GM has declared a stunning loss--over $15 billion dollars. Their cash position has fallen by about 10% since last year. That cash cushion used to comfort analysts, the notion being that GM had the reserves to ride out a long rough spell. Now liquidity fears are firming up. I'd put the probability of a GM bankruptcy in the next 10 years at 50%.
The company is scrambling to retool for small cars, and I'm sure we'll hear a loud chorus of voices saying that GM did this to themselves by becoming so dependent on light trucks. Well, they did, but I'm not sure it's fair to blame management. GM's historical pension and healthcare obligations, and the vast difficulties they have in permanently laying off workers, mean that the company had to maximize cash flow as best they could. Indeed, I find it interesting that I spent so many years listening to europhile economists assure me that the Germans were going to kick our ass because their cooperative management style, with labor having a seat on the board, allowed them to engage in long-term planning. The industries in America where labor has the most power are the ones that have the hardest time making strategic choices to lower profits now in order to raise them in the future.
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I don't see how this shows your europhile economists are wrong. This suggests to me that perhaps labor hasn't been given enough power by GM. Do they sit on the board and engage in long-term planning like the Germans do? Or does their engagement stop at pensions and health care?
Musa, the point here is pretty simple: the labor unions have used the power that they do have to promote their own short-term interests in a way which has been unambivalently harmful to the long-term health of GM. You seem to suggest that, had the unions been given more power (a seat on the board, etc.) they would have exercised that power in a more far-sighted manner. To which I can only say: huh?!?
Many years ago, in my middle thirties, I was a laboratory director with a firm which provided high-end CAD and CAM systems to GM Labs. Along with my executive VP, and the engineering manager of our CAD operation, I was invited to make a site visit to GM to better understand their product requirements. We were invited to lunch in GMs executive dining room. Our engineering manager, who had formerly worked for GM, was astonished. In fifteen years with the company, he had never been invited to dine there. He was about my age, and told me the protocol for lunch. We way too young to be taken seriously, and comments volunteered would be considered impertinent. We should speak only if spoken to and enjoy the lunch. Engineers as young as we were were considered too junior to have anything of consequence to add to the conversation. We were only invited as a favor to our boss.
That's what's wrong with GM.
"The company is scrambling to retool for small cars, and I'm sure we'll hear a loud chorus of voices saying that GM did this to themselves by becoming so dependent on light trucks. Well, they did, but I'm not sure it's fair to blame management. GM's historical pension and healthcare obligations, and the vast difficulties they have in permanently laying off workers, mean that the company had to maximize cash flow as best they could."
Of course it's fair to blame management; they run the company. It's also fair to blame a stock market that heavily emphasizes the short term at the expense of the long term, and the absence of a national health care system that's not heavily dependent on employer subsidies. Put in single payer ten years ago, and GM's financial picture would look quite different now.
"You seem to suggest that, had the unions been given more power (a seat on the board, etc.) they would have exercised that power in a more far-sighted manner."
Given that American labor law is profoundly hostile to the kind of co-determination that's built into the German system, we'll never know.
The company is a 100% bankruptcy waiting to happen without another government bailout.
If GM didn't like the terms of the employment agreement, they shouldn't have signed it. If the jobs really were that well paying, they should have had no problems finding replacements.
GM and its pension plan: a preview of the US government and Social Security/Medicare.
This whole national healthcare thing seems like a giant subsidy for business, corporate welfare if you will - I thought that libs/Dems were supposed to be opposed to such things.
GM's management spent decades bribing the unions with promises of benefits to be delivered sometime in the future. The bill is becoming due, and the closet it bare. Those managers of yesteryear tied a millstone around their company's neck. The unions acted a a parasite which got too greedy and sucked its host dry.
On the upside, this should utterly destroy the People's Democratic Republic of Detroit, and good riddance.
As GM goes, so does America. Why do conservatives hate America?
On this business, the implosion of native-owned car manufacturing, we in Britain are decades ahead of you. But we now have a decent-sized car manufacturing industry, foreign-owned, and mostly located at some distance from the traditional car-making sites. Goodnight, Detroit.
I see from GM's last 10Q that they have $34 billion in long-term debt. Clearly, those bondholders are to blame here. If they weren't so unreasonably demanding that GM pay its obligations under the terms of the bonds, GM would have a lot more free cash to retool.
At current cash burn rates GM won't have the cash to keep the lights on by the end of 09.
"As GM goes, so does America."
Even with the current economic struggles, if you compare GM and the rest of the economy over the last 40 years you'll find a marked difference between the two. GM's declining employment and lack of profitability have hurt Michigan, but the country as a whole has survived their plunge.
Many years ago, in my middle thirties, I was a laboratory director with a firm which provided high-end CAD and CAM systems to GM Labs. Along with my executive VP, and the engineering manager of our CAD operation, I was invited to make a site visit to GM to better understand their product requirements. We were invited to lunch in GMs executive dining room. Our engineering manager, who had formerly worked for GM, was astonished. In fifteen years with the company, he had never been invited to dine there. He was about my age, and told me the protocol for lunch. We way too young to be taken seriously, and comments volunteered would be considered impertinent. We should speak only if spoken to and enjoy the lunch. Engineers as young as we were were considered too junior to have anything of consequence to add to the conversation. We were only invited as a favor to our boss.
That's what's wrong with GM.
I am not the first to mention this, but I don't remember where I saw the notion first.
I (we) assume that the leftists will joing quickly together to honor GM for its efforts, given the way they react to Exxon's minuscule (what is it I forget, 10%) profit.
Or have I just outed myself as a troll (See NYT for details).
Except, WJ, isn't GM a private enterprise, answerable only to the bottom line? No one held a gun to management's [collective] head and forced them to sell gas hogs, or to sign the labor contracts.
Your analogy: Fail. Blockhead.
Who forced the government to pass legislation creating monster sized entitlement programs and to fund them by running up debt and refusing to come to grips with them?
Your flame: Fail. Blockhead.
Ah! Great timing: I just put up a nice post that puts GM's crisis in context.
This whole national healthcare thing seems like a giant subsidy for business, corporate welfare if you will - I thought that libs/Dems were supposed to be opposed to such things.
GM's management spent decades bribing the unions with promises of benefits to be delivered sometime in the future. The bill is becoming due, and the closet it bare. Those managers of yesteryear tied a millstone around their company's neck. The unions acted a a parasite which got too greedy and sucked its host dry.
On the upside, this should utterly destroy the People's Democratic Republic of Detroit, and good riddance.
Jamey: Your response to wj may be a relevant point in assigning blame, but that wasn't wj's point. His/her point was that the crisis there demonstrates what will *happen* to the SS pension system, NOT that the blame is in anyway similar.
Do you agree, Jamey, that what is *happening* to GM, resembles what will *happen* to Social Security, i.e. that all these costs building up will force the government into drastic measures like:
-cutting vital services (like GM did with engineering)
-selling valuable resources at fire sale prices (like GM is looking to do with GMAC shares and Hummer)
-being unable to keep productive people there, as they have to be gored more to cover the costs of people they want nothing to do with (like GM with its buyouts of contracts with productive workers to shortsightedly save money)
-eventually ... being unable to keep up the charade
Musa's point seems pretty relevant. Workers were given a say in health care and pensions, but it seems they were not given any power over actual product decisions. So theoretically, unions had no reason to even care about the long term profitability of the company.
So it seems eminently plausible that granting more power, a la Germany, would have helped GM's prospects compared with the status quo.
Personally though, I'm pretty sure that the "No unions at all" outcome is optimal.
Robert Levine,
Frankly, I don't see why German companies are any less short sighted then American ones. Most of these countries are traded on international exchanges. If anything, interest rates are higher in Germany, so the trade-off between future and current profit is worse there than here.
I'm somewhat open to a single payer health care system, but I don't think that was the relevant issue in GM's collapse.
The issue is that labor market rigidity created by unions kept GM from adapting to a changing market place.
Adapting would have required large scale outsourcing(Either to the South or to other countries), massive product consolidation and associated layoffs, and a huge shake-up of their design and management structures.
But unions(White collar and blue collar) worked in their understandable self-interest to prevent any of that, and now we are faced with a money-hemorrhaging dinosaur.
Japanese and European companies took these steps(Notice all of the factories in China and Eastern Europe), since for some reason, unions either did not try or were not able to prevent th companies from doing so.
Why they reacted so differently is interesting(More generous unemployment benefits and retraining programs lead to less fear of losing a job?), but for some reason this has not been discussed.
GM management has made innumerable mistakes in the last 12-15 years. First was their international buying spree - Saab, Hummer, etc. - leading to an even greater excess of models in an increasingly global market. Second was their refusal to get rid of the Oldsmobile brand for a a long time, and their current foot-dragging regarding jettisoning Pontiac. Their inability to coherently define their nameplates and corresponding target demographics continue to lead to wasted effort and money. Against this backdrop, they have repeatedly changed direction wtih regard to new car platforms, long-term alternate-fuel programs, and integration-or-nonintegration of Euro-platforms.
