It was in that stimulating environment that I made what I consider to be one of my most significant contributions. It was Bob’s idea: why don’t I look at GM’s financial position six years out? The New York Treasurer’s Staff never forecast past five years, but in year six two significant things were going to happen: The Financial Accounting Standards Board (FASB) had mandated that starting in year six, corporate balance sheets would have to book unfunded health care liabilities. That was going to send GM into an overall deficit position. The second important item was that GMAC had a huge amount of debt coming due. At this point in time, GMAC was barred from the commercial paper market over financial concerns. Refinancing that coming-due debt was going to be very difficult to manage.
So I took it on. However, I took a little different tack: what would EPS need to be, right now, to be able to manage those two events? To not head into negative equity territory, and to be able to retire the debt coming due? I used very, very favorable assumptions: that GM could forecast the same sales volume from a $43 billion capital plan using only $34 billion. That productivity would improve at a 0.5% rate each year. Even at that, GM would have needed $11 EPS in 1992 to hit the mark. I can’t remember what EPS was at the time, precisely, but it was a small fraction of that. I remember giving the analysis to Ron Pirtle, the then-Director. He said it couldn’t be – I answered that it was only math: change any of the assumptions and I will re-run the numbers. He took it without changing any assumptions. Not too long after the Vice President of Finance, Leon Crain, came down to the department to announce we were being dissolved. Rumor had it the New York office was furious with what I had done – they were caught with their pants down. So much for all of those Harvard MBA’s. The solution wasn’t to face the issue together: the solution was to shoot the messenger.
That was not the first time our little merry band had developed logically rock-solid analyses for the betterment of the corporation. But that was exactly the problem: we were rock-solid logical folk… we were Spock’s in the face of a whole shipload of emotional beings. I remember once, when Hughes, a wholly-owned division, sold a satellite communications system to Chrysler and its entire dealer network. The CEO was furious that we would be selling to our competitors first. So I was the analyst on that team… the problem was EDS, another wholly-owned subsidiary. EDS was telling us that we couldn’t buy that from Hughes. What? Is this a child telling a parent what to fix for supper? It was a perfect marriage: Hughes wanted to sell and install a turn-key system: EDS wanted maintenance contracts. So what was the problem? I ended up in the Vice Chair’s office one afternoon, trying to persuade him ever-so-nicely to get his unruly children in line. Really: both firms were 100% owned by GM. If GM wanted to buy a system from Hughes and give the maintenance contract to EDS, it should jolly well be able to do that. Say the word! The Vice Chair’s response was that he couldn’t do that because “he had to eat lunch with these guys every day.”
I remember another time, when we had worked feverishly to analyze the relative positions of all of the various GM divisions and subsidiaries on the famed four-square quadrant so beloved by consultants. We charted the growth and revenue potential of each entity, using circle size to denote the amount of capital we were intending to invest in each. The chart conclusively – extraordinarily, exaggeratedly – revealed that we were intending on pouring the vast majority of available capital into the poorest performing, most slowly growing and most highly competitive sector. We had presented it to the Executive Committee just days before Robert Stempel was in New York trying to get the analysts to not trash the stock too badly. He called us up from the analyst’s meeting – he was using the chart to describe how we were looking at future strategy. It was for naught – the executives never intended to use that analysis as a roadmap. I remember asking why – nobody could quarrel with the facts underlying the graphic. I was told it was because the executives could not imagine anything else – that they had oil in their veins. They could not imagine being a General Electric… a company that pursued its strategy of diversification using a simple benchmark: if GE could not be #1 or #2 in an industry, it would not be in that industry. GE had no problem envisioning a GE that was no longer light bulbs and small appliances. GE became a financial powerhouse, a builder of turbine engines…. It became so much more; so different than its beginnings. GM just did not have that level of brazen and bold imagination.
When Leon Krain told us the department was being dissolved he singled me out, saying that the Treasurer, Heidi Kunz, wanted to speak to me. Leon is South African by birth, and it must have been his delivery; everyone thought I was the only one that needed to look for another job. I was a bit panic-stricken. It wasn’t until two years later, when I was teaching a class attended by the GM HR person with Leon, that I learned that, of the entire crew, I was the only one they knew they had a place for. I just didn’t stick around long enough to take them up on it.
Oh: and about that analysis that ended up dissolving the department? It did go into the famous “Black Hole of Calcutta”… that place where all things uncomfortable go when no one can dispute the math but no one wants to face the ugly truth. I know it was read and taken to heart by at least one person, however: years later, when I was reading an article in the Wall Street Journal, Rick Waggoner was quoted saying something that told me he either thought just I like do, or spoke just like I do, or had read my analysis and remembered it. My kind of thinking was novel in the hide-bound culture of GM, and what he said focused exactly on the analytic basis of the spreadsheet I had prepared. I read that sentence over and over again, feeling remarkably amazed that my work had perhaps stuck in the mind of the man who was to be GM President. And then I watched as GM proceeded to sell every valuable asset it had to try and float that heavy, impossible anchor… as if it was a desperate gambler that kept on doubling down after a string of losses dug too deep. It came as no surprise to me that GM eventually declared bankruptcy. I wish I had been wrong.
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