Neeext! General Motors files for bankruptcy
General Motors has filed for Chapter 11 (reorganization) bankruptcy. (Read more about automaker bankruptcy here.) Lots of people expected this to happen, but it's still a bit of a stunner. General Motors was once a symbol of American prosperity, a beacon for the business world. Oh, how the mighty have fallen.
I'm not one to kick the General when they're down. Actually, I haven't been kicking the General much at all; if you ask me, they've been coming up with some really, really good cars the last couple of years. I grew up during the 80s, when GM was turning out world-class crapola, so winning me over wasn't an easy task. Still, lots of pundits will accuse them of foisting big cars on the American public. That, of course, is total BS -- I don't recall seeing anyone buying a Cadillac Escalade or a Hummer H2 at gunpoint.
So where did GM go wrong? If you ask me, it's that when times were good, they spent money on high-profit products, but neglected the low-margin stuff. In my opinion, the new-for-2007 GMC Acadia is better than the new-for-2009 Honda Pilot. The Cadillac CTS-V beats the stuffing out of the Lexus IS-F, and I'd take a ZR1 over a GT-R any day. But the Chevrolet Aveo and Cobalt can't even play in the same league as the Honda Fit and Civic. Honda put money into their small cars; GM didn't. All it took was a couple of catastrophes -- $4/gallon gas followed by a recession; a perfect storm, if you will -- and whammo, down they came. One wonders, had GM (and Ford and Chrysler) directed their resources to towards their less profitable products, would that have saved them? Or would high labor costs and dealer saturation still have done them in?
Regardless, I do believe that a smaller, stronger, better GM will emerge -- sort of like Britain in the post-Empire days. That's not much consolation to the thousands of workers who are going to be out of a job and the thousands of dealers losing their franchises. My fingers are crossed -- and my interest is piqued. There's an interesting twist to this story: The US government will end up owning 60% of the "new" General Motors, while the Canadian government will own another 12.5%.
So what do you think will happen? Where did GM go wrong -- or right? Click the "comments" link below and tell us. -- Aaron Gold
Related:
- What happens when an automaker goes bankrupt?
- Chrysler declares bankruptcy. Now what?
- When Cars Were America's Idols by Dan Neil (offsite link to LATimes.com)
Photo © General Motors
Comments
I hadn`t heard it put that way before, but I would have to agree. In Japan small cars are every where. They have been making really good small cars here for a very long time. The only thing I might disagree with you on is that I think that even if in the late `80s had they started spending on the less profitable cars it would probably have already been too late. The likes of Honda, Toyota, Nissan (Datsun) had been doing it for a few decades already and really knew how to do it.
But if we just imagine that the US makers were making good quality small cars, it still doesn`t mean that that is what people wanted. I seem to remember some very very cheap gas prices in the `80s and with prices like that I doubt there was any room in the market place to fight it out with the Japanese makers who already had a huge head start.
I agree.. GM ’s trouble happen when they allowed small car/ mid size categories to flounder. It also didn’t help when they just re-hash the same platform to fit a company’s ideal. The Cavalier was sooo old when they finally came out w/ the Cobalt. While Honda and Toyota had come out with 3-4 rework of their model. Also the Lumina and the previous Malibu was ok but didn’t come close to Honda and Toyota. I must also have to comment on the Interior cheap plastic feel and look. I hope that all the car companies are taking some notes and making sure they don’t follow down the same path.. “What is good for GM is good for the US” motto must be painted on the doorway of the Design/ engineering departments at the Tech Center. I can see the worker smacking the motto every day like football players do before a game. Too bad the US wasn’t watching the game and wanted other products!!
I just watched a documentary last night about the GM EV1 electric vehicle. This is a good program that shows how GM took a good idea and screwed it up. Just a short background… basically once the Bush administration announced the incentives on large vehicles, GM bought Hummer and scrapped the EV1 program, including going out and terminating every EV1 lease, taking all the cars back and scrapping them.
