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

[Aaron]

Great and thoughtful post, Bob.
While the Big Three are begging for government dollars, Nissan and Toyota are seizing the moment offering 0% financing from their own cash. I have heard that the conversion rate from Scion purchasers (typically younger) to another Toyota (as they mature) is setting industry records. the big three are dying on the vine, $25B would be a bandaid on a terminally ill patient.
Do you think the French would take Detroit back?

[more]

Bob, your key mistake is assuming GM is a car manufacturing company.

Warren Buffett put it right -- GM is a health care & pension benefits company with an auto manufacturing business on the side. And clearly Wagoner, Nardelli, etc. showed up in D.C. last week with no clear plan or vision, but hopeful of a handout.

GM's big liability is all its old retirees. It's a large private social benefits provider, and you gotta respect GM for honoring its obligations and continuing to extend benefits to its retirees when it would be economically convenient to nix them.

Bankruptcy will continue to leave the car manufacturing arm of GM/Ford/Chrysler in its current state of ineptitude and result in benefits being cut/eliminated for hundreds of thousands of employees.

One way or another somebody's going to get screwed in all this. GM retirees, taxpayers, bondholders, shareholders, and UAW members all need to line up for a game of Russian roulette.

[Dan]

Bob

As co-author of an older but still vital book ("Driving Fear Out of the Workplace") on speaking up, I am not at all surprised by your observations, and continue to say what I have been trying to say for about twenty years now: American organizational failure is a product of people not being able to speak up and not being listened to when they do -- by managers and executives who have succeeded through their very insensitivity to reality. It's astounding really the invisible sense of privilege that's at work here. Bailout or no bailout you won't convince these folks that they caused anything. They go their way as wealthy, self-enclosed victims, asleep in the common belief that someone up the system or down the system or outside the system did this to them and they are simply innocent. You can't make people take responsibility or accept that integrity may be larger than their superficial view of it. It has to come from something that lives outside the culture of such workplaces and is on the inside of the person. It has to come from a desire to know self, a burning desire that is much stronger than the pride in getting a free car. Thank you for this fabulous post.

[Michael Sporer]

A culture like this is impossible to penetrate...that is until an earthquake changes that culture!

[B Frank]

"What has hurt GM the most is that its fundamental tenets made it smug. Alfred Sloan and Charles Wilson had been highly innovative people who always asked, 'What is the right question?' Their successors knew all the right answers."

- Peter Drucker, Concept of the Corporation's 1983 epilogue

[Alex Rose]

Nice take on things.

I have to believe Alfred Sloan would be embarrassed that GM had an executive of such low calibre like Wagoner, especially as CEO.

To that end, I think one of two things should happen with GM.

Either break it up so each brand is independent and autonomous, or, nationalize GM until it can stabilize. Either way, the current management must go.

Also, workers should have more of a voice in this.

[Jay Godse]

US Government should not bail out the auto industry. Only a bankruptcy and restructuring will enable the removal of the cultural elements that keep executives out of touch from their customers.

The auto industry won't die. Anybody who buys up the assets and liabilities of GM et al will make the sensible business decisions such as increasing collaboration, rationalizing brands, and engaging customers. Also, Toyota, and Honda have plenty of production capacity in North America to meet demand.

Personally, I own a 1997 Saturn SL1 and a 2000 Toyota Sienna. Both vehicles have been a pleasure to own compared to previous GM/Chrysler vehicles, but the Saturn has been the most pleasant to own. It just works, and didn't cost an arm & a leg to buy, and maintenance is reasonable.

My Saturn experience tells me that GM has what it takes to excel in the auto industry, and compete head-to-head with the best Japanese car-makers.

[Bob Sutton]

I want to thank everyone for the remarkably thoughtful and constructive comments. They aren't making me feel any better, but it is interesting to read about the nuances that so many of have added. Jlee, I found your experiences to be especially troubling because, if a way can't be found to motivate a smart young person like you, then the autos are on deep trouble. Matt, I found your so called dirty trick to be one of the smartest interventions I have ever heard of -- talk about creating conditions where leaders face the brutal facts!

