General Motors Execs Need A Swift Kick In The Axle

General Motors Execs Need A Swift Kick In The Axle
MiBiz • June 27, 2005
by Jim Gillette

While pondering what to write for this issue’s column it occurred to me that I would really like to write something positive about the auto industry for a change. Recent bad news about General Motors’ massive debt and credit rating downgrade coupled with the horrific news of more suppliers going belly up have clouded my thinking and pushed me into a funk. (Not too difficult to do for those who know me.)

The success and failure of car companies seems to evoke disproportionately strong emotions with many, if not most, people. We often hear that the family car is the second most expensive purchase most households ever make after their house, yet I rarely turn on the nightly news to hear that one homebuilder is gaining market share versus another. When is the last time you saw a cartoon character painted on the side of a Pulte home urinating on the logo of a competing homebuilder? Does anybody spend hours over beers debating the merits of a Maytag washer versus a GE?

The automobile does hold a special place in our society and people get emotional about them for several reasons, even if their job is not tied to the industry or one automaker or another.

I think everyone knows that General Motors’ current situation has been in the making since the 1970s when the company was caught flat-footed without a viable product response to the oil shocks and influx of Japanese competition. Product mistakes (read: platform sharing leading to brand homogenization) during the 1980s lead to a precipitous market share decline in the company’s primary market, the US, from which it has never recovered.

The awarding of rich employee benefits and union contracts dating from the 1950s was based on a misguided belief that GM would continue to grow into the future, allowing increasing revenues to perpetually fund benefit cash requirements.

GM’s inability to stem the loss of market share, excess asset investment, massive “legacy costs,” negative operating cash flow, and an intense competitive environment that has prevented the company from attaining pricing power in view of its weak product offerings. Unless something radical happens, GM will lose its number one global position sometime around the end of this decade.

On the bright side, GM currently has adequate cash reserves to survive in the near-term without resorting to a Chapter 11 filing. Management will, however, likely hold the threat over head of both the UAW and the government that it does have a bankruptcy filing as an option to dissolve existing union contracts and to put the defined benefit pension plan into the hands of the Pension Benefit Guaranty Corporation.

But let’s set all of that aside and look at some of the company’s strengths:

  • GM remains the largest automaker in the world with the broadest geographic base of assembly operations of any company.
  • The company has established a strong position in China and vies for number one with Volkswagen in South America.
  • Ownership ties with Fuji Heavy Industries (Subaru) and Suzuki give GM product platforms from which emerging market sales can be expanded.
  • The Chevrolet and GMC brands have been able maintain their equity in the truck markets. GM has the potential to build successful equity in its Chevy brand in emerging markets.
  • The company is close to having engineered a successful turnaround of its Cadillac brand in North America (although it ceded the top end of luxury sales to foreign competitors long ago).
  • Because of its volume purchases, GM wields power over its supply base. (Remember, I’m listing GM’s strengths from their perspective, not a supplier’s.)

 

So what’s the problem? Ford and the Chrysler division of DaimlerChrysler face all of the same “legacy costs” (albeit to a somewhat lesser degree) than GM. The UAW also represents their plants. Yet, both of them have managed to produce terrific products that they can’t build enough of to meet demand: the Mustang and Chrysler 300.

GM’s management has a lot of resources to work with, but when is the last time you saw one of them get truly emotional about their own product? We used to hear that Bob Lutz loved to drive his Shelby Cobra and Dodge Viper at high speeds for kicks. Come on, Bob, this is your last chance. Build a fire under these guys and get some gut wrenching vehicles out the door.