would slash the time needed to make things happen.

Once this system was in place, the car divisions could publish their own annual reports.

The next step would be to go with an IPO and issue their own stock. Investors would be able to buy shares in whichever divisions looked best to them. To ensure it shared in the wealth, GM would retain majority ownership in each business unit. Investors still could buy stock in GM.

The auto maker already did something similar when it owned Hughes Electronics and EDS. Investors could buy GM-H or GM-E stock.

Providing investors with a clear view inside the company would unleash the tremendous value currently trapped within GM.

I’d also spin off GM Powertrain and convince Ford and Chrysler to combine their powertrain operations with it. The new Powertrain Company would build engines and transmissions for all three, achieving massive economies of scale and slashing costs.

Custom, brand-specific engines still could be built to satisfy enthusiasts. Then I’d do an initial public stock offering with the new Powertrain Company, with GM, Ford and Chrysler collectively holding a majority share.

The auto industry is going through a violent restructuring. What seemed incongruous just a matter of months ago now can make all the sense in the world today. Whoever comes to grips with the new reality first is going to be way ahead.

John McElroy is editorial director of Blue Sky Productions and producer of “Autoline” for WTVS-Channel 56, Detroit and “Autoline Daily” the online video newscast.

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