As GM Goes, So Goes the Nation (Part 2) 90 comments
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Decline of an Empire
Roger Smith ran GM from 1981 until 1990. During his reign, GM’s market share dropped from 46% to 35%. His biggest claim to fame is being the subject of Michael Moore’s first documentary Roger & Me, which was extremely critical of his laying off of thousands of employees in Flint, Michigan. He took over GM in 1981 while it was losing $750 million, its 1st loss in 60 years. Poor product quality, labor unrest and lawsuits over unsafe vehicle designs affected sales volumes in the early 1980s, which led to GM losing market share at an alarming rate to foreign automakers. In 1981, U.S. Union autoworkers responded to the Japanese threat by bashing Japanese automobiles with sledgehammers. I’m sure this made them feel better, but it was a futile and useless gesture. Smith attempted to institute Japanese manufacturing techniques, but the ingrained bureaucracy resisted change and foiled his efforts. A culture of mediocrity and poor quality led to continuous decline rather than continuous improvement. The acquisition of EDS from Ross Perot in 1984 was a failure. Perot attempted to change the culture of GM, but failed. Perot liked to say that getting GM moving again was like teaching an elephant to dance.
General Motors had a chance to take a commanding lead in the mid 1990s. It developed the 1st electric car, the EV1 in 1996. Instead of taking advantage of this opportunity to change the automotive world, GM scrapped this car and destroyed all of the models. It decided the future was in trucks, SUVs, and Hummers. It continued to roll over to the unions every time a contract came up for renegotiation. This ultimately led to an average hourly labor cost of $73.26 for GM by 2006, a 65% premium to what the Japanese pay their autoworkers.
GM sold its soul to the devil of debt and high margin, low mileage vehicles. SUVs generated a profit of $10,000 to $15,000 per vehicle, even with GM’s bloated cost structure. Rather than improve its assembly line efficiency, product design & quality, or solidify its balance sheet, it chose to use its GMAC subsidiary to make loans to subprime borrowers at 120% of the car’s value. After 9/11, GM showed its dedication to the flag by giving cars away with 0% financing. Amazingly, when you provide 0% financing to people with 550 credit scores you can sell millions of Escalades and Hummers. While Rome was burning GM management continued to fiddle. There hundreds of Presidents, Vice-Presidents, and Directors continued to fly around in their fleet of 7 corporate jets. As Rick Wagoner and his top cronies secluded themselves in executive suites on the 14th floor of their palatial headquarters, eating steak and lobster in their executive dining room, served by minions, GM was rotting from within.
Source: Autoblog.com
Giving away cars for free was so successful, GM decided to parlay its expertise into giving homes away for free. It bought Ditech in 1999, just in time to catch the greatest housing bubble of all time. Ditech was a pioneer in offering 125 percent loans, in which the borrower could get more than the property was worth. It specialized in no-documentation mortgages and stated income loans. How could lending someone 125% of a home’s value with no proof of income or assets possibly go wrong? To quote Claude Rains from Casablanca, “I'm shocked, shocked to find that gambling is going on in here!” GMAC surprisingly lost $8 billion in the last two years. Luckily, the American taxpayer has stepped in to provide GMAC with $5 billion of TARP so it can continue to allow GM to sell more cars at a $2,000 loss per car. No need to worry, it's hired some Wall Street wizards from Citicorp who have figured out that they can make it up on volume. Paul Kedrosky recently provided a fascinating look at how two decades of profits could be wiped out in seven months. With 260,000 remaining employees, the end is near for this fallen giant.
Source: Paul Kedrosky Infectious Greed
A corporate governance study at ragm.com sums up the reasons for GM’s decline.
The history of GM is an instructive story in how success can breed failure; how being the biggest and the best can lead to arrogance and an inability to adapt. GM was the premier car company in the world for so long that it failed to see the need for change. The company was so used to being leader that it couldn’t contemplate following others. It was this mindset, this overwhelming belief that it was GM’s divine right to be the most successful automobile company on earth that condemned the company to two decades of disaster. When GM did finally see the need to adapt, it did so with wild ineptitude, spending tens of billions in the 1980s for little reward.
General Motors has lost $72.5 billion in the last three years. Why is the American taxpayer propping up this failed entity?
Long Road to Ruin
Bill Gross, one of the wisest and deepest thinkers in the financial world, wrote a report in May 2006 that compared the plight of GM with the plight of the United States. Mr. Gross’s words of almost three years ago ring even truer today.
I think it is important to recognize that General Motors is a canary in this country’s economic coal mine; a forerunner for what’s to come for the broader economy. Their mistakes have resembled this nation’s mistakes; their problems will be our future problems. If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the un-competitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. Perhaps the most significant comparison between GM and the U.S. economy lies in the recognition of enormous unfunded liabilities in healthcare and pensions. Reportedly $1,500 of every GM car sold in dealer showrooms goes to pay for current and future health benefits of existing and retired workers, a sum totaling nearly $60 billion. The total future healthcare liability for all U.S. citizens can be measured in the tens of trillions.
General Motors failed to find a solution to its problems. CFO Fritz Henderson admitted in 2006 that, “I have a social security system hooked to our balance sheet.” The reason he had a social security system hooked to his balance sheet was because previous management had made commitments that could never be kept in the long run in order to keep the party going in the short run. Sounds like GM management would do extremely well in government jobs.
Source: PIMCO
Eroding Competitiveness
The United States peaked as a manufacturing economy in 1960, with manufacturing employees making up 26% of the workforce. They now make up less than 10% of the workforce. Total manufacturing jobs peaked at 19 million in the late 1970s and now have plummeted below 14 million and continue to fall. The U.S. decided to outsource manufacturing jobs because we were going to do the thinking for the world. Why get your hands dirty creating things when our brilliant MBA trained geniuses could turn loans to deadbeats and frauds into AAA rated Mortgage Backed securities? The U.S. decided to take the easy path of financial engineering rather than the hard path of creating products that other countries would buy.
