The Tragedy that is General Motors

[Axel]

The Tragedy that is General Motors
Prof. Peter Morici - 7/6/2006
The GM Board of Directors should listen to its managers and nix the alliance with Renault and Nissan proposed by shareholder Kirk Kerkorian. The tie-up promises to cut costs by pooling parts procurement and elements of vehicle design. These benefits are fantasy, and only thinly veil an attempt by Kerkorian to shake up GM’s inept management and Board of Directors.

GM’s has two essential problems. First, GM pays about $40 an hour more for labor than the North American arms of Toyota and Honda, and that margin well exceeds GM’s unfunded obligations to retired workers. Second, GM has a legendarily bureaucracy that drives up product design, marketing and administrative costs.

To compensate, GM uses cheaper materials and specs down components. Consequently, GM vehicles are less attractive and their five-year reliability records lag those sold by Toyota and Honda. Check out the cheesy interiors of many recent Chevy offerings, and the reliability data published in Consumer Reports. Only a fool would pay as much for a GM product as a Toyota or Honda.

Also to compensate for high costs and management missteps, GM leaves vehicles on the self longer than Japanese rivals, and often equips vehicles with older, less attractive technology. To further save cash, GM rebadges vehicles to sell under more than one nameplate. For example, offering Chevys and Subarus as Saabs has debased that once strong brand.

Pooling parts purchases with Nissan and Renault won’t get GM lower prices. Already GM, the biggest automaker on the planet, has hammered many of its suppliers into bankruptcy.

GM doesn’t need more leverage to buy shoddy water pumps. It needs to pay less for labor so it can afford to purchase decent parts. Honda, which is much smaller than either GM or Toyota, has no problem buying quality parts at good prices. If Rick Wagoner or Kirk Kerkorian don’t believe that, they should go down to CarMax and drive a 2001 Honda Accord.

Pooling vehicle design efforts with Renault and Nissan won’t help. Both companies face much the same problems as GM. Renault has failed in past attempts to sell cars in North America, because it could not put attractive, durable products in the showroom. High labor costs are compelling the company to make and sell fewer cars in Europe, as Japanese nameplates take away customers.

Lacking fresh offerings, Nissan’s North American sales are off 5.7 percent the first half of this year. Meanwhile, Toyota and Honda sales are soaring.

Pooling design efforts with Renault and Nissan will only add to GM costly bureaucracy and result in more futile rebadging. If Nissan can’t sell as many Altimas as Toyota does Camrys because the Altima does not perform as well, it won’t accomplish much marketing the Altima under the Chevy and Pontiac nameplates too.

If size would solve “the GM makes dull cars problem,” Mr. Kerkorian has an obligation to explain to shareholders why GM can’t make cars as reliable and attractive as little Honda.

The real problem at GM is that CEO Rick Wagoner lacks the stomach to negotiate a realistic contract with the United Autoworkers and the management skills to clean up GM’s bureaucracy, or his Board won’t let him. Either way, the problem is not the size of the company.

Enter Kirk Kerkorian with a plan to put Renault and Nissan CEO Carlos Ghosn in charge of a three way alliance.

Mr Ghosn is a talented executive, credited with turning around Nissan by severing many of its equity relationships with suppliers and dealers, and streamlining parts procurement. At GM, what can be done along those lines is either already accomplished or underway. Mr. Ghosn has no new magic to provide.

GM already has one great car guy. Vice Chairman for Product Development and Chairman for North American operations Robert Lutz deserves as much credit for rescuing Chrysler from bankruptcy as does Lee Iacocca. Yet, he can’t overcome GM’s culture of complacency.

Currently, Mr. Ghosn faces intensifying competition in Europe, and is encumbered by militant French unions and a 15 percent French government stake in Renault. These provide the same burdens to agility as the United Autoworkers and a Paleolithic Board of Directors do for GM. Mr. Ghosn should show us how he is going to resolve those issues at home before offering himself as savior to GM.

In the end, GM’s problem is a crisis of governance. GM won’t change until the Board is radically changed. How often does a Board of Directors, not found guilty of criminal actions, fire itself?

That is the tragedy that is General Motors.

