DHL, GM: Does Failure Have Consequences?

Reading the WSJ page B1 at lunch yesterday, I was struck by the ironic juxtaposition of two stories. The first was about failure and its consequences:

DHL Beats a Retreat From the U.S.

Deutsche Post Unit's Campaign Foiled by Souring Economy, Management Missteps

Four years ago, DHL's parent stormed into the U.S. with an advertising campaign designed to take on FedEx Corp. and United Parcel Service Inc. ...

On Monday its parent, Deutsche Post AG, announced a massive retreat. The company said it will pull the plug on domestic U.S. deliveries by the end of January and cut about 9,500 jobs. DHL will continue to deliver and pickup international shipments in the U.S.

Its foray into the U.S. was done in first by a series of management missteps and then finished off by the slumping U.S. economy.

DHL will scale back its U.S. expansion. A delivery truck in Culver City, Calif.

Deutsche Post expects its U.S. express operation to lose $1.5 billion this year after losing $1 billion last year. In recent months, a number of high-profile customers have taken their business elsewhere. ...

DHL ran into problems almost from the moment it entered the U.S. in 2003 by purchasing Airborne Inc. of Seattle for $1.05 billion. Critics said the company underestimated the intensity of the competition, didn't have a cohesive strategy and failed to retain top Airborne talent. Airborne also proved a less-than-perfect fit because of its threadbare ground network and reputation as a discount service.

In other words, Deutsche Post will have nothing to show for its $1 billion acquisition — other than several billion more in losses since then.

The second was about failure and its lack of consequences:

GM's Shares Tumble on Rising Cash Concerns

General Motors Corp. stock fell to its lowest level since 1946 as concern intensified that the auto maker could run out of cash and be forced to file for bankruptcy protection.

GM and sympathetic lawmakers boosted their calls Monday for the federal government to bail out the company. In return for aid, lawmakers in Congress have suggested the government could seek to take a stake in the company, limit executive compensation and require GM to speed the introduction of fuel-efficient vehicles. A GM spokesman declined to say if GM would go along with such requirements.

GM's chairman and chief executive, Rick Wagoner, told the trade publication Automotive News that GM needs financial help before President-elect Obama takes office Jan. 20. But Mr. Wagoner added in the interview that he would not be willing to resign in return for aid. "I think our job is to make sure we have the best management team to run GM. It's not clear to me what purpose would be served" by his resignation, Mr. Wagoner said.

Instead of fixing the problems once and for all — with consequences for management, shareholders and employees — Wagoner hopes to continue on his current path with money from you and me.

In the real economy, failure has consequences. For politically powerful and influential firms — or those firms “too big to fail” — stakeholders are insulated from those consequences.

Comments

[bosun.j:]

Indeed.

As the collapse is well under way all the political and commercial posturing is at best self serving. Rather than delay the inevitable it is time to turn off life support, suspend heroic measures and allow the patient to die.

The sooner that happens the sooner we can begin to build a better society.

To those that despise the christo-fascist extremist capitalist consumerist monstrosity that American culture has become that time cannot come too soon.

2008 Nov 12 06:05 AM

[PeteK:]

bosun.j
Even though I am a GM share-holder, I agree.
It's beyond repair.

2008 Nov 12 07:28 AM

[epeon:]

It is interesting that the government is calling for executive bonus limits and nothing else. The generous retirement and health plans for the rank and file are not mentioned. Gee, could it be that the government (i.e. soon to be completely democrat controlled) does not want to do anything that might be negative for the UAW?

Of course, by not making the UAW cut anything, all they are going to do is to insure that about a year down the road GM will need more money, and then a year down the road some more money, and then another year down the road.....

The current structure of GM is unsustainable. I agree that Waggoner and the board need to go. They presided over this mess and there does need to be consequences. However, unless you tear up the union contracts, there will be no longterm fix.

2008 Nov 12 08:10 AM

[rh13:]

Actually, I think GM is too big to save. It is about the most bloated, insular, self-centered to the point of self-defined, company on earth. Throwing money at it will do what? It will help preserve GM in its present form. Do we need that? I certainly do not.
The phrase, "Too big to fail," was properly applied to financial institutions. Even there, the concept is arguable, but the idea was that, since people depend so heavily on a functioning financial system, the sudden, outright failure of a company big enough to be a critical part of the financial system might deprive people of services that allow the economy to hum.
That reasoning may be right or it may be wrong. (We'd have to guess it's wrong, since the decision was made by and for the financial industry.) Anyway, it does not apply to automobile manufacturers of any description. In Cuba, people are making do with cars manufactured in the 1950's. In New York and London, people get around by train. Even if I do need a car, I can get by with a Honda made in Tennessee, a Subaru made in Indiana, a Mazda made in Michigan, or perhaps a Tesla made in California.
Despite its failures, GM has done pretty well considering that its cost of employing people in union jobs is about twice what other auto makers experience. "Saving" GM without changing that doesn't fix anything, it just delays the day of reckoning.

2008 Nov 12 11:04 AM

[jadziasman:]

Talk about apples and oranges!

How do you equate DHL and GM? You would have been much better off comparing DHL's ill advised purchase of Airborne to Daimler Benz's idiotic purchase of Chrysler. How in the hell did Daimler really expect that to work? Juergen Schrempf was the driving force behind that fiasco. The Deutsche Post purchase of Airborne was not as dumb but ended up with the same result - a big loss.

GM's woes are entirely different. GM has been losing market share since it peaked in the late 1950's. Instead of decreasing the number of brands it sold, GM did the opposite and INCREASED brands - Saturn, Geo, Saab, Hummer, etc. Had GM reduced its lineup to three brands - Chevrolet, Cadillac and GMC truck, it would have had the chance to focus on producing a full range of cars and trucks without the senseless rebadging of identical vehicles. Its dealer networks should have been cut back in the 1970's when the imports started to take market share. But that's all academic now.

2008 Nov 12 09:37 PM