The pension and healthcare obligations were always going to be a monster, but decades of poor management mean that it's just about impossible now to slay the beast.
BTW, virtually all of the above is also true of Ford. I love my new Accord, though.
I will also add that one could also theoretically pin the "short-term mindset" blame on the financial structure of GM itself. The little I've read about this suggests that the Japanese have been able to engage in better long term planning because of the Kereitsu structure of their organization, which obviates the need to make short-term stock gains, allows for longer term relationships with suppliers, and generally promotes the kind of long-term planning that has brought us the Prius.
On smaller scales, it happens all the time that a cooperative process produces different outcomes than an adversarial process even when the initial positions and incentives are the same. It doesn't seem wildly implausible that this could be true for labor negotations as well.
I'm pretty distrustful of unions, but let's calm down for a minute and take a look at the history here.
When did GM start mismanaging? Wasn't that 40-50 years ago? Didn't that far predate the high ex-worker overheads? Notice, too, that one of the big three got spat out after being acquired - to me, that suggests there's an encrusted culture of bad management at the Big Three that's going to be impossible to fix - no unions involved in the causation or maintenance here.
It's true that if magic happened, and the Perfect Management Team beamed in and replaced the current one (3-4 levels deep), THEN it'd be fair to blame the unions.
The keiretsu has its own problems - it means, in effect, more layers of mgt to keep happy (see wGraves' comment), and fewer top-level innovators. Face it, Toyota and Honda got lucky and just have really, really smart management. Eventually, they'll lose it and give way to other leaders.
Eriver - I agree with the poor management assessment, but I stretch it back even further into the mid-80s when Japanese automakers imposed import quotas on themselves. In response, GM chose to raise prices and profits rather than increase market share.
GM needed to increase market share in order to maintain their size. Quite a few of the comments blame GM's problems on their labor agreements -- basically deferred compensation. From GM's perspective, deferred compensation makes sense if 1) they think inflation would make a future dollar worth less than today's dollar -or- 2) they intended for GM to continue growing so that a deferred dollar would represent a smaller fraction of future earnings than of present earnings*. Given that GM could not control inflation, growth (or at least maintaining their size) was the only strategy that allowed the labor agreements to work.
*A third possibility, although one I don't believe, is that they never intended to honor the agreements in the long-run.
Eriver - I agree with the poor management assessment, but I stretch it back even further into the mid-80s when Japanese automakers imposed import quotas on themselves. In response, GM chose to raise prices and profits rather than increase market share.
GM needed to increase market share in order to maintain their size. Quite a few of the comments blame GM's problems on their labor agreements -- basically deferred compensation. From GM's perspective, deferred compensation makes sense if 1) they think inflation would make a future dollar worth less than today's dollar -or- 2) they intended for GM to continue growing so that a deferred dollar would represent a smaller fraction of future earnings than of present earnings*. Given that GM could not control inflation, growth (or at least maintaining their size) was the only strategy that allowed the labor agreements to work.
*A third possibility, although one I don't believe, is that they never intended to honor the agreements in the long-run.
I believe you are all wrong. Even if GM's management may have made mistakes to seems to me that it was good management decisions that got GM into this mess, not bad decisions or the unions.
GM's management was faced with a choice (because even if GM is big they are not infinite): To focus their resources on the bigger high-margin truck market or the smaller lower-margin small cars market. Focusing on the more lucrative market is the right choice. They are, after all, a big company, and to be able to get those couple of percentage points of growth they need to focus on the high-margin stuff. Besides their customers were clamoring for more and bigger trucks.
To me going after the more lucrative markets and listening to your customers sounds like just the advice you would find in any good management handbook.
I'm pretty distrustful of unions, but let's calm down for a minute and take a look at the history here.
When did GM start mismanaging? Wasn't that 40-50 years ago? Didn't that far predate the high ex-worker overheads? Notice, too, that one of the big three got spat out after being acquired - to me, that suggests there's an encrusted culture of bad management at the Big Three that's going to be impossible to fix - no unions involved in the causation or maintenance here.
It's true that if magic happened, and the Perfect Management Team beamed in and replaced the current one (3-4 levels deep), THEN it'd be fair to blame the unions.
The keiretsu has its own problems - it means, in effect, more layers of mgt to keep happy (see wGraves' comment), and fewer top-level innovators. Face it, Toyota and Honda got lucky and just have really, really smart management. Eventually, they'll lose it and give way to other leaders.
Sad state. (Pun?) Down here in Texas, the state car is the Honda Accord he said with a drawl. The big two don't seem to want a clue or a vowel which is fine if you're a truck. We don't like unions. FDR New Dealed the major auto companies to be subsidiaries of the UAW which wasn't about to be dumb enough to compete with itself. The Big Three accepted their title of minor nobility with the bureaucratic attitude noted, preserved their class warfare paradigm. At one time I was told, GM had an office devoted to keeping Chrylser going so they could avoid antitrust; that's one office that no longer needs to produce CO2.
The German system of mandatory "works councils" and corporate codetermination are small cogs in a much larger national bureaucratic machine.
Your local plant's worker rep is connected to his industry's union, which is connected to the industry-wide bargaining collective (and its industrial counterpart), is connected to the German federation of trade unions (DGB), is connected to large numbers of union members serving in the German parliament (Bundestag) through the two main popular parties -- the SPD and CDU. Jovial Germans laugh off the national SPD party's parliamentary group as the "DGB, Parliament Department" (DGB - Abteilung Parlament).
German industrial powerhouse brands can make lousy management decisions with full confidence that the government will help them undo them when needed. When Daimler and VW had to shed workers in Germany to ship the jobs abroad, the companies' leaders and their labor union reps met with the Chancellor and worked out a deal that their worker buyouts would be subsidized by German taxpayers. Throngs were sent into fully paid early retirement at taxpayers' expense, in other words. This stuff happens to national flagship companies in Germany again and again.
I think I read that some GM bonds are yielding 18% and priced at 50% of face. Wonder if they would hold purchase value for about 10 years or so while the interests makes up the difference.
It's management's fault. Management is supposed to recognize the conditions in their own country, and they get paid a lot of money to "make it work." Having to deal with unions, healthcare, legal limitations and industry changes are why they make the big dollars.
Managements here in the U.S. get paid much higher than those in other nations, and yet, in autos, they are failing badly. There is no excuse.
I'll ask yet again: is there any situation, at any time, ever, that would ever compel you to blame the management of a car company over the union? I think the answer is obviously no. And then your chorus comes in and they too would never, under any circumstances blame the management in Detroit for anything. It's all the union's fault, no matter what, all the time.
Isn't that the definition of having suspended your critical mind?
testing.
testing.
Who will man the greenpeace booths in EUnuchstan when sharia law is the norm? EUrope is dead.
Not fair to blame management? Absurd. Make a token effort to conceal your bias.
They took on the obligations in the contracts they agreed to and decided not to fund their obligations. Had they funded their obligations along the way, they would have been in a much better position to negotiate much more favorable contracts.
Besides, how long have the unions been broken?
The UAW is not without blame (I believe the model they established for the MEA has been absolutely toxic for Michigan public schools.) but when the ship goes down we hold the captain accountable. If the crew was a problem, it's the captain's responsibility to address it.
Besides. What's the last non-SUV American vehicle you heard people lusting after. GM finally has a model to compete with the Accord and Camry, but how long did that take. Also, no one could have seen the shift away from SUVs and trucks coming.
I suppose the unions are also to blame for the latest lease woes too.
GM had two choices. Make innovative products that give an "unfair" advantage over the competition, or, block and tackle better than the competition, i.e. out execute them building essentially a parity product. They have done neither, hence the deep doo doo. I blame management.
For those who are commenting that nobody forced GM to sign contracts with the labor unions, that is somewhat true, but keep in mind that the labor laws in states like Michigan essentially grant unions monopoly powers once a shop is unionized, so the unions held a lot more coercive power against GM than is commonly understood.
I grew up in the Detroit suburbs in the '60s and '70s and my dad worked in the auto industry. From what I could tell, there's enough blame to go around. No doubt the unions helped kill the US auto industry, just like they did the railroads: high salaries, top benefits, great pensions, inflexible work rules, featherbedding, lack of interest in quality control, and short-term thinking.
But management shares some blame. They got complacent, and in the '70s were sure that the average American would never want those cheap little Japanese cars. When they awoke to the threat, their responses were second rate: e.g. the Chevy Vega. Small cars have been a low priority since then. And there seems to be far more innovation in the Japanese auto industry than in Detroit these days.
But it's hard to blame management for caving to decades of UAW demands. It's tough to run a unionized business when workers strike, and nobody has thought the UAW could be defied or broken since the '30s.
Union force management into bad decisions by for closing innovation. Most innovations that increase productivity reduce head count and unions resist those. Also, union resist flexible labor models. Instead, they want everyone's responsibilities set in stone.
You can see this effect by the degree of innovation in plants outside north America as compared to those inside. Ford recently attempted to import an innovative new system from its plants in Brazil but the unions shot it down.
