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East Milton Dental

Great article Bob, thanks! It's very interesting to read your thoughts pre-bailout in 2008 and see all that has happened since. Although the bailout was needed in GMs case, I still think Ford has made the best decisions since the whole auto industry collapse.

Business plan

Hi,
It's an amazing and informative post. Will likely to know more about the industry auto bailout. Keep up the good work.

Mark Boone

Wow! I saw someone said "we need this bailout" because a lot of people will be harmed. Are you kidding me?
Has America developed into naive children or have we always been this way and just lucky?
There is no system that providing cash will help it. Period. Unless you address what allowed the system to get itself into this mess, then cash will only delay the inevitable death and cause additional interest cost on those paying the price: taxpayers.
Bob does a good job sizing up the situation. But I have yet to hear anyone address the core issue of GM. And it is NOT costs or labor costs.
Look at the assumptions of cost accounting that allowed good managers to make decisions that continually killed the company. The death of GM has been going on since the early 1970's and only accelerated by EDS and the Big 6 supporting stupid decisions that appeared well when costs are allocated but never truly positively hit the bottom line.
Read "The Goal" and "It's Not Luck" by Eli Goldratt. That is all GM needs to get out of this mess quickly.

Just an Average Girl

I think the we desperately need the bail out from the U.S government. The auto industry has dug its self in to a hole that it cant get out of and needs someone to save it. The auto industry may not fail if doesn't get this bail out but think of the millions families that will lose everything if it doesn't go through. My mother and father are both in the auto industry. If this doesn't go through we lose our hose. My father recently had a major heart attack they wont be able to afford his medical bills, everything that my parents have worked so hard for will be gone.
I'm not saying give them the money and that is that, things need to change if we want to continue moving forward but letting such a huge company like GM just fail and disappear(which they may deserve), is about the worst thing that the government could do. Can you imagine the repercussions of this? Devastating to A LOT of people!
~Sara

Christopher Pratt

Bob, great analysis of the industry. I wanted to briefly share my experience with GM. I graduated in 1992 from Cornell with a masters in electrical engineering. My first job out of college was designing engine controllers for the Dodge Viper and then later an electric IndyCar at Motorola's now defunct automotive electronics division. Anyhow, after a stint at a hybrid electric car company in Los Angeles called Rosen Motors, I ended up at AeroVironment in Monrovia, CA, the research company that designed the GM Impact or later EV1 (See the documentary "Who Killed the Electric Car"). In 1997, I designed a functioning controller for making the EV1 a hybrid electric car utilizing a gas turbine in the trunk. In mid 1998, GM killed the project because management decided that no one would buy a hybrid electric car. Consequently, I became disgruntled with the automotive industry and started my own company selling gumballs on the internet.... I know, quite a change but the internet was hot at the time. Anyhow, my little startup will now sell $7.5 million dollars of candy via the internet this year. The sad part of the story is that I am making more money now selling candy than I would ever make working as a research engineer in the automotive industry. And we wonder why kids aren't interested in fields such as engineering? Let GM go bankrupt. Poor management should not be rewarded with a bailout.
Christopher D. Pratt
CandyWarehouse.com
Irwindale, California

Marc Estrella

Bob,

As the grandson of a Buick dealer who was a former GMAC executive, I think that you are spot on about GM Management being clueless on what matters most and having a, “No, we can't” mindset. Your observations on the vehicle perk just feeds these features of GM's executives were especially interesting, and I agree with your answer to the question of bailing out GM.

I don't, however feel that buyers are bewildered by the differences in GM's brands. I think what bewilders them is that GM tries to convince consumers that the same car is different just because it is sold through a different channel.

For example; the Chevrolet Trail Blazer, GMC Envoy and Saab 9-7x all come from the same set of parts and except for some different sheet metal on the Chevy and the Saab's ignition switch taking up residence between the front seats (I wonder if GM engineers think it's a marketing gimmick or actually know why Saab engineers placed the ignition switch there in the first place) they pretty much look and feel like the same car to me – especially once I am behind the driver's seat and the only obvious difference is the badge on the steering wheel.

Another example will come this spring when the Pontiac Division foists the G3 onto the public as an all new vehicle – even though the Chevrolet Aveo that is currently on sale is the exact same car.

