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March 30, 2009

General Motors and Me

Donald Pittenger writes:

Dear Blowhards --

It seems that Our Revered President has forced General Motors Chairman and CEO Rick Wagoner to resign (and collect a lot of money on his way out the turnstile). The Great Administrator also outlined what the government (us, in theory) expects of GM and Chrysler over the next few months.

While the ultimate fate of GM is for the future to reveal, this is as good a time as any for me to reflect on the corporation. After all, I did work for GM and over the years my family owned a lot of GM cars.

Readers under age 50 are too young to have experienced the environment where General Motors truly dominated the nation's (and the world's) automobile market. True, GM still had a large U.S. market share through the 1960s and into the 70s, but the wheels were getting wobbly in preparation for their falling off by the early 80s.

So let's go back 60 years to 1949. The Japanese car industry hardly existed. European manufacturers had never attained large production volumes in the inter-war period and had yet to reach breakout status (that would happen in the 50s). Around half the U.S automobile market belonged to General Motors and competing companies watched GM's engineering, product packaging and styling carefully, taking care to be different, but not much different from the General.

In 1950 I knew that my father planned to buy a 1951 Pontiac when they were revealed (we showed up at the dealer that weekend), so I spent the summer and fall speculating how the 51s might differ from the 1950 models I was seeing on the streets and thinking about the best two-tone paint scheme for our future car. (I was hot for a two-tone green paint job, but my parents opted for dark gray and cream-gray -- a better choice, in retrospect.)

GM had a very strong management team -- veterans of the post-Billy Durant restructuring and the voyage through the Great Depression. These included Alfred Sloan, Harlow "Red" Curtice and Harley Earl. Later executives were not so talented or, maybe, lucky.

Perhaps the most disastrous was Roger Smith, who ran the corporation from 1981 to 1990. He came in as a supposed breath of fresh air, which probably was needed. Smith's problem was that his version of fresh air was toxic, as the link indicates.

My direct association with GM began in the Smith era. In the fall of 1982 I was invited to a job interview at the Warren, Michigan Tech Center. I didn't get full-time employment and instead became a consultant / data supplier which at least had the perk of my getting discounts when buying new GM cars. (And I avoided getting a GM pension -- something that might become iffy in the near future.)

What I supplied GM were forecasts of households by type, age of head and various income ranges. At first these were for the United States; later on I furnished similar data for selected other countries. I worked for their economics staff which provided data to market researchers and product planners.

I was happy to have such a prestigious client even though during some bad economic patches they didn't always pay me promptly. And as a car buff and frustrated wannabe stylist, I knew that what I was supplying GM was only marginally important for corporate survival in an era of increasing government regulation and foreign competition. Yes, it's nice to have a notion of which demographic groups might wax or wane in the dozen years or so marking initial product planning and the final car of a given model rolling off the assembly line. But that struck me as symptomatic of the danger of over-analysis, of being too numbers-driven and not enough gut-driven. I don't know much at all about what happened to my numbers after I mailed them off. They might have played a really large part in product planning or else they simply might have served as a check on other analyses.

One thing I do know is that Roger Smith and upper management in general were looked upon with suspicion by some mid-level employees at GM. They knew there was trouble but were essentially powerless to do anything about it.

And what was that trouble? In my judgment (not necessarily that of the corporate staff people I dealt with), GM was becoming too centralized -- this in contrast to the subtle and highly effective arrangement of centrality and independence Sloan created.

There are many other reasons why GM, Chrysler and Ford are in trouble. But to me the one most overlooked by people unfamiliar with GM's history is its shift to organizational practices of its lesser rivals. No doubt some of this change was in response to increasing product development costs and other factors that had "obvious" solutions in the view of the MBAs who had replaced the original management team. And I'll concede that the Sloan structure might have failed also: Too bad it wasn't given its chance, however.



posted by Donald at March 30, 2009


GM's serious long-term trouble started with the failure to respond adequately to the big changes of the 1970s (oil crises, emissions standards). They then failed to adjust their scale to the reduced market share that resulted when people who had been burned by their various inferior products moved to the fast-improving Japanese cars.

Since then they have acted like those people are just deluded and will see the error of their ways,thus restoring GM to that position you remember. They have never seemed to recognize that even if their cars are on par now, customers aren't coming back without a reason, and Toyota, etc. aren't likely to give them one.

Perhaps the looming bankruptcy will result in a leaner GM more in keeping with the new market reality.

Posted by: mikesdak on March 31, 2009 1:12 AM

Among other things, great snapshot of a very different world, one where everything GM was a big part of American life.

Posted by: Michael Blowhard on March 31, 2009 10:01 AM

Mikes hit it right on the head. Conservative mouthpieces are quick to misrepresent the "exorbitant" salaries of the union employees while overlooking the grossly inept management of a company that's been in a downward spiral for decades. Excessive perks at the executive level for boobs I wouldn't allow to run my daughter's lemonade stand, let alone a multi-billion dollar multinational corporation.