The trade deficit caused by decades of choices by government and industry reached $677 billion in 2008. These deficits were always unsustainable. Borrowing from the Chinese and Japanese to buy stuff produced by China and Japan could never go on forever. Instead of realizing this imbalance and taking actions to gradually rebalance the world financial system, our financial leaders and Federal Reserve reduced interest rates and encouraged the imbalance to grow, until it collapsed in 2008. Now their solution is to lower rates to 0%, devalue the currency, and encourage further borrowing. Sounds like choices made by GM in 2001. The Sage of Omaha, Warren Buffett explained the dilemma.
In effect, our country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4 percent more than we produce — that’s the trade deficit — we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own.
The mortgage is now due.
Source: US Census Bureau
Uncompetitive Labor Costs
By devaluing the currency and producing never ending inflation while manipulating the CPI statistics to understate true inflation, the government and Federal Reserve attempt to keep America competitive through gimmicks rather than hard work and sacrifice. When the country produced products that the world wanted, median family income rose at an annual rate of 3.7% above inflation. Since 1970, using government manipulated inflation statistics median family income has been stagnant. If a true inflation factor was applied, the median family has lower income today than they had 30 years ago. The only way people have “achieved” a better life is through the use of debt, which has been encouraged by the government, Federal Reserve and banks. This encouragement led to the collapse of the great American Ponzi scheme in 2008.
American families will see their real household incomes plunge in the coming years to 1970 levels. The backlash against immigrants, both legal and illegal is likely to intensify over the next few years. The decades of allowing our economy to be hollowed out and shipped to China is coming home to roost. Besides weapons and movies, what does America produce that anyone wants? Our financial geniuses have essentially brought down the worldwide financial system by selling foreign countries MBSs, CDOs, etc. That has been our contribution to the world in the last eight years. Now, we have delegated the responsibility of our corporations to the U.S. government bureaucracy. Lee Iacocca explained years ago how well the government runs things.
One of the things the government can't do is run anything. The only things our government runs are the post office and the railroads, and both of them are bankrupt.
Let’s See How Far We’ve Come
The lyrics to the Matchbox 20 song "Let’s See How Far We’ve Come," describe the country’s $56 trillion unfunded liability dilemma.
I believe the world is burning to the ground
Oh well I guess we're gonna find out
Let's see how far we've come
Let's see how far we've come
Well I, believe, it all, is coming to an end
Oh well, I guess, we're gonna pretend,
Let's see how far we've come
Let's see how far we've come
Rather than address the structural problems of our healthcare and social security systems, our government politicians push off the issues until after the next election. They have been doing this for 30 years. This is why David Walker has described these cowardly politicians as displaying “laggardship” rather than leadership. Our elected leaders flounder from crisis to crisis using stopgap methods to plug holes in the ship of state while ignoring the huge iceberg on the horizon. There is one thing I am sure of. The deficits projected by the CBO over the next four years will be hundreds of billions higher. They haven’t taken into account emergency stimulus packages 2 & 3.
Source: PerotCharts.com
While the U.S. Titanic steams full speed ahead toward the iceberg of unfunded Social Security, Medicare, and Medicaid liabilities, our politicians spend our tax dollars on digging holes and then filling them up again. As these future unfunded liabilities continue to rise, the government’s solution is to print money, keep interest rates at 0%, devalue the dollar, and hope for the best. The U.S. depends on foreigners to buy more than 50% of our newly issued debt. When you owe $10.7 trillion to others, you usually don’t get to dictate the terms. Today, the U.S. is asking foreigners to lend us money for 30 years at 3.5% while telling them that we will pay them back in dollars that will be worth 30% less in the next five years. Even a Wall Street CEO could figure out this isn’t a good investment. The U.S. will default on this debt. It is just a matter of when.
Source: PerotCharts.com
Bill Gross laid out the choices for the U.S. in 2006.
How are we to pay for this future burden of healthcare and social security expenses? Aside from contractual legislative changes to both areas (which are surely just around the corner), the way a reserve currency nation gets out from under the burden of excessive liabilities is to inflate, devalue, and tax.
The U.S. is hard at work on inflating and devaluing, while Mr. Obama is working on the details of the taxing. The Burning Platform for GM has already collapsed. The Burning Platform for the U.S. is a ten alarm fire. Collapse is imminent, unless a leader with guts and courage is willing to lead the U.S. back to fiscal sanity. If you believe in fiscal sanity, please join me at TheBurningPlatform.com.
Disclosure: No position.
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This article has 90 comments:
A good question to pose: what shall be the "Core Competence" of America?
What will be the core bundles of assets, skills, capabilities that will provide America with the basic necessary ability to compete providing a sustainable competitive advantage (and today: a survivable core!)
What abilities need to be preserved and built up as a core industrial and productive base? (And conversely, what is not "core", and can be connected and networked in other ways, wherever the skills reside?)
What latent capabilities does America have that would lead to national (and citizen) wealth if they were managed properly and connected to an "American Core Competence"? What actions are needed now to build these up?
How can these core competences and capabiliteis of America be connected to our national strategy and national interest?
Let's have the debate!
Re-group, find your core competencies (as suggested above) and use them wisely.
Those pioneers - individuals willing to take risks - wanted and achieved something. But risk-taking and looking ahead has been replaced with risk-avoiding and holding on to what has been achieved.
As history teaches us, this is the beginning of decadence and has been the demise of any big empire or corporation.
General Motors sat on a wall, General Motors had a great fall,
all the king's money and all the king's plan, couldn't put GM together again...
you have to continuously obsolete your existing product line, or somebody else will do it for you.
fat dumb & happy just won't cut it any more.
> jack
very well researched!
love the cartoon! I have to admit I am saddened to say yes.. "As GM goes, so goes the nation", this country is bankrupt and in decline.
and we are just digging the hole deeper and wider.
You state: "The only logical solution is for GM to enter a pre-packaged bankruptcy with financing provided by the U.S. government if bank financing is unavailable. Shareholders and bondholders will be wiped out. They made a bad investment,...."
Many others have expressed similar sentiments, and I would agree if this sentiment was applied uniformly in a true free market.