I never thought I’d see the day when the GM (and Chrysler) giant would crumble. However, your comments, Aaron, are right on. I’ll be looking forward to watching how GM proceeds. Hopefully, GM designers will employ newer technologies, and start producing diesals. I believe that is the only way GM will thrive. BTW, where I live, diesal gas prices are LESS than regular.
How could one NOT see the day when these companies would crumble??? Overpopulation, market saturation, and finite oil reserves have been the writing on the wall for years and years, and GM seems to have completely ignored them. Some may look at what GM did over the past 20 years or so and say that they were just out to make a buck, but you could also say that they were just trying to stay afloat then, too, because of the amount of extra $ they shell out for “union labor”. Compare GM to Toyota or Honda: Assuming the products are essentially the same (humor me), and the customer cost is the same, why is GM broke? Maybe it’s because there’s so many more hands out (dealer oversaturation and union overhead) for the same amount of stuff. Anyone who thinks that the cuts, layoffs, and closings shouldn’t happen while still believing GM can survive is living a pipe dream that’s plugged at the end. I love the newer GM cars – they show a lot of promise – and I hope that the company is still around in a year or two to sell them.
I agree with Brian. The EV1 was a step in the right direction for GM Had they kept the program going, the electric car might have evolved faster. The documentary Brian mentioned was entitled “Who Killed the Electric Car”. What was amazing, was how much the people who leased one, loved it. Those folks were absolutely in love with the car, and GM was to arrogant (or stupid) to cash in on it. Had they kept the program alive, last year’s $5 a gallon gas prices would have driven hoards of buyers to GM showrooms! As my mom used to say; “Too soon old, too late smart”!
Deming, he was right. GM, Chrysler, & Ford knew better, followed the path of least resistance and failed. Toyota, Honda, Mazda, etc… strong companies, listened to Deming.
Where do we go from here. GM, what is the aim?
If GM had made the effort to keep Saturn focused on its original mission (ie: economical, dependable small cars with a great sales experience) instead of turning them into just another brand name they can slap on an existing model, they wouldn’t be bankrupt today.
I look at how GM crows about having so many new cars that get over 30MPG highway. The original Saturns could get 40. Makes you wonder what could have happened had GM kept at it.
Why is no one speaking of the 2 ton elephant in the room the(UAW) that helped bring the big three where they are today. Did you know the guy who puts the door on the right side of the car, can’t put the door on the left side of the car too??? Workload impact ? B.S. The UAW and their wage and benefit demands have assisted to bring all of the big three down. None of them can build a quality vehicle at a UAW plant and still sell it at a profit to a US consumer. It is too costly. I am afraid unless the UAW is abolished, and the big three are allowed to actually run their companies, this is just a practice bankruptcy for the real one in a few years.
I tried to buy a new car at a US car dealer. I wanted a small five door. The Dodge was terrible. The only GM that fit was the HHR and for me it had bad visibility. Ford left me cold. None of the US car makers made a small car I really liked. I really liked the Fusion but it was a little big for what I wanted at the time. I think the Fusion/Milan are very good cars and are as good as what you can anywhere.
I got a Mazda 3.
The problem is too many people think that US made cars are bad. I know a young man that wants to test drive of all thing a Camry. He will not even try the Fusion because he is brain washed that Toyota makes more reliable cars. When I showed him the reports he then feel back from I want want a reliable well made care to I just like Toyotas
Yes the big three ignored not just small cars but all cars for way too long. That was a terrible mistake. Now they have to deal with people thinking they can not make a good car.
I so wish that GM would bring more Opels and Ford would bring more EU Fords here.
Agent Mike hit the nail on the head.
The whole problem G R E E D.
Abolish the UAW and the Big Three might actually survive.
Brian and Cap’n John — I saw Who Killed the Electric Car. By concentrating on GM and the EV-1, they didn’t tell the whole story. Honda and Toyota also had electric vehicles available to the public at the same time, the EV Plus and RAV-4 EV. Honda did the same thing as GM — they did allow lessors to extend their leases, but eventually reclaimed the vehicles. Some were used as the basis for the FCV fuel-cell vehicle — more on that in a second — and some were crushed. Toyota was in an odd situation because they leased some of their RAVs and sold others. The leased cars were reclaimed and, I imagine, destroyed. The sold ones — those were the ones that got away.