Union contracts place powerful limitations on what management can and can not do. Management itself clearly is to blame for many things but ignoring the role of unions is foolish.
Jacob Wintersmith:
No one was holding a gun to Management's head. What do you think this is, The Godfather?
Shannon Love:
Why would the unions want to stifle innovation? Don't they care about long term employment prospects? You make no sense. Do you really think the union wants GM to go bankrupt? Stop trying to deflect blame from GM management.
How can a catastrophe this size not be both of their faults? It's not like the unions forced GM to concentrate on a lucrative market that everyone knew had to be short-lived. Are you union-haters trying to tell me that no one could forsee higher gas prices as China was so obviously coming out of the stone ages?
And how can any pro-union people blame management exclusively when this kind of meltdown has been warned about for years because of unsustainable long-term benefits.
It looks to me like the exact same situation Europe has on a much larger scale. Everyone has been looking out for #1, knowing full well that someone, sometime in the future was going to be caught holding the bag. With GM it's monster losses. With Europe it's a dwindling workforce and soaring social costs.
Whoever said that government health care is the answer's got rocks in their heads. All that does is make the problem larger and broader.
Here's a wild concept for you: we aren't so rich that we can promise everyone everything.
Fifteen years ago I was an engineer installing an automated system in a (non car) GM plant.
For all the months I spent in that plant, I never saw a UAW worker under the age of 45. So, where are their kids working? These 45 to 60 year olds must have adult children 20 to 40 years old working somewhere but, none of that next generation have union jobs at this GM plant.
The UAW is in a death spiral with GM. There will be no saving either one of them.
Time to stop the blaming and start the fixing. The unions can do all the fixing immediately if they just buy GM. Yes - leverage all the financial power of the union's funds and the financial power of all of it's members, and just buy GM. Then the UAW and its brothers can run GM any way they want, without that pesky and poorly-performing antiquated management layer that is responsible for the current situation. The workers of GM will finally own the means of GM production! They can run the company as a not-for-profit, if they like. No need for profit = more return for the (formerly) oppressed laborers. It's a perfect experiment to demonstrate for all the superiority of the collective versus the eeeeevil capitalist system. (switch snark to 'off')
"Why do conservatives hate America?"
It's full of whiny, "mommy, make him give me his candy bar!" Americans.
Ross Perot was talking about what was wrong with GM 20 years ago. Then oil got cheap, Americans fell in love with the SUV, and they got a reprieve. If they'd listened to Perot 20 years ago, they wouldn't be in this fix now.
Fifteen years ago I was an engineer installing an automated system in a (non car) GM plant.
For all the months I spent in that plant, I never saw a UAW worker under the age of 45. So, where are their kids working? These 45 to 60 year olds must have adult children 20 to 40 years old working somewhere but, none of that next generation have union jobs at this GM plant.
The UAW is in a death spiral with GM. There will be no saving either one of them.
Please. Suppose GM could replace every UAW worker with a robot. Would the UAW possibly have tried to stifle that innovation? Unions generally attempt to stifle anything they think won't benefit them, and that damned soon.
I doubt that a given UAW union leader thinks about long-term employment prospects any more than a given GM manager thinks about long-term business prospects, where long-term is defined is starting a day after the given person's tenure in his job ends.
To the extent UAW leaders think about employment prospects, I bet they're concerned with mechanisms to impede layoffs, rather than ensuring the long-term viability of GM.
Again, I doubt that union leaders/members or GM managers give a damn about GM's fate, except insofar as it directly affects them personally, and only to the extent that they perceive that effect accurately. In other words, little or not at all.
No one was holding a gun to Management's head. What do you think this is, The Godfather?
What do you think the Wagner Act is? What do you think enforcement of that law consists of -- pleas to behave?
You clearly do not have the first clue about the nature of government. Go get it here. Or you can try disobeying the law to find out yourself, up close and personal.
Why would the unions want to stifle innovation? Don't they care about long term employment prospects? You make no sense.
It makes as much sense as enacting socialized medicine in the face of the looming disasters of Social Security and Medicare. And whaddya know, the unionists are pushing us to do just that!
Perhaps you need to discern the difference between the open mouths of altruism demanding "screw the future, gimme NOW!" and rational long-term self-interest.
I'm sorry, management is solely to blame here.
Pretend we can take back the last 50 years and give GM a non-union workforce. It's still the same people running the company. They still produce the same products (you can argue about whether vehicle quality is better or worse in that scenario; I'm not sure, myself -- at some level, you have to motivate your workers to produce quality products and implement good quality control practices, and that stuff isn't actually different with a union except that you have to deal with a lot more red tape). Americans still desert in droves for the Japanese and Germans. Big, thirsty trucks are still the only competitive products they produce.
Anything to do with unions/pensions/healthcare is a red herring. GM had enough money (billions) to blow on creating Saturn and buying Saab, and the unions had nothing to do with those purchases. They very recently gave Fiat $2 billion (two billion US dollars!) to simply go away. The unions aren't to blame for any of that. If they'd instead spent all this money on R&D for competitive small cars, they'd be out in front today.
And the idea that "nobody could have known" this was going to happen (Condi's favorite excuse) is without merit. Car enthusiasts (frequently prominent ones) have been warning the big 3 (now big 2.4 or so with Chrysler's troubles) since the 1950's that they needed more and better small cars.
It's management's fault that they're dying, and the US government should not bail them out unless it intends to nationalize them, combine them, and replace the executive management top to bottom before then privatizing them again.
Put in single payer ten years ago, and GM's financial picture would look quite different now.
Especially since people would no longer have the disposable income necessary to buy new cars. :)
When I mentioned innovation I was mostly thinking of product innovation. Their R & D engineers are non-union as are their managers. Believe me, GM squandered a unique opportunity to build truly revolutionary cars the market needs and wants. The place has as much creativity as a Borg ship. "Drone from sector seven", is not going to dream up the car of tomorrow, leaving that up to a bunch of Asians using creeping incrementalism as a substitute for real engineering. The result is the car we have today, 10% thermodynamic efficiency, 4000 pounds,
obscene rolling friction, and piss poor drag coefficients.
3 things about GM
- The employee benefits excuse is nonsense. Oh, it may be true that GM has this extra $1500 per car load, but the reality is that people are willing to pay a $1500 to $6000 premium to buy the equivalent Honda or Toyota. If GM didn't a) make cars perceived as inferior and b) have spend my entire car-aware life (1970 on) crafting a reputation as a bunch of whiners who can't reduce emissions, can't get better fuel economy, can't improve quality, etc they would at least be on par with those two pricewise.
- Hydrogen cars, electric cars, GM management always swings for the fences... and fails. Meanwhile Honda and Toyota make 5-10% improvements every year, year after year.
- In 1983, when American cars were massive piles of gas guzzling rusting poo stained heaps, I climbed into my bosses car. "What kind of car do you think this is?" he asked. "Lincoln Continental" I replied. "It's a Thunderbird" he said, and sure enough there was the Thunderbird logo on the dashboard. Now, although I thoroughly despised American cars by that time, having spent way too many hours freezing by the side of the road, hood up, trying to get some three or four year old American bucket to start or stop leaking or whatever, I still knew the difference between a Lincoln Continental and a T-bird. It turns out he had bought it from a friend, a VP at Ford. No Ford, it seems, was prestigious enough for a VP, so they re-badged Lincolns as T-Birds to hand out. Not only did the Ford VP's not drive Fords, it turns out they had valet parking at the office, and the cars were washed, serviced, fueled and had any repairs done that might be necessary. If it took more than the day to fix it, everything in the car was transferred to a loaner. Then they got a new one at the next model year. So the VP's never dealt with the expense, th unreliability, the fuel consumption, the difficult of parking and so forth. But they were sure they knew what American buyers wanted. And that, my friends, is what is wrong with the American Auto manufacturers.
When I mentioned innovation I was mostly thinking of product innovation. Their R & D engineers are non-union as are their managers. Believe me, GM squandered a unique opportunity to build truly revolutionary cars the market needs and wants. The place has as much creativity as a Borg ship. "Drone from sector seven", is not going to dream up the car of tomorrow, leaving that up to a bunch of Asians using creeping incrementalism as a substitute for real engineering. The result is the car we have today, 10% thermodynamic efficiency, 4000 pounds,
obscene rolling friction, and piss poor drag coefficients.
Exactly! This is why I never blame Megan when she gets something flat out wrong. I figure if she didn't have all that overhead tied up in vegi-burgers, iphones and rent and such, she'd be free to write about subjects truly dear to her heart -- like the latest consumer gadgets and the bar-hopping habits of her high school buds.
Still, misinformation is key. When the dupes wise up and go home, only the muggers in the parking lot make out. So keep the faith, Megs. Without it we'd all be just as sorry as those clowns over at GM.
Musa,
The keiretsu system has shown some success, but if you live and work in Japan, you will hear great concern about "hollowing out," that Japanese companies are shutting underperforming factories and severing long-standing ties with other companies that can't lower their prices in the face of foreign competition. From what I can see, Japanese companies are smarter about keeping their hi-tech stuff in Japan (rather than building it in, say, China where the tech then gets stolen).
