When could GM have been saved? In my opinion, GM started its slow motion death roll in the 1980s, when it refused to confront the unions or the brand managers and streamline the thing. Every decision they've taken since then has been made in light of the fact that they couldn't really afford the kind of showdown with the UAW that it would have taken to strip the company down to a nimble, profitable core. They skimped on quality and stopped taking care of the brand, mostly to feed the unions, but also to feed their bloated management structure. By the time it became obviously suicidal to keep on as they were, it had also become almost as suicidal to try and turn things around, because the company was no longer healthy enough to take the blow.
They could have also decided to manufacture smaller and more economic cars.
I don't know if either you or The Atlantic care, but you still have "Arriv-e-derci misspelled in your "Arrivederci, Acorn" post.
Except that, unless gas costs $4/gal (2008 prices) smaller and more economic cars lose money for the manufacturers.
I always thought they should go the other way...focus on those areas where they were still world class i.e., trucks, vans, SUVs, luxury cars, muscle cars, etc. Concede that they couldn't do small cars well and get out of that market. Innovator companies all face this decision eventually.
Not sure how CAFE would affect this decision, though.
Without taking on the UAW there was no real return for GM in small cars. Labor costs for smaller cars are almost as much as SUVs - GM had to make high margin cars to last as long as it did.
The only reason Ford is sort of okay right now is it has the most popular trucks. Again, higher margin.
They could have also decided to manufacture smaller and more economic cars.
I'm not seeing how even lower margins were going to save them. Especially given that their small, economic offerings (both the true domestics and the badge-engineered Suzukis) utterly sucked, as Americans were reminded every time they got off an airplane.
They sucked because they were an afterthought.
Their trucks sucked too, in many of the same ways, they just didn't have any Japanese competition at the time.
They didn't have competition for much of that time because the tariffs on small trucks were much higher than on cars. Which takes it back a step -- when did Detroit make money where they weren't protected by trade barriers?
Hum, that sounded kind of dry. What I meant is, there were probably a lot of managerial decisions since the 80s that could have avoided disaster.
It's simplistic to impose a narrative of some sort of countdown to doomsday to union negotiations 25 years ago.
When was the last time GM made a profit on non-trucks/SUVs?
I agree with you Megan.
During the 80's and early '90's i used to deal with all the Big Three selling process control equipment; conveyors and other automated systems that go into their plants.
Ford learned from the crisis of the late 70's to bring in good models like the Taurus and to slim down the number of plants and people.
Chrysler subcontracted a lot of their manufacturing and tried some innovative things under Iacocca.
GM, however, wanted to do everything themselves. Rumor has it that Roger Penske approached GM in the late '80's and wanted to produce the Pontiac under a JV agreement with them. He wanted to bring back the sexiness of the GTO in the '60's. Penske would handle the design, marketing and dealers, GM would make it for him. No go. Management egos couldn't handle it. His fallback was a JV around Detroit Diesel.
The company remained the same one that Alfred Sloan put together 60 years earlier. (Except for the EDS purchase! Remember Perot. That was a fun time for all!)
Do you think Ford has been saved, or is it still up in the air? If it has, wouldn't that support an argument the decisive point for GM was much more recent?
Ford was not "saved" because it didn't receive any federal funds.
Ford did not need federal funds for two main reasons:
1) It did a better job of investing into small sedans (lesson learned: it takes investments into weight-saving tech and engine tech to make small sedans profitable...the Japanese never stinted on that). Ford started with the Escort. Ford continued with the Taurus. They screwed that up later, but have often been leaders in developing small cars for Europe, like the Fiesta and the Focus.
2) Ford did the best of job of the Big3 of leveraging its Japanese partnership and its ownership of European luxury brands (since sold).
Chrysler just rebadged Mitsubishi products. Chevy just rebadged and/or pushed off failed/substandard designs onto Suzuki and Isuzu, and more or less forced Saab to sell rebadged GM products w/ little differentiation.
In contrast, Ford let Mazda continue to develop small, sporty cars (the Miata, the 323/Protege/3, the 626/6) and gave back truck technology (the Ranger and Escape). And when they shared the designs, Ford allowed/made changes. For instance, the Ford Fusion had a longer wheelbase than the Mazda6, which made it slightly less sporty but more comfortable to drive. The Fusion made money for Ford. The Mazda Tribute was based on the Escape, but was tweaked by Mazda to be more sporty and less off-road oriented. Ford also left the Miata alone, and didn't try to make a Ford product off of it.
I don't know the extent of collaboration/changes between the Ford Edge and Mazda's CX7 and CX9, but I assume there is some.
There aren't that many Mazda enthusiasts, because Mazda is nowhere near as popular as Honda and Toyota and perhaps even Nissan. But every Mazda owner I've talked to (numbering in the high 2 digits) loves their Mazda. That includes me. Part of Ford's success has to be attributed to being able to tap into the engineering that engenders that fanaticism/loyalty without killing the goose that laid the golden egg. Neither GM nor Chrysler were able to do that.
I disagree, but at least this time it isn't on a partisan basis. Look at Lexus/Toyota and Honda/Acura.