So why didn’t GM re-use the EV-1s for fuel cell vehicles? Well, in a way, they did. I’ve driven an EV-1, and I’ve driven a fuel-cell Chevy Equinox, and it was pretty clear to me that EV-1 technology made it into the Equinox. They didn’t recycle the actual car, probably because their fuel cell stack wouldn’t fit. IIRC, the only two companies that currently have fuel-cell powered cars in the hands of the public are Honda and General Motors.
Crushing the EV-1s was a PR nightmare, but it does make sense — if the cars stay on the road, they have to keep supplying parts and support, which is expensive, and they face liability if, say, a system designed for a 5-year life (the EV-1 was an experiment, mind you) fails catastrophically after 6 years.
So who killed the electric car? If you ask me, it was GM, Toyota and Honda — and the millions of Americans who bought the PR line that there was no demand for these cars. As far as I know, *every* EV from a major manufacturer — including the stillborn Ford TH!NK EV — had a waiting list when it went out of production. — Aaron Gold
It all comes down to simple economics.
Selling Price – Production Costs = Profit.
The big 3 haven’t been truly profitable for years. They’ve essentially been an extension of the welfare program. GM’s net worth today? Negative forty nine BILLION dollars. That is how much of our money was pumped into it. It isn’t a company, it is a corporate shell with a massive liability and debt load. You and I and our children essentially own another welfare program with a name badge worth. Who do I blame? Three are responsible…
Management. They signed the checks, they signed the contracts, they made the product decisions. They were arrogant. They allowed the company to become so large and unwieldy it lost the ability to be flexible and as soon as adversity hit, they had neither the resources nor the manoeverability to turn the giant lumbering ship before it slammed head first into the iceburg and sank.
The UAW. They are a boat anchor around the 3 U.S. automakers. They are also arrogant. They put themselves on an equal footing with the management of the company and no company can survive that. Workers are there to produce items and services for the company at a cost which does not place such a burden to the company it cannot survive. I hate to point out the blatantly obvious but sales are down at Honda, Toyota, Nissan, etc. Anybody see any talk of those companies going bankrupt? The labor and financial demands the UAW put on the companies were unsustainable, all it took was a short little economic hit to bring the whole house of cards tumbling down. I’m going to laugh when the Chrysler board meets and the UAW, who were given a large percentage of the company (unconstitutionally might I add) look at the books and realize their own costs are too high and must be cut. Talk about a quandary!
Last but not least the Government for propping up what are, in essence, Ponzi schemes on a scale which makes Bernie Madoff’s racket look like a street corner game of pitching pennies.
Oh, and Ford…they’ll be lucky if they survive by the skin of their teeth. They were smart and got loans before anybody else, but they are saddled with the same massive debt and cost burdens as all the others and they are a bit more diversified.
Somewhere along the line, people forgot that the single most important thing a company exists for is to turn a profit. Not to be a social net or an agent for societal change. Once the profit motive becomes secondary to the company’s purpose, the ability of any company to survive in the long term is just about zero.
I believe legacy costs for pensions and healthcare drove the big three to products where they could bury these costs. Smaller vehicles just do not cost enough to bear this burden.
Aaron… do you know of any of the offshore car manufacurers that do not have at least some form of socialized medicine in their homelands?
Why have we not heard from the other car manufacturers making cars in the US that are not receiving bailouts? This is after all partly their tax dollars at work competing against them…
So here is my take, GM is not the one suffering here. In fact, with this bankruptcy combined with the cash infusion from Uncle Sam, GM just got one of the biggest “Get Out of Jail Free” cards ever. The only people getting screwed here are the shareholders who saw their stock go from $30 to $0.30 in less than a year.
The employees got what they deserve by the UAW taking too much in their greedy smash and grab job they pulled on the big three.
The dealerships got what they deserve by enforcing a network system that is seriously flawed at its basic concept. A dealer should not be able to influence design simply because they want to have loss leader products on their lot to real in customers and then try the bait and switch to push people into buying more car than they need.
