Will the new GM escape the curse of the old?
There have been two main theories of why things went so wrong at General Motors. One is that the company is run by a bunch of ingrown retreads with no sense of where the automotive business was headed. The other is that the company's management has been so burdened by commitments (to pensions, to retiree health care, to union work rules) made back when the company was gigantic and dominant that it hasn't had time to focus on where the automotive business was headed.
Now we get to find out which explanation was right. GM management will still be heavy on the ingrown retreads. CEO Fritz Henderson is a GM lifer. Bob Lutz, at 77, is back again—in part because, Henderson said at a press conference this morning, "this is the best way to keep Bob from recycling to a fresh set of OEMs." (At least, I think that's what he said. Can anybody tell me what language he was speaking?) And new chairman Ed Whitacre is, while not ingrown, certainly a retread. He's the man who successfully reassembled a good chunk of the old AT&T monopoly. Just the kind of next-generation leader we need. Later, on a conference call with reporters, somebody asked Henderson about the lack of new blood. "As we fill out the key slots, you're gonna see some unusual names in these jobs," he replied. Another reporter wanted to know if that meant unconventional internal promotions, or people from outside. "The former," Henderson said. "I'm not closed to outside blood, but until we know how we pay people we can't hire anybody." Fair enough.
Meanwhile, the burden of past commitments has been lifted, at least partially. GM entered Chapter 11 with what the WSJ says were "$176 billion in liabilities to retirees, warranties and a legion of lenders including the U.S. government." It leaves bankruptcy today with about $48 billion in debts. That still sounds like a lot, given that the new GM is a smaller company with a smaller revenue stream. But when I asked Henderson about it, his response was that fixed obligations (as opposed to accounts payable and such), consisted just of $10.5 billion in debt, $9 billion in preferred shares, and some as-yet-undetermined pension fund contributions that will be due in 2013 or 2014. "I think in terms of the balance sheet it is a world apart from what it was," he said. "The level of indebtness for the company is not excessive."
I've generally leaned toward the too-many-liabilities explanation for GM's troubles, mainly because the company's successes overseas—especially in China—indicated that its managers, however ingrown they might be, were reasonably smart and capable. It's just that in the U.S. their No. 1 priority had to be keeping sales volumes high enough to keep the debt payments and retiree health care flowing, a focus that didn't really lend itself to reinvention or innovation. Now that burden, and excuse, is mostly gone. So I'm betting that GM will now start looking like a much better-run company. The question is whether it's too late.
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Is the "new" GM, ostensibly owned by the government and taxpayers, paying any attention to the legions of Americans who will boycott GM vehicles because of the bailout? I realize that a boycott would actually make matters worse for taxpayers in the long run, but I've spoken with a lot of people who have been forming opiniions based on anger and emotion, rather than logic, for the past 12-15 months. I hope someone factored in the stain this company's brand now wears when they were calculating the cost/benefit analysis of saving GM.
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I do not buy GM, but this is not due to some misguided sense of government waste (bailout), rather it is coz GM make really crap cars. If GM made a car that got 40 mpg, and did not have to undergo the costly repairs that their cars need, I will bet you anything that they would have to top selling car in the world.
In essence, to say that there are legions of Americans who will not buy GM because of the bailout is an argument void of any logic.
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And frankly (I hope GM is listening), I'm a little disappointed that GM execs have been so quick to employ the "let's get past this" stance. The body is still warm, the remains (old GM debt) still being buried, they next of kin (fired GM employees and investors) still in mourning, and they're asking us to turn our backs and move on. Come on guys - have some heart.
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Anybody that says they won't buy GM cars due to poor MPG or quality issues is ignorant and living in the 80's/90's. I'm sick of hearing this 'argument' from people that are obviously extremely out-to-lunch on what the company (and all domestic car manufacturers for that matter) have been building for the last decade. Furthermore, they prove their ignorance on the current pipeline of vehicles that are set to hit our streets in the next 1-5 years. Check the facts on how many vehicles GM has in its lineup that gets over 30mpg AND look at a current JP Powers reliability report (or read any number of extremely positive reviews in MotorTrend or Automobile Mag) and then tell me domestic car makers are not competitive! Why people continue to live in the past and use the dated/ignorant battle cry of 'American Cars are Junk' is beyond me. Wake up and join us in the year 2009!
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Only just a month, GM is out of bankruptcy. What an incredible smart move!
The new image comes with a price – at least 20,000 employees retrenched, a thousand agencies closed.
Want to have a second chance? Go ahead, with the government's backing, there can always be a third chance.
With so many greedy people looking for instant cash and status, how could the new GM escape the old curse?
(btt1943) -
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Negative factors:
1. Union work rules are not going anywhere.
2. CAFE standards are going to be only worse, since new GM would be forced to produce more crappy small cars they have no in-house skills to produce.Positive factors:
1. UAW may start looking after the long term interests of their members instead of towing Mike Moore's line making everybody equally poor and environazis' on shutting down all US manufacturing altogether.
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First, Justin, I hope you're right. But I've seen enough major management mistakes come out of GM to doubt your opinion: paying Fiat $2 billion to go away; selling more cars than ever in 2006 yet losing $10 billion; Hummer; talking to Chrysler about a merger; Delphi. I could go on.
I've worked in Detroit in the past (*not* in the auto industry), and the biggest obstacle that I see is cultural. Probably because they were the stewards of the largest and most successful industrial endeavor in our history, there is an overwhelming if unspoken belief in the Detroit area that they know best how to run things. I admire Ford for taking a step away from that culture in hiring Alan Mulally (although I fault Bill Ford for many other things). But if the seminal events of GM and Chrysler (and at least several major parts suppliers) going into Chapter 11 can accelerate a significant change in this culture, they may have a chance.
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GM will continue to produce cars. They will be marginally successful relative to their past efforts and ultimately, they will be profitable, but much, much smaller.
The reality is that it is impossible to grow an industry that has so much overcapacity. The problem is relatively simple. Businesses grow where there is customer demand for a product. Without demand, the need for supply is not necessary.
The world today needs to figure out, and quickly, where will the demand come from?
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[...] Test [...]
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Why are we so worried about the long term fate of GM? I think we should be pleased by the fact that GM is an employment stream in a dried up dessert economy.
As CNBC's Jim Cramer says of GM, "It's just a jobs and welfare program that makes cars and won't ruin the profitability of the industry anymore with cheap financing because it wants to "regain" share from Toyota or Ford or anyone else."
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