Yes, but even if each and every GM model were legitimately a significantly different product (and not just a clone), it would still be too much. At its height, GM had (by my count) ten brands, and probably something like seventy or eighty models. They were bound to crash under their own weight at some point. A firm can't possibly maintain quality on so many makes/models/brands. Maybe Proctor and Gamble can, but cars are big ticket items. You give examples of automakers with two principal brands -- that's a lot different. Also, although there is some overlap between Lexus/Toyota and Honda/Acura, I believe that's only at the lowest wrung of their luxury lines (repeated at the SUV level, perhaps), no? It seems to me if you're buying one of the pricier Acuras or Lexuses, you really are getting something pretty different from an Accord or an Avalon. Of course, it also helps that Toyota and Honda and Nissan managed to build pretty strong reputations for quality and reliability among American consumers. When the core products you're selling have names like "Pontiac" or "Dodge," you've got problems that go well beyond brand management.
I'm wondering if there is broader theme involved.
By way of example:
1) At one time, Baltimore was one of the major industrial centers of the US with a talented workforce, raw materials, and cheap transportation for its finished products. Over the last century, it has become an economic basket case.
2) At one time, Detroit was ONE of the major industrial centers of the WORLD with a talented workforce, raw materials, and cheap transportation for its finished products. Now, it has become an economic basket case.
3) At one time, California was THE preeminent economic powerhouses of the world with a well developed industrial base, the best educational system in the world, a deep agricultural base, and exquisite living conditions. Now, it is becoming an economic basket case.
I am really not trying to steal this thread. But I do think an answer to the question: "When could GM have been saved?" is mis-stated.
I purpose the solution with a different question: "Why do we keep strangling the golden goose?" unfortunately, I don't have the answer.
"Why do you rob banks?"
"Because that's where the money is."
My hypothesis would be that rich economies attract rent-seeking behavior, which imposes overhead costs that depress economic efficiency. It's like vines growing up the big trees in a jungle. Indeed, you could think of it as a kind of natural ecological succession, like the movement from grasses to trees in a biome. The rent-seekers in Detroit are obvious (the UAW and the management of GM, to start with); but California pretty clearly has big time rent-seeking too (the public employee unions are a large part of it).
It's called Pournelle's Iron Law of Bureaucracy.
I see why you would think of that, but I believe that's actually a different case. A corporate bureaucracy is a growth internal to the organization, one that starts out functional and becomes parasitic. And a governmental bureaucracy is similar, except that the government can transfer the costs of its parasitism to the society at large. The overhead cost is effectively passive; it's for an organizational structure that perpetuates itself but performs little external action.
Rent-seeking, on the other hand, has external effects: A legislature or government bureaucracy creates conditions under which a business, industry, or union is sheltered from competition, and thus has an income stream coming to it without productive activity on its part. The government agency that does this is not purely passive, but is actively changing the competitive environment. And both top administrators and legislators are likely to be getting benefits from the firms that they favor, rather than just feeding off the revenue stream from taxation.
Of course, once a corporation has rents coming to it, it doesn't need to be as efficient, and thus it can afford to tolerate the growth of internal bureaucracy. So the two processes are symbiotic. But they're not equivalent, I don't think.
Really replying to William H Stoddard
The general case states that there are two groups of people in any organization: those devoted to the mission, and those devoted to the organization. The people devoted to the organization eventually end up in charge of it. If there are no external forces culling organizations, they ossify.
That is why government bureacracy is so much worse than private bureacracy. It's so much harder to get rid of it.
Comment of the week? I'm sure you could keep adding to this thought and write a dissertation on it... why do these booming cities completely fail? The standard answer used to be "failure to adjust to changes in the marketplace" but that doesn't seem to work anymore.
Suicide pact, indeed. Good point, Megan.
Angst: I wouldn't count CA out yet. They're still one of the 10th largest economies on earth. I think they have a chance if voters would stop propping themselves lower taxes, propping themselves more benefits, and propping themselves with the latest idea with its unintended consequences (like prison-building and 3 strikes).
CA is done, finished. Small & medium-sized businesses are leaving in droves. Working professionals are leaving as quickly as they can. CA is a sinking ship, the liberals killed it.
EH: Do you ever post anything that isn't anecdotal?
Lesson of the day - If you lose track of your metaphors, you end up talking about ship murder.
I suggest that the first mistake GM made was to dismantle the Alfred Sloan plan. The original plan was a distinct division for each class of customer. Chevrolet would sell economy cars. Pontiac, Buick, Oldsmobile, and Cadillac would sell increasingly upscale vehicles.
This all ended when the cost accountants in the 1960s convinced management to consolidate the models into common platforms. They saved literally billions of dollars, back when a billion dollars still provoked shock and awe.
Unfortunately, the American people eventually noticed that the Cadillac Fleetwood was a tarted up Chevrolet Caprice. There are only so many Chevrolet Caprices you can sell in North America, no matter how fancy the trimmings.
The real culprit, though, was CAFE. The US government wanted to be seen to reduce petroleum dependency. They didn't want to raise gas prices. That would be unpopular! So they instituted the Corporate Average Fuel Economy standard.
This guaranteed that U.S. car companies would never make a profit on small cars. Small cars don't cost much less to make than larger cars. The materials costs are a relatively small part. Small cars don't sell for nearly as much. It's no wonder the big three made crappy small cars in North America.
Small cars only sell well if fuel prices are high. Otherwise, given a small price difference, people prefer bigger cars. European governments also add huge surcharges on bigger, more powerful (gas guzzling) cars.
Foreign automakers are guaranteed a profitable market for small cars in their home countries. Gas prices are high, and their governments add that gas-guzzler surcharge. Any profit foreign automakers make in the USA is gravy.
Small trucks weren't included in CAFE. This was supposed to protect small business owners. Eventually somebody had the bright idea to make trucks that carry passengers. Thus, the SUV.