The government may end up owning 60% of the company but that is not permanent. Once GM is reborn at the end of the bankruptcy period the government will sell their share back to the public (hopefully at a profit so our tax dollars will have made interest).
And finally GM will still exist, they will remain in business despite their decades of horrible engineering, design, and financial planning blunders.
So once again, the only people really getting screwed are the shareholders who lost every ounce of investment in GM. All those 401Ks and retirement plans destroyed, and for what? Temporary profit on a fad like the Hummer? So where do we go now? Well if you have extra cash; unlikely these days I know; I would actually consider buying GM stock because they are obviously not going out of business and the only direction for that stock is UP. It may take a few years but in the end you could see a potential 1000% return.
UAW & Obama in charge. Perfect.
Obama is adding a whole new level of risk to investments – political risk. With GM and Chrysler as examples of overzealous government intrusion, and being very indicative of the overall climate in Washington, unionized companies and those encumbered with legacy liabilities, can expect to encounter serious difficulties raising capital in the foreseeable future.
http://pacificgatepost.blogspot.com/2009/05/obamas-not-so-private-economic.html
In the meantime on Wall Street, Geithner’s buddies will continue to be bailed, make billions, replenish their coffers, and taxpayers won’t know the hows, whens or whats. Obama evidently understands little of what they’re up to.
Agent Mike said “Did you know the guy who puts the door on the right side of the car, can’t put the door on the left side of the car too???”
Mike, with all due respect, you have obviously never worked on a production line. Your job is timed to give you just enough time to do your assigned task let alone run around the other side to do the other door. The company employs methods and standards technicians (Time Study)
to make sure the worker on the line has just enough time to complete his assigned task.
Besides, it’s a fact that labor only makes up around 10% of the vehicle cost. They could have worked for nothing and GM would still be in red ink.
I really hope GM survives, and in my opinion, they should ld’ve kept Pontiac and done away with Hummer and maybe Saab. I think the Vibe is doing really well in terms of sales, I mean, every single day I see a 2009 Vibe, so it shows that GM shouldn’t cut all Pontiacs. I even saw a couple of Solstices the other day. Plus I talked to a few people who are heartbroken to see the G8 GXP go barely a year after its introduction, so I think GM should at least rebadge the best-selling Pontiacs instead of just tossing them into the incinerator.
The best way to solve this problem of GM & Chrysler filing bankruptcy is to send all these japanese cars back where they came from. Lets start driving american made cars only & keep americans working making american parts. Who needs all these japanese cars anyway?
mred…would those “American made cars” be the ones made in America, by American hands, with foreign brand names on them? Or would those be cars made outside of America, by foreigner hands, with American brand names on them? Please explain which one is the REAL American made car that you’re speaking of.
@James Raider: You say Obama and the UAW have taken over? Think before you speak. It was Bush who gave GM and Chrysler all that cash in Dec. It’s when they came begging for more that Obama said “Okay but your CEO has got to go since he blew $25 billion in only 3 months”.
@Scott: Hummer just got sold to China and Pontiac had to go as it was a specialty performance brand. I agree that the best of Pontiac should be absorbed back into the Chevy line up with a different badge, but the quality and style of the car still has to do well on the sales numbers. The bottom line is Pontiac has not been all that profitable and therefore the axe be a swingin’.
@Hawaiian Don: Nail on the head! I feel much better about buying a Honda or Toyota built in the US over a Chevy built in Mexico or Canada. We’ve had the discussion before but I will make the point again. Toyota has a design facility in CA and factories all over the mid-west US. They employ US workers from top to bottom and their stock is traded publicly on the NYSE. Just because their headquarters is in Japan makes no difference to me. They make good quality cars here in the US with American designers and engineers and assembled by American workers using American suppliers. And as an American I can freely purchase a portion of Toyota and share in the profits. Toyota is more American than GM, Ford, and Chrysler combined!