However, by this logic, shareholders and bondholders of bankrupt banks should be wiped out just as well, as they made equally bad investments. However, the government seems to be intent on applying a double standard, spending trillions to protect the shareholders and bondholders of banks. Is it that the banks' shareholders and bondholders just happen to be too rich and influential?
Also by this logic, homeowners who purchased overpriced housing that they cannot afford should be wiped out, after all, they to made a bad investment decision. But here we are, spending hundreds of billions to bail them out. Is it that they are just too numerous and too vocal?
This double standard plays havoc with investment decisions, and utterly destroys confidence in markets which have become like a rigged casino in which the house favors certain players, unbeknownst to the others.
(disclosure: owns securities in auto companies, as well as banks)
To Mr. Quinn - excellent article.
"In 1953, at the peak of its dominance, its President, Charles Wilson, declared before Congress that what was good for the country was good for GM and vice versa"
Charles Wilson, was asked at his confirmation hearing before congress, that if something was good for America and bad for GM, which would he choose. His reply was, "If it is good for America it is good for GM", meaning that even if a decision might hurt GM in the short term, in the long run the health of the American economy was good for GM.
It had nothing to do with hubris or anything else, it was a good answer to the question.
This lie is the poster child for all that is wrong with the news media in the USA. If it sounds good, it does not have to be true.
Have some small amount of integrity and publish a retraction.
On Feb 26 08:34 AM The Mad Hedge Fund Trader wrote:
> I’ll tell you what GM’s problem is. My dad was a religious lifetime
> GM customer, buying a new Oldsmobile every five years. Once he even
> flew to Detroit for a factory tour and drove his new prize home.
> Thirty years ago I told him he was doing GM no favors by buying their
> cars, and the only way to force them to improve a deteriorating product
> was to buy better made German and Japanese vehicles. This was right
> after the State of California had forced auto makers to install seatbelts
> on new cars. Airbags and ABS brake systems were still years away.
> His response, “I didn’t fight the Japs for four years so I could
> buy their cars.” (He was a Marine). GM’s problem is that my Dad passed
> away seven years ago. Of the original 17 million WWII veterans, 1,500
> a day are dying, and there are only 1.5 million left. All of them
> loved Detroit because it built great Jeeps, Sherman tanks, and half
> tracks. Their kids prefer German, Japanese, Italian, Korean, and
> soon, Chinese, and Indian vehicles. It is no coincidence that GM’s
> problems really accelerated with the passing of the “greatest generation.”
>
>
Just another thought: GM's problems are the result of very poor management, but, perhaps partially they are also a victim of the US's economic trajectory and socio-political environment.
The problem of unfunded liabilities is a product of our economic trajectory. We were so rich and prosperous, that they needed 600,000+ employees to churn out our cars in the years before automation had fully developed. This greatly expanded GM's burden as these folks retired with what our socio-economic environment dictated for appropriate benefits.
The debacle of the past decade, leading to the recent catastrophic sales collapse, is partly due to artificially low interest rates bringing future demand forwards in the period 2001-2007. Many of the folks who would have been buying cars in 2007-2009, are not, simply because they already bought them sooner than they might have. In this regard, they are a victim of the fed's populist policy of low rates for instant gratification.
My view is that GM was indeed poorly managed, but our large, failing banks were managed even worse. Additionally, GM was, in part, a victim of political and socio-economic history, as well as the interest rate environment, to an extent that goes unmentioned in most articles about its crisis.
We need to fix the fundamentals of the business climate in the US which will fix the auto industry and provide fertile ground for manufacturing and industrial growth.
amen!!!!
On Feb 26 08:34 AM The Mad Hedge Fund Trader wrote:
> I’ll tell you what GM’s problem is. My dad was a religious lifetime
> GM customer, buying a new Oldsmobile every five years. Once he even
> flew to Detroit for a factory tour and drove his new prize home.
> Thirty years ago I told him he was doing GM no favors by buying their
> cars, and the only way to force them to improve a deteriorating product
> was to buy better made German and Japanese vehicles. This was right
> after the State of California had forced auto makers to install seatbelts
> on new cars. Airbags and ABS brake systems were still years away.
> His response, “I didn’t fight the Japs for four years so I could
> buy their cars.” (He was a Marine). GM’s problem is that my Dad passed
> away seven years ago. Of the original 17 million WWII veterans, 1,500
> a day are dying, and there are only 1.5 million left. All of them
> loved Detroit because it built great Jeeps, Sherman tanks, and half
> tracks. Their kids prefer German, Japanese, Italian, Korean, and
> soon, Chinese, and Indian vehicles. It is no coincidence that GM’s
> problems really accelerated with the passing of the “greatest generation.”
>
>
On Feb 26 07:53 AM Joey wrote:
> GM is bleeding over $2 billion dollars a month. No matter how poorly
> run GM is, they still keep the BOD still keep the CEO and his henchmen.
> If I were CEO, I would get rid of many of the white collar workforce.
> I would clear out almost the entire body of unclassified workers
> (workers who make around $300,000 a year - and believe me, there
> are thousands of them). I would then cut the level 8 employees by
> 50% - moving the other 50% to the unclassified workers spots (these
> workers make around $150,000 a year). I would get rid of around 25%
> of the level 7 employees promoting them to the level 8 employees
> jobs. I would get rid of 50% of the people who work out of the Renissance
> building and would close 3 of the 5 regional offices. The remaining
> 2 regional offices can do the work of the 5. It is the same jobs
> out of the regional office - only instead of sending 1,000 emails
> to dealers they are sending 3,000 emails to dealers. Bleeding 2 billion
> dollars a month takes dramatic action. Also, in regards to insurance
> - I would take all of the planned surgeries (which is around 75%
> of the surgeries) and fly the people needing surgery to India for
> a week to get their hip replacements and cancer surgeries such as
> bone marrow transplants there.
On Feb 26 09:23 AM sixkids wrote:
>
> amen!!!!
>
> On Feb 26 08:34 AM The Mad Hedge Fund Trader wrote:
On Feb 26 08:55 AM prudentinvestor wrote:
> James, your article is so well written and well researched and organized,
> I had to read it a second time.