The big three make great small cars in Europe.
So if they make great small cars, why do they sell the crap domestically?
Small cars are better in Europe because they are more profitable. They are more profitable because the makers can get better prices. The makers can get better prices because fuel prices are higher, plus government add gas guzzler surcharges to big cars.
Also, homologation requirements are a bit different in the two markets.
...when it refused to confront the unions or the brand managers and streamline the thing.
I think the surfeit of brands can't be emphasized enough. I still think Buick and probably GMC should go, too (maybe keep the Buick flag alive in China, where it's purportedly popular). I personally think they should even ditch the name "GM" -- my impression is that the corporate brand has extremely high negatives -- and simply rename themselves something along the lines of "Chevrolet Motors." It seems to me that the Chevrolet brand is still regarded positively, and is pretty iconically American, and can be salvaged and burnished with relentless attention to quality and design (and frankly GM's new care are pretty sharp looking).
The Cadillac brand is obviously worth saving, too -- that could become like Lexus is to Toyota.
Two major labels is enough for any global automaker these days.
Good! Where should the Obama admin right the $250,000 brand consulting check?
I think they probably would have done something like that if it were possible. The problem is they had all sorts of contractual arrangements with dealers they couldn't get around without going bankrupt first.
BobW is partially correct. Managment sucked and government regulations required engineering changes. But it was emissions standards, not fuel economy (CAFE) requirements -- and management's choice as to how to meet them that doomed the big three.
My first new car was a 1972 Gran Torino (yeah, like the movie). And far from being a triumph of American manufacturing, the car was a lemon. It had a significant recall due to a mistake in the design of it's rear axle bearings (they failed in my car) and Detroit opted to meet the emissions requirements by de-tuning their engines. They burned the requisite ppm's of polutants, but they burned many more millions of parts. My Gran Torino got 12 mpg (my previous car, my mom's old '63 Galaxy -- half again as heavy -- got 18+).
The Japanese and the Germans re-engineered their engines and met the new rules with even more fuel economies. Honda, in particular, introduced their stratified charge engine with two combustion chambers per cylinder.
The American manufactures continued to design cars that performed poorly (but looked real purty) until they lost significant market share to the Japanese and the Germans. The Americans obsessed with offering higher cost options that were different without real distinctions. The Japanese and Germans offered fewer options and much better vehicles.
None of this was the fault of the unions. Indeed, nowadays the American designed cars are really competitive, but folks still don't trust them.
Yeah, the unions did price themselves out of competition and the manufacturers didn't stand up to them, but the mistakes made in the early seventies doomed our domestic manufacturers.
None of this was the fault of the unions. Indeed, nowadays the American designed cars are really competitive, but folks still don't trust them.
But it actually was the unions fault -- although indirectly. Why did Detroit go cheap and try to get by with design over substance? BECAUSE they knew couldn't compete head-to-head on price and advanced technology with the Japanese. And why couldn't they? Because of high labor and legacy costs and inflexible work rules. The D3 made all of their apparently stupid management decisions in the context of knowing they were working at a permanent labor cost and labor flexibility disadvantage. (Question--why did they wait so long to implement just-in-time? Answer--think about what a strike does to a just-in-time company with no stocks of parts).
As for the allegedly really competitive cars we're seeing now. GM is going head-to-head with Accord and Camry with the Malibu. And it doesn't suck. Hooray. But is GM making as much profit per car as Honda and Toyota? Is GM, in fact, making any profit at all on the Malibu? The Impala, on the other hand, is older technology--not as sophisticated as Accord and Camry (or Malibu), but cheaper to build, so they can include more features for the money. GM doesn't market it at all, but it still outsells the Malibu. By a lot. Is the Impala more or less profitable for GM than the Malibu? Yes, GM has proven they can build a car about as good as Camry or Accord. I never really doubted they could. But at what price? Can they make any money doing it? I'm not convinced of that.
And what about Ford's entry in that niche -- the Fusion? How do they manage to compete on bang-for-the-buck? Answer: They assemble it in Hermosillo, Mexico.
Right. I never understood their continuing with this inane practice. Who did they think they were fooling? If you look like you're insulting the intelligence of your customers, pretty soon people will start to believe you really are trying to insult the intelligence of your customers. And of course, in trying to save money in this manner, not only were they damaging their credibility, but they were hopelessly damaging the individual appeal of the various brands. The modern consumer is simply too busy -- and too heavily bombarded with marketing messages -- to possibly have a prayer at wrapping his/her mind around the several dozen individual models GM was selling before it started to downsize. Contrast this with, say, the four or five principal models offered by Honda.
I disagree, but at least this time it isn't on a partisan basis.
Look at Lexus/Toyota and Honda/Acura.
The Corolla, Camry, Avalon, and Highlander all have Lexus equivalents that have a modicum of cladding differences but substantial engine and material quality differences. The Civic and Accord have Acura equivalents. Heck, Nissan does it, too.
Are they engaging in an inane practice by selling the same car at different levels of luxury/sportiness? No. When you go upscale, you get better service, better engines, more sportiness or luxury. Or you can buy, say, a Camry and feel like you got basically the same car as a Lexus.
The problem was that GM didn't handle it right. They didn't differentiate Pontiacs from Buicks from Chevrolets. And they didn't differentiate the Cadillacs with better quality or better workmanship or better engines.
They basically ruined the market for upscale GM products by trying to fool people with style rather than substance.