[Matt]

Bob,
Thank you for a thoughtful and insightful post. Everything you describe mirrors my experience with a part of GM in the early 90s. I was doing some consulting with a division of GM and told them the best ideas, in fact no ideas, were getting heard. The managers to a person told me that wasn't their culture. During an offsite I had the opportunity to design part of the program. It was an age-old prioritization game called Survival on the Moon: you've crash landed on the moon, 200 clicks from the mother ship, with 25 items you have to rank in the order of their importance in surviving the trek to the ship. You do it individually, then as a group, in order to make the point that "we" is smarter "me". (There is a right order, provided by NASA.) I constructed the table rounds cross-hierarchically, so one table might have a vp and a lowly staffer. Then I played a dirty trick: I gave the lowest ranking person at each table the answers ahead of time, saying that when it came time for the group ranking, their job was to everything in their power to convince the table they had the right ranking, short of revealing that I had given them the answer. Not a single table (about 15 tables of 10) got the right answer. Then I had the ringers stand up. Got to catch all the managers red-faced.

I spent 8 years inside Toyota as a fully retained advisor to the University of Toyota. It is the antithesis of everything you describe.

Matthew E. May
matthewemay.com
Author, The Elegant Solution: Toyota's Formula for Mastering Innovation

[Nick]

As a former auto industry employee (at Ford) who's now in high tech, just about everything you said resonates with me. The entrenched culture of navel gazing and established pecking order (with the 'old guard' at the top) was really frustrating for someone like me who had a lot of passion and excitement for the auto industry.

At some level, I think allowing these companies to go into bankruptcy may force them to think much harder about what to change, but I have little faith in the established leadership to make the right choices.

[Nils Davis]

Basically my rule of thumb is, if Bob Sutton says they should go, they should go.

Excellent article. Thanks for taking the time to put it all down. However, "Getting rid of them and instituting an intense program of cultural and organizational change strikes me as the best way to save the company," just doesn't seem like it can work. I think we (Congress) can put conditions on the bailout, but I'm not sure we can be as detailed as you recommend, which means it probably won't work.

Instead, we may have to spend the money just to bridge the employees through unemployment for a while and to fund some auto startups.

Another very interesting article on Detroit from this week, which I think ties into your point:

* Detroit's Six Mistakes and How Not To Make Them by Umair Haique (http://discussionleader.hbsp.com/haque/2008/11/detroits_6_mistakes_and_how_no.html)

[Frederic Lucas-Conwell]

This GM situation is embarrassing. Bob you can find reasons anywhere for this failure, including inappropriately taking jets. There is however just one question that other comments highlight: How is it possible that our system is incapable of having smarter CEOs for these companies sooner? We know it takes just one person to ruin a company (or a country). It will take just one to make it successful again.

[jlee92]

Ever since I was a kid, my childhood dream was to design cars. I showed a natural proficiency for mechanics, so I majored in mechanical engineering and received undergraduate and graduate degrees at MIT and Stanford respectively. While at Stanford, I signed up for a summer internship with Ford at one of their plastics plants in Ohio. The recruiter told me I would get a full hands-on experience in manufacturing. Instead, I spent 3 months being the group’s typist because I could type documents on a computer at 4x the rate of the other old boys there. That’s how they used an eager engineering grad student. Still determined to chase my childhood dream, I decided to extend my internship another 3 months when I found a position to work at Ford’s HQ in Dearborn in their chassis engineering group. There, I saw the reality of the culture. White collar workers who are there purely for a paycheck, not to make something great. The thought of working late was inconceivable, because work can always wait, but their need to veg out at home could not. There was no concept of actually having better quality than the Japanese and no emotional response to always being ranked below a competitor. To sum it up, everyone was completely satisfied and comfortable with mediocrity.
Union workers felt that having relatively high pay, low skill jobs (where pay was based purely on seniority and not on ability) was a right, not a privilege or reward. When I was testing brake rotors, I was told I may not touch any tools or perform any work myself, as this would threaten job security of union workers, so I ended up doing a lot of waiting for someone to turn a few bolts.
I also quickly realized that there was no path towards promotion for me as an American born Asian. When I was introduced to someone, I could see the stress in their face for fear that they would not understand how to pronounce my name or understand my thick accent. Then relief to find out my name is “Joe” and I have no accent.
I went back to Stanford to complete my master’s degree, and have been working for high tech companies in Silicon Valley ever since I graduated. My original childhood dream was crushed by the reality of Detroit, but I have since found great satisfaction working at companies that have created technologies that are in computer and consumer electronics products that you are probably using every day to make your life easier, more productive and more enjoyable.

