Vrroooom At The Top

By Frank Gibney Jr./Detroit With Reporting by Joseph R. Szczesny/Detroit

One of Bob Lutz's first requests when he arrived at General Motors late last August was a new car. Not for himself; he already owns 17, including collectors' dreams like a 1934 LaSalle and a 1952 Aston Martin. No, GM's new vice chairman for product development was demanding a sexy "concept car" in just four months--in time for this week's annual Detroit Auto Show. Urged on by the man who recruited him, GM CEO Richard Wagoner, Lutz wanted to show industry leaders and critics that the world's largest automaker is moving to get its mojo back after years of being bogged down in bureaucratic compromises. "The last thing we need is another crossover vehicle with a navigation system and proximity radar," says Lutz, who at a vigorous 69 is the auto industry's pre-eminent car guy. "I was looking for a return to beauty."

To his surprise, the company's designers and engineers delivered the car in record time. A flood of sketches and round-the-clock construction yielded the Pontiac Solstice, a two-door, gunmetal gray roadster with a supercharged engine and a Corvette transmission, which was to make its debut at the Detroit show on Sunday. The car is exactly what Lutz had in mind--simple, sultry, evocative--and although it is for now the only one of its kind, its off-the-shelf components suggest that if the critics like it, it could make it into production in a few years and sell for a little over $20,000.

That's the big question: whether Lutz can push GM to produce not just one concept car that may or may not ever hit the streets but lots of beautiful, must-have cars. Despite a booming truck business and recent gains in market share against its troubled crosstown rivals Ford and Chrysler, GM still lumbers under the burdens borne by all the Big Three: in a stagnant economy, overcapacity and intractable labor costs have obliterated profit margins. Meanwhile, the soaring value of the dollar against the yen is giving Detroit's Japanese competitors an even bigger advantage than they already have through more efficient operations. Says Morgan Stanley analyst Stephen Girsky: "When foreign manufacturers have 38% of the market, being the best of the Big Three isn't saying much anymore."

In hiring Lutz, Wagoner is making a bold bet: that GM solves its problems not just by exhorting the bean counters to keep cutting costs and endlessly haggling with the unions but also by taking big risks to create exciting, popular products that bring in new revenues. Wagoner and chairman John F. Smith Jr. have carefully laid the groundwork for the kind of product-driven revolution Lutz has in mind. But he has to move fast, for the clock is ticking on his three-year contract.

For Lutz, the quick development of the Solstice is a welcome signal that things at GM are not as bad as they seemed from the outside. But they are still pretty bad. "When I got here, I started asking people to describe the design process, and nobody could do it," he says. "I realized it was just plain dysfunctional." Cars were being designed once in the studio and then analyzed and reanalyzed by engineers and marketing experts and constantly redesigned to suit their needs along the way. "It's called paralysis by analysis," says Bryan Nesbitt, the designer who worked with Lutz at Chrysler to create that company's acclaimed PT Cruiser--and who was recruited by GM chief designer Wayne Cherry.

There's no better example of the GM riddle than the Pontiac Aztek, the 2001 sport-utility vehicle that was recently awarded top honors by J.D. Power & Associates for customer satisfaction among light SUVs. The trouble is, not many customers can stop laughing long enough even to look inside an Aztek, whose boxy, butt-ugly design has inspired more jokes than any vehicle since the 1957 Ford Edsel. It's kind of what Lutz had in mind a year ago when he described GM's products, among others, as resembling "angry kitchen appliances."

While the Aztek was well engineered and efficient to produce, design was relegated to the backseat. "There wasn't anyone who would take responsibility or threaten to quit over his principles," says a GM design executive. Lutz, however, as friend and foe agree, is just that kind of guy.

A wisecracking, Cuban-cigar-smoking, martini-drinking former Marine Corps fighter pilot, Lutz is passionate about beauty and speed. He not only loves sports cars but also flies his own Czech L39C jet fighter and sometimes commutes to work in his own helicopter. Born to Swiss parents in Zurich, Lutz has always moved back and forth between Europe and the U.S. He smashed his uncle's Ford coupe into a wall at age eight and walked away from a helicopter accident in 1991. He started at GM in 1960, cruised through BMW, lodged at Ford and then landed at Lee Iacocca's Chrysler in 1986. Lutz has become legendary in Detroit for his fearlessness, whether he's flying or driving fast or giving executives around him the straight talk. That's one reason he never became CEO of Ford or Chrysler--and why in 1999, despite his crucial role there, he was eased out by chairman Robert Eaton, who seemed nervous about letting Lutz (fluent in German and Italian) get too friendly with the new owners from Daimler-Benz.