Now, if *that's* what you meant by insulting the intelligence of their customers, I agree 100%.
At almost every single decision point, from union contracts to engineering fuel economy to developing good small cars, GM always chose the easy way out and short term benefit, to the expense of their long-term good.
I think the same forces are at work in the Japanese manufacturers. The lower cost nameplate ends up getting a large share of the goodies that the luxury nameplate has. For example, Honda did not put a V6 into its cars before Accura came out. Now the Accord has a V6, and it gets bigger with each design refresh.
Well, but they are very, very careful to distinguish the brands. I happen to be up on this because I just got a Lexus ES - the Camry equivalent. When it comes to exterior styling, there's not much to choose between the two. But on the inside, where the money is, you cannot get:
All-leather seats
Real wood trim
Cooled seats (heated yes, cooled no, and I live in Mississippi so you know which one I cared about...)
Backup camera
Parking distance sensors
and other similar creature comforts.
You also get a longer warranty, a little better dealer experience (free loaners, etc.) The Lexus website quotes about a $5000 difference in price if "comparably equipped". So if you're focused on price, you can get the Camry knowing that you're driving substantially the same car; if you don't mind paying a bit more (about 15%), you can get a little cushier environment and some more peace of mind. Since I was buying based on cush, not performance, I went for the Lexus. (And, it's worth noting - Camrys are made in the US, while the Lexus is made in Japan. They keep the premium brand in the home factories.)
Devilbunny,
Yes, that is an excellent expansion/explanation on the point I was trying to make.
I think GM did not make anything close to a sufficient effort in the case of Caddilac vs Buick vs Oldsmobile vs Chevy differentiation on identical platforms.
Toyota showed how it should be done.
I think the surfeit of brands can't be emphasized enough...I never understood their continuing with this inane practice...
Congratulations, we're sending you out to explain to the dealers who sell one or two brands but no the others why they either 1) are losing their franchise because the brand is being shut down, or 2) why the number of dealers in their particular brand is tripling as dealers in the other brands are converted to your brand. Also, you have to deal with their lawsuits under laws created by state legislatures in which they have outsize influence. Have fun!
I'm not saying it was good decisionmaking, I'm saying the alternative was extremely unpleasant for GM.
Brings to mind the phrase "That's why they get paid the big bucks." Making unpleasant decisions may not be easy, but refusing to make them is a quick way to corporate ruin.
Actually, not true. From the evidence we have, it seems to be a slow, agonizing way to corporate ruin.
Also, they seem to have been paid big bucks despite a refusal to do the hard stuff that was required.
Good question in part because it has it seems an echo of 'The Decline and Fall of the Roman (er uhh U.S) Empire" question. I seem to recall a strike against one of the big 3 in 1959 that lasted over 100 days. I assume that GM learned then it had to rope-a-dope to win, that is they had to take a punch, tire the enemy, and counterpunch to win and that's what they at GM have been doing since. The UAW showed that it, perhaps bolstered by the Wagner Act, was stronger than GM. Then there were wildcat strikes when the union didn't like what GM as doing. These were illegal under the contract but framed as 'work rule' disputes. Some at GM wanted to fight them but they were ousted from management in the early 80's. I suppose the analogy with the US is that since at least that time, GM couldn't see a clear business path to survival but pretended otherwise or relied on its political advantages to survive. The US is in the same position with the budget deficit now; we rely on our position as the reserve currency and global political military leader.
Heh. If one insists on a narrative, I'd say that the problem was intransigent management. There wasn't any one decision where one could say that the consequences were mortal. But there was a pattern where management refused to take the hit for it's bad decisions. If the guys at the top are in it with the rest of the small fry, quite a few concessions can be wrung out. If management persists in arrogating to itself the perks and perquisites of power, even as the consequences of misrule accumulate, if management asks everyone but itself to take one 'for the team', that creates a - shall we say - toxic environment. Too much of that sort of thing and everyone is in it for themselves.
While I certainly won't hold GM managers up as lions of industry, I don't think simple perk accumulation can explain a mess on this scale. It's one part of it, but I doubt it's the biggest. Management stupidity, perhaps, but not management greed.
1981
The Big Three and the UAW convinced President Reagan to impose import restrictions (quotas).
The Big Three quickly and dramatically increased prices bringing on a period of sticker shock. When the CEO of GM was asked how people could afford new cars he responded that they should buy used GM cars.
The import quotas meant even bigger profits for Japanese cars. They also responded by moving upscale.
The Japanese cars were now much cheaper (compared to Detroit), more profitable, and frequently better built (especially smaller cars.)
Rather then confront their cost structure and quality problems the Big Three ran to the government for protection.
A generation of buyers bought the cheaper imports and never returned to the Big Three.
In perfect hindsight -- I guess the 1980s, or even the mid 70s were the way to go.
The issue is that what was needed was a complete reinvention of itself -- both in terms of labor contracts and managerial culture.
However -- absent complete failure, the impetus for reinvention just doesnt exist. How many companies decide to reinvent themselves while holding the leading market share in its industry?
You can bet the the UAW and the union movement in general would have recognized the GM move to adjust its labor costs for what it was: GM was the flagship, and any "new" standard in terms of lower labor costs would be replicated by Ford, Chrysler and all the associated parts suppliers as contracts came up. Make no mistake -- labor would have been ready to strike for as long as it possibly took.
So from GMs perspective in 1980-- yes labor costs were an issue, but SUVs seemed to be an outlet that let them absorb those costs -- and they knew that a 6, 9, 12 or 24 month strike where few cars would be produced might cost them enough market share to make the cost savings gained a phyric victory.
