Page last updated at 07:48 GMT, Wednesday, 2 December 2009

Old guard ousted as Henderson departs

Analysis
By Jorn Madslien
Business reporter, BBC News

Fritz Henderson
It could take several months to replace Mr Henderson

It is hard to see the sudden departure of General Motors chief Fritz Henderson as anything other than a follow-up from the sacking of his former boss Rick Wagoner in March this year, two months before the US carmaker filed for bankruptcy protection.

Mr Henderson had long been Mr Wagoner's right hand man, a GM "lifer" who had worked for "The General" throughout his career since he graduated from business school at Harvard in 1984.

In the motor industry world, the gradual ousting of the old guard at GM has been described as a sign of an impatient government, eager to take control.

That view is supported by the appointment of motor industry outsider Ed Whitacre, GM's chairman, as interim chief executive until a replacement for Mr Henderson has been found.

The chairman's job is to look after shareholders' interests.

Put bluntly, Mr Whitacre, who used to head up telecoms giant AT&T, is supposed to represent the best interest of the American taxpayer. The US government has already provided support to the tune of some $50bn to lift GM out of bankruptcy, and with the slate wiped clean it seemed the car giant was being slowly nursed back to health.

Replacement woes

But getting shot of Mr Henderson may have added fuel to the fire rather than calm things down. GM is bleeding talent, with Mr Henderson being just the latest, albeit the most high profile and perhaps the most highly rated, in a string of departures of valued executives who had seen their pay cut by about a third since the bankruptcy filing.

GM cannot compete for top talent as long as its hands are tied from a compensatory standpoint
IHS Global Insight

This could pose serious problems for GM, which may now find it hard to find not only a replacement for the charismatic car guy. Anyone stepping into his shoes will find his pay packet curbed by presidential decree, indirectly through "compensation czar" Kenneth Feinberg.

The pay limits have made "the recovery of [the government's] investment that much more unlikely in return for some appearance of political responsibility and response at public outcry to executive salaries", according to a recent report by analysts at IHS Global Insight.

It is a situation that Mr Whitacre is well aware of.

"To find top-level people where you need them, that's a more difficult thing to do at that salary level," he said recently. "I don't think [the pay caps] will be lifted, but hopefully they'll be modified."

So he is well aware that it could take months to replace Mr Henderson.

"Simply put, GM cannot compete for top talent as long as its hands are tied from a compensatory standpoint," according to IHS Global Insight.

Business as usual?

Some analysts say such concerns had enabled Mr Henderson to cling on to power in the name of stability, even though there were strong signs that he was eagerly trying to rebuild the company to something similar to what it had been before the crisis - in spite of his moves to focus the firm by ditching all but its four core brands: Buick, Chevrolet, Cadillac and GMC.

The strongest indication of this came when Mr Henderson decided to halt the agreed sale of a majority stake in its European division to a consortium led by Canadian parts maker Magna alongside Russian bank Sberbank - a decision that angered both the German and Russian governments as they had backed the sale, yet one many within the industry applauded as a sensible move as GM would need to remain large to compete internationally.

However, GM has long been quietly ridiculed by its chief rival Toyota for chasing volume rather than margins. Until recently, it was the world's largest carmaker, though the Japanese firm merely trailed it in terms of the number of cars sold.

For anyone looking at market value, GM's pole position was lost years ago. Toyota has for years consistently outperformed GM in terms of profit by a country mile. Indeed, much smaller carmakers in terms of volume, such as BMW, have been deemed more valuable for investors for several years.

Fresh uncertainty

The cancellation of the sale of Opel and Vauxhall led the German government to withdraw financial assistance that had been offered to the Magna-bid, and thus bills to pay for the parent in the US, where there was no appetite amongst taxpayers to support a European restructuring.

And then came the collapse of another agreement that had been hammered out by Mr Henderson - the sale of its its Swedish subsidiary Saab to the supercar company Koenigsegg.

In the greater scheme of things, the future of Saab is irrelevant to GM, at least at this stage. A sale to Shanghai Automotive remains a possible outcome, though the ongoing turbulence could equally result in a quick winding up of Saab.

That would be bad news for the thousands of workers at Saab's Trollhaettan factory, though in terms of GM's finances it is a sideshow, albeit a symbolic one.

Fresh uncertainty will also set in elsewhere in Europe, where Opel and Vauxhall workers have experienced a rollercoaster ride in recent months, with many fearing for their jobs.

Nobody knows what to expect under Mr Whitacre, though everyone knows it is no longer business as usual for "The General".



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