The Auto Industry Bailout: Thoughts About Why GM Executives Are Clueless And Their Destructive “No We Can’t” Mindset

I am ambivalent about whether the auto industry should receive the 25 billion dollars that they are begging and pleading for from the U.S. taxpayers.  On the one hand, I realize that millions of jobs depend on the industry and that saving these jobs is not only a humane thing --- it also may help the country(and even the rest of the world) from sliding into a deeper recession in the long-term.  On the other hand, I worry that it will be a waste because the industry has lost so much money and so many jobs in recent years that these firms are in a death spiral that is impossible to stop (GM alone lost 39 billion last quarter). I also believe it will be a waste because the leaders of these firms (at least GM, which I know best) are so backward and misguided that the thought of giving these bozos any of my tax money turns my stomach – which is pretty much the same point made by observers ranging from ultra-capitalist Mitt Romney to near-socialist documentary filmmaker Michael Moore.  Recall that Moore made the famous film that attacked GM, Roger and Me. 

I don’t claim to have comprehensive information about the industry, but I have had pretty regular interactions with GM in various capacities over the past 30 years.  I completed my Ph.D in Michigan and had a fair amount of direct contact with GM managers as a student and a lot of indirect contact because my dissertation was on organizational death.   GM closed a lot plants during that time, so I talked with many GM executives, mangers, and workers.  I also have had numerous contacts since as a researcher and occasionally as a speaker at GM events over the past 25 years since I moved to California – for example, Jeff Pfeffer and I spent several days doing interviews at Saturn in Tennessee and with GM executives in Detroit to gather material for The Knowing-Doing Gap.  I hesitate to speak out as I have contacts there who would not be happy to know that I am speaking my mind, but I feel compelled to do so because I feel that GM’s problems are best described as suicide rather than homicide (despite their executives’ claims to the contrary – they seemed to refuse to take any personal responsibility at all during the congressional hearings).   And I feel that if we are going to give them billions of dollars, I should do my small part to identify some problems and potential solutions that may help a bit in this uphill struggle for survival.

I could list hundreds of management, cultural, and operational reasons why I believe that GM is such a flawed organization, but to me, a pair of root causes standout:  Most of the senior executives  -- and many of the managers -- are (1) clueless about what matters most and (2) suffer from  a “no we can’t” mindset.  

The culture and work practices at  GM almost seem designed to create executives who are clueless about what kinds of cars people want to buy and what kind of experiences that car owners want to have -- and about a lot of other important things as well.  The executives were criticized for being so insensitive and clueless that they flew corporate jets to Washington to beg for money;unfortunately, that is just the tip of a dangerous iceberg.  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.  Why didn’t anyone have the guts to tell the executives that taking a private plane to beg for a bailout was a bad idea? I suspect that it is just standard operating procedure: GM is a culture where subordinates are expected to shut-up and kiss-up when the boss is around.  I can think of a few exceptions, one manager I’ve met recently in particular.  But on the whole it is as if the system is designed to prevent the upward flow of information.  At first, when I was in graduate school, I thought this was a personality characteristic of the first few GM executives I met.  But then I started keeping track of what happened when managers and executives arrived and left meetings.  To entertain myself as the top dog droned on, I would measure talking time.  Regardless of the subject (and who had the greatest expertise in the room), the highest status person would blab away – and when he or she left the room, the next highest ranking person would then demonstrate GM’s blabbermouth pattern of leadership.  Note I have been seen this pattern for almost 30 years at GM – the cars have changed but the yakking pattern has not.

Not only are managers and executives insulated from learning what goes in their company because they generally talk rather than listen, they are also insulated from experiencing what it is like to buy and own a car.   GM has a perk for managers down to fairly low levels where all are given a GM car to drive – they rotate from one car to another.  I am not sure of the exact details, but answers to the questions I’ve asked over the years  suggest it goes something like this: the lowest level managers have to buy their own cars, the ones at somewhat higher levels get a new car to drive every six months or so but have to do some servicing, the managers who are somewhat higher-up get somewhat fancier cars and are freed from any servicing (gas is even put in the cars of some executives so they don’t have to go to the service station), and the highest level executives get a car and a driver.

In other words, this system effectively insulates people in management – especially those in senior management -- from experiencing what it is like to shop for, bargain for, purchase, service, and sell a car. They only get the driving experience. Well, except for the most senior executives, who don’t even get that experience -- they watch a person in the front seat drive a big car.  Now, it is true, that the most senior executives do own GM cars for personal use, but it is my understanding that when a car is delivered to a senior executive, special attention is devoted to the car – even during the production process –to make sure the top brass aren’t exposed to a car with any flaws. Wouldn’t that be nice?

So there you have it, a system that seems designed to isolate executives from reality.  They talk instead of listen and are protected from the experience of owning car.   I might be exaggerating some, but not much.   Whether the current crop of GM executives are fired or not, it seems to me that some major changes need to made, perhaps including:

          1.   A limit on the percentage of time that the highest status GM manager or executive can talk during a meeting.  Perhaps 25% of the time is a realistic goal?   

          2.  Only managers who know how to ask questions and to actually listen to people who have less formal power will be hired and promoted.  Failure to demonstrate these skills will be grounds for dismissal.