There are plenty of zombie companies left alive only because the interest rates are essentially zero and no banks want to call in loans that would put a bunch of junk on their books and hands.
Among my more ambitious students, the target is a foreign company or a small domestic firm, especially for female students: they'll be on a more equal footing than in a Japanese firm. Foreign firms have merit-pay, promotions aren't tied to age, they are more likely to pay higher entry wages than Japanese firms that assume you'll stay with them forever and thus offer you little to start (but long-term security, in the past), and you aren't expected to go drinking until 11pm with the boss from time to time.
I'm curious about the iPhone's entry to Japan. I think Sony, Panasonic, et.al. will be far smarter than Detroit and realize the iPhone is a real threat that should be confronted instead of laughed off or ignored.
My guess is there's plenty of blame to go around at GM (and Ford [and Chrysler and AMC (snicker)]). I'd just sell my stock now, if I had any, and not waste much more time on GM.
Whoever the poster was positing the British car industry then and today as an example, I agree: Sayonara (big) domestic US companies who probably expect a patriotic public bailout, hello foreign non-union shops and (hopefully) small specialty makers.
I used to have an early '70s MG. If you had one, you know why MG died (Lucas electrical, anyone? Natural rubber hoses and seals, anyone? SU carburetors, anyone?). GM is America's MG, only much MUCH bigger but still unable or unwilling to adapt.
See ya, wouldn't want to be ya, GM. But I'll have a tear for you when you go.
Why would the unions want to stifle innovation? Don't they care about long term employment prospects? You make no sense.
Some want to blame labor, some want to blame management. Look folks it's clearly about 50/50 blame, enough to go around. Unlike most of you commenters above, I follow the auto industry closely as part of my livelihood.
I do blame Rick Wagoner's executive team, but yes unions absolutely do stifle innovation for short-sighted selfish reason. This affects everything about car design and production and company management, and as mentioned above the Wagner Act gives unions coercive power with its epicenter (for auto industry) in Michigan.
If you read "Automotive New Europe" you'll see actual European executives -- Europeans for cryin out loud -- openly explaining they'd never expand into Michigan because of the poison of the unions. Hence they go to South Carolina or Alabama, to open up a union-free shop among people not likely to unionize. As do Toyota & Honda. (Much of the "U.S. auto industry" is in fact quite healthy ... it's just that the healthy parts are foreign-owned and have foreign names.)
It is union strictures that kill flexibility in car design (designers MUST accommodate assembly line workers, rule number 1); plant operations -- management cannot shift work to plants making more high-demand cars because of labor issues, nor can US automakers design plants with lines as flexible as do foreign non-union automakers, for labor reasons; workers can't simply be laid off and no longer paid as a result of market demand, so GM is always faced with an expensive nightmare of buyouts OR simply paying people who no longer work for the company. Whether you understand how or not, labor issues infuse EVERYTHING about an auto company.
Well one could go on and on about this. Yes I do more or less equally blame the incompetent executives and the corporate culture, but it's hard to separate them out. Why is Rick Wagoner still employed? Because as a CEO he gets as much cooperation from labor as anyone could hope for. Plays well with unions. An actual GOOD CEO would be battling the unions with every step. And on it goes.
"Well, they did, but I'm not sure it's fair to blame management."
Megan - I would have guessed you were too young to have written any of Jack Handey's "Deep Thoughts". Obviously I would have been wrong.
Yeah...I can hear those GM Managers crying in their best Tweetie Pie voices - "It's not our fault - those mean ole factwy workers MADE us make all these bad decisions. Mean ole, stupid ole factwy workers".
"...nor can US automakers design plants with lines as flexible as do foreign non-union automakers, for labor reasons; workers can't simply be laid off and no longer paid as a result of market demand, so GM is always faced with an expensive nightmare of buyouts OR simply paying people who no longer work for the company. Whether you understand how or not, labor issues infuse EVERYTHING about an auto company."
I suspect that most foreign car makers have to deal with unionized work forces as well. Would American car makers have made better cars if their work force was non-union? It's possible they might have made somewhat cheaper cars, But car companies, like most businesses, will charge what the market will bear, so probably prices wouldn't have been that different. Would they have put the additional profits into research? Into quality improvements? Don't make me laugh.
I'm in my mid-50s. I have yet to buy an American car. There's a whole generation of people who have been trained by experience that American cars are simply inferior products. Does anyone really believe that, if the UAW were to disappear tomorrow, GM would ever develop the culture of continuous improvement that's made Toyota and Honda what they are today?
Sorry Megan: I can't blame anybody but management. The cost side of the equation is not a sufficient explanation for fecklessness that deep and wide spread. Robert Farago and his colleagues at The Truth About Cars have written 190 essays on their General Motors Death Watch. Bounce over there to wallow in the miserable details.
"GM's historical pension and healthcare obligations, and the vast difficulties they have in permanently laying off workers, mean that the company had to maximize cash flow as best they could. "
----------------------------------------------
Megan,
Please do a some checking. The line above from your post is in error. GM transferred $50b in an overfunded pension plan to UAW as part of last year's bargaining agreement. Technically GM has no pension obligation -- the union does. For GM now its a pay-as-you-go scheme paid out of the members VESP participation.
I think the the Left needs to figure out ways to enhance the lives of working Americans that are not premised upon the obsolete adversarial labor relations model.
for those assigning blame, recall this:
http://wardsautoworld.com/ar/auto_labor_talks_watershed/
As Buckley led the right to boot the John Birchers, isolationists, and anti-Semites, leading to a resurgence of American Conservatism from Goldwater to Reagan, perhaps the Left could spark a renaissance by leaving behind its own more retrograde elements, starting with the UAW and friends.
You may call me a dreamer, but I'm not the only one...
Holdfast said:
"This whole national healthcare thing seems like a giant subsidy for business, corporate welfare if you will - I thought that libs/Dems were supposed to be opposed to such things."
I don't get your argument. You, who apparently consider yourself a conservative and/or Republican, apparently assume that businesses have an obligation to provide healthcare for their employees. I thought conservatives were against unfunded mandates on business?
Robert: I suspect that most foreign car makers have to deal with unionized work forces as well. Would American car makers have made better cars if their work force was non-union?
As far as I've ever seen, foreign automakers in the U.S. quite specifically run non-union, non-UAL shops. May be exceptions for all I know, but that's the industry stereotype, and this is a major reason they locate in places like Texas, Alabama, etc, and not Michigan.
Yes, Toyota fears that its American workers will one day unionize and ruin everything, you bet. And yes, I emphatically do think GM would have designed and built betters cars if the union were not in place doing its damage to GM and consumers -- many reasons to speculate so, and not one single reason to think otherwise. But yes I stress that I also blame management as well: just look at the Chevy Aveo to recognize the sheer contempt GM execs have had for people who actually want small cars.
Ultimately, a free market does not mean all companies are well-run and successful. A free market just implies that the companies that suck will die off. We are seeing that now, so be it. The consumer is served well by Toyota, Honda, etc. It's the consumer that matters.
Looking at the Fat Man's cite, it seems things haven't changed vis a vis management for going on _fifty_ years. One interview makes the point that the poor relationship between the guys on the floor and the guys in the air-conditioned offices is entirely the fault of management. The guy says - and I agree with him - that management has no sense of sacrifice. None. So he makes the entirely reasonable argument that if management views it as all about the Benjamins, why not the unions? He also notes that - like big pharma's tired whine that they have to spend so much money on research - lower labor costs would probably not translate into a better product; no, most likely it would just be a source of greater profits.
Oddly enough, this is what my dad was saying back in '62. And he is _not_ repeat _not_ a union sympathizer. Quite the contrary.
I think GM's problems, and the problems of all American car manufacturers, lie some 30 years ago in the 1970's when they were pushing absolute crap onto the market. The reputation of American-made cars has never recovered, even though there are now only slight differences in quality relative to foreign manufacturers. Talk about an anchor tied around your neck.
This whole national healthcare thing seems like a giant subsidy for business, corporate welfare if you will - I thought that libs/Dems were supposed to be opposed to such things.
To the extent the argument is that it will help the likes of the auto and steel industries against foreign competitors "who don't pay health care costs" you are exactly correct.
There's no free lunch. Getting "the government" to pick up the irresponsibly incurred promises of GM et. al. only means "other taxpayers" will pay them instead -- which means the costs of GM will be shifted onto other businesses that have managed themselves more responsibly (and onto individuals too) in order to remove the "unfair disadvantage" that GM incurred for itself.
Will we be having this same discussion about XOM in 2036?
All I can say is that GM never designed a car in all my lifetime that I wanted to buy. Too big, too ugly, too crappy, or combinations of all those. Maybe the union is to blame for this. But I'm not yet convinced.
GM and its pension plan: a preview of the US government and Social Security/Medicare.
The analogy is entirely correct, in that in each case the actors (GM & UAW leaderships / Congress) made life very good for themselves in the past by putting their hands into the pockets of future workers to provide their past-worker constituencies benefits larger than the past workers will willing to pay for out of their own earnings for themselves. That's what "unfunded" means.