I had the experience of dealing with two unions at two different plants. The difference in approach in each was remarkable. One union recognized that in the competitve industry we were in, having a cost competitive plant was the ultimate guarantee for job security. As an example, on their own -- they looked at the process of an assembly line change over (from one product size to another) as if they were a NASCAR pit crew (the plant is close to a NASCAR track)and made remarkable improvements. That plant still runs today, and in fact, has had production moved to it with an increase in the employee base.
The other plant? The idea of making process changes for a cost competitve plant was viewed as "union busting"-- and "they werent changing simply so management could make bigger bonuses." That plant today is closed.
So from GMs perspective in 1980-- yes labor costs were an issue, but SUVs seemed to be an outlet that let them absorb those costs -- and they knew that a 6, 9, 12 or 24 month strike where few cars would be produced might cost them enough market share to make the cost savings gained a phyric victory.
Yes, and don't forget the UAW's strategy of selecting a single 'strike target' (invariably, the strongest of the 3 Detroit automakers). If the target company took a strike, not only did its Asian competitors keep building and selling cars, but so did its domestic rivals. So for the target company, a long strike would be suicidal. But it wasn't so damaging for the UAW, because they were supplying labor to other domestic companies. If GM lost market share to Ford and Chrysler, it didn't matter so much to the UAW.
This strategy was extremely effective -- it made the union much more powerful than any of the Detroit automakers. But the UAW did not wield this power wisely -- for the UAW, it was always 1973 when they were the monopoly labor suppliers to the only car-makers that mattered. The UAW failed to recognize how utterly the game had changed when first the Japanese started exporting in earnest, and then when the transplant factories started opening up in right-to-work states and Detroit's long-slide into bankruptcy began.
That's not entirely true--the UAW did try to organize the transplant factories, but they lost every time. Once it was clear that organizing was not going to succeed (and that was clear at least 15 years ago), their choices were A) to grant Detroit competitive labor costs and work-rules to preserve the viability of the domestic automakers, or B) close their eyes, keep doing what they'd always done, and milk the D3 until they dropped. They chose option B.
It don't get the sense that the executives or the UAW were aware that they were making a vastly inferior product until it was too late. I know some of the executives might have had some exposure to the competition but it doesn't seem like enough.
It seems they should have had the executives cycle through all the competitors vehicles. If you were a Cadillac executive or engineer you'd get a STS one week then a week with a BMW, Mercedes, Audi, Lexus, Infinity then back to the Caddy.
For the rank and file there would be a stable of competitors cars and you would have to sign out a competitors vehicle 5 days a month. So, if you built F-150s then you'd have to drive home a Chevy, Dodge, Toyota and Nissan a few nights a week to see what the competition was like.
Quite possibly. But the killer was that management wasn't willing to make the same sort of concessions when it came to pay and benefits. I see this pattern over and over and over again where the line workers, the pilots, the stewardesses are asked to make concession after concession with nary a notion that the suits should do the same. You want a recipe for bad blood, toxic relations, a dispirited work force, poor moral? I can't think of a better way to go about it.
Whether the UAW were aware of whether or not they were making an inferior product is moot. It is beyond dispute, however, that it was management's job to know this and to figure out what to do. Yet another case of a class of management being paid the big bucks all out of proportion to what they were actually worth.
This does tend to promote just a teensy bit of resentment.
GM went through and slashed white-collar employee health benefits back in the early 1990s, both current employee and retiree.
A decade and a half later, the UAW contract still establishes that every blue-collar worker and retiree gets the legacy gold-plated health benefits, far superior to those that a manager in charge of a multi-plant program gets.
Oh, yes, you better believe that people getting compensated all out of proportion to what they were actually worth tends to promote resentment.
I see this pattern over and over and over again where the line workers, the pilots, the stewardesses are asked to make concession after concession with nary a notion that the suits should do the same.
If you're Ralph Szygenda the CIO of GM you can probably find another job at similar pay if GM goes under. If you're a 55yo high school drop out, there really aren't any options that will pay anything close to what you made at GM. The UAW rank and file had far more to lose from a GM bankruptcy than the executives.
If you're the VP of Marketing of the Treasurer or the Comptroller of GM, you can easily get another job - the UAW rank and file just don't have any other options.
While true, SoV's point about employee morale is a real one, and worth more consideration than you're giving it. Telling employees to take a cut when you won't leads to the sort of bad blood that causes unions to strive for absurdities like UAW work rules. Even if there's a reason you consider valid for the other guy to take a cut and you not to, you really can't count on the other guy agreeing with your assessment.
Sigh. Why do I have the feeling that everything I said just went in one ear and out the other? I've said that if management doesn't share in the pain - especially when it's bad decisions on the part of management that put the company into dire straights - don't be surprised if the environment becomes toxic, if there's a disconnect between different sectors of the company, etc. that lead to a further deterioration in competitiveness.
Your reply is: "So What?"
i dont think its totally true.
Setting high profile CEOs aside -- the vast majority of upper management knows they can be fired for one or two bad quarters, and they have. Heck -- I saw a HR VP fired because the CEO had to wait in a line for the Company sponsored flu shots (and oddly, this was a great CEO employee wise). The executive ranks are a nice place to be -- but there is plenty of turnover.
Management generally pays for bad mistakes.
The difference is that a plant closing makes the papers. The regular firing of executives rarely does -- and again, aside from the CEO, those folks dont have golden parachutes.
