When General Motors vice chairman Bob Lutz announced in February that he would be retiring this May—at age 78—speculation mounted that the legendary product chief wasn't getting along with Ed Whitacre, Jr., GM's new chairman and CEO. "It's quite the opposite," Lutz said. "But the restructuring of the company didn't leave me with a clear or logical role, and I'm not one of the company's young up-and-comers either."
When Lutz joined GM in September 2001, it followed a meeting with then-CEO Rick Wagoner, who recognized that the company's product and design departments were dysfunctional, and asked Lutz to help him identify "the next Bob Lutz." Wagoner's question implied that Lutz was not just an executive, but a brand unto himself. "The importance of Lutz to GM and to the other companies he has worked for is not so much in specific products and models," says Jim Hall of 2953 Analytics and a former member of GM's design department. "It's in his ability to move an entire culture through the force of his personality and talent."
Lutz, first and foremost, is seen as a car guy. The 400-acre Lutz farm in Ann Arbor includes a garage that houses some of his collectibles: a 1950s-era Aston Martin that belonged to his father, a Cunningham C3 and C4R, a 1934 Reilly Roadster, two Dodge Vipers, and a 1976 Pinzgauer from Austria's Steyr-Daimler-Puch. Though Lutz is, for the first time, showing his age by way of a guarded and slightly crooked gait due to major back surgery last year, he clearly hasn't finished talking, teaching, or even flying his German Alpha fighter jet.
The distinctive gravelly voice sounds road-weary, possibly the result of too many cigars, martinis, homemade pear schnapps and heated arguments with CEOs. It's a voice that will be missed, though it will hardly disappear as he charts the course for a book and speaking tour to help make up for evaporated stock options and pension payments from bankrupted Chrysler and GM.
Lutz is leaving, he says, with a strong sense that the work he began in 2001—when he was brought in to reform a product-development culture that had delivered the unpopular Pontiac Aztek and Saturn Ion—has paid off, and the right people are in place to carry it on. As proof, he recounted an episode at GM last month that gives him peace of mind. He was participating in a meeting about a new manual transmission for GM's passenger cars in Europe and Asia, where stick shifts are still relevant. The plan calls for a huge upgrade, but two representatives from the finance department offered a damning assessment of how many more vehicles GM would have to sell to pay for the higher cost. "I thought to myself that the forces of evil have not yet been vanquished," Lutz said. Whitacre asked Lutz the same week how he felt about retiring. "Terrible," said Lutz, who then related the story of the manual transmission. But what gives the outgoing vice chairman solace was that Whitacre and new chief financial officer Chris Liddell, who came to GM from Microsoft, were as appalled as Lutz that finance was trying to undercut an attempt by product development to take a leadership position on a piece of important technology. "They understood the problem immediately, began debriefing me on the session, and started reorienting the people who for some reason were still clinging to the ways of the old GM," Lutz says.
Indeed, products that are closely associated with Lutz have been successful on the margins of the showroom: Dodge's Viper; Pontiac's GTO, G8 and Solstice; and the Chevrolet Volt. His impact has been felt the most in the overall upgrade of products across the board, especially the quality of design and materials inside the cars. "Bob's biggest contribution has been the way he has educated people about the power and profitability of simple good taste," says Ed Welburn, head of design at GM. "Cars like the Malibu, the Buick LaCrosse, and the Cadillac CTS are successful because they look and feel the way great cars should look and feel, and he was the one who turned the thinking of the company in that direction—to not reduce everything to cost analysis."
Nevertheless, Lutz maintains he prevailed precisely because of his cost analysis. GM's finance department had degenerated under Jack Smith and Rick Wagoner, wringing money out of product development with little attention paid to how much of the money saved would have to be given away in the form of incentives and rebates, not to mention at the back end of lease deals because the resale values of GM's vehicles had fallen. "The thinking I brought here was this: If we can put $1000 more goodness in each vehicle, and reduce the incentive spent from $4000 a car to $2000, we are $1000 per car ahead. And that is in effect what has happened." GM has since invested money in sound-deadening materials, suspensions, and better interiors. "That's the kind of stuff that finance guys love to force you to take out, but it costs the enterprise a lot more to dumb the products down."