In the case of GM (and of course Ford, Chrysler, too) to the extent the company currently must still pay past workers' compensation packages from current income it must be at a competitive disadvantage with other firms that don't have to do so (because their retirement plans are "funded") -- including non-auto firms with which it competes for capital and skilled labor. So GM must pay reduced wages, have less capital (which means less employment) something. Basically, it is just arithmetic.
With Medicare/SS it is the same thing. CBO is saying the bill is coming as a 50% income tax increase across-the-board on everybody (including retirees' and their Social Security benefits) or the equivalent by 2030. That's not so far away! And the taxpaying public will be about as happy with that then as GM's workers are today.
From GM's perspective, deferred compensation makes sense if ... they intended for GM to continue growing so that a deferred dollar would represent a smaller fraction of future earnings than of present earnings...
That's pretty much the same logic that Paul Saumuelson used back in 1967, just when the auto industry and UAW were ramping up these deals, when he praised Social security as A Ponzi Game that Works ....
Sounded great in 1967 but they won't be saying that in 2030. Unfunded benefits, private sector or governmental, always resolve into Ponzi schemes. And all Ponzi schemes have back ends.
It seems that the pro-union side isn't really listening to the other side at all.
Nobody is saying that pension liabilities made GM cars too expensive. They are saying that threatened strikes created rigidity, preventing the company from adapting to changing market conditions and make their company more efficient.
I havn't seen anyone address that point yet.
To the contrary, the 'pro-union' side (actually, the anti-management side) have listened _and_ responded. It is, unfortunately, the pro-management side that keeps roboticly repeating the same talking points.
In this particular instance - again - the idea that threatened strikes create 'rigidity' doesn't even address the point; it's nonsensical. The workers on the floor do what they are told. They do not design cars, they do not buy parts or material, they certainly have no input into what product lines to develop, or how to improve production. If anyone wants to advance such an hypothesis, they'd better be a lot more specific about the details.
And no one, I mean no one on the pro-management side has really accepted the fact that management has been making very poor decisions for going on fifty years. Somehow, the bad decisions - you know, the ones that management is paid so much to make - really don't count.
And no one, I mean no one on the pro-management side has addressed the fact that management is unwilling to make sacrifices, or have been the ones to poison relations with labor, not vice versa. Again, this goes back fifty years (admittedly going on anecdotal data.)
I love the smell of napalm in the morning... or apologist shills at the Atlantic.
I worked for General Motors, and analysts were questioning the companies commitment to Light Trucks over automobiles back in 2000. They felt GM should be more diversified then, predicting that cheap gas would not last and eventually the market would make a rapid shift back to small cars just like it did in the 1970s.
This observation wasn't necessarily insightful or brilliant, but it was common.
Last I checked labor and the unions don't determine strategic direction of the company. They're not the ones approving designs, nor are they even involved in engineering quality or innovation. All factors that have put GM behind the rest of the industry,and all the direct fault of management.
dearieme above recalls the old, now deceased, UK national car manufacturing industry. It died from stupid management failing to meet market needs, and failing to deal with idiotic unions. The parallel with Detroit's agonies today is as clear as it is painful.
The lesson for GM and Ford is that only a radical and deep-running change of management culture has a chance of reviving the dying Detroit giants. Such a change is way against the odds; the only way to just possibly get it is to make it crystal clear to the management, the shareholders and the workers that nobody is going to bail them out. Probably the best possible news for GM in 2008 would be statements from both Presidential candidates that there are many better uses for any Federal money which taxpayers may stump up than bailing out any aspect of GM, Chrysler or Ford. Might even be popular given how many voters have despaired of Detroit automobiles.
Yes, management bears almost all the responsibility- they should have broken from the UAW 25 years ago, but they chose not too because they didn't want to face the intense, short term pain that would cause, and they didn't think the Japanese companies would ever be this strong.
The time for bankruptcy and reorganization is close at hand, and with it, I suspect, the UAW's demise.
Of course, with the political environment, a government infusion of cash is probably the likeliest outcome.
"The workers on the floor do what they are told."
Not necessarily. I am familiar with one UAW Caterpillar plant (now closed). The workers effectively reported to the union rather than management. Management had to go through the union in order to tell the workers what to do. Moreover, sick time was abused, bad workers could not be fired, and good workers could not be easily hired.
TheOtherSteve:
Last I checked labor and the unions don't determine strategic direction of the company. They're not the ones approving designs, nor are they even involved in engineering quality or innovation. All factors that have put GM behind the rest of the industry,and all the direct fault of management.
Check again. Go read the link posted by David Warner. It's from '99 and talks in great detail about the UAW is forcing GM to scrap plans to change to a modular design process and push out development of small cars. The first paragraph:
It's simply ignorance of history to say that the union hasn't actively impeded GM's efforts to transform itself into an organization that can successfully compete.
Now despite this, I agree that it's still ultimately management's fault. The union certainly hasn't helped the plight of GM, but solving those problems are the reason the management gets the big bucks. They're in charge, they need to find a way to succeed. Realistically, as soon as foreign automakers began to provide real competition, management should have bitten the bullet and broken the union.
Although I doubt that would have had you singing the praises of GM's wise management.
You mean that, for example, that if line workers are wiring headlights, they might not make sure that they return to ground? That if they are giving the chassis an undercoat, they might apply it to the windows? Go on with these tales; I for one would like to hear them.
Or do you mean that if they are told they have to work overtime they check with their union rep first?
You need to be just a little more specific. This little bit was especially telling though: "bad workers could not be fired, and good workers could not be easily hired." Are you adding an implicit but unvoiced 'unlike management'? Because, as far as I can tell, what you are describing applies in spades to management. And it goes to the top, people like Rick Wagoner. Or do they get a pass?
Let me say this again: I do not give the unions a pass, I do not think that they are in it for anyone but themselves, I do not think that they necessarily make the best decisions in terms of their long-term interests.
But.
Let me repeat what I said in an earlier post about the situation. My dad worked at the Chevy plant in K.C. until about '62. He would tell tales of workers coming in late, coming in drunk, coming in not at all. Tales of shoddy and unchecked workmanship. Tales of deliberate sabotage to certain individual cars all up and down the line, for fun.
Those stories, however, paled by comparison to what he would tell about management. Stories about games they would play with one particular worker, just picked at random, just because they felt like it, for sport. Stories about refusing to listen to anyone on the floor, about deliberate disregard for worker safety. About calling the workers simpletons, dogs, subhumans who lacked a college education ('62, remember?), even though guys like my dad dropped out of school because recruiters would come around and say that they did not need to finish school to work at Chevy. Woe be to the New Guy, who thought that all he had to do was be nice, decent, and play it straight with the bosses to get respect. Do that, and they'd often as not try to recruit you as a spy, or view you as a despicable suck-up. Management, in short, did not _want_ to be on good terms with their employees, and time and again would betray any good-faith gestures. And think it good sport.
Yes, I know, this is all anecdotal, even assuming my father is telling the unvarnished truth (by his lights, he always is.) But the point is that management has been stuck in a certain corporate culture that went out of date sometime in the 40's, if not before. Older people here may remember a show 'Arnie Nuvo' that captured some of this tension, though of course in family-friendly way.
At the end of the fiscal year, a company's board meets to decide how to spend the earnings. The allocation of funds to raises, dividends, and research and development are somewhat arbitrary decisions, and should be based upon careful strategic planning. However, in a public company, everybody knows how big the pile of money is, and the union, rightly or wrongly, will try for a big piece of it. So in a union shop, there is a direct conflict between the interests of the shareholders and those of the union. The shareholders are best served by a very active R&D program. The union acts as though its best interests come in benefit increases or immediate payout to members.
In an innovative company, like perhaps Apple, they don't have a union, they don't pay a dividend, and they spend heavily on new product development. Consequently, they have a history of sequentially producing spectacular products. Management is focused on the market and providing innovation to the customer. At GM, management is focused inside the company, on how to pay out ever greater benefits.
Note that the company can declare a profit based upon payout to shareholders in the form of divideds, or may elect to put the money back into the company, deferring payout to the mechanism of share appreciation. If they reinvest heavily, then their taxes can be essentially zero, and their profits zero. If they can manage it, share appreciation provides a better return for the shareholder, because it isn't doubly taxed like dividend income.
Unions force GM to be hugely inefficient in their management of resources. Apple, Intel, and Cisco, aren't forced to make these mistakes. Unions could buy GM shares and particpate by making those shares as valuable as possible. But they don't, at least partially because of the meme which goes back to Karl Marx. They view their company as a hostile player, trying to exploit them, rather than as the source of their bounty.
You can read the numbers in the annual reports if you want to, and the conclusion is obvious, the workers exploit the shareholders, not vice versa. So why would anyone want to be a shareholder? Maybe the Marquis de Sade?
Maybe Bill Gates should buy 100% of GM for cash, with the loose change he pulls out of his sofa, and take it private. Sole owner.
Everybody needs an active hobby when they start their retirement.
