The truest test of good corporate management is its ability to survive through the generations. General Motors has failed that test. GM is 101 years old, and was the global sales leader for nearly eight decades before Toyota overtook the top position in 2008. The global titan owns thirteen brands and claims to employ over 243,000 people across the world. Over the past thirteen years, GM has had two CEOs: Jack Smith, Jr. (96 – 03), and Rick Wagoner (03 – present). During this time period, the GM brand (along with other American brands) has created a brand identity of lower quality and less durability in comparison to similar foreign competitors.
Through this time period, GM has failed to respond to changing global economic pressures. If you have owned a television since the summer of 2005, you have witnessed several commercials touting “GM Employee Pricing.” This type of response to slumping sales exemplifies GM’s short-term fixes for long range problems. Not surprisingly, GM enjoyed a 49.6 percent sales jump during the first month of employee pricing in 2005, and Ford and Chrysler followed suit. This was far from the necessary solution that GM needed to keep positive cash flows.
But, but, but! You can’t blame GM for their troubles during this most recent economic downturn!
Have you heard of GMAC? The General Motors Acceptance Corporation was a wholly-owned subsidiary of GM whose primary business was financing the sale of GM products. In 2004, GMAC was the second-largest auto lender in America. During that year, GMAC was expanding its operations throughout the world in order to secure as many loans as possible. GM’s philosophy was to create as large a stream of capital income (money used to expand operations) as could possibly be amassed.
Even with GMAC’s rapid expansion, GM’s car sales numbers began to show signs of weakness during the fourth quarter of 2003. A full twenty-two quarters later, GM’s sales situation has failed to substantially improve. What’s more, GMAC began making home loans to sub prime borrowers. Though hindsight is a clear 20/20, GM appears to have been legally blind with regard to any foresight. As an example, since the recession began in late 2007, GMAC has lost $7.9 Billion on mortgage defaults and collapsing auto sales. (*It is important to note that GM sold a controlling stake in GMAC in 2006, but this sale has done little to lessen the heavy financial casualties connected to GMAC.)
We have heard an endless blame game from Rick Wagoner as to GM’s unprofitability. These excuses ranged from the Japanese Yen’s relative weakness compared to the dollar, to a laundry list of other external factors which Mr. Wagoner is all too willing to outline, if given an opportunity. Sure, when begging for $34 Billion in Government loans he told the Senate Banking Committee “we are here because we have made mistakes.” His next utterance was, “because some forces beyond our control have pushed us to the brink.” So was it your fault or not, Mr. Wagoner? While it is true that GM is not to blame for the “Great Recession,” they have failed at every instance to roll with the punches and keep a competitive edge.
What you hear the least out of GM is owning up to their failure to remain efficient in terms of labor costs, production costs, and meeting the demands of customers. GM has allowed themselves to be bent over backward by labor unions for years, and now the public is beginning to realize the staggering costs associated with union contracts. But GM workers only make $3 more an hour than Toyota workers, you say? How about comparing the legacy costs between GM and Toyota employees. Not so pretty is it? Sure union laborers will scream that they have made concessions off of an extremely high wage base (the highest in the U.S. economy for their skill set, even after concessions), they will scream about how GM should be forced to honor their labor contracts (which are a major contributor to GM’s insolvency), and have no problem asking the American people to honor these labor contracts between GM and the unions after they help to run GM into the ground.
So here’s an idea, if we are willing to limit the earnings of top executives in financial institutions who take government funds, why not limit the earnings of top executives at GM, and UAW? Or better yet, let them slide into the inevitable bankruptcy that is coming, and force a complete restructuring of GM’s costs. Because of the inevitability of bankruptcy for GM, a handful of Congressmen, led by Senator Jeff Sessions (R-AL), asserted that GM shouldn’t be given the first round of government funds. Now, most of the federal money will be lost as those holding GM’s debt are expected to be offered 30 to 40 cents on the dollar in a bankruptcy. Bankruptcy, obviously, has become the fastest and cheapest scenario left in GM’s playbook. Bankruptcy will restructure GM and allow them to cut the fat in months instead of years under a bailout scenario.
After restructuring, unions can reassume their traditional role of protecting work environments (isn’t this what OSHA is for?), and stay out of the business of forcing major U.S. corporations into uncompetitive situations. Lastly, clean house at GM, after all, the best way to avoid unionization is effective management. Something GM has suffered a lack of for far too long.
What do you think?