Categories: All Business

Did GM "betray" America?

BY STEVE MAICH

by Steve Maich on Monday, December 8, 2008 9:52am - 21 Comments

081208_gm

This morning marks a watershed moment in the history of GM: It has decided to dispense with spin and throw itself on the mercy of the North American People. A new full-page ad appearing in several newspapers, acknowledges that it has disappointed consumers and even violated their trust with shoddy quality and “lackluster” design. It itemizes a few other mistakes too, like having too many brands, troo many dealers, and focusing too much on SUVs and pick-ups.

It amounts to an “it’s all my fault” apology/beg for public money. I suppose when the American (and Canadian) taxpayer
is about to hand over billions to save your bacon, they expect abject humility from the recipient. But, I gotta say…I don’t see how they betrayed anybody. They ran the business badly, sure. But some of their mistakes were pretty populist in nature. For example, one of their key mistakes was handing over industry-leading, and incredibly generous salaries and benefits to their workforce. Those decisions now threaten to kill the company. But at the time, they were simply dealing openly and generously with their unionized workforce. The alternative would have been to hold firm and watch them go out on strike…all while listening to labour leaders say how they were “betraying” the workforce.

Same goes for the product mix. They focused on SUVs and pick ups because they were profitable and popular. Now they aren’t and GM is in trouble. Tough break, but hardly a betrayal. Quality was pretty bad in the past, but for the past decade or so it’s been pretty good and getting better.

Whatever it takes to get the billions, I suppose. But the price of a bailout seems to be Rick Wagoner’s pride (and possibly his job).

Tags: apology, bailout, betray, betrayal, Congress, GM, humiliation, humility, new ad, riick wagoner

More by Steve Maich

Dot redux

Was GM responding to a need for SUVs etc or creating one? Was it the lawyers, the accountants or the engineers that read the fine print and found the loophole in CAFE standards that allowed this segment of the market to flourish?

Where was the huge demand for the return of the Camaro, to be manufactured in subsidy friendly Ontario? Was the marketing tail wagging the strategic dog?

They are surely responsible for their own demise, but betrayal, no.
TobyornotToby

The shift away from larger vehicles didn’t just happen over night. It was happening already, but GM was leading the PR campaign to hold it off as long as possible. Meanwhile their competitors were focussing on fuel efficiency even for larger vehicles. A betrayal, not of America, but of their shareholders and their work force given executive compensation and expense.
Sisyphus

Most of those ” over-generous ” labour contracts were negotiated when the company was operating on “over-generous” profit margins.

Of course, I’m being silly. Profit margins can not be excessive. Labour contracts can. That’s the way our world works.

I suspect if our management class – not only GM – spent more money and time on R&D instead of marketing and inflating the value of their stock options, they might be in a marginally better place.

Attributed to Keynes:- ” Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all”.
http://carnewsandviews.com jwl

There seems to be a movement in Congress to get GM to fire Wagoner (CEO). I think this ad is one part of his strategy to keep his job, even though he has run GM into the ground. You might as well lay it on thick when you are begging for your job.
Claude

I don’t buy into creating demand. Consumers who bought those SUVs wanted the incredible amount of space they give. I bought a Honda Pilot because it gave me space without being as big as a suburban. If the Honda had not been available, I’d probably be driving a GM. Where GM failed in my view was in not producing class leading products.

I’m also amazed it took so long for GM to recognize that they have too many product lines. Ford got rid of the Mercury line in Canada long ago. What is the difference between that Chevy and the Pontiac in the window – probably too or three options and different taillights. Part of the problem is that when things were going well, there was no need to fix what eventually popped up as the critical issues when things went wrong. Had GM simplified its product lines and dealt with its dealers years ago, they would probably be in better position now.

Nonetheless, it is a sad state of affair when the number 2 automaker in the world is flirting with bankruptcy and has to beg. And a warning to us all that we are not all as brilliant as we would like to believe. Hindsight is always 20/20!
Steve Wart

Sisyphus, it’s laughable that you think that politicians aren’t nasty people.

I’ve met many honest and generous business owners. I hate to generalize, but politicians as a group are venal and corrupt. It’s so funny how the left is so generous with other people’s money. How many people arguing for this bailout actually own a GM/Ford/Chrysler vehicle? Based on market share, this puts them in the minority.