And it might do both GM's management and its union of world of good, motivation- and innovation-wise, if they found themselves with a new sole owner who was actually accustomed to running an effective, efficient, profit-making business -- and who, if he didn't get one from them, would close the whole damn thing down, sell it off for parts, and not feel any loss he takes any worse than losing some change in his sofa.
In the great blame GM vs. blame UAW debate on this thread, I'm surprised no one has mentioned W. Edwards Deming.
He laid it all out in the mid-80s and tried to tell the Big 3 what they needed to do, but it looks like they didn't listen to him.
MarkedMan (853pm yesterday) had it right and it echoes what Deming tried to tell them.
The key to success is not 'a best effort' - I remember Deming saying that our 'best efforts' are killing us - what's needed is a focus on consistency in processes, careful collection of data from them, small adjustments, more metrics, and a cycle of slow, steady improvement.
Now, whether GM simply failed to buy into this strategy or failed to sell it effectively to the UAW, you got me on that one.
Lee Iacocca, in his memoirs, noted that he did deat a UAW rep on Chrysler's board of directors. He was forced to remove the UAW rep a year later as he was entirely obstructionist.
European unions are quite different than American unions: since authority created their positions, the unions bow to authority more. An American union inherits the American citizens' belief that they will control their destiny. This includes such bizarre practices as the union dictating the tasks of workers in the factory.
Uh, no one mentioned Congress' putting American oil off limits as a cause of General Motor's woes.
Cheaper oil would be a boon to American auto companies.
Congress in many ways is killing GM.
A prediction of bankruptcy and no mention of CDS prices.
Isn't this sort of like MarkG using an editorial as 'evidence'? Let's be very, very charitable and assume it's not just gratuitous(or maybe it's a draw for the target audience) union-bashing: what does 'obstructionist' mean then in this instance? Is this 'obstructionist' in the sense that the rep is objecting to pay cuts, working longer hours with fewer people, cutting down on worker safety measures? If that's what's being called 'obstructionist', then the term really doesn't have any meaning. No more so than 'activist judges' or 'liberal', which mean these days little more than 'people whose opinions I disagree with'.
On the flip side, since the statement has not been challenged, can we take it as a given that management has made little - if any - motions in the way of sacrifice? So why bash unions if management is unwilling to take a hit as well? I get the sense that this sort of sacrifice is (rather conveniently) viewed as a class insult. Sacrifice, like responsibility and taxes, is for little people. And to imply that management shares anything in common with the little people is an insult.
That's a seriously bent corporate culture. But again, something that's gone unaddressed for at least fifty years. Not being a liberal, I firmly believe that some cultures are better than others. And _this_ particular corporate culture I place in the same class as those that don't give women the right to vote. Or own property in their own name.
A lot of the stories about the "old GM" are true. They reflect, as much as anything, the dominant position of American industry during the 30s, 40s and 50s and 60s. Of course, globalization has changed that, and changed GM as well. It has not always been a pretty process (creative destruction never is), nor have things changed as fast as they might have. But GM is global now. The 2007 UAW agreement, when fully implemented in 2010, will make a major change in GM's cost structure. It is worth noting that the executive lunch room and the lax atmosphere at the plants are long gone. GM has been hit by something of perfect storm. The US industry is down about 11 % from two years ago, and most of this is in the most profitable end of the business, trucks and luxury brands. This comes at a time when GM is spending a lot to implement the new UAW agreement and complete other restructuring actions. But this is a tough, scrappy company. We have proven we can do great products (See CTS, Malibu, Enclave, etc.) Don't count us out yet.
Another reason unions have such a bad effect on industries in the US is the practice of pattern bargaining. Unions tend to be consolidated across a particular industry, and the upper management of these unions don't have a strong connection to any particular plant or company. When contracts come up for renewal, they are as hard as possible on the first company they come into negotiations with, even to the point of financial ruin - because the pattern of the settlement will then be duplicated when each other company in the industry comes into negotiation. This enhances the adversarial position between the union and the particular company.
If unions were tied to particular companies - i.e. GM vs. GM's exclusive union (call it what you will); then the mutual interests might be greater. (Maybe industry-monopoly unions should be broken up on anti-trust grounds?)
Remember, union management is just another form of management, and their interests can diverge from the rank-and-file (just like in a corporation).
To all of those who have pointed to European industry as a criticism for GM not giving enough voice to labor, I have one huge counterexample: EADS/Airbus. The largest aerospace/defense firm in the world is getting its lunch eaten by its (relatively) smaller American counterparts, because its labor unions have such a stranglehold on the company, it can't restructure to meet a changing competitive landscape.
Of course, another part of this is politics. The management of Airbus is politicized to a degree unheard of in the 'States.
So what sort of sacrifices is management making?
One other thought on the "risk" of bankruptcy. Assessing this risk for a company like GM is not straightforward, and experience from other industries doesn't automatically apply. Most insiders feel that consumers would shun a carmaker in bankruptcy. And since there are so many other choices out there, (unlike, say, airlines) there would be no reason for customers to ever come back. So it isn't clear that a carmaker could ever regain momentum after a filing. That isn't to say the risk is zero. But most insiders will tell you that any car maker would do almost anything to avoid Ch. 11, and that motivation counts for something. Art Spinella and Gerald Meyers just weighed in with precisely that conclusion.
As for sacrifices, please see the releases on our investor site for June 3 and July 15. Management and labor have both sacrificed a lot under the pressure of globalization. The old fat, dumb and happy auto business is no more.
Well, Tom, does that extend to management taking immediate and drastic cuts in their remuneration packages? If not, that's just so much blowing smoke.
A big chunk of executive compensation is incentive based. As our press releases and financial filings indicate, there have been big cuts.
Tom, are you saying that base salaries haven't been cut? Because that's the impression I'm getting. Which means that, no, there really hasn't been any 'sacrifices' made by management worth speaking of. And I think this is the point that rankles; you can't call - by any stretch of the imagination - cutting perks 'sacrifices' for example. Saying you have to fly first class on business instead of having a private jet at your beck and call is not going to be viewed as a sacrifice by the rank and file.
A sacrifice would be those making $500 K/yr and above getting cut back to $200 K/yr. Something along those lines. Has that in point of fact happened?
"You mean that, for example, that if line workers are wiring headlights, they might not make sure that they return to ground? That if they are giving the chassis an undercoat, they might apply it to the windows? Go on with these tales; I for one would like to hear them."
This was exactly what happened. Instead of doing things correctly the first time, the defects were sent down the line and an entire quality control team was employed to fix them. Management could not directly fix the problem points in the production process by disciplining workers. Instead, they had to talk to the union about the problem. The unions response was typically "you need to hire more [union] quality control workers instead."
"Or do you mean that if they are told they have to work overtime they check with their union rep first?"
They also had to talk to the union rep before they did anything outside of their job description.
'You need to be just a little more specific. This little bit was especially telling though: "bad workers could not be fired, and good workers could not be easily hired." Are you adding an implicit but unvoiced 'unlike management'? Because, as far as I can tell, what you are describing applies in spades to management. And it goes to the top, people like Rick Wagoner. Or do they get a pass?'
Incompetent management is another issue. However, if the company wanted to fire incompetent workers, the union had to sign off on it. Therefore, the incompetent child of an important person in the union was rarely let go.
Jamey claims that "no one held a gun to GM's head and forced them to sell gas hogs." Why does no one look at the other side of the equation? No one forced people to BUY gas hogs either. For all the talk that GM doesn't build cars people want, their problem lies in some ways in the fact they DID build the vehicles wanted: SUVS and trucks with lots of room and an image that signaled "I'm a fit, active adventurer." People wanted those vehicles so much they were willing (and able, thanks to all those home equity loans and cheap credit) to pay a premium for those vehicles. Gas was cheap, so why not? All those profits paid the bills for the US automakers, and seduced management into paying too much attention to improving those big money-makers and too little to improving their cars.
All through the 1990s, GM made a lot of money selling SUVs and trucks to people who wanted them. And note that this market niche wasn't attractive to only the US automakers. The Japanese and the Europeans jumped in as hard as they could, too, and they are losing sales in this segment just as fast, if not faster. Their advantage is that they already had good cars as well, and GM and Ford were foolish not to build a world-class midsize car sooner.
Now that, as even the buff books point out, GM actually has excellent midsize cars in the Saturn Aura and Chevy Malibu, they're having a tough time rewriting the script in people's heads that GM and Ford = SUVs and trucks, and Toyota and Honda = cars.
If we want people to drive more fuel-efficient cars, clearly the price of gas is the most efficient means of changing purchasing behavior, and the fastest way to improve the fuel efficiency of the American vehicle fleet. Sales of big vehicles wobbled at $3/gallon but then came back. Clearly $4/gal changes behavior. (Although maybe this number is even higher -- would SUV/truck sales have fallen off a cliff if $4/gal hadn't been accompanied by the housing and credit crises?) To my mind, the question becomes, how do we keep gas prices at a level that encourages people to buy smaller cars and drive less while helping poor folk through the transition and funnelling some of the profits to public benefit?