>
> Just another thought: GM's problems are the result of very poor management,
> but, perhaps partially they are also a victim of the US's economic
> trajectory and socio-political environment.
>
> The problem of unfunded liabilities is a product of our economic
> trajectory. We were so rich and prosperous, that they needed 600,000+
> employees to churn out our cars in the years before automation had
> fully developed. This greatly expanded GM's burden as these folks
> retired with what our socio-economic environment dictated for appropriate
> benefits.
>
> The debacle of the past decade, leading to the recent catastrophic
> sales collapse, is partly due to artificially low interest rates
> bringing future demand forwards in the period 2001-2007. Many of
> the folks who would have been buying cars in 2007-2009, are not,
> simply because they already bought them sooner than they might have.
> In this regard, they are a victim of the fed's populist policy of
> low rates for instant gratification.
>
> My view is that GM was indeed poorly managed, but our large, failing
> banks were managed even worse. Additionally, GM was, in part, a victim
> of political and socio-economic history, as well as the interest
> rate environment, to an extent that goes unmentioned in most articles
> about its crisis.
Well played ladies and gentlemen.
I truly enjoy reading these articles and critiques.
With peolple like this pesssimistic author, the DOW wil reach 5,000 and unemployment will reach 25%. I am surprised Alpha would even publish this. This article is poorly written and is garbage. Shame on the author!!!
On Feb 26 09:56 AM nyc female lawyer- bondholder wrote:
> I take the opposite view and expect GM to be leadser in 2010and suceed
> in the electric car and hybrid market.The author has not done his
> homework, and is not well informed. Ford and Chrysler are lower and
> have less prospects for succees. Chrysler should not seek government
> money since it is owned by a hedge fund.
>
> With peolple like this pesssimistic author, the DOW wil reach 5,000
> and unemployment will reach 25%. I am surprised Alpha would even
> publish this. This article is poorly written and is garbage. Shame
> on the author!!!
Where are the leaders with solutions? Are we going to wallow around until the manufacturing base is gone? Might I remind you that the government, bankers, and Wall Street are responsible for this quagmire that we find ourselves in, not GM. Where are the voices calling for their demise?? GM is merely a diversion for the real issues of today.
For those who study GM in places other than the media, they know that barring this man made meltdown, GM would have been fine. I am certainly aware of the declining market share for years leading up to now, but those mistakes were made decades ago and were being corrected by the current management. For those that can allow their minds to accept balanced information, you should read "Why GM Matters" by William Holstein. The others should continue to contribute to Seeking Alpha.
I grew up in a "Chevy town" and the management/labor rancor was high back in the 1950's and has really never improved. GM's long term plan has always been simple and based on the assumption that today's decisions have little or no effect in the future. Hubris, indeed.
When this shoe drops - the US automakers - we can all stop debating whether this is a depression or not.
On Feb 26 08:11 AM tdillian wrote:
> exceptional article!! I am forwarding it to my congressman and senators
> in hopes they get a clue!
>
> very well researched!
>
> love the cartoon! I have to admit I am saddened to say yes.. "As
> GM goes, so goes the nation", this country is bankrupt and in decline.
>
>
> and we are just digging the hole deeper and wider.
On Feb 26 10:36 AM Miken wrote:
> Thanks for the trip down memory lane. As is normal with Seeking Alpha
> contributors, it is a re-hash of other people's research disguised
> as a "thoughtful and Insightful" piece. The only exception is this
> one is longer.
>
> Where are the leaders with solutions? Are we going to wallow around
> until the manufacturing base is gone? Might I remind you that the
> government, bankers, and Wall Street are responsible for this quagmire
> that we find ourselves in, not GM. Where are the voices calling for
> their demise?? GM is merely a diversion for the real issues of today.
>
>
> For those who study GM in places other than the media, they know
> that barring this man made meltdown, GM would have been fine. I am
> certainly aware of the declining market share for years leading up
> to now, but those mistakes were made decades ago and were being corrected
> by the current management. For those that can allow their minds to
> accept balanced information, you should read "Why GM Matters" by
> William Holstein. The others should continue to contribute to Seeking
> Alpha.
I repeat, there is nothing new or original in your article. My objectives are how do we prevent this idiocy from happening again and I see the answer in new government, more oversight of the financial community, and prosecution of the guilty.
Please read the book I suggested.
We need the existing rules to be enforced, not more rules.
I agree that bank CEOs need to be prosecuted.
On Feb 26 10:47 AM Miken wrote:
> Mr. Quinn:
>
> I repeat, there is nothing new or original in your article. My objectives
> are how do we prevent this idiocy from happening again and I see
> the answer in new government, more oversight of the financial community,
> and prosecution of the guilty.
>
> Please read the book I suggested.
As far as more regulation, part of the issue is the complete lack of rules for hedge funds. These guys are running rampant through our economy.
Please read the book I suggested.
public debt should be reduced, the arrogance of officialdom should
be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.” Cicero, 55 BC
One of the things I wonder about is why GM consistently fails to lead. If the company had moved forward with the EV-1, then would there be an environmental 'c****s' with burning fossil fuels? (I refuse to use the word starred in the previous sentence--it's fast becoming the most overused word of our era.)
John DeLorean once said that the last innovation GM came up with is the starter. That was the biggest reason GM surpassed Ford in market share, not because you could get Chevys in different colors. You didn't have to worry about whether you'd break your arm on the crank.
It's truly a shame that a company this large with a history as rich and deep, is headed toward the dustbin of manufacturing.
Why does GM build a plant to construct one model? 15 years ago, US auto executives toured a plant in Hiroshima to observe Japanese manufactuing methods. They were amazed that the assembly line could produce FWD, RWD, and 4WD vehicles at the same time.
Now, Hyundai/Kia can change its assembly lines to produce completely different models in a matter of weeks. GM has yet to learn how to do that for any of its plants.
The company is still staffed as if its market share is 40% of 12 million vehicles, not 20% of 9 million. And it's not shrinking fast enough to offset the sales crash.