          3.  GM managers – and especially top executives – will be required to buy, service, and drive their own cars.  That way, they will experience what it means to own a car.  Now, I feel badly for all the drivers who will lose their jobs at GM (although I am very curious to know how many executives have drivers – that is a place where I bet we can save a few million dollars in bail out money – and if they sell the private jets like Sara Palin did in Alaska, that is more millions).

          4.  There are good things and bad things about GM cars (My family has one, along with three others as we have two teenagers who drive) – indeed, after years of trailing the Japanese in quality, they have nearly caught-up.  But only owning a GM car does not provide any information about the competition.  As such, if GM does insist on still buying cars for all those executives and managers going forward, at least 50% of those cars should be from competitors so that decision-makers can experience what it is like to drive – and buy and service – a wide range of cars.   I am sure that GM executives would be horrified to have all those Toyotas and the like in their parking lot (an auto executive once made my wife park her Nissan around the corner when we lived in Michigan, as he was horrified when she parked it in front of his fancy house in Bloomfield Hills).  But they might actually learn something.

Do I believe that that the current crop of executives could transform the GM culture to include these and other practices that will increase their awareness of what is going in their company and in the marketplace? No.  It is partly because they are so entrenched.  But it is also because I sometimes believe that the core competence of GM managers and executives is explaining why they are powerless to make sensible changes.  It pains me to say this because the company has a higher percentage of nice people than most other big organizations (except perhaps for P&G), but the “No we can’t” mindset is something that pervades the place.  And, unfortunately, when people believe that organizational change is impossible, it becomes a self-fulfilling prophecy.

If you watched the executives testify to congress the other day, their sense of powerlessness was hinted at in their refusal to take even a token amount of blame for their firms’ troubles – smart and empowered executives believe and talk like there is a link between their actions and performance, even when bad things happen and even when events are very hard to control (see this contrary example).   But this “can’t do” mentality is pervasive.  Consider the case of the free GM cars.  This isn’t a new problem.  Many other observers have commented on it before me.  I commented about it very forcefully about to some GM managers a few years back. I argued that they needed to abolish the program because it caused the whole top of the company to be out of touch with the car ownership experience. They answered that GM couldn’t possibly get rid of the program because they had negotiated such a great tax deal with the state of Michigan (much better than Ford, they bragged) and because it was one of the few perks left for white collar employees.  I was not very nice, I argued that this mentality was one of the reasons that the company was in trouble and would get in more trouble. They treated me like I was insane. 

You could also see the “no we can’t mentality” in the answer GM gave about why they had to fly the private jet to Washington – “our rules require it for safety reasons.” Huh?  I know lots of CEOs of big companies who fly commercial.  And you may recall that when John McCain’s campaign was in trouble, he flew commercial for about a year – it seems to me that he was more at risk than some unrecognizable big guy from Detroit.   Couldn’t they change the rules?  I bet the board of directors of GM would be convinced by the argument “we need to get rid of these planes, we need the money and it looks terrible to congress.”   I suspect that they are working on this change right now or at least considering it (Update: Looks like they are getting rid of them.).  But, of course, they were so clueless and isolated that it never occurred to them that keeping and flying the private planes were a dumb idea.  

Or consider another example -- a really big cause of their problems. GM has way too many brands. Toyota has, I think, just Toyota and Lexus.  GM has – if I can remember them all – Pontiac, Chevy, Hummer, Saturn, GMC, Cadillac, and Buick – and I guess now Saab.   There are so many GM models that buyers are bewildered by the differences and – especially among Chevy, Pontiac, and Buick – there is little if any distinct brand identity.  I have asked multiple GM managers and executives why they don’t just get rid of most these, trimming back to say, Chevy, Saturn, and Cadillac.  This not only would reduce brand confusion it would lead to many efficiencies in advertising, manufacturing, distribution and so on.   They answer, of course, is “no we can’t.”  My answer is that, with all due respect to the dealers, sticking to this business model has created a tragedy of the commons that is bringing everyone down. 

In short, my view is that if GM can’t figure out ways to get their managers and executives to understand the experience of owning a car for the average person, if they can’t get rid of those jets, and if they can’t reduce the number of brands, and if they can’t make a host of other changes required to make them competitive, than my answer is “no, you can’t have our money.”  

I don’t usually write such long blogs and don’t usually rant so much. But GM’s predicament just makes me sick. I saw the pain that people were experiencing in Flint in the early 1980s, the depressed workers and former managers, the ripple effects on businesses, and the helplessness.  It is all much worse now.  I don’t know if the U.S. auto industry can be saved.  I hope it can and if we are spending 700 billion to bail out the banks, well, then perhaps another 25 billion is worth the risk.  But I can’t see how things can change with the current bunch of clowns in charge.  I know that changing the leaders and the culture may not be enough to save GM, but I also believe that without these changes, there is little if any hope at all. Getting rid of them and instituting an intense program of cultural and organizational change strikes me as the best way to save the company.  Mitt Romney argued today in The New York Times that bankruptcy was the best path for GM and the others.  Perhaps he is right, that creative destruction is only way out of this mess.

Am I being too harsh?  Am I too biased?  Do you have more and better ideas?  Let me know. 

 

 

Comments

[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.