[Sam Thornton]

As to the "creative destruction" crowd jawing for bankruptcy, Bob, I have a theory. They know this will never happen so they'll never be accountable, but it's a great hook on which to hang their usual schtick of no taxes, no regulations, and -- especially important -- no labor unions. Plus, it fits in with their usual divide and conquer strategy: big, evil corporations vs. the little guys who pay the taxes. All baloney, of course, but who's counting?

[Pete Abilla]

I can't, with any credibility, comment on GM or Ford. But, having some familiarity with Chrysler -- I would bet some bailout money on them.

Chrysler is privately owned by Cerberus, a Private Equity firm. I respect Cerberus and I'm sure they have deployed armies of Lean Manufacturing and Six Sigma folks to help Chrysler. Moreover, Chrysler has hired several very well-respected ex-Toyota folks.

The big misstep is with Nardelli -- perhaps get rid of him and put Jim Press in charge. Jim Press understands the Gemba and, in my estimation, Jim Press would not have flown on a Private Jet to beg for money.

Being in the Gemba keeps you connected to humanity. The Private Jet was symbolic of being "out of touch" -- which can be a thread in an organization's structure that can pervasively and negatively infect every part of the company.

I'd bet bailout money on Chrysler, put Jim Press in charge. I'll remain silent on GM and Ford, but I pray and wish the best for the people impacted any upcoming changes in those companies.

[Kevin Rutkowski]

This post is an interesting overview of what Ford says they've been doing to remain viable for the long term. http://www.lctmag.com/news/news-story.cfm?id=2468

I've been pleasantly surprised by people who aren't from Detroit and who have no connection to the auto industry telling me how much they love the Edge, the Flex, and the Focus. I hope that Ford can survive regardless of what the Federal government does.

[Kevin Rutkowski]

I wonder how similar the management is for Ford and GM. I think there are a lot of similarities, but Ford may have taken some good actions to change sooner than GM. That includes hiring a CEO who is not from the auto industry.

A person I know who retired from Ford about 10 years ago told me that he was frustrated because Ford hired a lot of smart young people, but they would not give these hires much responsibility. Ford was very much run on a seniority system rather than a merit system. This was also evident during layoffs in the 80s when layoffs for white collar workers were primarily decided by seniority rather than any other factor.

I have a lot of friends and family who live in Detroit, and I'm very sad about what is happening there. I hope that the automakers can make the changes necessary to be viable for the long term.

Thomas Friedman also had an interesting take on the situation which included blaming Representative John Dingell, who lost his chairmanship this week. http://www.nytimes.com/2008/11/12/opinion/12friedman.html

[Cyril]

Very good post, and very good demonstration.
That could become a rule : Listen or be doomed !

[Kevin Wheatley]

Just a small comment, your note about Toyota only having two brands shows how well they have split their marketing/branding... see http://en.wikipedia.org/wiki/Toyota#Operations

for an example.

My take on this whole situation is that no handout should be 'free' i.e. without suitable conditions. I'd suggest that one of the big players asking for the handout be dissolved and the money that would have gone to them be used to employ the now jobless in something more sustainable/beneficial.

This would show the others that the threat implied by the conditions of the handout will be enforced.

[Anonymous]

Wow. Great post. On behalf of random internet people everywhere, thanks for taking the time to type it up.