We'll probably be propping up the company for another decade, until someone better organized buys the pieces.
Again, thank you for a well-researched, sobering and instructive piece.
I don't think the United States will see the 'bottom' of the current recession/stock market deterioration, and begin the journey to serious recovery until companies like GM are forced to face the same reality that other (smaller) businesses face when they continue to make poor business decisions and lose money on a consistent basis: bankruptcy and a reorganization plan or termination of the business.
While the complexity and consequences of bankruptcy will be painful in the short run, it should ultimately allow the best managed and most financially fit companies to thrive and stop subjecting the taxpayers of the country to the death of a thousand paper cuts.
There are consequences for actions and as long as our government continues to artificially prop up poorly managed, unprofitable entities like some of our car makers and banks, the lines will continue to form at the trough for taxpayer sponsored bailouts.
On Feb 26 11:30 AM Miken wrote:
> By the way, your photo of the three gentlemen and inserted dialogue
> box which I supposed is an attempt at humor detracts from your professionalism.
Allowing 'the smartest guys in the room' from the business world to run your country, or anything, for that matter, is not a good idea.
Seriously, go back and look at what happened at Enron. There are many parallels. Enron was a harbinger.
On Feb 26 08:44 AM kjm wrote:
> To Mike from Detroit - Mr. Quinn is not a teacher.
> To Mr. Quinn - excellent article.
Any GM car that made it to 100,000 miles was a miracle. I'm at 118,000 miles on my Honda CRV on the way to at least 150,000 miles.
Case closed unemployed Mike from Detroit
On Feb 26 12:29 PM Mike from Detroit wrote:
> Quin just another guy sucks up goverment funds. What has he ever
> manufactured built or sold. No wonder our country going BELLY-UP
>
The solution for the US follows the same lines. Those who persist in leading us into solutions that will work toward the long-term detriment of our country must be declared bankrupt and expelled. I propose we start now so that phase 1 of the bankruptcy goes into effect in November of 2010. Look at the congressman from your district. Does he support real solutions to our problems, or does he work toward increasing government involvement in our lives? If the latter, and your congressman is a member of your particular political party, find someone to run against him in your primary. Otherwise, make sure that the opponent supports the reduction of government and the making of fiscally sound decisions. We have to begin now to stop our rush over the cliff.
On Feb 26 11:45 AM nywrit62 wrote:
> I've studied Management (seekingalpha.com/symbo...) and have
> read about Drucker. Managing By Objectives (seekingalpha.com/symbo...)
> and other theories do not work unless workers get behind a product.
> The Unions are the problem here. They got too greedy and management
> got too complacent. There was no reason for every soccer mom driving
> huge SUV's in NYC in the 90's. We don't get that much snow. It became
> a status symbol. Liiving out west I have a friend that lives in a
> trailer. She started a catering business that initially picked up.
> I told her she should sell the trailer and buy a house. Six months
> later she is driving as new YUkon that cost 50 grand. Her theory:
> "More people see me in this SUV that in the trsiler. It's all about
> status." She is one parcel of the American Dream, err Myth.
The automobile industry is not an exception.
Railroads replaced river barges and the gas driven, internal combustion automobile replaced the railroads.
These companies start out very small, have many small competitors in the beginning and finally emerge victorious to share the field with one or two competitors. Some have NO competitors, such as AT&T.
These businesses are called oligopolies or monopolies. When this stage of business is reached it is usually a sign that stagnation has set in and they will be replaced, sometimes after several decades, by new technologies and ways of doing things.
The internal combustion engine is on its last legs and, if business history is any guide, innovations will come from outside the oligopolies: IBM was replaced by Microsoft and Microsoft is being replaced by the Internet.
As GM goes and IBM went so goes the nation towards new inventions and industries.
As for medical care, the same can be said about HMO's and Big Pharma. They are moribund and waiting for a new paradigm.
In the meantime we can all relax with a beer and pizza and smoke another cigarette. Who knows, it might help us to come up with some new ideas.
If that's so, then at its current market valuation, GM is a terrific bargain. It should easily be able to raise equity to help it out of its little local difficulty and I urge its supporters to take what's left of their savings and pump them into GM for a fat profit.
But, oddly, everybody seems to think the taxpayer should take the big punt on GM's shining future.
In the old W Germany, a competitive motor industry produced BMW, Mercedes and Audi-VW. In E. Germany a government nurtured industry produced the Trabant - a dangerous, slow, and dirty vehicle that achieved zero market share the moment it faced competition.
The only bases for the U.S. taxpayer to fund GM is
(1) part of general support for hard hit manufacturers of durables to help them through the trough - no special treatment for GM;
(2) charity.
If (2), just what makes GM so deserving?
Another great tour de force. Thanks.
With regard to GM's Charles Wilson, you are being too kind to him. You said: "Charles Wilson, declared before Congress that what was good for the country was good for GM and vice versa."
The original statement was "What's good for GM is good for the U.S.A."
What you wrote was a damage control revision.
I apologize for my previous comment regarding the Charles Wilson quote. According to wikipedia you have the quote exactly right. My memory was of the inaccurate revision of the original quote.
GM's former executives walked away with hundreds of millions of dollars, and they don't have to give a penny of it back now that their policies have destroyed their companies. They gave short-sighted and short-term shareholders what they wanted at the time.
Former US presidents and Congresspeople likewise walk away with millions of dollars, lucrative lobbying careers, or other rewards, but suffer no pain for the pork and debts they voted for. They brought home the pork their constituents demanded (and pleased everybody by talking about family values while doing it).
In both cases, the shareholders/citizens only cared about quick, superficial, short-term, faddish rewards and discounted future costs. Discounting the future is a fundamental human bias, described by psychologists and business researchers alike. It's why people spend more when they use credit cards than when they pay cash.
For any enterprise to survive in the long term however, incentives must be long term and pressure from special interests controlled or else basic selfishness takes over and loots the place. After all, many of the workers who were striking in 1970 have by now already spent a long retirement being paid from a pension fund that won't outlast them. Similarly, most of the baby boomers who enjoyed low taxes during their prime earning years will retire before the bills come due for the next generation - and vote for higher taxes on the people still working.