The result is a repeat of GM's Look Alike Car phenomenon in the 1980's that a) made it easy for Lincoln – Mercury's advertising agency to produce a Lincoln ad exploiting the sameness of GM's luxury cars and b) muddied brand identities of the various GM divisions to the point where Alfred Sloan's vision of where brands stood made and continue to make little, if any, sense. By engaging in brand destruction again due to the creation of look alike vehicles, it appears that GM hasn't learned its lesson and appears to not intend to. I think that it is because of the root causes you identified.

PS. If you have the time, go to the San Francisco Auto Show after you have your turkey. As you go down the escalator into the bowels of the Moscone Center, you will see how smart USA nailed it how to generate interest in their car.

Joseph Hare

'The 15% Solution"

One possible approach to dealing with the auto crisis -- The federal government would give any one who buys a fuel efficient car from the Big 3 US automakers a 15% instant rebate back on the selling price. This program could have an 18 month time limit. The total of the rebate dollars might then constitute a loan the auto makers would have to pay back.

If effective, this solution would immediately jump start US auto makers by giving them a huge advantage over the competition while they work on the remaining legacy issues. Auto makers would stay employed and no money would go directly to the car makers. I realize there may be issues in that the auto makers don't get a needed big $$$ infusion instantly, and that they may not be able to produce enough fuel efficient car because of the need to retool.

The feds might also think about underwriting an extended car warranty program for this period. Again, the total dollars to do so, could constitute a loan to the auto makers.

If the dollars don't proof out or if this approach does not infuse enough cash into the US automarers quickly enough because the pacing of sales and/or retooling not yet in place some concept is we worth exploring.

Joe Hare
Hingham, MA. 617 755 0898

More.....
A quick direct "15%" instant government rebate (say averaging around $3,000) from the Dept of Treasury paid to consumer with purchase of a US auto maker lower mileage car might make these cars especially attractive.

The problem with the fed using IRS tax return deductions is you only get indirect value (a lower tax payment) and but once a year (April 15)....and higher wage earners get more real dollar benefit.

If you could buy a Camry priced today at $20,000 for $20,000 versus a Malibu priced today for $20,000 for $17,000 (plus get a100K mileage warranty), which would you buy?

Giving a bailout just keeps them from going bankrupt while they try to get a higher % of americans to buy their cars. They have not suceeded in doing that over the last 20 years. Assuming Americans were motivated to buy fuel efficient Gm-Ford-Chrysler cars, the biggest stumbling blocks might be that the auto makers could not retool fast enough to produce enough low mpg cars to get profitable, that they could not get rid of their gas guzzlers, and that they can not work out union entitlements.


john alexander

I moved to Detroit in 2001, and what I've heard from the auto company people I've met (especially from GM) was 1)how overworked and under pressure they were (to which I've always wanted to ask-doing what? the results of your companies don't seem to be improving), and 2)how they had all the answers and it was external factors (primarily the Govt with its onerous regulations)that prevented them from doing a better job. What struck me the most though, which I used to see in Citibanker's in my previous life as corporate banker, was how insulated and smug they were. In the end everyone except them could see the need for a complete change in their business models.

Bruce Harvey

I watched the hearings too. I saw arrogance instead of competence. I saw boorishness instead of sophistication. I saw stupidity rather than intelligence. I saw paralysis instead of leadership. There is no one in charge of GM or Ford. It is already a slow motion train wreck (pardon the mixed metaphors). Giving money is not a solution because it will just drag out the duration of the wreck.

Bob Sutton

Patty,

You sound like a mouthpiece for GM:

1. Your note refuses to acknowledge any responsibility for GM errors and cultural flaws -- the same old stuff as they do over and over - why not own up to the things you ned to fix and have needed to fix for years?

2. My so called antidotes are from recent years and look at the last post I put up from the RECENT grad who found how lame the culture was.

3. GM still has a broken dealer network, broken brands, an inferior supply chain, and deep cultural problems that still exist, which were only magnified by the crisis you name.

4. Yes, the quality of the CARS is up, but the experience of buying, owning, and driving a GM car is still largely inferior to your competitors and was so well before the crisis -- the definition of a quality experience has changed, and as usual., GM is way behind. And since your executives and most of your managers never go to a dealer, they have no idea what it feels like. You are using an outdated definition of quality,

5. But I do agree that bailing on Citi for 300 billion and nor GM for 30 billion is absurd, GM management is simply inept, Citi is inept and greedy, not to mention arrogant.


