November 30, 2005
From the desk of Jane Galt:GM goes down
Brad DeLong looks at GM's problems:
As I see it, GM has three big problems:
It paid its workers in the 1980s and 1990s in backloaded pension and health care benefits so that now workers have cash-flow rights but no control rights over the corporation, and this is an unstable and dangerous corporate control situations.Oligopoly profits have been built into GM's wages for a long time, and these oligopoly profit components are very "sticky"--they remain even though the
oligopoly profits are long gone.GM management has bet very heavily on a low price of oil and a high price of SUVs.
Samuelson thinks that these are less important than (4): a culture of management that focuses on maintaining stability rather than taking advantage of change. He may be right.
As I see it, all four of these things are a problem. Either legacy labour costs or lacklustre design and engineering could be enough to swamp the company alone. Only absolutely brilliant management could get GM out of its hole. And GM's management has not been absolutely brilliant.
Well, If Michigan would de-unionize, those GM workers probably would find employment at factories operated by better-managed Japanese auto makers. That would be truly creative destruction: more jobs and better autos. But it can't happen as long as government stands in the way, hurting people in the name of protecting them.
And why should they be brilliant? They have a nice lucrative government bailout to look forward too a la Chrysler and many recent airlines.
It seems to me one of GM's biggest problems is simple, plain-old brand dillution and confusion. I've long thought that GM ought to consolidate its numerous brands into two or three names that consumers can get their minds around. When you're shopping for a car with the "Toyota" label on it, you've got, say, 4 or 5 basic models to choose from, as well as a small number of trucks and SUVs. I think at most there may be around a dozen. Of course you can also purchase a Lexus or a Psion (if I've got that name right), but these brands don't seem to detract from the Toyota name. The marketing and branding are sensible and organized.
GM, by contrast, in addition to the Saturn brand, divvies up its offerings into those interminable traditional different brands (Pontiac, Buick, etc.) that, among them, offer literally dozens of models. It's all too much. GM is like the anti-BMW. With this fine German automaker, the consumer only has to remember three or four different main product lines (3, 5, 6, 7 series). With GM, you'd have to remember 70 or 80 models. They should bite the bullet, join the 21st century, and copy Toyota's business model as much as possible.
And by the way, I write the above not from the perspective of either a marketing or an automobile expert. I write from the perspective of GM's most important audience, a member of the car-buying public. I just perceive them as one awfully sloppy mess of a company.
Absolutely, bust the unions, yank all their corporate welfare, deny them bankruptcy protection and see if a Phoenix arises. Yeah, Tough Love Baby!
A bailout for GM isn't likely; the market is such that it can provide the necessary functions of redistribution of assets, and the "too big to fail" idea is a tougher sell now than 25-30 years ago. There are too many prominent car companies with operations here that would be happy to eventually absorb select parts of GM. Select parts. This will probably wind up happening as GM (a) continues to fold divisions (Pontiac, maybe Buick) (b) attempts to rid itself in various ways of some of its financial obligations (c) fails to get their subcontractors to accept much, or any, more in the way of cost reductions. The GM of 2015, if it exists, will be much smaller and much different that the GM of 2005, and that is probably true also for the GM of 2010.
I remember a GM exec being quoted a few years ago when they bought into Saab, saying something to the effect that "In (10-20) years, there will only be (small number) car companies in the world, and GM will be one of them." Whoever he was, I'm sure he was awarded a huge salary and bonus for his sagacity and wisdom.
He missed one. Their vehicles stink. Ugly, obsolete technology, poorly built.
Hmmm...no mention of management refusing to fund employee retirement and pension benefit programs while simultaneously awarding themselves unwarranted bonuses and golden parachutes.
Pesky blue-collar workers, throw them to the wolves!
Hmmm...no mention of management refusing to fund employee retirement and pension benefit programs while simultaneously awarding themselves unwarranted bonuses and golden parachutes.
Well, the worst thing about those practices for the company is probably the effect on morale, and how that affects the entire company, since honestly even without those bonuses GM would still be in just as much trouble. Enormous bonuses to a few people is chickenfeed compared to their problems. On a symbolic level it's terrible, of course, and it certainly doesn't motivate the workers and union to make the necessary sacrifices, it hurts morale, and it's symptomatic of how GM's management is much less than absolutely brilliant.
GM's upper management could be fired without compensation today and the company would still be in deep, deep trouble, regardless of who replaced them, as long as it maintained it's current cost structure. 1955 is fifty years in the past, but the company is still organized as if the competitive advantage it enjoyed way back then continued to exist.
