Where GM Needs to Go From Here

I’ll never forget the day my father gave me the keys and shifted to the passenger side of his gleaming black 1967 Cadillac DeVille. I was about to turn 16, and it was my first time behind the wheel. The cavernous interior, enveloped in leather upholstery, was also black. The DeVille glided over potholes and got about eight miles to the gallon. After I obtained my license, I was handed the keys only on rare occasions, one of which was the senior prom. I was the envy of my friends, who named the car the “Batmobile.”

Cadillac at the time was a synonym for excellence, as in “the Cadillac of refrigerator-freezers.” In last season’s “Mad Men,” Don Draper celebrated his success with an early ’60s two-tone Cadillac. Cadillac style was celebrated in the 1960s Detroit of “Dreamgirls.” I remember the day, about the time Martin Luther King Jr. was killed, that I noticed a maroon Mercedes-Benz parked in the driveway next door. Little did I know its arrival marked the end of one era, just as the bankruptcy of General Motors this week marks the end of another.

It has been long in coming, this slow death of what was once the greatest and biggest corporation in the world. The myriad causes of its demise have been thoroughly chronicled, but to my mind one stands out: The custodians of GM simply gave up trying to build the best cars in the world. To accommodate a host of competing interests, from shareholders and bond holders to labor, they repeatedly compromised on excellence. Once sacrificed, that reputation has proven impossible to recapture.

No doubt GM has made recent strides in quality after decades of churning out trouble-plagued vehicles. Cadillac, in particular, has regained at least a little of its lost luster. But can anyone honestly say that GM builds the best cars in the world in any category? Can it rival a Toyota (TM) Prius or Honda (HMC) Insight for fuel efficiency and reliability? A Lexus, BMW or Infiniti for luxury and performance? A Ford (F) or Jeep for SUVs?

The GM exhibits at the New York International Auto Show I attended this spring were a dispiriting sight. There was hardly anyone there. The attractive woman with the microphone at Buick was performing for an audience of one, and I was only there as a curious journalist. Of course, the news for GM by then was already grim, which may explain why so many customers shunned the GM brands and headed straight for Volkswagen, Honda, Toyota, even Ford, all of whose displays were teeming with people.

In other words, the new, government-controlled GM likely to emerge from bankruptcy faces an uphill battle in a highly competitive global market. That doesn’t mean the effort is doomed. Indeed, it seems to me that the sharper the break with the past the better. Shareholders in the old GM should be wiped out (it mystifies me that anyone was buying last week when GM shares were trading at just over $1 and it was perfectly obvious that bankruptcy was imminent). It helps that new directors with fresh ideas will be named to the board.

Is Fritz Henderson, who rose through the ranks of the old GM culture, the CEO to lead GM into a new era? Is the much-anticipated Volt, an electric-powered car conceived under the old regime, the right car to lead GM into the future? I leave those questions to board members, but the more the new GM is perceived as truly new, the faster it can shake off the self-inflicted damage to the reputation of its old self.

I’ve been encouraged by President Obama’s remarks that even though the government will now own a majority stake and control the company, the new GM will be run by auto makers and the government won’t interfere to pursue broader policy goals that may be inconsistent with shareholder interests. I’ve argued before that government should act as private equity investors in distressed assets, with the exclusive goal of turning the company around and exiting with a big profit to taxpayers in a finite period of roughly seven to 10 years. To my mind, this is the only way to approach government ownership in any industry that is consistent, fair and recognizes a fiduciary duty to the owners, who happen to be the taxpayers. This won’t be easy, but I think Obama and his Treasury-led auto task force may be tough enough to pull it off.

Can the U.S. field a world-class auto industry? I don’ t see why not. Cars are not a commodity like steel, an industry largely lost to foreign competitors. They are complex, highly sophisticated, individualized machines packed with high technology that despite over a century of progress still have room for improvements in fuel efficiency, performance and safety. What U.S. companies need to recapture is an unrelenting commitment to quality. I hope the GM bankruptcy accelerates the day when a father can again hand the keys to a Cadillac to his 16-year-old daughter or son with the same pride my father felt when he gave them to me.