I worked briefly for GM as a night cashier while attending Ga.Tech in 1956/7. I sold all of my 100 shares of GM at over $100 in 1962/3 to buy our first house for $18,000 with a $8,000 mtg. That had to be my all time best trade.
However there has never been any other car with the sex appeal of Elvis era Cadillac convertibles IMO.
From leapingcat:
"Remember that the auto industry is more than just assembly, the engineering side and the development of new models is equally important.
Here in the UK, the three largest car companies are Honda, Toyota, and Nissan, but they are merely plants for the assembly of Japanese designed cars. Vauxhalls, the British part of the GM empire, are merely badge-engineered Opels, and nearly all UK market Fords are even assembled outside of the UK. In fact Jaguar Land Rover are the only UK auto company with any engineering capability.
Don't make the same mistakes that we have made; make sure that you keep the engineering base in the US, once those skills have been lost it will be almost impossible to recover them and maintain a viable industry by developing the models that will meet tomorrow's needs."
On Feb 26 11:30 AM Miken wrote:
> By the way, your photo of the three gentlemen and inserted dialogue
> box which I supposed is an attempt at humor detracts from your professionalism.
Perhaps the foreclosures were not the fault of people with 10:1 debt ratios, but rather that of pessimists. And if we all hold hands and smile, then GM will not have really lost $6.2 billion last quarter!
And those mean pessimists are responsible for unemployment, not differences in the cost & ease of labor, not demand destruction, not regulatory hurdles... Pessimists are the problem.
Well argued, counselor!
P.s.: I wish the best for GM, for the country, for American workers, and to not get bilked on my GM bonds. But sometimes pessimism is simply facing the truth.
P.p.s.: As one who portends (pretends?) to be an attorney, you should avoid ad hominem attacks. Sorry, I forgot that is what lawyers do when faced with facts. Also, use the spellchecker before shaming a person on how badly his article was written.
On Feb 26 09:56 AM nyc female lawyer- bondholder wrote:
> ....The author has not done his homework, and is not well informed...
> With peolple like this pesssimistic author, the DOW wil reach 5,000
> and unemployment will reach 25%...This article is poorly written and is garbage. Shame on the author!!!
On Feb 26 04:58 PM User 365126 wrote:
> Good article (unfortunately for America). I don't see any sign of
> a strong leader to lead this nation...certainly not in Washington.
> Under your economic scenario, how does a 70 yr old invest to protect
> capital & keep up with inflation so there will be a little something
> positive for kids & grandkids? We were the lucky generation but
> we really screwed it up for our grandkids. MMs currently paying 1%
> & 1 yr Cds at 1.5% won't do it unless there is deflation. The
> stock mkt seems to be more like a casino & even the bond mkt
> has become iffy.
It is unfortunate that bankruptcy is viewed as an end. Bankruptcy in this case is a chance at a new beginning.
Failure will be to avoid bankruptcy and act like stopping pension payments is a solution. (ie just shift this cost back to the taxpayers)
Success will be a reasonable bankruptcy cutting bondholders and labor costs among others along with a major restructuring.
My greatest fear is that the status quo will continue and taxpayers end up losing 500 billion or more. My guess is we are already committed to over 100 billion.
On Feb 26 08:07 AM Detfan wrote:
> I take a different view of GM, and expect them to return to profitability
> sometime in 2010, unless SAAR remains under 11M. GM spent a ton
> on worldwide platforms that are now the envy of the world. Their
> product launches over the last few years have been awesome, and into
> the future are just fantastic. If the economy wouldn't have tanked,
> GM would already be reporting a profit. We're earning 5% interest
> on our bridge loan to GM, which will, at worst, begin to be paid
> back in 2012, and if SAAR returns to 15B or up, much faster. The
> business moves that GM has made over the last five years or so have
> put GM in a much better competitive position. Of course, you'll
> have to ask our government why they even allowed Japanese manufacturers
> in this country decades ago, when Japan doesn't reciprocate, basically
> closing their 3 million car market to U.S. Manufacturers. Ask our
> government how they expected the domestic manufactures to compete
> with health benefits placed squarely on the companies back, while
> the Japanese have their benefits completely subsided by their government.
> It may not look like it for awhile longer, but the future is bright
> for GM. When America begins to buy cars again, and they will, then
> the GM recovery and return to profitability will shortly follow.
> Look for GM's market share, relative to the market, to actually increase
> this year.
for me the point of the article was that our country is following the same stupid management approach as gm - bullseye!
you have to be looking years ahead when you make decisions and not to the short term to get re-elected. we have serious problems - and this is not a pessimistic view but a realistic view.
Unfortunately it didn't work in the '30's. It didn't work for AIG, Fanny Mae, or GM. The free market works OK if left alone. Deflation is normal and not so bad either. Pre 1913 Depressions (before the FRB) were less disruptive and were shorter than the '30's model, where Gov't intervention was maximum.
We'll wait and see this time. But I doubt that any manipulation will undo the medicine that is needed after years of excessive debt assumption. A real commodity based currency would help.
GM HAS GIVEN THIS COUNTRY MORE THEN ANY OTHER COMPANY WILL EVER GIVE...GM has and still is putting billions OF $ into local economies with good wages and benefits for its workers and retirees...
The one time that GM needs the country for help... the country has turned its back...SHAME ON YOU!!!!
It would be great when GM workers like yourself figure out that your labor isn't worth $75/hr in salary and benefits, and you learn that you aren't "entitled" to squat. Why do you think you deserve 3 times more than the average American worker? I don't make anywhere near that much, and I have a masters degree.
If my company goes bankrupt, I will lose my job and the government will not bail me out. Most of the country, save the financial sector, is in a similar situation. Why do you think you're entitled to get MY tax money to save YOUR job?