Still, as with any great movie or music executive, Lutz's greatest asset is an uncanny sense of what makes a hit. He compares Detroit to Hollywood, arguing that in both cities, cost controls and clever marketing--while obviously important--will avail you little if you don't make popular products. And like many successful entertainment execs, he holds that focus groups will take you only so far: there's always an element of gut, and of risk. Lutz used his gut to propel a struggling Chrysler to greatness in the 1990s with a series of cars and trucks that initially raised eyebrows internally but have since became household names: the Viper, the Ram pickup, the PT Cruiser.

That's why Wagoner decided to hire Lutz. The two had never talked much until last May, when they found themselves seated together at a Harvard Business School function in Detroit. The GM CEO started grilling the former Chrysler vice chairman on "how to make cars people want to buy." Not too many days later, Wagoner asked if he could drop by Lutz's office for a 6 a.m. breakfast. (Lutz, not a morning person, nearly balked.) "I asked him how I could find a 50-year-old Bob Lutz," recalls Wagoner. "And it took about 13 seconds for me to realize there wasn't anyone as good for us as Lutz himself."

During the previous year, while working as CEO of industrial battery maker Exide, Lutz started Cunningham Motors, to produce a racy, V12 coupe for the enthusiasts who otherwise would buy a Ferrari for a cool $250,000. Fortunately for Lutz, GM in December announced it would become a major Cunningham investor.

At GM Wagoner has made it clear that Lutz has the authority to redesign products already in the pipeline, kill pet projects and install his own. So far, this has not posed a threat to top GM executives, for a simple reason. Says David Davis Jr., founding editor of Automobile magazine: "Everyone, including Bob, knows he's not going to be chairman of General Motors."

In November Lutz brought in an outside consultant to help fix the design process. But mainly he has simply let it be known that the designers are now in charge. That approach has worked famously well at newly revived Nissan, where one of CEO Carlos Ghosn's first turnaround maneuvers was to take designers out from under the arm of engineering. "You have to unleash the creativity," says Ghosn. "Otherwise, you are dead."

Lutz and GM North America president Gary Cowger have also reviewed GM's entire product portfolio, axing some models and slightly delaying others so that their designs can be tweaked. On the basis of a few Lutz remarks, for instance, designers have, by one account, "changed every millimeter" of a future Cadillac STS, in particular massaging its roof line to give it a sportier, more European look.

Still, the test of Lutz's magic will not come until these cars hit the road in several years. Meantime, the company faces daunting challenges. One is a testy relationship with the autoworkers' union. Another is that despite a hefty profit margin on trucks, GM's overall global operating margins last year were a paltry 1%, to Toyota's 7%, according to Morgan Stanley's Girsky. Today's weak yen worsens that situation by boosting Japan's dollar profits even further. GM's vast overseas operations, with the exception of its joint venture in China, remain a disparate amalgam of brands like Saab and Opel and partnerships with struggling automakers like Isuzu and Fiat.

On the plus side, in recent years GM has made vast engineering gains that are beginning to show in components like the light, powerful new I-6 Vortec engine. In marketing, last September GM initiated the 0% financing program, applied it widely and got a bigger sales boost than its rivals. That lifted its U.S. market share nearly a point, to 28.1%. Analysts warned the program would result in fewer buyers in 2002. But GM has drawn down its inventories enough that new customers will have to pay top dollar for particular models they want--which could offset incentive costs.

Looking forward, auto-industry analysts are encouraged that CEO Wagoner, 48, has brought in outsiders like Lutz and chief financial officer John Devine (recruited from Ford a year ago). The hope is that they will be able to energize GM's vast talent pool, the engineers and designers largely ignored by bureaucratic prior regimes.

Lutz believes GM will be a turnaround story like Chrysler by the time he leaves in three years. "This gang has just the esprit de corps and even more capability than we had back then," he says. He acknowledges that once he left Chrysler, the company lost sight of its high-design, low-cost mission. "I realize now that what I have to do here is leave behind a system that works." Really, that's Rick Wagoner's job, but now he'll get a jump start from Bob Lutz.

--With reporting by Joseph R. Szczesny/Detroit