Just two weeks after Jacques Nasser lost his job as Ford’s CEO, Ron Zarrella today announced he is resigning as head of General Motor’s North American car business to become CEO of Bausch & Lomb, the eye-care company he came to GM from seven years ago. Zarrella’s departure comes just three months after GM CEO Rick Wagoner recruited the highly regarded former Chrysler president Bob Lutz to become the General’s product czar. Now Lutz will take over Zarrella’s job running GM’s American car business–the largest piece of the largest company in the world. And GM will weather the coming economic storm with a traditional “car guy” at the wheel, rather than a “brand management” guru who never fit comfortably into Detroit’s insular culture. “The reason [’m leaving]is pretty simple,” Zarrella told reporters in a conference call today. “I wanted to be a CEO and I wasn’t going to be a CEO here at General Motors.”
Lutz–a swaggering ex-Marine who flies fighter jets and smokes big cigars–eclipsed Zarrella as soon as he walked in the door at GM this summer. Lutz, 69, is widely credited with bringing Chrysler back from the brink of bankruptcy in ’90s by championing hot cars like the Dodge Viper and the PT Cruiser. And with Wagoner giving him free rein, Lutz quickly set about overhauling GM’s undistinguished models. On one of his first visits to Cadillac’s design studio, for example, Lutz ordered the stylists back to the drawing board on a boxy new Cadillac Seville they had planned. Lutz has said he wants to be a “virus” at GM for which the giant bureaucracy doesn’t develop an antibody. Shortly after arriving, he fired off a memo on his “Strongly Held Beliefs,” which sharply criticized GM’s method of car development, complaining that by the time the designers went to work on a new model, all the engineers and market analysts already “had the ship sailing toward that dreaded destination, Lackluster.” “Lutz is just what the doctor ordered for GM,” says Merrill Lynch auto analyst John Casesa. Even Zarrella acknowledged that Lutz’s arrival at GM “was difficult for me to get over,” although he adds that they ended up working well together.
But Lutz was only the final blow to Zarrella’s car career. In reality, Zarrella’s star has been fading ever since Wagoner bested him for the CEO job in 2000. Zarrella came to Detroit with the promise of turning around GM’s three-decade decline in the American auto market. With the backing of then GM Chairman John Smale–former CEO of Procter & Gamble–Zarrella was on a mission to teach lumbering, old GM how to revive itself with “brand management,” the hot marketing philosophy of the moment. But giving marketing pizzazz to GM’s bland, look-alike cars proved elusive. And the No. 1 automaker’s share of the U.S. car market sunk from nearly 33 percent when Zarrella arrived in 1994 to just 27 percent at the beginning of this year. “What finished Zarrella was his emphasis on brand management,” says Burnham Securities analyst David Healy. “Trying to merchandise GM’s rather dull product line just didn’t work.”
‘PROFITLESS PROSPERITY’
Ironically, Zarrella finally came up with a way to reverse GM’s market share slide just before he headed for the door. Days after the September 11 terrorist attacks, Zarrella came up with a zero-percent financing scheme on all of GM’s cars and he rolled out patriotic commercials that encouraged shocked consumers to “Keep America Rolling.” Ford, Chrysler and even Toyota followed GM’s lead and the zero-percent marketing gimmick worked beyond Zarrella’s wildest expectations, rocketing car sales to record levels in October. But all those sales came at a very high cost, driving Ford and Chrysler into the red and severely crimping GM’s bottom line. “This is profitless prosperity,” complains Morgan Stanley analyst Steve Girsky.
Worse yet, the auto industry is having a hard time backing away from its profit-sapping fire sale. GM on Monday extended its zero-percent financing deals–albeit on fewer cars and with tougher terms–into the new year. The rest of Detroit will undoubtedly follow. And while GM has picked up four points of market share with its zero-percent gambit, Wall Street fears the General is leading the auto industry off a cliff. “GM and the industry will pay a terrible price for this in 2002,” warns Casesa. “There’s no way the industry will avoid a sharp decline in sales. You don’t have a sharp spike in sales without a sharp decline following it.” Casesa predicts U.S. auto sales will plunge 15 percent next year to 14.6 million vehicles.
Zarrella doesn’t see it that way. “This is the first time in three decades that we will increase market share, and we think we can keep that going,” he says. Why? Because GM has the freshest new designs on its sport-utility vehicles and its profitable pickup trucks are challenging Ford for a change, he says. That has allowed GM to gain more ground than its rivals-and to do so while still making a little money. GM earned $385 million in the third quarter, down 54 percent from the same period last year, and it expects to earn a modest profit in the final three months of the year. That might not sound too impressive, unless you consider that GM’s crosstown rivals are hemorrhaging. Ford alone has lost more than $1 billion in the last six months. So as Zarrella sees it, the combination of zero-percent financing and hot new models has given GM something it hasn’t had since the days of the tailfin–momentum. “This industry is all about momentum,” says Zarrella. “Our momentum had gone away and we risked spiraling downward after September 11… We’ll look back on say: ‘At this particular point in time, this was the right thing to do’.”
But Zarrella will be looking back from quite a distance. He becomes the third big wheel in Detroit to exit the executive suite in the last year. But unlike auto industry lifers Jim Holden (dumped as Chrysler president a year ago) and Jac Nasser, Zarrella has a welcoming old employer to whom he can return. And from the sound of his exit interview, he won’t miss the company town that always made him feel like an outsider. “There really is nothing else happening in Detroit beyond the auto business, it is so overwhelming,” he said. “Too many times we just sit here in Detroit and think the world is just waiting for the next new car. And that’s just not the case.” That’s one blindspot Zarrella won’t have to worry about at Rochester, N. Y.-based Bausch & Lomb.