One more thought, to put a personal face on it. I joined GM mid-career in 1999. Since then, my pension has been cut, my health care costs have risen significantly, my modest stock options are so far under water they need an Aqualung, bonuses (which are based on company performance) are modest some years, non-existent in others. I make a decent living, I love the car business and I am proud to work at GM. But anyone who thinks that anyone --salaried or hourly -- at GM is living easy is living in the past.
Scent of Violets
Compensation for managers and executives in most industries are like those for wait staff in a restaurant. Salary is a base, but incentive compensation is considered part of the package, and it is part of what attracts and retains good people. So years with no incentives hurt -- sometimes a lot. Companies do this for the same reason restaurants do -- having compensation at risk motivates people. If you go to a restaurant where tips are thin and whack base pay too much, you will end up with nobody waiting tables. Like it or not, GM (or any other company) faces the same economic reality.
Scent of Violets
Compensation for managers and executives in most industries are like those for wait staff in a restaurant. Salary is a base, but incentive compensation is considered part of the package, and it is part of what attracts and retains good people. So years with no incentives hurt -- sometimes a lot. Companies do this for the same reason restaurants do -- having compensation at risk motivates people. If you go to a restaurant where tips are thin and whack base pay too much, you will end up with nobody waiting tables. Like it or not, GM (or any other company) faces the same economic reality.
To the contrary, that's precisely the point. I don't think you get just how unfair it seems to the rank and file that management gets such a consistent pass on the behaviours they are quick to condemn others for. This 'this is another issue', or 'we are not talking about him; we're talking about you right now' has gone so far over the top that no one really believes that we'll ever get around to those other issues, or talking about 'the other guy.' Or that the person mouthing those sentiments is a completely dishonest partisan.
Your other point is not what I am talking about, btw. But it does underscore what I have been saying. Your standards for 'unacceptable behaviour' seems to be that they won't do everything the company tells them to do. That you think this qualifies as 'unacceptable behaviour' (why do you think unions were formed in the first place?) says a lot more about what you think about unions in general that it does about this particular case.
Sorry, Tom, but being stripped of those bennies while still having a base pay of, say $500 K/yr _is_ easy living. If you think otherwise, you are waaaay out of touch. I would say, rather, that overcompensation of management as one of the big problems with businesses today and GM in particular.
And this is just, well, weird:
Leaving aside the fact that the overwhelming majority of wait-staff gets sub-minimum wage, the idea that you base your expenses and life-style on 'incentive pay' rather than base is living in la-la land. I have to say that most people don't do this. Further, it's telling that in this case - which is definitely not most industries, most of the time - you did not want to go with a loss of base pay, but rather, a loss of 'incentive' pay. Why is that? Could it be that foregoing incentive pay is a meaningless gesture, since you weren't going to get it anyway?
I repeat, that is the problem with a lot of management: they think they are somehow different and better than those they ostensibly manage. If you wanted to show that you were going to 'sacrifice' (what your vested options aren't doing so well? Your health care premiums are rising while your coverage is dwindling? And you think this isn't happening anywhere else? That this isn't a general phenomenon, or that you deserve special consideration? Cry me a river), you needed to cut base pay. Let the 'incentive pay' take care of itself when it comes up and as it becomes an issue.
And until you do, I'm afraid that most people simply won't believe any protestations of sincerity.
This being an economics blog, I will reiterate that, to some degree, the value placed on individual occupations is set by the market. We might wish it to be different, but it is not. Top executives I have observed (and believe me, I am not one) have a rare combination of intelligence, drive, education and experience. If the supply were larger, I am quite certain boards would be happy to be able to pay less for them. And of course, none of this is unique to GM, and none of this is key to the issue at hand: What must GM do to succeed in a world that is quite different than it was even 20 years ago.
Your last comment doesn't seem to follow from anything that I have said.
35 years since the oil shock in 1973. Market share around 50%.
I'd pretty well blame several generations of not just GM's management but the entire auto industry management for being the most serially incompetent management culture ever.
You are watching the final act from a terminally stupid management culture, who blamed their avoidable decline on every imaginable external influence.
The UAW didn't make them disrespect their customers (remember the Rocket Olds 88 engine) design crap products (remember those early 80 diesels?) and decide that quality wasn't their thing.
The government didn't make them build low MPG vehicles or decide to cede the low end of the market to the Japanese, the high end of the market to the Germans, the safety part of the market to the Swedes, the high performance market to the Germans, the hybrid part of the market to the Japanese, the quality conscious part of the market to the non-American manufacturers.
So what's left?
Imagine where the industry would be if the CAFE standards had been enforces. Armageddon for sure, or maybe Toyota.
These guys committed seppuku instead of getting some vision of what a successful company needs to do to adapt.
35 years ago this would have been a rallying cry:
Tom Wilkinson at GM:
As for sacrifices, please see the releases on our investor site for June 3 and July 15. Management and labor have both sacrificed a lot under the pressure of globalization. The old fat, dumb and happy auto business is no more.
Posted by: Tom Wilkinson at GM | August 3, 2008 12:06 PM
Today it's just an obituary.
I'd pretty well blame several generations of not just GM's management but the entire auto industry management for being the most serially incompetent management culture ever.
This observation ought to make one think. The UAW is the only common factor across multiple generations of failure for 3 (4 if you include Diamler) domestic auto companies while non-union US factories (including those run by Diamler) have been successful. Occam's razor would suggest that it's more likely that the one common factor (the UAW) is at the root of the problem than "several generations of [...] auto industry management" has been "serially incompetent".
I still think management has to ultimately shoulder responsibility for the failure (they are "management" after all), but it seems to be missing the crucial lesson to omit the UAW's role in the collapse of the US auto industry.
It's probably not worth worrying over, though. I'm reasonably confident that President Obama and the Democratic Congress will bail out the UAW and the rest of the auto industry...
The issue here is not whether or not executives get paid too much. It is not whether or not automakers and unions got carried away during fat times, and now have to adjust to leaner times brought on by globalization. The issue is: Can GM (and other U.S, European, and ultimately Japanese carmakers) compete successfully in a brutally competitive global market? And what will it take to do so? GM recognized that it couldn't survive unless it was global, so now more than 65% of its sales are outside the U.S. GM and and the UAW recognized that the bad old ways were a mutual suicide pact, so both side negotiated a groundbreaking agreement in 2007. And GM recognized that, without great products, cars and trucks, the rest was moot. New products introduced during the past several years are winning awards and selling well in a terrible market. The past is past. We are doing what we must do to succeed in the future. Wish us luck. And if you really care about what happens to carmakers here, take a look at a U.S. brand vehicle next time you are in the market. You might be pleasantly surprised.
Indeed, I find it interesting that I spent so many years listening to europhile economists assure me that the Germans were going to kick our ass because their cooperative management style, with labor having a seat on the board, allowed them to engage in long-term planning.
All the far-sighted German auto-companies have been kicking Detroit's butt in the U.S. -- largely by building plants in union-unfriendly, right-to-work states in the American South. VW is the latest to announce such plans. And, of course, the Japanese and Koreans have done the same -- all their plants in the U.S. are non-union (except in a couple of cases where the plants were joint ventures with U.S. automakers).
Let's boil it down:
G.M. and Ford without the UAW outside the U.S. == success.
European and Asian automakers in the U.S. without the UAW == success.
G.M. and Ford with the UAW in the U.S. == failure.
Anyone see the critical element for failure in these equations?
For what it's worth, Tom, I wish you guys luck, and I really, really hope GM recovers.
If the supply were larger, I am quite certain boards would be happy to be able to pay less for them.
Not really, the boards are made up of people who are CEO's of other companies or who are in line to become a CEO. The CEO also sets the top limit of salary any of them can get. They have financial incentives to pay the CEO of their company a huge sum of money because it will benefit them by being able to point out that "such and such CEO got A, so I deserve at least A"
ScentofViolets, I must admit that I am unable to follow your reasoning.
My argument was that a company - no matter how competent the management - is unable to succeed without cooperation and competency from its employees. Caterpillar has been doing well, so I don't think that the management is incompetent. They just made the decision to close down the plant in question because it was a poor performer.
"Your standards for 'unacceptable behaviour' seems to be that they won't do everything the company tells them to do."
No, my standards of unacceptable behavior is that they would don't reasonable things that the company tells them to do. For example, asking workers to show up and do a good job seems rather reasonable to me.
And _my_ argument is that it is up to the management to hire competent employees. As well as come up with products that people want to buy. It is also up to the management to lead by example. Tom has already implicitly admitted that management has no intention of making any real sacrifices, yet they have no problem asking for that from the rank-and-file 'for the good of the company'.
An honest question, which you keep ducking: don't you think that management should make some real, significant sacrifices if they are asking it of other others? This has happened in at least one case in the air carrier business, iirc.
Oddly enough, my standard of reasonable behaviour is the same. So enough with the loaded terminology. You need to be specific about which types of behaviour are unacceptable, and which are. I'll open with a specific example: if the company gives 24 hours of notice that employees 03312 through 04015 will be working Saturday and Sunday on the 11 pm to 7 am shift, and the employees in question consult with their leadership as to whether or not they have to, well, that does not strike me as unreasonable at all.