It is likely that GM's and Ford's tombstones, at leats in their current state, are now being engraved in San Antonio, Texas, where Toyota is tooling up a production facility to make new full-size pick-up models which will compete head-on with the last hugely profitable category for GM and Ford. Once Toyota puts that category under the same pressure that it did with sedans, where are GM and Ford going to make any money in the American market, even in the best of years?
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And now back to our regularly scheduled programming. Today's Kausfiles has a link to some GM news and commentary on their latest strategy. Some plausible, some not.
The problems faced by the legacy airlines and legacy car manufacturers are largely the same problems the federal government is facing, just earlier. The airlines and auto companies gave their employees defined benefit plans and health insurance as part of retirement, instead of defined contribution plans. This has meant that in an era of relatively falling revenues they can no longer afford their contributions.
When the Boomers retire, the United States will face the same problem. I think most rational policymakers see this problem, just as the management at the airlines and automakers probably also see it. The problem is how to transition away from the defined benefits plans to defined contribution plans. For the airlines and automakers, they likely do not have enough credit left to make that switch using bonds or raising equity capital. If the U.S. does not do something soon about its defined benefits problem while it still has the resources and credit to do so, we will face the same problems as the airlines and automakers. Except no one will be able to afford to bail us out.
I recently went looking for a 'safe car' for my daughter, who drives every day to teach, http://missbrophy.blogspot.com/ Looking at NHTSA data, among the safest cars, looking at accumulated injury and collision data in 2002 was the Buick LeSabre. It was safer than the C class Mercedes, the Saab and others with big reputations. In the lab, the C class Mercedes had 'marginal' side impact protection. Rede Beitman of Ewing Plano informed me that side air bags were standard for the LeSabre in 2001-02 but became $500 options after. We bought from an estate. One of the side benefits of buying such an unpopular car is that theft from it is extremely low comparatively. So shhhh!
Looking at NHTSA data, among the safest cars, looking at accumulated injury and collision data in 2002 was the Buick LeSabre. It was safer than the C class Mercedes, the Saab and others with big reputations.
Well sure -- and in very related news, by that same metric the two-door Honda Civic is a lot less safer than the four door version, even though the two are nearly identical underneath the sheet metal. Want to guess what makes the difference?
They need to make a bunch more like this:
www.pontiac.com/solstice/
This is the first GM car since the Cadallac Eldorado that I actually want.
OK, I was young then, and thought the land yachts were like having a house on the road.
Mike: The Le Sabre is an excellent example of what is wrong with GM. Not only is it a very safe car; it is very reliable, and gets 30 mpg on the highway while having the ability to carry 5-6 passengers. You would think that their sales would be very high, but the car is just not sexy so they couldn't ever sell huge numbers.
GM has now cancelled the car and are replacing it with the Lucerne (an old name for alfalfa if I am not mistaken!).
Here's the kicker. The cancelled Le Sabre, though they could only sell it to blue-hairs (and a few wierdos like me who snatch them up used as cheap reliable family cars) was a car that GM consistently made a profit on - so they cancelled it. Brilliant.
Anony-mouse and F-150 advocate, the data (2002 vehicles in range):
The scoring is like an IQ test, 100 is average, but like golf the lower score is better as representing fewer incidents:
----------------Injury----Collision---Theft
Buick LeSabre ---59---------55----------9
Honda Civic (4 dr) 147------118---------49
Honda Civic Si(2 dr) 139----186--------246
Ford F-150 Supercab 59------71-------no data
Part of the problem is getting to the data, which is at http://www.carsafety.org/brochures/ictl/ictl.html
To get there you might drill from NHTSA to the Institute for Highway Safety (IHS), but you have to go to 'consumer brochures' and choose the first 'brochure' which is on injury, crash and theft experience. If you just searched for one of these as a term on the IHS site, Nada. Thanks for commenting.
I think you missed my point. When you quote statistics like those, you have to recognize that there are at least two other factors at work.
1. The driver, and any distractions present to the driver, tend to make much more difference than the vehicle itself.
2. The popularity of the vehicle in question. Want to guess how many, say, Civics are out and about as compared to LeSabres?
So, if car A is generally unpopular and usually driven only by the blue-haired set, and car B is very popular and a favorite of younger drivers who are potentially less-experienced and more aggressive, how do you suppose that affects a safety weighting based on number and severity of incidents?
GM management is to blame for the problem. They have continued to design UGLY cars in the American market. These guys have one problem they don't get it. They are in the business of making money or so they say. The cars are second. Funny they can't make money and the cars stink.
I would fire the top GM executives and bring someone else in ASAP. Hire European, Japanese, Korean or Chinese top management.
The unions have problems and must change. They are part of the sad story.
Last word, GM executives SUCK but so do those from Ford.
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