I laugh out loud when I read Fantasyland analyses like this one. Gold is young and it shows – the idea that any GM exec could have made any different decisions over the past 30 years is pure bunk. The UAW has veto power over anything, andif Gold had been alive at the time he would have noticed that everytime GM tried to redcue its breadth, the UAW stopped them. Not until GM paid their UAW workers over $100K so they could then start drawing from GM’s retirement fund did the UAW allow GM to close Oldsmobile. As for builind “low profit margin cars” Gold is living once again n Fantasyland. GM could no more build a small car for a profit than they could have jumped over the moon. Does Gold have any inkling of just what the UAW health costs added tot he price a car? Over $15000, way, way more than any conceivable profit from a $8,000 car. Just exactly how is GM going to compete while they are paying total compensation to their unionized (unskilled, uneducated) workers in excess of $200K per annum (counting retiree heakthcare and retraining welfare programs) while their foreign competitiors pay less than 1/5th that amount? GM’s demise and all those supposedly
bad decisions are directly the result of the UAW, which suffered no loss of income from the recent bankruptcy, while the bondholders and shareholders (held mostly by pension funds) were totally raped. Those that invested in GM and helped them got screwed while the UAW sleazebags profitted. Your Obama govt in action. Take care of those who
provide large camapign contributions. And as for that total nonsense about keeping the EV-1 around, exactly why does Gold fantasize that this would have meant anything these days? Those EV-1 cars were crap and provided nothing in terms of technology that wasn’t already employed by hybrids (regen braking). There IS no new technology in an electric car. We were building them 120 years ago, fella. Apparently Gold doesn’t realize that a modern gas powered car is mostly powered by electricity. Even brainless companies like Tesla Motors, which knew squat about automobiles, was able to build an electric car. BYD is ahead of GM and everyone else with their all-electrics and Volt-type cars, and they were a f&^%&ing battery company until a couple of years ago!! I think Gold needs to start asking better questions if he wants to remain in this business. He has no apparent ability to analyze something as simple and predetermined as the demise of GM,
which has been going on continuously since the late 1960’s, when foreign competition appeared in force. It’s all about labor rates, young man. You don’t have to know anything else. All this other malarkey is simply a smokescreen to hide the identity of those to blame.
Interesting…
Scott: I find it interesting you chose those three particular Pontiacs. Vibe was a joint effort design with Toyota and built at NUMMI, Solstice is a Kappa-platform twin with Opel’s GT, and the G8 is a Holden (GM Australia) rebadge. What you probably meant is that GM should rebadge their best rebadges, and let the Pontiac name die away as the make has already done in practice.
robbell: Curious; where did you get that 10% figure?
DFI and Hawaiian Don: Excellent perspective. FWIW, I agree with your points of view!
@Kevin from Bellingham:
>I hate to point out the blatantly obvious but sales are down at Honda, Toyota, Nissan, etc. Anybody see any talk of those companies going bankrupt?
AFAIK, Honda, Nissan and Toyota (as well as Mitsubishi and Mazda) have all gone to the Japanese government for loans — the same thing GM and Chrysler did here in the States. So by the definition everyone is using, Honda, Nissan and Toyota have been bailed out by their government, same as GM and Chrysler.
Toyota is turning into their own sort of General Motors, so who knows — maybe bankruptcy is next. — Aaron
@Kerry –
Where are you getting your figures that GM pays $15,000 per car in labor? And how is a modern car “mostly powered by electricity”?
Aaron
Will you people stop using so many abbreviations in you comments?! Some, if not most, of us are adults who don’t give a damn about text messaging! We’d like to read the entire post without having to stop and try and figure out what YUYG or UJEW or MKJ means! Jeez.
Sorry, I got a little caried away and would like to say that I have takin’ my chill pill. Procede.
Aaron do you know if the Japanese government is getting an ownership stake in return for their yen?
It just makes me wonder how many automobile companies will come out of the recession privately owned.
Many commentators parrot the old GM lie that their big problems were “rightsizing” to meet lower demand, and the “high cost of union labor”.
Both legends are beancounter-babble run awry.
In reality, GM’s glory days were when it produced good solid value, good cars that were reliable, in massive numbers, such that the cost per unit was vanishingly LOW. Henry Ford himself was reduced to being a “GM watcher” by its superior economics: high volume, fat gross-margins and low cost per vehicle.