The people of the US aren't buying bullshit anymore. GM cars are crap. GM failed to grasp the hybrid market when it had the chance. GM has failed to innovate. Hell, with the techo-dweebmobile the Fusion, even Ford proves you don't have to be Japanese to understand what their customers want. GM proudly trotted out a hybrid (SUV that got 3MPG more than the non-hybrid version) AFTER the gas prices went down. Yup, that level of dumbfuck has gotta be the fault of the unions.

Wagoner got a free ride long enough (literally. Back and forth to his home in Washington State every week on the company-provided private jet.) He can continue to blame the unions all he wants for their failures, but we can do basic math. When your overall losses are more than double the totality of your payroll, screwing the workers isn't going to solve your problems.

Posted by: Upstate Guy on March 31, 2009 10:05 AM

One word folks...............QUALITY.

We had three Detroit-built cars growing up when I was a kid. An Impala off the showroom floor.....that had rust spots in four FRIGGIN' years under a back window that turned into holes by year five. It only lasted six years.

A Monte Carlo that kicked the bucket after roughly 138K miles (looked good though). Air conditioner kept screwing up, was in the shop more than a car should be.

A Ford that had a timing belt go at 26K miles. Thats insane.

Three obviously poorly-built cars.

My second observation is that GM and Ford and Chryler all have neglected the "starter" car market until just recently. Remember the Chevy Cavalier? It was known as the "Crapolier" by THE PEOPLE WHO BUILT IT. Beer-can metal over an oversized go-cart that only got 30 miles per gallon despite its small size. Just junk. Meanwhile many young couples and kids were buying their first Civics and Corollas that lasted them for many years with good service. By neglecting the "first car" market, hoping to force buyers "up" to mid-size and luxury cars, our domestic auto companies were willing to foregoe some of the first sales to teens/early twentysomethings because not much profit was made on those cars. Brand-loyalty however, WAS made in those transactions because of the good service those cars gave their owners. Many of these folks went out and bought Camrys and Accords in their second car purchase. The SUV has been hamstrung by high gas prices-global-warming-environmental conciousness-apprehensions.

GM's management hasn't responded to the style wants of the buying public until recently (especially with the very attractive Malibu). They waited to long to turn it around. They should have built many more plants down south to get away from the Detroit workforce (and we all know what explicitly was wrong with that workforce, but we cant say it in polite company can we?).

Posted by: miles on March 31, 2009 11:08 AM

Upstate -- Wagoner did not commute between the Detroit and Seattle areas. You seem to be confusing him with Ford supremo Alan Mulally who spent most of his career with Boeing.

Also, GM for years has been shoveling development money into battery power technology at the expense of what I consider saner alternatives.

Current Detroit cars are almost on par with Japanese cars in terms of quality (see the latest J.D. Power three-year results). GM lags in that many of their motors are not as free-breathing as those of the Japanese.

The fundamental error of Detroit management in the last 30+ years has been avoiding strikes by catering to union demands. The result is a huge drain on financial resources that (from a corporate survival standpoint) should have been spent on R&D. GM was aware of the growing retirement problem in the mid-1980s; some friends of mine were involved in studying this. Apparently they never figured out a solution.

By the way, hybrids, due to their comparatively high prices, make little economic sense unless gasoline prices get really high. They seem to be something that makes liberals feel good when they get bored with Volvos.

Posted by: Donald Pittenger on March 31, 2009 11:17 AM

A little OT, but Harley Earl was also the brains behind the "Train of Tomorrow," with its dome cars.

GM was the largest railroad locomotive manufacturer for many years (Electro-Motive Division), until it was caught and surpassed by GE a few years ago. GM sold off EMD to a private equity group not long ago, to raise cash perhaps. Can't think of any other reason, really, to spin off a profitable operation that had been in the GM family for 60 years plus. EMD is probably better off as an independent company in today's world though.

Posted by: Sgt. Joe Friday on March 31, 2009 12:21 PM

"The fundamental error of Detroit management in the last 30+ years has been avoiding strikes by catering to union demands." It was when I was an undergraduate in the 60s and noticed that none of my engineering student chums wanted to work in the (British) car industry that I had an early inkling of my First Law of Management: In an industry where the unions are strong, the unions choose the management. By that I mean that they scare away all the bright young gradautes that the industry needs. Who on earth wants to spend a life wrestling with union thugs?

Posted by: dearieme on March 31, 2009 12:39 PM

The pre Roger Smith execs were simply lucky. American industry, in general, was simply lucky in the post war period. The rest of the world was mashed flat as a result of WWII. Since no war was fought on U.S. soil, U.S. industry came out of WWII complete intact. Thus, they had the whole world as a market with no competition. Global competition started in the 70's and radically increased in the 80's. The "greatest generation" execs that came up during the 50's and 60's were not prepared for this competitive environment and failed miserably.

The WWII "greatest generation" was lucky in general. They did not have to compete with global markets. I think the contribution of the "greatest generation" has been overstated by pundits. Indeed, I think the greatest generation screwed their baby boomer kids by supporting and promulgating the keynesian economic policies during the 50's and 60's that led to the stagflation of the 70's, just in time for the boomers to enter the economy.

