Interim Chief Executive Officer, Marelli Holdings Co., Ltd.
GM-Volt.com Interview with General Motors CEO Fritz Henderson
Dr. Lyle Dennis, founder of GM-Volt.com, interviews Fritz Henderson CEO of General Motors in early June 2009 days after GM ...
About Frederick Henderson
In a June 2009 interview with GM-Volt.com, Frederick Henderson, then CEO of General Motors, discussed the factors that led to the company's financial difficulties. He attributed the situation to a combination of a weak balance sheet, business fragilities, and a global market decline through 2008. Henderson stated that the company had made mistakes and noted that legacy costs, such as $3 billion per year in retiree expenses, were a significant factor. Henderson also outlined GM's strategy for recovery, stating that the company had developed a plan to lower its break-even point to roughly 10 million units in US industry sales. Regarding the Chevrolet Volt, he identified cost as the primary challenge for the first-generation vehicle, citing the expense of the battery and battery pack, as well as uncertainty about warranty experience. He noted that GM had teams working on second and third-generation versions in parallel to reduce costs. Henderson expressed confidence in GM's ability to produce more than the projected 10,000 units, but said demand would determine the actual volume.
Transcript (15 segments)
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Interviewer0:00
Hi, I'm Dennis of GM Bol.com. I'm here with Frederick Henderson, the CEO of General Motors. Thank you for this opportunity. I appreciate it. Thank you so much. I have a few questions from the readers on my site. I'm not going to ask a lot; I just have a few that boil down. First question is: Considering the problem that GM finds itself in right now, obviously with a great deal of loss of money over the last several years, at present do you see the biggest problem being GM management decisions, the global economic collapse, or which of those things are the underlying debt to the UAW and others as the biggest problem? So why this had to happen lately?
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Frederick Henderson0:53
Well, thank you for the chance to talk to you. I don't dwell on history, but I'll try to answer your question. I think about that. For example, we had a $3 billion legacy cost that was almost equal to what we spent on capital for product programs. So it was a factor. Our balance sheet was substantially levered. Second, the market today here in the US is running at the lowest levels we've seen since post-World War II on a population basis; it's very weak. And third, obviously we made mistakes too. As a company, we made mistakes. We did a lot of great things, but we've also made mistakes. The combination of the weak balance sheet, the fragilities we had in our business, and then a market that basically plummeted in a hurry through 2008, not just here in the US but globally, basically exposed those weaknesses and brought us to where we are today.
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Interviewer1:55
Okay. Do you anticipate that once the restructuring process takes place, the 363 sale is over, are you fairly confident that in that new GM you will be successful? Is there a chance that even after all the reconfiguration, it could still have a problem achieving profitability?
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Frederick Henderson2:17
Good question. Two things. One, in terms of structuring the operating side of the business, we have developed a plan intended to bring our break-even point down to roughly a level of sales of about 10 million units in the US as an industry. So we significantly lowered the risk of the business, we significantly lowered the break-even, such that if the market stays extremely weak, let's say 10 million units, we'd be able to not bleed or not hemorrhage. Obviously, that gives us tremendous upside in the event that the market does improve, and it will. There's no logical reason the US market should be selling at this pace, and the global markets will recover as well. So we have substantially lowered the risk. Number two, we will permanently address problems that have been with us for quite some time. Number three, we restructured the balance sheet in a very substantive way. So we're quite confident that we can succeed in the future, and we're not interested in doing this twice; we're doing it once.
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Interviewer3:05
I will just shift gears a little bit to a couple of questions about the Volt. What would you say are the problems or the limitations to rolling out a larger volume of these cars? What are the limitations to production volume on the Volt?
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Frederick Henderson3:22
Well, we launch the car by the end of next year, and we're working on batteries, validating the vehicle, validating the technologies and the motors and everything else we need to do to make sure the vehicle performs and meets expectations. The primary challenge to the vehicle is cost; it's generation one technology. For example, we know the cost in the battery and the battery pack. Second, we don't know what warranty experience will be on the vehicle; we have a fairly large provision for warranty, not because we know we'll have problems, but we have a lot of uncertainties with the vehicle. So I think the primary issue facing us in this first generation will be cost, and therefore we already have teams working on second generation and even third generation today because we can't simply afford to do this in sequence; we have to do it in parallel. We have a team of people dedicated to launching the car, and then we have other teams dedicated to doing work on Gen 2 and Gen 3 to take the cost out of the vehicle.
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Interviewer4:20
But I've heard that 10,000 cars is a projected production volume. One would think why not 100,000, why not a half a million? Do you think there's demand for this many of these cars? Where do you see demand?
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Frederick Henderson4:34
We have capacity for much more than 10,000. We would anticipate being able to scale capacity, but I don't think capacity is going to be the problem. The issue really is cost in the technology. We want to be very focused on getting the quality right, doing the best job for the customers, but at the same time, we want a huge amount of our effort working on generation 2 and generation 3 so that we can get the cost down and make it more affordable for customers.
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Interviewer5:06
And is that where the profit would come into the cars, on the next generations for the company?
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Frederick Henderson5:11
We're not going to make profit on the first generation of the car. Even with a $7,500 tax credit which is being provided to help attenuate the impact, the cost of the car is still very high. So you sometimes ask what is the objective of generation one. From a financial perspective, the objective is to get to generation two. The objective to the customer is to make sure they are absolutely excited about the vehicle, the driving experience, and the overall experience. Because in the end, we want this car to be the finest that General Motors can do, and we intend it to be that. From a business perspective, we need to get to Gen 2 and Gen 3.
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Interviewer5:46
Okay. Looking forward to General Motors 10 years in the future, we talk about the battery labs opening today. How much of General Motors' vehicles do you expect to be electrified, and are you fully committed to getting this country off of oil with the electric car?
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Frederick Henderson6:08
As a company as a whole, we're committed to being part of the solution. But that commitment is quite broad in spectrum; it's not about making one bet, for example on lithium ion batteries or the Volt. It's about improving the fuel efficiency of all of our vehicles. I talked today about our new Chevrolet Equinox launching now, a four-cylinder engine, six-speed automatic transmission, a beautiful package getting 32 miles per gallon on the highway, a substantial move up from the prior generation. So it's about improving the basic fuel efficiency of our vehicles. Even 10 years from now, we would expect that the lion's share of our volume would be internal combustion engine, the traditional powertrains, but traditional in that sense yet untraditional in another sense because we need to make them far more efficient. Then we will be injecting into them hybrids, electric extended-range electric vehicles like the Volt, and a number of other technologies, while we continue our commitment to biofuels and alternative fuels. So it's not just one thing; we need to invest across that full spectrum to make sure we're part of the solution.
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Interviewer7:11
And the last question: What percent, can you give me an idea, what percentage you anticipate electric cars to be 10 years from now? And the second half of that: Do you expect to have the Chevy Volt as your own personal car?
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Frederick Henderson7:25
Well, first of all, we're going to satisfy all customers before they get to me, so the answer is yes, but only if we've satisfied all the customers that want to buy the car. I'll be last in line. And what percentage of vehicles will be electric? Time will tell. We now see hybrids in the market, we see electrics in the market, and some of the competition that has electrics today are very high-priced, interesting vehicles, wonderful vehicles, but very high-priced. The question is how do we over time get into the sweet spot of the market, and then we'll find out.
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Interviewer7:55
Okay, okay. Thank you very much. I appreciate it. Appreciate it. Thanks.