The idea of downsizing to meet the “sweet spot” of proper production completely runs contrary to GM’s business model. In fact, it is self-destructive, as said many times on GM message boards. Well, now, the self-destruction has come to pass.
There’s no one to blame but GM’s insouciante management.
GM needed to EXPAND production and HIRE production workers, raising SALES by making the kind of cars that people want to buy, and cut useless white-collar overhead. Shrinking output, for GM, means death.
The fact is, Lutz is a failure so far as being a “car guy”; he didn’t make the kind of difference that GM needed. The last 10 years of GM cars are just plain B-O-R-I-N-G, from Hummer to Solstice and from world-platforms like the unmarketable Aveo and Opel to the redesigned GMT900 pickup trucks. Let’s face it, “SUVs” and “crossovers” are just an ugly makeover of an old-time “station wagon”, no matter how you rebrand them.
If GM had delivered a simple serial hybrid like the VOLT, for example, ten years ago, or even two years ago, or if they had resumed production of the EV1, they might have increased production enough to survive.
The VOLT could run quite well for 40 miles in all-electric mode on lead-acid batteries; but really, 20 or even just 10 miles, would have been enough just to get them out on the road and into people’s garages. And the sales into GM’s ledger.
Instead, decisions were made to invest in expanding Chinese, Korean, Brazilian, European and Russian operations; none of that money could be repatriated, in GM’s time of dire financial need. It turned out to be doubly foolish when the dollar tanked, and the Won, Euro, Rnm, etc., rose, making foreign cars prohibitively expensive to import. So much for the “world platform made with slave labor” idea.
That’s why Saturn’s emergence as rebranded Opel-monger was doomed: too darned expensive with the high Euro.
The lifeblood of General Motors was drained to build plant-capacity on foreign shores, a betrayal of those who invested in GM products and put up with GM for so long: and a losing strategy, to boot.
Look, GM needed the threat of bankruptcy to realize that dealers selling only 40 cars per year are not viable!
Toyota cuts dealers who don’t sell 30 per month.
Obviously, therefore, Toyota dealers have lower costs per square foot of showroom, per foot-traffic, per employee, per car sold, per car financed on the lot, and per overhead and back-office personnel. Furthermore, Toyota salaries for overhead personnel are much lower; the top salaries are an order of magnitude lower than GM.
ALL of the top management salaries are OVERHEAD, paid for by productive line workers. What part of “overhead” don’t GM managers understand? GM’s PR department is all overhead, so are the dealer real estate, all the TV ads, etc., overhead that can only be justified by increased revenue. No revenue, no value.
Why pay Wagoner millions, when he failed?? Perhaps a blindfolded gerbil could have done as well, or better. The overhead expense of top management can only be justified by PROFIT; GM’s failure means all overhead management’s work was futile, in vain, and a complete and utter loss.
GM doesn’t realize that every manager is overhead?? After all these years of conferences and seminars. One wonders.
GM costs were too high, from dealers who needed a huge profit per car, all the way to bloated, inefficient management, overpaid white-collar managers and hangers-on, underutilized real estate, and excessive ad budget.
Now as to GM’s claim that their problems were due to high union wages, that’s just a crock.
GM base wages are from $700 to $1200 per week; claims of more are based on forced overtime, which resulted from GM’s union-hating managers refusing to hire more union workers, so piling more overtime on the shrinking pool of existing workers. That, once again, is a management decision — and a management failure.
Even the so-called “jobs bank” tells us that GM was unable to find work for some of its workers, meaning, that they were idled by low sales — meaning, by badly designed products. Why blame the union workers for management’s failure to put them to work? If GM had kept its sales up, none of these workers would have been idled.
GM’s advertising budget was 70% of its cash UAW wages. If the UAW had come to work for two-bits instead of $25 per hour, GM would still have been losing money all these years and would still be in bankruptcy.
In reality, all the auto makers have reduced cash wages to a tiny cost item. The final cost of the car dwarfs the labor to put it together, it’s just a tiny percentage. It’s an insulting LIE to blame the UAW line workers for Lutz’ design failures. It’s not the line workers who are at fault when the cars just aren’t selling in quantities needed to support overhead cost items (such as Rick Wagoner).