It is commonly believes that the boomers were irresponsible, flighty people who lacked any kind of self-discipline in the economy and elsewhere. This does not square with my experiences with the baby boomers of the 70's, who actually worked and studied hard to create whatever they could for themselves. Most of the boomers I remember when I was a kid (I'm an order Gen-X) studied far harder in school and worked far harder than kids do today. I think the boomers got screwed by president Dick's stagflation of the 70's.

Posted by: kurt9 on March 31, 2009 2:09 PM

"The fundamental error of Detroit management in the last 30+ years has been avoiding strikes by catering to union demands."

Which implies that all of GM's issues rest solely on union "costs" to be excessive. GM has approximately 250,000 employees. Even if you're willing to accept* the fake numbers touted by the execs as an average cost to have a union employee (average of $70/hour), that amounts to just over $29billion/year. GM's losses are in excess of $39 billion/year. How exactly do you blame those extra $10 billion/year on the unions?

* I'm not willing to accept them in the least. First, they're including per-employee costs that would exist regardless of their being union or not. They're also including costs that have been assumed BY THE UNION. The actual cost is closer to an average of $45/hour/employee which comes to $18 billion/year in costs. Even if you bring back slavery, there's still $21 billion/year in losses that have to attributed somewhere.

You can try and pass the buck onto the guys who build the cars all you want, the real problem is with the morons who decide WHAT to build.

Posted by: Upstate Guy on April 2, 2009 3:02 PM

Upstate -- The "morons" who don't know what kinds of cars to build are the same bunch that allowed union benefits to drive up fixed costs. The greater the fixed costs, the less money available for R&D.

The cost of current labor (leaving out the "banking" of workers we saw in recent years) is a variable cost. Pension payouts (a result of previous labor agreements) are, at any moment, fixed and change slowly (they normally increase) as the retirements pool evolves.

Therefore, I don't buy the UAW argument you present.

As for the cars that should be built, just what kinds of cars should they have been building? What the Japanese are selling here? Items like Sequoia SUVs and Titan trucks?

In other words, most car companies in the US market produce what they think will sell. Their problem is the 3+ years it takes to bring a new product to market and the 4+ year market lifetime of that product; a lot can change during those intervals.

I fault Detroit management on a lot of things besides labor agreements. Next in severity was their inability to produce smaller-sized cars that functioned well. GM made a pretty good start in the early 60s with the Buick Skylark (my parents owned one) but most of their small stuff was built to a low price point and the motors were ill-matched to the automatic transmissions the market demanded.

The next-biggest error after that was the retreat to large cars, SUVs and trucks, this based on the false assumption that the Japanese couldn't or wouldn't move into those markets.

A further problem is that the Detroit companies' management teams became too dominated by financial people and general-purpose managers. GM tried to change this by bringing in "car guy" Bob Lutz, but the high fixed-cost structure they had achieved by then (see above) made it difficult for him to effect many changes in product desirability.

Posted by: Donald Pittenger on April 2, 2009 4:29 PM

A further problem is that the Detroit companies' management teams became too dominated by financial people and general-purpose managers.

It's the same problem that caused you guys to lose the Vietnam war: Management culture. Poor dealings with unions, poor design, poor market strategy, poor finances; these were all decisions made by management. Dr W Demming, the father of statistical quality control long recognised that management was more often than not responsible for poor business performance. When Demming tried to apply his principles of quality control to Anglo-American businesses he found that he was unable to implement them due to resistance and/or incomprehension by management culture.

If there were one body which could be considered most responsible for the decline of Anglo-American manufacturing/commerce it would probably be the institution of the "MBA": The idea that someone without particular training in any industry, with only training in generalised resource management can better manage an industry than someone with particular knowledge specific to that operation. Putting it another way; an MBA is the idea that lawyers, accountants and economists can better manage a business than engineers, scientists and specialists.

Curtis LeMay was probably the best combat commander of the 20th Century. Anyone who has studied his life will realise that this guy was brilliant on so many different levels. Logistics, training, crew selection, performance indicators etc. He even instituted methods in order to eliminate paperwork! His advice was continually rejected by the Kennedy-Johnson administrations because McNamara's "Whizz kids", his "scientific manangers", knew better than LeMay did. Sensible changes to the American Auto industry's have been proposed for years; they have been ignored. The unions are responsible for some of the problems, but crappy design, poor fuel economy, assembly techniques, brand position and parts outsourcing are management decisions. Even reliability--a result of a particular design choice over others--is mainly a management decision

Halberstams's "Best and Brightest" and McMasters "Dereliction of Duty" are just as applicable to American corporate culture as they are to American Government. You can throw all the money you want at the problem but if the crew spending it is stupid, it's all downhill. Nothing changes till culture changes.

Posted by: slumlord on April 2, 2009 6:50 PM

i sug john est you to read john d lorean book titled :on a claear day you could dee detroit, 30 years ago the problem was already there.
so sad

Posted by: jacques beherman on April 20, 2009 6:27 PM

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