I've said that if management doesn't share in the pain
I totally agree with everything you said. The only question I have is: How do you get the CIO of GM to accept "sharing in the pain" if he can leave and get a similar job at John Deere or Pratt & Whitney or GE? I can't think of a way....
And obviously, in the negotiations, if the unions asks management, "Why don't you share in the pain?" The executive can't say, "Well, I have my masters in Mechanical Engineering from MIT and an MBA from Harvard and you didn't manage to get a diploma from East Lansing High." That certainly isn't going to go over very well, no matter how true of a statement it is.
Unfortunately, it often IS true, and those who delay gratification to complete a difficult course of study will naturally demand and command jobs with better pay and/or greater job security. But US autoworker unions have (largely) never seen management as an entity to be negotiated with, but an enemy to be taken down, and they were wlling to use mob tactics to do so. And management, accustomed to raking in money from a captive market shielded by political favors when necessary, never saw any need to shepherd the unions past that point of view, and merely kept promising them more benefits today, paid for by tomorrow's auto sales.
And thus, if something cannot go on forever, it will stop.
Or becomes a government program, which goes on virtually forever.
The last GM car I owned was a Plymouth Voyager minivan bought new in 1986 or 87. It generally worked well until we were about 300 miles shy of the 70,000-mile warranty, at which point we blew a head gasket (which was mostly covered by warranty). It then proceeded to fall apart and was a constant money sink for both maintenance and repairs. We finally got rid of it in 1996 when we moved to DC (the first time). After renting a car for a while, we ended up leasing a Ford Expedition -- which in the three years we leased it never had a mechanical failure and didn't even have to be tuned up (we did faithfully do the lube-and-oil maintenance). I've only bought Fords since, and I've been pleased with them.
Last year, on an extended business trip back to Virginia, I got in very late to Richmond Airport, and Hertz had "upgraded" me in a full-size GM car of some kind (I had requested a midsize Hyundai). It was without a doubt the worst car I have driven in over a decade. The interior was ugly, cheap, and uncomfortable; the car handled like a large boat with a lot of water in the bilge. I returned it to Hertz the next day for a compact Ford.
GM was dying years ago. I'm not sure anything can save it now; the "bailout" sure won't. ..bruce..
Plymouth is a Chrysler brand.
So they've got an awareness problem to match their quality problem! ;)
Let them leave then. Especially if their 'valuable' contributions were what put the company in the red in the first place. I wouldn't have thought you would be one of those people to condemn the concepts around which contemporary company organization is based . . . but there you have it.
I'd suggest that a lot of this is people not having ME degrees but having business and MBA degrees instead. They seem pretty worthless to me. Especially the MBA degree. In fact, having a degree in anything doesn't necessarily confer competence, as the narrative shows, and as I thought was a gospel of faith for most libertarians. So when some executive smugly pops off as to why they shouldn't share the pain(answer - the real answer: superior negotiating position) just remember that what the counter-response will be, and just remember what it says about the competence of someone who won't take responsibility for their mistakes.
Here's a thought - why not make the salaries of management based upon what a board comprised of the rank and file laborers feel is the correct determination? After all, it's pretty obvious that value is not matching up with salary in the current setup.
Sure. And while they're at it, perhaps they could design the new line of automobiles. I'm sure it will do great!
Not that it matters to your point, but basic pedantry compels me to point out that GM, for all its faults, cannot really be held responsible for the PLYMOUTH Voyager.
The end started when executives believed what Peter Drucker was writing about them. The great lesson - never believe the hype.
First, note the conditional if in my statement. Second, pinning the blame on a couple of guys and then firing (what other people would call scapegoating) them is no substitute for the rest of management making a sacrifice as well. By all means, if you can, identify the incompetents and weed them out. That in no way means that management has 'made a sacrifice'.
This simple point pops up again and again and again in the literature - it's not that the rank-and-file object to making sacrifices; it's that they are asked to make sacrifices when management personnel are not making comparable ones(you can't claim that flying first class instead using a corporate jet is in the same category as taking a five or ten percent pay cut, for example.) Spare me the claims about job security and 'leet skills that can employed elsewhere; I don't think there's as much truth to the claim as people would like to think, and to the extent that there is, it doesn't really answer the question about differential sacrifice in any but the crassest, most disrespectful way.
Labor and management are two different groups. As a result of union contract, you have to deal with Labor as a group, not individually. Hence, you get stuff like negotiating to, lets say, reduce wages by 15%.
Management is different. You can, and do, deal with individuals. I don't really see the difference between 1) asking all of management to take a 15% pay-cut, or 2) eliminating 15% of management positions.
Your supposition is that if management doesn't sacrifice, then labor relations tank. What I am pointing out is that management in turn around, or poorly performing situations almost always sacrifices -- and in my experience, its either invisible to or ignored by union leaderships.
As for crass -- its reality. The truth is turn around situations often must pay more to attract management. After all -- if you are a good manager at a stable company, why would you go to a turn around situation for an equal or lessor salary?
Why would you have a problem with people other than management determining management's salary? Doesn't this work the other way around with no problem? And speaking of misconceptions, I'm unaware of any examples of 'management' designing a new line of automobiles. I'm pretty sure it's the engineers that do that, not the MBA's. I suspect the most you could claim in this instance is that management signs off on design specifications. Not the same thing at all; any more than coding specs for a client is the code itself.
I wasn't implying management designed automobiles. I was poking at your insistence that a group of workers make decisions for which they have no knowledge, training or responsibility.