Prof. Peter Morici teaches at Robert H. Smith School of Business at University of Maryland

http://www.globalpolitician.com/arti...?ID=1925&cid=1

[Jordan]

what a tool this guy is.

[Axel]

Originally Posted by Jordan

what a tool this guy is.

yep... a sharp tool! (now the proponents of the Nissan/Renault Alliance... they HAVE no tools...LOL)

.

[HotRedRoadster]

hmmm, I know unions are good and all but these unions should be willing to bend a little specially when the businesses they deal with are having financial problems. When times are good share the wealth and ask for more but when times are bad they should help out and not keep taking advantage. I also think that union employees tend to be a bit more lazy, they are just there milking the system....maybe its just in the industry I work in (Communications/Telephone/Cable TV) it seems that the people who work directly for the phone companies who have union work less......half the day they spend it at the donut shop and they send 10 guys to do the job of only 3 people......at the end of the day the come back with very little production. Then theres the contractors of these telephone companies....their guys come back with double or triple the production and only 3 guys! However, the employees of the contractors don't get the perks they would have gotten from a union and I think they deserve them much more than the lazy guys union guys.
It all comes down to people taking advantage of the system.....and I don't blame the people for taking advantage of the system, I mean who in reality wants to work very hard and give up their perks if they don't really have to?

Marco

[Axel]

some of the things GM is doing right...

• Leading the way with alternative fuels—“Go green by going yellow” is GM’s motto when it comes to its flex-fuel vehicles. GM currently has more than two million flex-fuel vehicles, and now Toyota says it will build flex-fuel vehicles capable of running 100% ethanol in 2007, while Ford will shift some of its focus from hybrids to flex-fuel vehicles.

• Narrowing the productivity gap—According to the 2006 Harbour Report on North American auto factory productivity released in early June, the average number hours fell to 33.19 total hours per vehicle, which is a 3.3% improvement from 2004, closing in on the 4.5 hour per vehicle gap that industry leader Nissan has over GM. GM also has 5 of the top 10 productive plants in North America. It currently plans to shut down Oshawa because of its lack of manufacturing flexibility.

• Improving quality—According to the NHSTA, GM slashed its recalls in half between 2004 and 2005, reducing them to the point where Toyota had more recalls in 2005 than GM. Cadillac and GMC finished in the top 10 of J.D. Power’s IQS survey. GM is also using data gathered from OnStar’s On-Board Vehicle Diagnostic (OVD) to identify potential field failures and improve product performance.

• Raising capital to fund restructuring—GM has raised more than $15B by selling controlling stake in GMAC and shares of Suzuki.
• Collaborating with the competition—GM, BMW, and DCX are working together to develop transmissions for SUVs and luxury cars using two-mode hybrid technology that could boost fuel economy by 25%. This collaboration will reduce development time and cost.

• Designing inspirational vehicles—The Chevrolet Cobalt and HHR have exceeded initial sales forecasts. Both the Pontiac Solstice and Saturn SKY roadsters are sold out for the next year, and the full-size SUVs are gaining market share even with the price of gas. GM’s market share leadership in China and Latin America continues to grow, and it is aggressively entering markets in Eastern Europe and Russia.

• Reducing product complexity—GM is improving its level of cross-brand reuse. For example, the Saturn Sky is based on the same chassis as the Pontiac Solstice and uses components from Hummer, Chevrolet, and Fiat. Also, the HHR uses the same seat frame as one of its competitors—Toyota.

[Pitcom]

Originally Posted by HotRedRoadster

hmmm, I know unions are good and all but these unions should be willing to bend a little specially when the businesses they deal with are having financial problems. When times are good share the wealth and ask for more but when times are bad they should help out and not keep taking advantage. I also think that union employees tend to be a bit more lazy, they are just there milking the system....maybe its just in the industry I work in (Communications/Telephone/Cable TV) it seems that the people who work directly for the phone companies who have union work less......half the day they spend it at the donut shop and they send 10 guys to do the job of only 3 people......at the end of the day the come back with very little production. Then theres the contractors of these telephone companies....their guys come back with double or triple the production and only 3 guys! However, the employees of the contractors don't get the perks they would have gotten from a union and I think they deserve them much more than the lazy guys union guys.
It all comes down to people taking advantage of the system.....and I don't blame the people for taking advantage of the system, I mean who in reality wants to work very hard and give up their perks if they don't really have to?