Let’s calculate together.
It takes 11 to 22 hours of actual labor to assemble an auto in a mondern factory. That’s total line labor hours divided by units out the door.
At $28/hour (that’s the salary GM is lowering to $14/hour) or $22/hour (that’s what Toyota pays, plus bonus at the end of the year) the cost of assembly labor is as little as $200 and as much as $650 per car.
You don’t need a calculator to figure that’s at most only 3.25% of the cost of a typical $20,000 car.
Sure, benefits are an additional cost; but the big problem with that cost item is that GM managers foolishly handed out unfunded “early retirement packages” to get rid of what they saw as excess workers. I guess they planned to replace them with cheaper offshore workers?? Or something. Sometimes the lack of planning doesn’t hurt; this time, it was devastating.
To induce workers to accept early retirement, GM actually paid them up to $140,000 in cash, and allowed them to add enough points to retire at full benefits long before they had earned enough to fund those benefits. Many of those workers reputedly took GM’s gelt right across the street to local gambling halls, which are not in the habit of handing out money, contrary to the belief of most of their customers. So, really, GM was funding local (non-value-added) gambling with a generous infusion of borrowed cash, a debt which is now being assumed by the Taxpayer.
This was a mistake made by GM management.
By shrinking production, their ratio of active workers to retirees ballooned to an unsustainable and alarming 1:4. Prudent companies survive if it’s 4:1, just the opposite of GM’s ratio. Now if I can figure this out, how come GM’s business-school grads failed to lamp to it??
A company burdened with using the production from one active worker to support four “retirees” is at a disadvantage to a company, such as Toyota, which uses part of the production of four active workers to support one “retiree”.
This is just plain arithmetic, nothing fancy.
So cutting production was the WRONG thing for GM to do, if it wanted to survive. It needed to put those retirees back to work, if anything, instead of decimating the ranks of active workers to load up the corps of “retirees”.
GM should have been HIRING, and building better cars; and shouldn’t have done stupid thinks like hand $2 Billion to Fiat or sold control of the NiMH batteries (yes, GM once owned the battery Toyota needed for the Prius!!) to Chevron Oil.
GM’s management, controlled by the Board of Directors, made a dazzling series of diastrous choices that seemed to put the wealth of Big Oil above the health of GM or the wealth of its shareholders. West of the Pecos, we call that “failure to perform fiduciary duty”.
OYEZ, GM also shouldn’t have arrested its own customers, who were trying to buy GM cars for cash.
Not a good idea to turn away cash customers, let alone have them hassled or even arrested. Here’s a case of customers who put to shame the old ad “rather fight than switch”, these would-be GM customers would have rather get arrested than buy from someone else!
And GM missed that point, too.
GM probably should not have denigrated their customers, nor damaged their credit, charged them for scratches on the cars GM crushed, refused to sell them cars, disappointed the GM EV1 fan club, and spent money fighting, suing and lobbying against them.
GM turned a profit-center into a cost-item. From lemonaide, they made lemons. Astounding trick, but not very useful.
While Toyota was selling Electric cars to the public, GM claimed it was “afraid” to sell to the public due to “the lawyers”. GM then sabotaged the Toyota EV by helping Chevron sue Toyota, which stopped their production of a plug-in EV.
So now, no Auto Alliance member makes a plug-in car, thanks to GM and Chevron. So much for innovation, or exciting cars that people just can’t wait to buy. Remember, would-be EV1 buyers waited in the rain for weeks just for the bare hope of being allowed to hand GM cash money.
Generally, you don’t survive in business if you disappoint and/or arrest your own customers, eh? Guess even Lutz can figure that out??