Lutz admits he's a bit surprised that consumers came back to Buick, Cadillac, Chevy and GMC so soon after GM's Chapter 11 filing last year. Conventional wisdom was that people wouldn't buy from a bankrupt car company. Research shows, however, that relatively few consumers make a direct connection between the brands and the parent company. "It comes through in the interviews and the surveys," says Lutz. "They hate GM but love Chevrolet."
The culture that Lutz has been attempting to change at GM is what he calls "the typical American business school" approach, which he feels has hamstrung Detroit more than anything else. It's a topic he plans to address at length in an upcoming book he is authoring. The business school approach dictates that the product is just part of the picture—and not the most important part. "And that is the thinking that led to such mediocrity of product," Lutz says. Throughout the 1970s, '80s, and '90s—when graduates of the Harvard Business School began populating the Big Three—to identify someone as a car guy was a slur. "Bob made it OK to be a car guy again," says Jack Keebler, advanced concepts group director at GM.
There is one thing Lutz wants to set straight about GM's record over the last nine years: In 2006, Kirk Kerkorian bought a stake in GM and installed Jerry York, Lutz's old colleague from Chrysler, on the board. York tried to orchestrate an alliance between Renault-Nissan and GM. "Some people think we were shortsighted or stupid for not doing that," he says. "The truth is it was a great deal for Renault-Nissan, which stood to gain around $16 billion a year in savings, mostly from purchasing and such, and GM would have gained about $2 billion in cost savings, and we were supposed to give them a big chunk of equity for that," Lutz says. "It was a bad deal [for GM]."
Under CEO Henderson's brief tenure, Lutz was put in charge of marketing. The dirty secret, he says, is that "I am not a product designer or engineer." Besides being a former Marine pilot, Lutz got his business school degree in marketing, and was, in the early 1970s, the board member in charge of marketing at BMW AG. It was on Lutz's watch that the company adopted "The Ultimate Driving Machine" slogan in the U.S. Lutz convinced the Germans that it was madness for the company to make millionaires of outside sales companies while BMW sold them product at cost. In his brief stint as marketing chief at GM, Lutz's contribution was breaking down the budget walls between marketing, communications and design so that the best ideas get the money they deserve.
Lutz has no qualms about shuttering Pontiac, Saturn and Hummer, and selling Saab. He suggested selling or closing Saab in his first year at GM. Saturn, he says, finally got a world-class product lineup, but "it was going to take too long for the public to recognize that." Hummer became a liability as the poster brand for planetary destruction." Pontiac, he contends, became the symbol for GM's management failure, because no other brand suffered as much from the system by which the general manager was given power to completely change the brand strategy and product plan. "One general manager bought in the idea that Pontiac should be made up of rear-drive performance-oriented cars, and then another would come in and decide that Pontiac should be transformed into a small-car division to compete against Toyota's Scion brand." Now, he says, such planning is concentrated at the top, and Mark Reuss, GM North America president, will not allow whole strategies to be upended by middle managers. The recent reorganization at GM, in fact, did away with brand general managers and has sales executives reporting up to Reuss and brand marketers reporting to marketing chief Susan Docherty.
"Bob's impact at GM has been enormous. I'm not sure we'd be here today without him," Reuss says. Today, adds Reuss, the brand and product strategies for Chevrolet, Cadillac, Buick and GMC are "anchored in concrete." Reuss is also an engineer who Lutz identified early on in his tenure as a car guy. In fact, Reuss is the heir apparent to Lutz as far as carrying forward the cultural changes Lutz has tried to effect at GM. "He moves fast, and hated the focus on process that gripped the old company," Lutz says of Ruess. "He's the person most like me in the company."
Mr. Wagoner's question, in other words, may have finally been answered.
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