Marco

Can't say i agree with ya. I'm a union Steamfitter/pipefitter. Local 420 in Philly, we have some of the best workers in the field and absolutely top notch training for our industry. We bust our humps daily, and I'm proud to do so. The real problem (which the author hit on the head) is GM's product line.
Until now I haven't found personally, much exciting about a GM vehicle.
I've owned 3 GM cars, a chevy, a pontiac and an olds. I can't tell you how many parts broke on each of those vehicles due to poor quality and cheap construction. GM can build better cars and until the time they do so GM Corp needs to stand in front of a large mirror and point. Then they will identify the real reason for declining sales. They can blame it on employee salary, they can blame it on the Pension funds, they can blame it on healthcare costs (which is a national problem). But bottom line, go back to the days of building a great, reliable and long lasting vehicle that americans would be proud to own. The days of when you pulled up in your new chevy and all your neighbors came to your driveway to admire the quality and craftsmanship.
Look at the sky, look at some of things people have posted about. The cheap roof hinges, the cheesy glued on saturn strip that peels up. The chincy plastic dash. They could have spent a couple hundred dollars more on each car to really improve quality. But they didn't. It just seems like it's all about where they can save a few bucks anymore. Maybe one day GM will build the type of car where the factory workers to the top CEO can go home at the end of the day and say to themselves, "Boy, we sure built some damn fine vehicles today". You shouldn't have to spend 50-70k on a corvette to find out what a nicely built GM car is all about.

[JohnD]

Originally Posted by Pitcom

They could have spent a couple hundred dollars more on each car to really improve quality. But they didn't. It just seems like it's all about where they can save a few bucks anymore.

Sadly, due to the excessive concessions that the big three have had to make to the unions, they have to make up the costs where they can in order to remain competitive. When guys were losing limbs due to unsafe conditions in shops, then unions were great. Now unions just represent a structure where the union leaders try to get the most that they can for the membership (of course - why not get the most you can?) but in the end they can end up killing the goose that lays the golden eggs.

Jobs are going offshore for two reasons. First, because companies want to maximize their profits. And second, because unions are making American labor prohibitively expensive. And both sides are just doing what they have to do - the companies to be responsible to their shareholders and the unions to be responsible to their members. But it results in a terrible spiral that can lead to the demise of both. And that would be the biggest tragedy of all.

And, just for the record, I do not belong to a union nor would I want to belong to a union. And yet I do work of impeccable quality and I work my butt off every day, too. You don't have to be in a union to have that be true.

[HotRedRoadster]

Very true, GM has not made many cars in recent years that have caught peoples imaginations.... if it wasnt for the sky's sexy looks I wouldn't even concider buying an american car....ok maybe a chrysler 300...But most likely it would have been something from Japan or Germany. Im taking a gamble on the quality of the sky since my brother owns a saturn ION redline and it has been a great car so far (50,000 miles on it). So hopefully the sky lives up to its good looks.

Marco

Originally Posted by Pitcom

Can't say i agree with ya. I'm a union Steamfitter/pipefitter. Local 420 in Philly, we have some of the best workers in the field and absolutely top notch training for our industry. We bust our humps daily, and I'm proud to do so. The real problem (which the author hit on the head) is GM's product line.
Until now I haven't found personally, much exciting about a GM vehicle.
I've owned 3 GM cars, a chevy, a pontiac and an olds. I can't tell you how many parts broke on each of those vehicles due to poor quality and cheap construction. GM can build better cars and until the time they do so GM Corp needs to stand in front of a large mirror and point. Then they will identify the real reason for declining sales. They can blame it on employee salary, they can blame it on the Pension funds, they can blame it on healthcare costs (which is a national problem). But bottom line, go back to the days of building a great, reliable and long lasting vehicle that americans would be proud to own. The days of when you pulled up in your new chevy and all your neighbors came to your driveway to admire the quality and craftsmanship.
Look at the sky, look at some of things people have posted about. The cheap roof hinges, the cheesy glued on saturn strip that peels up. The chincy plastic dash. They could have spent a couple hundred dollars more on each car to really improve quality. But they didn't. It just seems like it's all about where they can save a few bucks anymore. Maybe one day GM will build the type of car where the factory workers to the top CEO can go home at the end of the day and say to themselves, "Boy, we sure built some damn fine vehicles today". You shouldn't have to spend 50-70k on a corvette to find out what a nicely built GM car is all about.