Do you think otherwise? If so, why? You also seem to want to give the company the ability to fire employees at will. This to my mind is an extremely bad idea. You think otherwise, apparently. Why? And why do you give management a pass for being so difficult to fire?
Toyota and Honda have kicked GM's ass on car design, quality, and reliability for 20 years. This is really capitalism 101: efficient companies with good products grow, inefficient companies with poor products lose money and shrink or go bankrupt. The unions may have been part of the problem, but surely only a small part: it's management, not unions, that chose trucks and SUVs over small cars, and that ran the third-rate development process, and that failed to put in place adequate quality control.
If you buy a GM car instead of a Toyota or Honda, you'll probably have more problems, higher repair costs, and after 3 or 4 years you'll have very low resale value. That makes no sense for consumers.
If you buy a GM car instead of a Toyota or Honda...
Actually, this is a case where perception lags reality. Recent GM vehicles are comparable in quality to Japanese vehicles, and resale values are rising accordingly. You can check any number of third party sites and see. Yes, U.S. based companies did build some mediocre products in the past, and no, we don't expect this past to magically disappear. That is one reason GM is putting so much emphasis on design and technology now -- when you can "wow" people with a new vehicle like the CTS, Malibu, or Enclave, they will give you a chance. And if they give you a chance and have a good experience, you are on you way out of the hole.
Another misperception is that the Japanese companies are all about cars. Toyota, Honda and Nissan are now slashing truck production, just like the domestics. The rapid shift from trucks to cars, which really kicked in last spring, caught everyone.
"Actually, this is a case where perception lags reality. Recent GM vehicles are comparable in quality to Japanese vehicles, and resale values are rising accordingly"
So this has magically changed since 2007 ? I don't think so. I'll grant that the Saturn Aura and Chevy Malibu got decent reviews, and were viewed as being competitive with (though not clearly superior to) the Japanese competition. But this is too little too late, after 25+ years of clearly inferior products. And Toyota/Honda aren't going to stand still waiting for GM to catch up.
I remember CLEARLY when, in 1982, GM simultaneously introduced to the market the Chevrolet Cavalier, Pontiac Sunbird, Buick Skylark (Skyhawk?... whatever), the Oldsmobile whateveritwascalled, AND the Cadillac Cimarron.
These cars were all IDENTICAL save for minor trim details and badging. I believe this is what the term "badge engineering" refers to.
I remember CLEARLY thinking way 26 years ago that GM must be nuts, and that they would surely go under at some point with so many marques and models fighting one another, as well as competitors from other manufacturers, for the same market segments.
Guess I was just a bit ahead of my time ;-)
The Japanese build some good cars, but they put them together one bolt at a time, just like we do. There is no magic, just a lot of hard work and attention to detail.
As Aristotle wrote, "Of one power even God is deprived, and that is the power of making what is past never to have been." So you acknowledge the past and move on. You fix the problems, you build the best products you can, and you start fighting your way back to the head of the pack.
That's what it is going to take. The world is global. The competition is relentless. That's not likely to change.
"So you acknowledge the past and move on. You fix the problems, you build the best products you can, and you start fighting your way back to the head of the pack."
Fair enough. I wish you well. But I grew up in the UK in the 1970s and witnessed the decline of the UK's native automakers. When you're behind in the race *and* you have a poor reputation *and* you're short of money, the odds are against any recovery. Now there's a huge Toyota plant about 5 miles from my parents' house.
I don't doubt that there are many talented and hard-working people like yourself inside GM trying to dig out of the hole. It just may not be enough.
In the hiring process, American Motors (Oops, where's my Nash Rambler) invites you to fill out an application. It says that due to the seasonal nature of the business, you may be required to work overtime and you may be subject to layoffs. However, the hourly pay is twice what someone with your lack of skills and education could expect elsewhere. You sign up and are hired.
Over at Japanese Motors, you fill out your application, and it is rejected. You take it home, and leave it on the dining room table. Your brother, who just got his ME in mechanical engineering sees it, is interested, and applys. They tell him that it's a seasonal business, but there are not assembly line workers. Instead, they use robots. Since he is good at programming automatons, he is hired. He elects to take the midnight shift because the pay is somewhat better.
Gasoline prices rise to $5/gal. Over at American, nobody is buying pickups, so they idle the line and you are laid off. You are offered a position assembling the new hybrids, but you would have to move to Kentucky, so you talk to your shop steward and he gets you a loan and an offer of early retirement.
At Japanese Motors, production also slows. The assembly line is cut to half capacity, but they still need people to run the computers. Raw material feeds are slowed, saving costs. The company asks your brother to work overtime reprogramming the robots to build hybrids. Contingency plans, in place for years, divert raw materials from Osaka to the plant. Computerized JIT logistics kick in and the company saves a bundle.
After American Motors goes bankrupt, Japanese Motors (or was that Chrysler) buys the company. They really only wanted the customer list and sales apparatus, so they place the company into receivership, and a court orders your retirement benefits cut by 85%, because the company doesn't have the assets to cover their commitments. Your brother has a 401K he contributes to and owns, so his retirement is safe. He does well and is promoted to Chief Programmer. Aren't you glad you joined the union?
Some of the comments here are awful.
I live in Michigan, a state with its own recession. Once, contra to the above poster, "What's good for GM is good for the US, and vice versa." Now Granholm sits on her Canuck butt and waits for Toyota to magically decide to build a factory here.
As fast as people flee, still the MI economy out-shrinks the labor market. We need a right-to-work law here before the entire state dries up and blows away.
Detroit was moribund in the 1960s; this reputation of sloth and second-rate, obsolete business practices was known then.
In Germany, the solution was simple. Generous government subsidies take care of the workers. So what if you run 10-15% unemployment? The lucky 85% are far richer, and that will seat a majority in the Bundestag any year.
In America, Detroit is simply not as profitable as Japan. (The UAW claims Japanese workers earn more than UAW workers: $27/hr plus no-deductible benefits. The UAW is lying.) Detroit has had a few good years, but they always lose money in a down market and they regularly lose money in up markets. Don't knock them for going for the easy SUV money: they don't have the strength anymore to reach for the hard money.
This is completely unhealthy. This is why Detroit has no money to develop hunches and ideas into products.
John McCain can be a bastard, but he gave it to the UAW right between the eyes. Many of these jobs are not coming back. Barack Obama might simply punish GM for not hiring more unnecessary workers, or perhaps he only trusts giant multi-nationals with names like Nissan, Toyota and Airbus, as opposed to GM, Ford and Boeing.
Peter Buxton wins the thread.
I am a Detroit native and current suburban resident (sorry, I would love to live downtown, but it's unlivable). Most of you haven't the slightest idea what kinds of problems we have here. Our politicians can only try to hand out money to big business to come here, completely ignoring what we need to produce actual economic growth. But who the hell wants to set up shop in Michigan?
For those of you with blind loyalty to the unions...you have no idea what kind of monstrous organization the UAW had become. You have no idea what it's like to work with them. You have no idea what it's like to live with them. Their sense of entitlement is beyond belief.
Let it die, I say. We need to start over new here.
"This is completely unhealthy. This is why Detroit has no money to develop hunches and ideas into products."
Except that apparently they do, e.g. the Chevy Volt. But where Toyota has the vision and foresight to make long-range plans and develop the Prius carefully, GM management acts like a headless chicken, trying to develop the Volt in a huge rush, and probably ending up with something unreliable, late to market, and too expensive ($35K ?) to make a difference.
The UAW may not be wonderful, but they're not to blame for GM's persistent failure to produce cars which can beat the Japanese competition - and that failure dates back to the early 1980s. The UAW isn't responsible for product development ...
"The UAW may not be wonderful, but they're not to blame for GM's persistent failure to produce cars which can beat the Japanese competition - and that failure dates back to the early 1980s. The UAW isn't responsible for product development ..."
But the UAW might affect it. I would be hesistant to make such a blanket statement without more research.
Didn't read all the comments, but it needs to be said that Bush did his part by enacting ridiculously broad - & overly generous - rebates for buyers of new SUVs, generating synergy between insecure drivers who thought big trucks were safer (false: they roll over like puppydogs even at modest speeds) & a Big 3 Company that didn't want to believe the forecast trend away from their big shiny pets was anything more than a flash in the pan. Not only did Bush openly reject true free-market principles in doing so, he gave an alcoholic GM a Texas Mickey of rationalizations with which to continue ignoring their ongiong marathon of failures since at least the 1980s. Combine that with what were (until recently) artificially low gas-prices & you've got a recipe for disaster when the worm turns. GM management was warned for years & years to lose the SUV fetish, & they ignored every omen that didn't fit with their ivory-tower version of reality. Those chickens are now coming back home to roost. If you can find a major role for the UAW in there somewhere, you ought to look into getting work with the Justice Department. They need a new catchy substitute phrase for "I can't remember/I don't recall."