Archive | Most Recent RSS feed for this section

GM’s Mary Barra: The Most Important Woman In The Auto Industry

12 Oct

This story appears in the Oct. 24, 2011 issue of Forbes magazine:

Mary Barra got her first taste of what ailed General Motors in 1980, when she was an 18-year-old college student. To help pay tuition she was working at a GM plant in Pontiac, Mich. Her job: inspect the fit of hood and fender panels on Pontiac Grand Prix cars coming off the assembly line. She saw enough flaws, plenty of them, that today she says bluntly, “It was not a good time for GM quality.”

Barra took a job with the company and stayed for the next 26 years, distinguishing herself in manufacturing while doing short stints in human resources and public relations. In February she was picked out of relative obscurity for clearly the most crucial job at GM these days: to bring new vehicles to market faster and to attack GM’s stubborn bureaucracy–the very bureaucracy she worked her way through.

Left unsaid: Can the 49-year-old soccer mom motivate a worldwide staff of 36,000 designers and engineers in an old-boy industry where only “car guys”–like the colorful, cigar-chomping Bob Lutz–are considered worthy of leading vehicle development? Her portfolio is huge, bigger than those of the handful of other women in the industry with similar seniority. As senior vice president of global vehicle development, she oversees both designing and engineering of vehicles worldwide. Barra dismisses the gender issue in her usual direct manner. “It’s about no-kidding results,” she says. “Don’t tell me the dog ate your homework, because the customer doesn’t care.”

How well she produces those results will largely determine whether GM’s rebound can last. Its 42 days in bankruptcy cleansed the company of lots of bad things, like debt and an out-of-whack pay scale. GM, which went public last November, has posted six consecutive profitable quarters totaling $10.4 billion. Yet it’s not as profitable as it could be, mostly because engineering costs remain too high. “We’re selling more cars, but we’re not flowing nearly enough to the bottom line,” says Mark Reuss, president of North American operations.

Barra estimates GM wastes $1 billion a year on what she calls “churn”–on-again, off-again vehicle projects, late design changes and transfers of engineering work from one part of the world to another. Barra’s mission is to make the hard product decisions early–and stick with them–so that GM can speed the transition to “global architectures”: meaning the use of single sets of components for vehicles worldwide to drive up GM’s economies of scale. “We’ve made it overly complex,” she says.

One success so far: Barra pushed to speed up the consolidation of GM’s three small-car engine lines, arguing that it shouldn’t wait four years to introduce a single, more fuel-efficient engine that could be used worldwide. “She said, ‘We have to accelerate this, and we have to do it now,’ ” recalls Chief Executive Daniel F. Akerson. “ It threw a monkey wrench into our capital development plan for the next few years,” but Barra made a strong case, and he agreed.

“We shaved at least three years off the implementation plan and saved more than a billion dollars,” Barra says.

Now she’s working to accelerate the introduction of vehicles like the next Chevrolet Malibu, which Akerson pushed (see list, bottom). At a recent meeting she argued against trying to undercut truck competitors with cheaper me-too engines. Instead GM should offer a better one and price it accordingly, she said.

Barra’s appointment in February raised eyebrows around GM, in part because she wasn’t a vehicle engineer and in part because she was plucked out of human resources. Her experience is in planning how vehicles are built, not how they’re developed.

“People thought it was a high-risk choice,” says Akerson. He concluded that Barra could use her manufacturing experience to bring discipline to product development. “Mary represents what’s right about GM,” Akerson says. “She saw what went wrong in the 1980s and 1990s, and she learned from it.”

The daughter of a GM diemaker, Barra was a math-and-science whiz in high school in Waterford, Mich. She chose to study electrical engineering at General Motors Institute (now Kettering University) in Flint, Mich. because the paid co-op program helped finance her education. This first taste of the auto industry “got me,” she says. She graduated in 1985 and went to work full-time at GM as an engineer in the Pontiac Fiero plant. Spotted as a comer, GM paid her tuition at Stanford University, where she earned her M.B.A.

An opportunity for greater exposure came a few years later when she was named executive assistant to chief executive Jack Smith and vice chairman Harry Pierce, both now retired. In that rarefied air she had a view of the entire GM empire, which included a series of crippling strikes in the late 1990s. Barra was tapped to repair worker morale after the strikes with a job in internal communications.

She can tell plenty of stories about the automaker’s dysfunction in the old days. In the mid-1990s she remembers locking horns with fellow GM engineers over decisions such as which software to use to control robots and conveyors in its factories.

“I think I lost six months of my life being sent to meetings to argue about a communications protocol,” says Barra. “The problem is the engineers in the room could have made a decision, but they weren’t empowered to. Frankly, if we’d just picked one, it didn’t matter.”

While pushing change she’s getting help from a familiar face. Last month GM hired Lutz back as a part-time consultant. Was this a sign Barra was in over her head, as some speculated? “She’s doing wonderfully,” replies Akerson. Barra isn’t flustered by such talk. She and Lutz worked closely when he headed product development, and she’s been tapping him for advice during monthly dinners or phone calls. Now GM has formalized the relationship.

“Bob is full of insights and ideas, and I’d be crazy not to use him,” she says.

* * *

Stepping On The Gas

Following bankruptcy GM is focused on bringing new products to market faster, introducing innovative technologies and squeezing out waste through global engineering. Some key actions:

Chevrolet Malibu

Moving the launch ahead to early 2012 meant finding an engine that could be ready early, too. Now it’ll debut as a hybrid, with other power trains to follow.

Chevrolet Spark

Designed and built in Korea, Chevy’s smallest car, on sale here in mid-2012, is an example of its global engineering expertise.

Front center air bag

The industry’s first air bag between the driver and passenger, debuting in fall 2012 in the 2013 Buick Enclave and other crossovers.