PattyM

This crisis was caused primarily by the financial sector who ruined the credit market and by speculators who drove up the price of oil (which has since fallen dramatically). GM could have withstood the fuel spike but when the company, its dealers and its customers cannot borrow money - that is a crisis.
Yes it is valid to criticize US automakers for being tilted too much towards big trucks and SUV's but that was always their strength, and let's not forget that the market wanted them as long as gas was cheap.
The industry is investing billions in alternative fuel and more efficient vehicles. It takes a lot of capital to tool up for these new models. It is dismaying to see so much ignorant bashing of US car makers. I worked at GM for many years as engineer and manager. Many of the posts I have seen do not seem to be based on recent experience, but maybe 15 or 20 years ago. These outdated anecdotes bear little resemblance to today's climate and reinforce inaccurate and obsolete stereotypes. The US car industry is making many excellent high-quality products. GM has huge legacy costs because it once had a commanding market share and now has so many retirees. They could have screwed the retirees a long time ago, but give them some credit for trying to live up to their commitments. Americans need to stick together in time of crisis and try to figure out how to keep manufacturing in this country, for the sake of the middle class and national security.

The Digerati Life

Awesome post! I am aghast by the way this company is run. I'm just a regular tax payer and I don't want to have any part in bailing them out. In fact, I'd be incensed if my money were wasted on this nonsense.

Before granting them any handout, they need a serious restructuring and many rules should change.

Wally Bock

Russell Ackoff once described a "mess" as a system of problems. The auto industry bailout is certainly a mess. But you've done a good job of describing two things that are both core and very wrong.

Understanding your business means taking the time and making the effort to get to the part of the business that connects with customers. Once there, remaining quite and observing, except to ask information-seeking questions is the most productive strategy.

You did leave out two important things, though. Most of Wagoner's testimony last week boiled down to "we're doing the right things, but the evil universe has done us wrong." Apparently Mr. Wagoner receives $14 million a year not to be responsible for results.

The other thing is the unwillingness to become part of the solution. Mr. Wagoner, when asked, said he would not give up any of his compensation. Apparently, if you are at the top of GM you have earned the right to be insulated from the results of company performance.

Richard

Great post; thanks.

All these accounts describe the same cultural flaw: obsession with generating and following rules instead of conceiving goals and making them happen. So sad, but not uncommon in the Fortune 500--as a former VP at a tech giant I know this first hand.

It's clear the culture in the US auto companies is so contaminated they cannot survive. The task of rebuilding the leadership in-place is probably impossible given any practical amount of time and investment.

Sfrandsen

Great post, first time I have read this blog, followed a link from nakedcapitalism.

I was watching the hearings, and that "can't do" attitude came through loud and clear. (They reminded me of the Tobacco Execs in their evasiveness!) Very disheartening - it does not seem likely they can change if it is that entrenched. Culture is extremely enduring and difficult to root out - it is probably easier and cheaper to go through a bankruptcy.

As hard as it is to consider, the American economy needs some creative destruction to break up these old non-competitive structures.

Creative People *will* pick up the pieces and turn them into something better. Use the $25Bb to retrain the workers or something more productive.

Bernard Yomtov

Extremely interesting. Thanks.

Stephen Liss

Toyota has a third brand besides Toyota and Lexus: Scion. Scion is intended to appeal to a younger, thriftier demographic. No price negotiation with fixed pricing and a single well equipped trim level.

Bernard

"For starters, my experience with GM is that – more so than any company I have dealt with – the norm in meetings is that the highest status person in the room does all or most of the talking. Plus, more so than any organization I have ever dealt with, employees are expected to express agreement with their bosses."

I commend you on this great article, but I can't help but laugh, because this kiss-ass, "hear no evil, see no evil" mindset has already thoroughly corrupted the management ranks of corporate America from top to bottom.

This is what managers do. It's all politics now.

John Barter

Four cars in one spoilt and I suspect rather conceited family. This is how it is that America with 1% of the world's population consumes - I of course mean squanders - 25% of the world's entire resources. My suggestion is that the writer should get real around his own backyard, before sermonising around America's insane car religion.

deserve it - not

To the person who commented that: one way or another somebody's going to get screwed in all this.

I would say that someone gained something they didn't deserve, and those are the very people who should pay.

Do GM retirees "deserve" the benefits they received, say, compared to other people in other industries?

Congress should ask all executive managers to forgo 2008 salary and stock options if they want a bailout.

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