But what do I know, I drive a Hyundai.
I'm pretty sure it's the engineers that do that, not the MBA's.
I'm under the impression that the MBAs had rather too much say in that process, actually. At least, it's hard for me to believe that a 1988 Cutlass Ciera was the work of somebody who really loved and cared about cars.
This doesn't make any sense. Are you saying that determining salary and benefits is some arcane skill, known only to a few and practiced with some degree of proficiency by fewer still? Do you have any evidence for this? I thought that libertarians(TM) thought that evaluating teachers followed just that type of mechanistic practice.
Conversely, it shouldn't be that hard to come up with a few metrics to determine management bonuses and incentive pay, right? And if that's the case, why not let a group of non-management types determine management compensation? Not to mention that in any event, why should management be put in the position of making this type of decision? Don't you think that they might err on the side of generous we it comes to determining their own compensation levels?
How about we allow individual workers and their supervisors determine their own just compensation based on the quality of their work, instead of a one-size fits all contract that ignores individual initiative and work ethic?
I hear it already works in places like Toyota and Hyundai!
This all seems very vague, as if you really don't know the details. Do you have any case studies in mind? It's also been my experience that in large companies, management personnel are considered in groups. They may make different salaries as individuals in the end(not always), but they start at the baseline of what position they are fielding with how many years they have of experience.
Again, do you have any specific instances in mind? Both of us can play this game, I can just as easily say in my experience (which I tend to value more) that what you are saying simply isn't the case. See?
Or we could go with what seems to be the norm in the news these days, where, yes, management doth be loathe to make comparable sacrifices, in fact, will award itself bonuses for making 'tough decisions'. At least, that's what I read in the papers. I don't see anything there that matches what you describe.
Shrug. It's my opinion that there's not much truth to your 'reality', and rather than go on and pull out cites (I get the impression that they won't make the slightest difference to you) I'll leave it at that. More importantly, the fact that you can say this while missing the point just shows how disfunctional this sort of culture has become. The point isn't whether or not certain people can leave with the option of the same or higher pay elsewhere(again, I disagree with that statement), but whether or not refusing to make concessions leaves the firm in poor health from toxic employee relations. You're free to refuse to make concessions, leave for another company, etc. if you fancy yourself to be that type of person. Whining that the employees are behaving irrationally by being resentful doesn't change in the slightest that this is the way they feel, and yes, something will have to be done about it to make the company profitable again.
not let a group of non-management types determine management compensation
I think you would be surprised at how close the numbers would be to the current salary range.
Example: You want to hire an Oracle DBA fresh out of school - you might have to pay 45-55k depending on school, internships, experience, GPA etc. Then you'd say we need to hire a Senior Oracle DBA - 3-5 years experience make 85k to 100k. Now you need to hire a DBA Group Manager - 150k. A Director of Application Development 225k. CIO 550k.
Camrys are made in the US, while the Lexus is made in Japan. They keep the premium brand in the home factories.)
The saddest thing is - if you polled the world's richest and most powerful people and asked - what would you rather have:
A. Gulfstream G550 - built in Savana GA USA
B. Cessna Citation X - built in Wichita, Kansas
C. Dassault Falcon - built in Mérignac, France
D. Bombardier Global Express - built in Toronto, Canada.
Most people would say - for the finest jets (money no object) the G550 (and soon the G650) and the Citation X are the best money can buy.
Indeed - the Honda HA-420 HondaJet will be built in a vast new factory in Greensboro, NC.
Why did GM and Chrysler f*ck it up so bad? There was a time when the Emperor of Japan was driven around in a Packard.... so very very sad.
There was a time when the Emperor of Japan was driven around in a Packard
Minor note - even today the Emperor and Prime Minister of Japan are transported via a pair of custom built Boeing 747's.
http://en.wikipedia.org/wiki/Japanese_Air_Force_One
Again - why was the ball dropped?
And why not have the people they are negotiating with be a board of regular workers? Why are you working so hard with the sloganeering when you can just answer the question? Aren't you one of those people who claim that it's fairly easy to rate teachers and give them merit pay on the basis of their performance? If this works for teachers, and if it is as easy as all that, I don't see why it wouldn't work for executives.
This board is going to be familiar with the job done by every employee? When will these "regular workers" find time to do their regular work?
Teachers are getting merit pay and not a one-size-fits-all union contract? Where is this?
Because the company is owned by the group that does negotiate with top executives--the shareholders. Why don't we let your students set your pay instead of the faculty?
A board of managers is going to be familiar with the job done by every employee? When will these management types find time to do their regular work?
I didn't say they were. I am saying that if I recall correctly, you are one of those people who thinks it is fairly easy to rate teachers on their performance, and to base merit pay on that rated performance. So it should be easy to do the same thing with management, right?
Why can't we just have someone do a performance evaluation on these individual manager types and then have them report the results to the board, who will then determine whether a raise or bonus is in order? These aren't hard questions. Please answer them.
I'm not sure what you're getting at here. Were you intending to support my point that it's not all that hard to determine the salary of an employee?
