GM going into bankruptcy this week was a seismic shift in the underpinnings of American manufacturing. We must come to terms that America may be a great economic power, but as of right now our manufacturing strength is dubious.
GM entered Chapeter 11 in the hopes of becoming a more efficient, more profitable company. That is a worthy goal, and I have been in favor of GM entering Chapter 11 for a long time.
The real problem is what will happen going forward.
GM has many, many inate problems. And as of right now, I don’t see them answering the major ones; at least, they are not publically confronting them. GM’s problems is not actually there cars; it is much larger than that.
1. GM is strengthening, not weakening, its internal bureauocracy.
GM may be the largest non-governmental bureaucracy in the world…and that is not a good thing. They have a culture of their own. They do things the GM way, or not al all. Managers largely have grown up within GM, and have accepted their many tenets, whether true or not.
Obama’s bailout/bankruptcy plan, unfortunately, strengthens this bureauocracy. Sure, the White House kicked out Rick Wagonner…and replaced him with another GM insider. There were plenty of reform candidates available and needed for this job, and they were all passed by for a classic GM manager.
There are few really successful auto companies in the world, the penultimate being Toyota. Just realize something: Toyota does not measure success in months, quarters, or years…or even decades. It measures success on centuries. Toyota’s belief is that if you build for success in the long run, you can sustain short term hiccups, like the current global economic meltdown. Sure, Toyota is losing money right now…but they don’t care. Why? They are prepared for it, and will prepared for the ultimate global revival as well.
GM, and all the US automakers, have never had vision like that, largely because there leaders come from a culture that worries about minutia. It worries about next quarter’s profits, next years car production, etc. And the current government-aided bankruptcy has made that worse.
The one positive coming out of the bankrutpcy is the downsizing of GM. One of GM’s biggest competitors? Itself. It build multiple car lines that compete in the same niche marketplace. By getting rid of Hummer, Saturn, Pontiac and Opal, GM should be able to focus on the few lines that make it a profit. This is one change that would almost never have occurred if it were not caused by an outside force, which furthers my argument that GM really needs a revolutionary leader, not an evolutionary one.
2. GM has the ultimate safety net; the US government.
Are Democrats really going to let GM fail, now that they own them? One of the greatest stimulators is the fear of failure, as David Brooks notes in the New York Times today. Does GM now have any risk of failure? I don’t think so. At least during the Obama Administration, they are guaranteed to get bailed out whenever necessary. That is not much of a reason to make radical change.
4. Will GM focus on profits?
Ultimately, that is what every company is about, right? Will GM be the necessary, cut-throat player in the auto market they need to be to be profitable? For all of Toyota’s good, they are as cut throat a company as you will see. Look at the Prius, the hallmark of the liberal left. You realize that no other company would produce the Prius at the price that Toyota is? Why is that? Because it is estimated that Toyota loses $5,000-$10,000 per every car sold. They are underpricing everyone, because they can afford to. If Microsoft or Apple or someone else did that in the U.S. or Europe, I bet you the anti-monopoly forces would be up in arms. So, with the government let GM use those kind of tactics to survive?
Here is a bigger problem. With Obama’s stated environmental goals, what happens if GM needs to produce more SUVs to survive? Let us argue a hypothetical: say gas prices fall to $2/gallon for a long period of time. Well, that will allow people to afford more gas, and they in turn will want larger vehicles. GM could make a killing in that market, just like they did in the 1990s. Will the Obama White House allow them to do that?
5. The Union will have more voice.
This ties in with the above. The Union will be the second largest stakeholder in the new GM. So as a owner, are they going to worry about profits, or their employees? For example, what if it makes sense for GM to build certain cars overseas to make a profit…will the UAW stop them? We just don’t know. Obama talks about not allowing the government to interfere with day-to-day decisions…but he never said anything about the Unions, did he?
6. The Dealer network is not making the changes necessary.
My first car was a 1999 Pontiac Grand Prix GT. I loved that car. It drow like a dream, had tons of power, and was remarkably fuel efficient (I got 30 mpg on the highway). But there was one problem: The A/C would work intermittently. So for three years, I kept trying to get the damn thing fixed by my dealer, and every time they argued they could find nothing wrong. The warranty finally expired, and then, miraculously, they figured out what was wrong! And they would fix it…for $800.
This is a common story many people owning American cars know about. Also, those owning Japanese cars laugh. Those dealers would likely have fixed the problem in the first place, and if not, they would probably have paid for it after the warranty.
GM, Ford, and Chrysler dealers are terrible. Sorry, but that is basically true. They have lost the concept of the service model. The Japanese and European carmakers were able to mold dealers to their liking, because they came later. GM and other dealers were grandfathered in, so they were able to do as they wished. GM should force its dealers to make essential change,s or lose its contracts.
The service model is key. So far, I am no seeing this essential change. Understand…using surveys, GM cars are practically equivalent in quality to the Japanese. They fall off on two key categories: Service and perception, both which are tied closely to the dealer network. GM has a once in a lifetime opportunity to change all that.