GM should file for Chapter 11 so they can properly restructure. Any other outcome is grossly irresponsible.
Sisyphus

Steve – I’ve searched carefully through my post and I still can’t find any reference praising the moral character of politicians. But I’m happy for you that you can laugh at things that aren’t there. I passed a couple of guys like that on the street this morning.
Steve Wart

Glad to cheer you up Sys.
http://carnewsandviews.com jwl

Sisyphus

The Detroit 3 spend about $2,000 per vehicle more than foreign automakers on salaries, benefits, health plans, pensions … etc. The foreign automakers use that money to improve their cars, while Detroit uses the money to pay retiree health care costs and the like. The Detroit 3 have focused on SUVs, pickups and large cars because that was the only way for them to make money, they lose money on small cars with tiny profit margins, or at least they do on small cars produced in North America.

However, I agree that labour is not solely at fault here. Senior management has made terrible decisions, there are far too many dealerships, the list of problems is endless.

I also think it’s disgraceful, and maybe a little class-based, that automaker CEO’s have been hauled before Congress to explain why they are incompetent while not one Wall St pooh bah has been called on the carpet.
Ti-Guy

The root cause for this goes right back to bad urban planning, for which we collectively are to blame, since most of us have abandoned local government. The suburban community design has accommodated all kinds of consumer needs and too often desires which become a real problem when the era of cheap energy comes to an end. But during that period, all kinds of weird psychology is exploited by the business community to keep the status quo going as long as possible.

I blame the PR and advertising industry the most, only because it employs some of the most intelligent, educated, creative and ambitious people there are. I figure they should have known better. And they do; a lot them are secretly intensely contemptuous of the products and services they have to flog and of the people to whom they flog them.
Bill Simpson

What is is astonishing about this whole exercise is the notion that assorted pundits and politicians can not only diagnose GM’s ills but, in return for a big bag of money, magically direct GM towards some sort of successful situation. There are actually some very smart people working at the big three in Detroit, but there is simply no resolution for all of this except to take it to bits and put it together again, and the only way that will happen is via bankruptcy. The American people would be be much better off using all this money to deal with the consequences of this (dealing with uncovered health, retirement and other benefits for example), rather than trying to prop up the whole mess.
Bill Simpson

I think Ti-Guy neatly illustrates the hopelessness of a political solution. Yes, that’s it, fix urban planning and stop the advertising from brain-washing us!
archangel

From Reuters in Stockholm vis Paul Krugman, winner of the 2008 Nobel economics prize:

Krugman also said he doubted the U.S. auto sector would survive in the long run but that it was worth supporting it in the short term.

The struggling Detroit-based car giants — General Motors, Ford and Chrysler — were victims of long-term trends as well as by the current financial crisis, he said.

Lawmakers and the White House are considering a deal to bail out U.S. auto makers, and Krugman said he expected at least a temporary rescue in light of the rapid wider economic decline.

“It’s…the unwillingness, I believe a correct lack of willingness, to accept the failure of a large industrial sector — even if it’s an industrial sector in decline — in the midst of a very very severe recession.”

“In the end these companies will probably disappear.”
archangel

Bill S,

I think Ti-Guy neatly illustrates the hopelessness of a political solution. Yes, that’s it, fix urban planning and stop the advertising from brain-washing us!

Ti-Guy hits a valid problem, the reliance on cars for suburban living (and large vehicles because suburbanites have kids to haul everywhere) — but it’s egg then chicken, not the reverse. The auto preceded and enabled the suburban model we’re stuck with now.

Better urban planning would have prevented the wasteful sprawl, but would also have reduced the demand for cars. So the U.S. would have had to engage in more warfare to stimulate its economy, reducing population in other emerging economies and further reducing the demand for cars, and so on.

Oh, wait… calm down… ah, there, that’s better.

Would you suggest GM be allowed to plan our communities? Or simply allow them to evolve without rules? Let me see, Bill, you want an abattoir behind your house, do you?

I do agree, though that “The American people would be be much better off using all this money to deal with the consequences of this…”
Sisyphus

archangel – if you check out Krugman’s own blog you’ll find he disputes the reporting of that item.
Ti-Guy

I think Ti-Guy neatly illustrates the hopelessness of a political solution. Yes, that’s it, fix urban planning and stop the advertising from brain-washing us!

I think you’re illustrating a common misunderstanding these days…that properly understanding an issue is the same thing as suggesting ways to solve it or indeed wanting to solve it all.

