GM's challenge - Survive and save Detroit

    The Motor City's most important corporate citizen has been humbled. The question now is whether its journey through bankruptcy has made it strong enough to thrive.

    By Alex Taylor III

    No city in America has been more entwined with the fortunes of a single industry as Detroit with autos. The nicknames "Motor City" and "Motown," coined years ago, have stuck for good reason.

    Most of the industry pioneers -- names like Wayne and Hupp, Packard and Maxwell -- have long since disappeared, and foreign automakers are expanding not in Michigan but farther south. Yet Detroit remains the home of the Big Three.

    In Detroit, GM is the biggest game in town. Even after Chrysler fled to a northern suburb and Ford (F, Fortune 500) retreated to its Dearborn, Mich., campus, GM doubled down on the city.

    In the mid-1990s it moved its headquarters to the city's most prominent landmark on the Detroit River, known appropriately as the Renaissance Center. After the investment of several hundred million dollars, GM's headquarters has become the centerpiece of the city's efforts to revive its downtown and develop its riverfront.

    General Motors and Fortune have grown up together too. As Time Inc. founder Henry Luce was creating the modern business magazine at the end of the 1920s, GM was passing Ford to become the world's largest automaker.

    In 1930, when -- Depression be damned -- Luce launched Fortune, GM showed its grit by introducing the first Cadillac with a 16-cylinder engine. When GM's legendary CEO Alfred P. Sloan published his landmark memoir, "My Years With General Motors," in 1963, the title page bore the name of his collaborator, a Fortune editor named John McDonald.

    With this issue, Fortune commences its contribution to Time Inc.'s "Assignment Detroit" series with a look at two sides of GM: its management under the new leadership of president and CEO Fritz Henderson, and its manufacturing, as seen in the Poletown plant, one of two factories still assembling cars within the Detroit city limits.

    Poletown, symbol of decades of strategic misdirection, represents the actions of an arrogant company that still believed, long after it had any reason to, that what was good for GM was good for the city of Detroit and the country.

    Henderson's strategy for GM is simple: to focus on the car business again. Past CEOs were distracted by corporate debt and legacy costs, work rules, and franchise laws. Now those concerns have been mostly eliminated, stripped out during the bankruptcy process, and Henderson can apply his energy where it is most needed.

    Henderson will be finding out what customers think by going out and talking to them, forcing his executive team to pay more attention to the competition, and applying more intellectual and financial capital to the creation of new products. Board chairman Ed Whitacre has given him his orders: GM needs to generate more revenue and more profit. There is no question where the buck stops.

    Now that GM has decided to focus on four brands -- Chevrolet, Cadillac, Buick, and GMC -- Henderson's challenge is to persuade customers to take a look at them. The new model to watch next year won't be the overpriced Chevy Volt but a small car called the Chevy Cruze.

    Since the 1960s GM has failed to build a small car that could compete with foreign brands. If it can't compete with the Cruze, it might as well throw in the towel. So far, reports on its design, fit, and finish are encouraging.

    Henderson's biggest challenge is to find a way to change GM's thinking. Bankruptcy notwithstanding, there remains a tendency to explain away shortcomings.

    GM could use some outside talent, but so far it has found none. Henderson promises to recruit managers from other companies but says government restrictions on compensation have prevented him from doing so.

    GM's CEO won't like to hear it, but he could learn a thing or two from Alan Mulally, his competitor across town at Ford. Mulally has identified a clear vision of the future, gotten his managers behind it, and created a no-excuses culture. Ford executives today are dealing with the world as it is, not as they wish it would be.

    Can Henderson do it? Yes, he can. I have never met an executive who was better prepared for his job. But can GM do it? There, I'm not so sure. With a few exceptions, there haven't been enough signs of fresh thinking or new ways to convince me that the new GM is a winner. All the ingredients are there, but they have to be successfully mobilized for GM to succeed. For the sake of Detroit, all of America should hope that it does.