Your company has squandered the goodwill of generations of Americans. You've lobbied against increasing fuel standards and pushed gas-guzzing SUV's down the throats of consumers. You've put out such crappy cars during the 80's and the 90's, and such BORING cars since then, that no one wants to buy them. Your market share has nose dived. And it's no one's fault but own.
Right from the beginning, as Toyota started in circa 1949 the Japanese had meticulously embarked on a journey to setting their far-sighted goals on a long-term basis - a 40-year plus horizon.
Bit by bit they overcame those numerous hurdles - use better steel to correct their horrible body rust problems, leveraging on American Deming's quality principles which we woefully discarded to raising reliability levels, emphasizing fuel efficiency, hiring American stylist to design exterior bodies, hiring American publicists to advertise, building network of dealers first in urban then rural areas by offering domestic dealerships joint brands on the same location, purchasing licensing rights from such firms as Borg-Warner to acquiring automatic transmission technologies, making more leg rooms in front seats to fit 6-foot plus Americans, and finally, use Southern labor to do the assembly - except one thing - the engineering is Japanese.
We are a nation of lawyers and accountants. I am an engineer myself but I couldn't detail how lowly engineers are being treated in this country.
While at the same time we indulged ourselves in styles, brands, taking a nap on home turf giving up our advantages, management grabbing larger and larger chunks of money, and unions basking in generous benefits and wages.
The rest is history.
On Feb 26 06:40 PM The hand wrote:
> Jim, thanks for the work.
>
> for me the point of the article was that our country is following
> the same stupid management approach as gm - bullseye!
>
> you have to be looking years ahead when you make decisions and not
> to the short term to get re-elected. we have serious problems -
> and this is not a pessimistic view but a realistic view.
>
I think the key take from this masterpiece is that what GM did was ENTIRELY PREVENTABLE. Our government now faces similar circumstances regarding debt, social welfare, and losses. Let's 'hope' that our government will learn from this home-grown debacle and 'change' for the better (gee, I wonder where I got those words from...)
"GM continued to maintain its worldwide dominance through the 1960s into the 1980s. New car controversy plagued the company during these decades. Every decade, a major new product line was launched with defects of one type or another showing up early in their life cycle. In every case improvements were eventually made to fix the problems, but the resulting improved product ended up failing in the marketplace as its negative reputation overshadowed its eventual quality. Again, Lee Iacocca’s wisdom went unheeded at GM."
Unrelated to this article, I see almost eerie parallels with Microsoft here. Vista comes to mind immediately. Perhaps MSFT is beginning its own long decline...?
How is it that after all these years of losses Wagoner is still the CEO? He 'knows' what is right for the company? Forget about short-term vs. long-term results - he has failed on all accounts! Show me the money?
I think we’ve been seeing more than one canary drop dead lately…
All I can think is … “We’re damned if do (bailem out) and damned if we don’t”
…….but I’m leaning in the direction of “not”…
Couldn't agree more. But I have a feeling that Obama is rising to the challenge of reversing all that went wrong. The only question that remains is- Will the US rise again and recover its place in the world or is it simply too late for magic....
GM simply needs to adapt OPEL's knowhow and blueprints (something GM missed some years ago). They could even market these cars as "engineered in Germany" but manifacture these in the US.
GM has gotten rid of SAAB, but is still clinging on to OPEL (maybe they're not that stupid...).
Coming weeks should be interesting.
GM began its outsourcing before most other companies, but was stuck with 1940s engineering and poor marketing and management traditions for too long.
Some blame unions and their 800,000 retirees for the plight of GM, but we all know who's to blame. Unions don't design cars and make corporate policy. Unions don't plant subliminal messages with the public that power is great and SUVs are beautiful and safe. Unions don't get paid in the billions for a group of a few dozen people.
Now, is the rest of the US like GM? Hardly. I believe that the American citizenry may be like the union employees and their retirees, misled by the marketing managers (the media in collusion with the lobbyists and politicians) and the management. This latter group is the corporate governance, which is the same that runs GM. We must cast them off.
Can we treat our Nation like GM? No. GM is already replaced by its competitors. Let it die. The Nation will stand tall once this phase of our lives passes by. We will be stronger for the experience, and never let it happen again.
Incidentally, the gentleman who was not impressed by the way that engineers are treated in the US is absolutely correct. I bailed out early, and later heard that about 90% of my class had done the same. But time cures all things, doesn't it. There were still some remnants of Japanese aircraft at the place in Japan where my regiment was stationed, and it was clear that those planes - or what was left of them after they were worked over by Uncle Sam's aircraft - were strictly Fourth World. Nobody is going to convince me that it's time to bet against the US.
You're absolutely right about MSFT. Let's review the similarities:
-massive quality / reliability / safety problems
-refusal to recognize quality / reliability / safety problems
-bureaucratic and defensive
-lack of innovation
-wedded to old way of doing things (e.g. DOS based OS!)
-high-cost labor
-inefficient product (i.e. processor requirements in this case)
-can only make sales through particular financing tactics (i.e. preinstalled on new computers)
-so profitable for so many years, that some people think the idea of future losses is preposterous!
On Feb 26 11:43 PM Ricard wrote:
> > Unrelated to this article, I see almost eerie parallels with Microsoft
> here. Vista comes to mind immediately. Perhaps MSFT is beginning
> its own long decline...?
It sure looks like another Colossus of Rhodes coming...Would the BoD be able to do something real quick before it happens?...Please...pl...
On Feb 27 10:00 AM Chris B wrote:
> Richard,
> You're absolutely right about MSFT. Let's review the similarities:
>
>
> -massive quality / reliability / safety problems
> -refusal to recognize quality / reliability / safety problems
> -bureaucratic and defensive
> -lack of innovation
> -wedded to old way of doing things (e.g. DOS based OS!)
> -high-cost labor
> -inefficient product (i.e. processor requirements in this case)<br/>-can
> only make sales through particular financing tactics (i.e. preinstalled
> on new computers)
> -so profitable for so many years, that some people think the idea
> of future losses is preposterous!