I don’t care about SUV owners or suburban residents, except to note that this misallocation of resources is ending up costing us all of a lot of money. I’m also not passing any moral judgement on anyone for their consumer choices.

It is important to understand what has happened, however and suggesting that urban planning and advertising have a key role to play in all of this is by no means a novel suggestion at all. Critics have been talking about that for decades. It’s just that no one seems to care when there’s no crisis.

Some suburban dwellers should try to live without a car for a week. They’d soon realise how bleak and hostile to community life suburbs really can be.

I don’t have any desire to impose any ‘liberal fascistic’ limits on how people conduct commerce, for the most part. I do think we need better information to make more informed choices, however.
DR

It’s funny how nobody is suggesting that all the Asian owned plants in union busting southern states should be forced to work under the same labour rules as GM. Race to the bottom.
stewacide

I’d argue the US government is mostly to blame here.

The US government’s opening of the market to foreign autos, after decades of protectionism, and without doing anything to level the playing field first, is responsible for the Big Three’s huge legacy costs, overcapacity, and suffocating union contracts.

The US government’s failure to tackle the healthcare crisis – particularly out of control healthcare inflation – is bleeding the Big Three dry.

The US government’s perverted fuel economy regulations combined with the ‘chicken tax’, while it didn’t force the Big Three to ignore their car business, did direct them into the truck business in a big way (with disastrous long-term effects).

…that isn’t to say the Big Three haven’t made mistaked on their own:

GM still has quality problems (not nearly as big as most think), but it’s never managed to tackle it’s too-broad brand portfolio. It’s spread too thin design and marketing-wise for its much diminished share of the market.

Chrysler, while consistently making good management/marketing decisions (I’d argue Chrysler has THE best management in the industry; it’s the only thing that kept them the last two afloat), their engineering has withered away. Chrysler has THE worst perceived and actual quality in the industry, and is totally incapable of designing light vehicles on its own anymore (and have relied on the not-much-more-capable Mitsubishi).

Ford is almost the inverse of Chrysler. It’s a fantastic engineering company: anyone who knows cars know Ford combines Japanese levels of reliability with European levels of perceived quality with American pricing. Unfortunately Ford has had terrible terrible management. They’ve squandered untold tens of billions on boutique vanity brands (Jaguar, LR, Aston), and they’re perennially slow to respond to market trends, and extremely arrogant in their product planning (the ‘any colour so long as its black’ mentality still lives at Ford).

…as someone who’s followed the car industry all my life, I’d argue for Chrysler’s sale to a foreign maker with real design muscle (Renault-Nissan seems to make the most sense). I’d argue for a radical slimming of GM; something that amounts to Chapter 11 if not in name. Ford I think has finally made the internal changes it needed to: focusing on its core volume business and brands. They don’t seem to be asking for any money so it’s a moot point.
archangel

Sisyphus,

Thanks for that, I will do as you suggest.
Bill Simpson

Archangel,
Not sure where the abattoir came in, but to ascribe suburbanism to GM leaves out the small matter of the consumer’s choice. GM has not, to my knowledge, ever built a road or a subdivision or told me not to walk or take a bus. it makes cars and does it’s damnedest to get us to buy them.

But for puerly political reasons, GM seems to have become a symbol of everything bad about the automobile in North America, when in truth it is just another multi-billionaire organization that is beginning to crumble from its own internal weaknesses. Nothing more than that. There is still a huge car industry in north america making every permutation of vehicle, sometimes for a profit and sometimes not.

I mean – just because Nortel took a dive doesn’t mean that we suddenly believe that everything about phone systems, network equipment etc. must suddenly be put beneath the microscope for sustainability, or whatever. They screwed up, now they’re bust, bye-bye.

And as I said, I would rather spend the tax payers money on cleaning up the social mess than try to keep it going.
Dot redux

Claude writes: I don’t buy into creating demand. Consumers who bought those SUVs wanted the incredible amount of space they give.

Hey, with that attitude you’re going to render obsolete all those marketing,product positioning, tv/print media types etc.

Interestingly enough, this is what GM wrote today in the ad Steve Maich linked to in the blog: “We also biased our product mix toward pick-up trucks and SUVs.” Not sure how one could “bias” a product mix without cannibalizing from other product lines through targeted marketing strategies.