I know that a lot of conservatives reflexively oppose any brakes on managerial compensation, so here's something about the walkout at the University of California:
The problem of an administration that gives itself lavish compensation for service, even as it demands that others in the institution sacrifice, on the strength of it's 'skills' in making 'hard decisions' is a very old one, and doesn't really have much to do with whether the entity in question is public or private. As others have remarked, this seems to be a case of the ecology of organizations. In the beginning, you really do have(for the most part) multi-talented, omni-competent people who establish a company or a state. Much later, when employees or citizens find that the main source of competition is other employees or citizens, the types whose star waxes ascendant tend to be good at the sort of maneuvering that will enable them to wiggle to the top of the heap. But once there, they don't possess the skills, aptitudes, abilities, or - perhaps most importantly - the motivations to keep the organization competitive. That's when the rot sets in, whether they be Mandarins or Moguls.
Or Congresscritters in Washington, D.C.
Sure. Exactly. The main point of advantage of a private business is that if it goes through this decay, I can stop supporting it; I can't very well do that with a government. If enough people stop supporting a business, it changes its policies or shuts down, just as happens to a political party if enough people stop voting for it; but even without that, I can stop paying my personal money to support the private business.
On the other hand, private businesses hate having to deal with losing customers. If they have the opportunity, they'll try to manipulate regulatory agencies into sheltering them from this risk, or even actively encourage the creation of government regulations that they plan to manipulate. It's perfectly possible for a private business management that's totally inept at actually producing anything to be pretty good at buying favors from Congress and the regulatory bureaucracy. That's just a specialized variation on the general theme of purely bureaucratic competence.
You get what you reward. If the best way to get rewards is to serve your customers, businesses will do more of that; if the best way is to make insider deals with government, businesses will do that. We need laws to ensure that businesses actually are accountable to their customers (for example, laws against consumer fraud); but we also need to be careful not to pass laws that can be twisted into a protection from customer demands or competition.
Really? Care to detail the mechanics of the process then? I was under the impression that congresscritters were elected. Whereas the organization of the modern large business seems to be distinctly of the top-down Socialist variety with no possibility of the lower echelons getting any sort of mandated representation on a par with management.
with no possibility of the lower echelons getting any sort of mandated representation on a par with management.
It happens all the time that people leave big bureaucratic companies to found their own businesses to compete with their former employers. As an example Richard Egan worked as an engineer at Lockheed Martin, Honeywell, and Intel before founding EMC. That sort of thing happens all the time.
It's in the nature of business that as organisations grown they become slow, bureaucratic and arrogant. This leaves a place open for smaller, more nimble, more innovative companies to rise up and take their place. In many cases these competators were founded by dissgruntled former employees.
Steve Wozniak is another example - he quit his job at HP to start Apple.
Pardon me, but this makes no sense whatsoever.
Scent,
Pardon me, but this makes no sense whatsoever.
What do you mean? If people aren't happy with the deal they are getting at work they should start their own company. That's how the "lower echelons" move up in the real world.
What has this got to do with my observation that "... the organization of the modern large business seems to be distinctly of the top-down Socialist variety with no possibility of the lower echelons getting any sort of mandated representation on a par with management."
Whether an employee stays or leaves, the top-down Socialist style structure remains. Frankly, I don't see why you would kick against this; it's nothing but an observation, one that I think 99% of all people would agree with. Are you in the 1% that disagrees, that thinks that modern large business is not based upon a top-down governance model? That strikes me as just bizarre.
hether an employee stays or leaves, the top-down Socialist style structure remains.
Then you'd agree that's not a problem. If you don't like the structure you can and indeed should leave. If the company is exploiting you should find another job or start your own firm.
Why would anyone complain about how firms are structured? The employees aren't slaves. In fact, the cost to incorporate is only a few $100.
Are you reading the thread? Your replies are nonsensical. Look at what I was originally responding to:
So. I make a fairly standard observation bureaucracy. Someone claims that duly elected representatives to Congress are bureaucrats. I point out that no, unlike bureaucrats who can only be removed by higher-ups, congressmen can be removed by a popular vote, and that it is the modern large business with it's top-down hierarchical organization - overtones of the Socialism that people like you like to complain about! - that suffers from this syndrome.
I repeat - are you reading this thread before making a comment? What does your comment that 'if they don't like it they can leave' have to do with my correction about 'congresscritters being bureaucrats'?
I'm just not seeing it.
Our Congresscritters are very good at getting into and staying in office. They are not so good at the job for which they were elected. Congress passes grab bags and wish lists instead of laws, and fobs off the task making coherent rules for actual people to actually follow on the executive branch. They insulate themselves from the consequences of their bad policies.
The typical voter hates Congress for its pork barrel spending, but likes the way his own Congressman brings home the bacon.
This is nothing new. One of the reasons the Framers put a strong executive into the constitution is that legislatures historically dodge responsibility. You can read their arguments in the Federalist Papers.
The other replies to your reply to my reply to your original post (I think that parses properly.) are trying to point out that if you don't like the way your company works you can get another job, perhaps with some difficulty. You can even start your own and compete with your former boss.
If you try similar things with government, it's called emigration, rebellion, or secession. Any of those are much more drastic than changing jobs or starting your own company.
The Iron Law is univeral. Its consequences are particularly bad in government. Thats one of many reasons to keep government as small as possible.
I wasn't arguing with you I was making another point - try and keep up.
Sure. You're free to say that and get away with it . . . provided you can say how it followed from the remarks. It sure looks to me like all you're doing is some reflexive - and nonsensical - bashing. In fact, didn't you say this:
Care to explain how this is just 'an entirely separate point'? Especially since I wasn't complaining about how firms are structured in the first place, but merely making a fairly pedestrian observation about bureaucracies in general?
Maybe I should let you off the hook: If you were going to start from the top where you said this:
What would you have said instead after the italicized quote you included?