On Feb 27 10:00 AM Chris B wrote:
> Richard,
> You're absolutely right about MSFT. Let's review the similarities:
>
>
> -massive quality / reliability / safety problems
> -refusal to recognize quality / reliability / safety problems
> -bureaucratic and defensive
> -lack of innovation
I'd caveat that with: lack of innovation that appeals to consumers, rather than innovation that locks people to your platform (zune vs. ipod)
> -wedded to old way of doing things (e.g. DOS based OS!)
Win98 was the last DOS-based kernel, Windows2000 and thereafter
has a WinNT pedigree
> -high-cost labor
> -inefficient product (i.e. processor requirements in this case)<br/>-can
> only make sales through particular financing tactics (i.e. preinstalled
> on new computers)
This point feeds itself, if you rely on installations of new machines...you
need to make sure your next version _drives_ people to buy new machines
> -so profitable for so many years, that some people think the idea
> of future losses is preposterous!
See XBox division...has it ever made a profit? Let's call this "Failure to profit from anything other than Windows and Office products"
Beware of the NIH syndrome (Not Invented Here!). Look at Ford, they have had the Fiesta being so successful in Europe, oh, for over two decades? (Correct me if I'm wrong). Legend had it the Fiesta runs around 50 mpg, perhaps on diesel.
But, if (that is the BIG IF) Ford had that foresignt to adapt and bring in the Fiesta 10 years ago, I guess we would have the Toyo and the Hondi running for their monies a long long while ago. But they never happened -- I am writing on very old news, pardon me.
On Feb 27 06:50 AM Kraut wrote:
> If GM wants to produce competitive cars they don't even have to develop
> these from scratch - GM (still) owns German brand OPEL which - in
> Germany - is still extremely successful.
>
> GM simply needs to adapt OPEL's knowhow and blueprints (something
> GM missed some years ago). They could even market these cars as "engineered
> in Germany" but manifacture these in the US.
>
> GM has gotten rid of SAAB, but is still clinging on to OPEL (maybe
> they're not that stupid...).
>
> Coming weeks should be interesting.
and the other major cause of todays disaster is the on rushing retirement (or attempt to) of the biggest group of consumers in the country (the boomers). and there is no replacement consumers so even if we were to some how get out of this problem today, the economy will not go back to where it was.
and gm is building some of the best cars out there today. models like the Malibu and CTS are tops in their market segments (and that includes among other Camry!).
and the top ten most efficient car plants in the US? 9 are domestics. the only non-domestic is shared with a domestic.
the biggest problem for the car industry as whole (be sure to note the Toyota also lost billions in their last quarter) is that the car buyers disappeared. some thing to do with job loss and having to live on their wages.
On Feb 27 03:31 PM dw57 wrote:
> interesting in some way. full of propaganda in others. like the domestics
> wage differential. which is just taking labor negation tactics and
> using as if they were real. the biggest problem and one of the major
> causes of todays crises is that wages have been deflating for 30
> years. now if we want to have have third world living status we are
> certainly on the way to it we need to just continue that trend. it
> has been so successful so far. and why is that the same explanation
> for why executive has to be so high and every one elses pay has to
> be so low is the same one? competition. how does that make any sense?
>
>
> and the other major cause of todays disaster is the on rushing retirement
> (or attempt to) of the biggest group of consumers in the country
> (the boomers). and there is no replacement consumers so even if we
> were to some how get out of this problem today, the economy will
> not go back to where it was.
> and gm is building some of the best cars out there today. models
> like the Malibu and CTS are tops in their market segments (and that
> includes among other Camry!).
> and the top ten most efficient car plants in the US? 9 are domestics.
> the only non-domestic is shared with a domestic.
> the biggest problem for the car industry as whole (be sure to note
> the Toyota also lost billions in their last quarter) is that the
> car buyers disappeared. some thing to do with job loss and having
> to live on their wages.
Along with the quality issues that originated in the design-engineering process, it seems that the MBA's and planners could not recognize the irreversible consumer expectation for more upper scale luxury gadgets to such an extreme that they were even behind the curve on cup holders, so I can't fault the unions alone for the decline of the US auto industry.
Still, I love american pick-up and SUV's, but it took me 15 years or so after my high school Pinto experience to buy my next American car.
As you might expect, my first "driving date" was in the in the Pinto. It had no radio and no air conditioning, but it did have a racing stripe.
By the second date, I had installed a radio and requested that my date dress for comfort. Perhaps I am part of the last generation that will know the meaning of "two -fifty air conditioning".
Thank you for this article.
It means your judgement is seriously impared, and all information coming from you must be treated as highly suspect.
That solution matrix reads like a condensed version of what put is in this mess. Don't you know Bill Gross only talks his book? He could care less if we all live or die, just so long is the market is good to him.
Read that chart again and tell me it is not a recipe for disaster.
The reason this country is so far off course is because of morons like you offering to be a sock puppet for evil slime like Bill Gross.
miles nowadays and I am surprised the trend did not start sooner.For a variety of reasons; financing,fuel conciderations,the need or the whim
are universally on hold.The former bussiness model for ALL car manufacturers is over,the externals have made it abrubt. I am using
a five year old computer,which six years ago nobody dreamt anybody could use a computer for five years.I have no idea what my next computer or car will be like,but do know they are not on the market yet.
On Feb 27 10:00 PM K Ackermann wrote:
> Here you are writing a nice historical piece on GM, and then you
> have to go and cite Pimco's matrix of solutions.
>
> It means your judgement is seriously impared, and all information
> coming from you must be treated as highly suspect.
>
> That solution matrix reads like a condensed version of what put is
> in this mess. Don't you know Bill Gross only talks his book? He could
> care less if we all live or die, just so long is the market is good
> to him.
>
> Read that chart again and tell me it is not a recipe for disaster.
>
>
> The reason this country is so far off course is because of morons
> like you offering to be a sock puppet for evil slime like Bill Gross.
my only objection is the CBO budget deficit table: the newest projection is for 1.7 trillion in 2009, 1.3 trillion in 2010, and 1 trillion in 2011.
and if those numbers are not quite optimistic, the senate will not approve the budgets at all.