I am hopeful that GM will get through bankruptcy, I do feel they will be smaller but I feel that in part is because of the fact they are sharing the market with all other auto companies. Bankruptcy will not deter me from buying GM vehicles. I have a 1986 S-10, 1992 Cadillac, 1994 Chevy Truck, 2005 Chevy Truck, 2006 Trailblazer and a 2009 Chevy Cobalt. All are surving my family well. I personally like to buy what is made here in the US and keep my fellow Americans working, because it is said if 1 auto worker loses their job 9 other jobs will be lost. That is something to think about. GM cutting 21,000 jobs do the math on how many others will be lost. It affects all of us and only we can support each other.
Doug, isn’t the $28 per hr only the recent average? Didn’t it come down from higher levels (especially if adjusted for inflation)? Do you think that wage parity including benefits is a benefit to a large corporation that operates close to the margin as most do? Do you think that cost inequity may have led management to send work overseas…even if it wasn’t ultimately profitable? Are you a union worker or union employee (Huffington Post columnist
)? Can we be sure of your facts whether you are or are not–what’s your source/s? Do you think that its possible that cost inequities led GM to design less desirable vehicles? Don’t you think that even if GM had produced competitive products all along, that others who made such massive improvements over the past 25 years would have inevitably stolen significant market share (under the theory that monoliths are likely unsustainable under the erosive effects of time and competition)? If this erosion was significant enough, wouldn’t the domino effects that you mentioned also be inevitable regardless of management decisions?
I ask because your post is informative but a bit one-sided in its recommendations (hire more union workers–fire all management). Even a gullible sod like me gets suspicious when there is no equivocation. To me, it sounds like UAW rhetoric to deflect criticism. But I could be wrong (there WAS that one time…
).
The big three’s problem with poor quality perception will take a long time to go away. It doesn’t matter whether they make big cars or small cars, there were too many of us got burned in the 80’s and 90’s and wouldnt buy another one on a bet. Once more some of us are raising our children while driving japanese cars. What do you think they will drive when its their turn to buy. I’m betting it won’t be a car from the big three. I know my kids have heard the stories and were passengers when the fords and chevys we drove when they were small fell apart under our feet.
Arrogance, the UAW and not paying attention to customer wants and needs has put the “old” big 3 where they are today! They should have had a closer eye on how Toyota has done things the last 25+ years. Believe me, I’ve been producing Network Commercials for all of them for a very long time and have a lot more than cursory information as to how they work, think and waste money.
Ron (from California)
An audio podcast all about Doug Korthof. After reading all that he wrote here, I just had to google him to see who he really is.
http://www.podtech.net/home/3233/who-is-doug-korthof
There are 3 reasons why GM and the other got to the deplorable state they are in now and had to be saved by the government (read you! the American tax payer!!!!!):
1. Quality. even today (although they make much better cars then they have ever done,quality wise I am speaking, design still is not their strongest point but okay) they still cannot match the Japanese and Germans
2. UAW unbelievable how extremely greedy they have been in the past 50 odd years, and they haven’t learned a thing!. Wages you can only dream off for not highly skilled/qualified jobs. Benefits unheard of and unrealistic. That was not a problem if they would have made excellent vehicles quality wise speaking! But they did less and less for more and more money and benefits
3. Management, that was too weak to stand up against the unrealistic demands of UAW. Furthermore never listened to customers nor competitors to see what was going on since 1970 and how to align their products into products where there was a sound and constant demand for. And all the exorbitant bonuses they gave each other now to be paid for by the America Tax Payer
I’ve always owned GM vehicles. I currently own 2 but with the UAW as a partial owner of both GM and Chrysler I will now buy Ford or some other make. The UAW killed GM and Chrysler and would have killed Ford except they got concessions.
Ironically, GM HAD the cute car that attracted attention and admiration, the EV1, a product that would-be buyers were willing to stand in the rain for a chance to buy, a product that would have taken off if GM had only been willing to sell it.
As it is, instead of selling the EV1, GM arrested its own customers who tried to buy them, and drove its former EV1 customers to Toyota.
Doubly ironic, when GM was supposedly looking for a product that would draw people from Toyota, that it spent extra effort to damage the credit, malign and even arrest its own customers, who were trying to buy the EV1 — made in US, fueled entirely in US. We don’t import electric, it’s ALL MADE RIGHT HERE, and, for EV drivers, usually with solar on their rooftop.