Cadillac ATS concept

Finally, a challenger to the BMW 3-series.

Cadillac ELR

Chevy Volt’s plug-in hybrid technology in a luxury package.

Cadillac XTS

New large luxury sedan, debuting in spring 2012, will replace two existing cars: the STS and DTS.

Engine efficiency

GM will save three years and $1 billion by using just one engine type for small cars: the new Ecotec.

Steve Jobs’ Estate Not Likely To Owe Tax

12 Oct

I’m not a betting woman, but I’d wager all my Apple stock that the family of Steve Jobs won’t owe Uncle Sam a dime of estate tax. That may surprise some folks given that Jobs, who died tragically of pancreatic cancer on Oct. 5, was worth $7 billion, according to Forbes estimates. But for estate planners, it’s all in a day’s work.

We’ll never know for sure what specific planning tools Jobs used. That’s because, being a very private person, he is likely to have passed as many of his assets as possible through trusts, rather than using a will. Unlike a will, a trust does not have to be submitted to probate–the process through which a court determines that a will is legally valid and approves the distribution of assets covered by that will. Therefore the terms of the trust remain completely private.

However, a trust avoids probate only for assets put into the trust. Reuters reported that in 2009 Jobs and his wife put at least three pieces of real estate into trusts.

Other assets will not go through probate no matter what a will or trust says. These include retirement assets, life insurance and savings bonds, as well as jointly titled bank accounts, brokerage accounts and real estate.

Lawyers recommend a will that can cover everything else, whether or not you list it. Of course, this will must be probated, but in Jobs’ case it is likely to be very simple and reveal little, if anything, about his assets.

To avoid estate tax, Jobs could pick and choose from a variety of tools. Some are very simple and are commonly used by people of much more modest means. Others are hugely sophisticated and involve high transaction fees for lawyers and financial advisors. Here are the tax saving techniques Jobs is likely to have found most appealing.

Transfers to his wife. Assets inherited from a spouse are not taxed as long as the inheritor is a U.S. citizen. This is the unlimited marital deduction. So Jobs could have avoided tax by leaving everything to his wife Laurene directly (outright) or having them go into a special trust, called a marital trust.

The marital deduction doesn’t avoid estate tax – it just postpones it. If assets inherited from Jobs remain when Laurene dies (say she didn’t spend all the money), those assets count as part of her own estate and could be taxed then. Given the amount involved, that’s a strong possibility.

Gifts to charity. Jobs has long been criticized for his lack of charitable giving. In previous posts, I raised the possibility that Jobs may have chosen to give anonymously, either during his life or through his estate plan, and described a variety of ways he could have done that.

Apart from altruism, for someone like Jobs, both lifetime gifts and charitable bequests would produce estate planning benefits. There’s an income tax deduction associated with gifts during life–adjusted gross income can be reduced up to 50% for cash gifts to public charities and by up to 30% for donations of appreciated assets, such as stock held longer than 12 months. Remember your favorite cause or alma mater money in your estate plan and you will be leaving less for Uncle Sam.

Use of the tax-free amount. Apart from assets left to a spouse, which are tax-free, for the next two years we can each transfer up to $5 million tax-free during life or at death to anyone else. That figure is called the basic exclusion amount. Starting in 2011, widows and widowers can add any unused exclusion of the spouse who died most recently to their own. This dramatic change enables them together to transfer up to $10 million free of the estate tax, which is currently 35%. Tax geeks call this portability.

Although portability is helpful to many people, for various reasons, it would have been unwise for Jobs to rely on it. For one thing, it’s not nearly enough to cover what will probably be left when Laurene dies. In addition, both the current exclusion amount and portability are scheduled to expire at the end of 2012 unless Congress extends them. So Jobs’ lawyers probably advised him to use it or risk losing it.

A bypass trust. This legal concoction is designed to preserve the estate tax exemption of the first spouse to die, without leaving the survivor short of funds. At the death of the first spouse, an amount up to his exemption goes into a trust for the kids. The surviving spouse has access to the earnings (and in some cases principal) of the trust, but the money isn’t hers outright and bypasses her estate when she dies. This trust shelters future appreciation from estate tax and has additional advantages: protecting assets from creditors, from those who prey on the elderly and from a new spouse if a widow remarries.

Jobs’ advisors probably advised him to apply the $5 million generation-skipping transfer tax exemption (which can’t be carried over to spouses) to this trust, so that it could pass assets to grandchildren and subsequent generations free of that additional tax. Query whether he even made them beneficiaries of this trust; given his humble origins he may not have favored the creation of dynastic wealth.

GRATs. A long-time favorite of estate planners has been the grantor retained annuity trust or GRAT, which involves putting appreciating assets into a short-term irrevocable trust (two years is typical) and retaining the right to receive an annual income stream for the term of the trust.

This annuity is based on the Section 7520 rate, which is set each month by the Internal Revenue Service (for October it’s 1.4%, which is a historic low). If you survive the trust term–a condition for this tool to work–any appreciation above this set rate can go to family members or to trusts for their benefit when the term ends. If you die during the term, a portion of the trust will be included in your estate.

Under current law, it is possible to set up a GRAT that will result in no taxable gift, or a nominal one, which is sometimes called a Walton GRAT, because of its use by members of the Forbes 400 family that founded Wal-Mart. There was talk that Congress might change that, but the new tax law leaves GRATs alone. Given his reduced life expectancy, Jobs might have set up a series of GRATs with different terms as a hedge against the mortality risk.

Even more important than Jobs’ planning is what his wife does going forward. As his survivor, she will have the last word about which assets ultimately go to family, charity or the tax man. Since the couple amassed more wealth than is currently covered by the exclusion amount, she may want to take steps to minimize the estate tax down the road.