[HotRedRoadster]

I agree with this also....I think its a combination of both...Unions milking the system and bad product! But hey....the unions are doing the job their members have asked them to do and they are doing a great job at it!! If unions could just take a step back and look at the big picture and the US auto makers can pump out better cars it would be a big win for both in the long run.
Its kinda like what I tell my employees.....I tell them to go out there and work hard, safe and with the quality that is expected from them. If they can do this they will have a job for as long as they want because our customers (the phone and cable tv companies) will give us more work.......ultimately everybody wants quality at a fair price and thats something they cant get with their own worker.

Marco

Originally Posted by jdigiant

Sadly, due to the excessive concessions that the big three have had to make to the unions, they have to make up the costs where they can in order to remain competitive. When guys were losing limbs due to unsafe conditions in shops, then unions were great. Now unions just represent a structure where the union leaders try to get the most that they can for the membership (of course - why not get the most you can?) but in the end they can end up killing the goose that lays the golden eggs.

Jobs are going offshore for two reasons. First, because companies want to maximize their profits. And second, because unions are making American labor prohibitively expensive. And both sides are just doing what they have to do - the companies to be responsible to their shareholders and the unions to be responsible to their members. But it results in a terrible spiral that can lead to the demise of both. And that would be the biggest tragedy of all.

And, just for the record, I do not belong to a union nor would I want to belong to a union. And yet I do work of impeccable quality and I work my butt off every day, too. You don't have to be in a union to have that be true.

[Pitcom]

Originally Posted by jdigiant

Sadly, due to the excessive concessions that the big three have had to make to the unions, they have to make up the costs where they can in order to remain competitive. When guys were losing limbs due to unsafe conditions in shops, then unions were great. Now unions just represent a structure where the union leaders try to get the most that they can for the membership (of course - why not get the most you can?) but in the end they can end up killing the goose that lays the golden eggs.

Jobs are going offshore for two reasons. First, because companies want to maximize their profits. And second, because unions are making American labor prohibitively expensive. And both sides are just doing what they have to do - the companies to be responsible to their shareholders and the unions to be responsible to their members. But it results in a terrible spiral that can lead to the demise of both. And that would be the biggest tragedy of all.

And, just for the record, I do not belong to a union nor would I want to belong to a union. And yet I do work of impeccable quality and I work my butt off every day, too. You don't have to be in a union to have that be true.

That's the type of logic i find sad from people in america. Companies ship jobs overseas to maximize profit. That's exactly it. Once Nafta went into effect some companies went down south, look at Johnson controls. Fortune 500 companies sent thier CS departments to India, china and so own, to maximize profits. How much money do you think GM spends a year on, Golf, client dinners, private flights, CEO payroll. GM has TONS of overhead, so don't push the blame down to the little guy because he is part of a union who fights for fair wages and benefits. WE can agree to disagree, but in my eye there is 1 solution. That's to build a better car. Something they choose to neglect. Thier current situation is the cumulative outcome.

[HotRedRoadster]

Oh those corporate people are sooo bad....TALK ABOUT PERKS!! It would help alot if they would cut down on the stuff they give these people....But I guess its the price they have to pay in the competitive CEO market.....I'm sure if you had a company and you wanted the hottest CEO you would try to lure him/her with something better than what the other companies may be offering them....it all gets out of hand! Reminds me of pro athletes with those out of control contracts.

Marco

Originally Posted by Pitcom

That's the type of logic i find sad from people in america. Companies ship jobs overseas to maximize profit. That's exactly it. Once Nafta went into effect some companies went down south, look at Johnson controls. Fortune 500 companies sent thier CS departments to India, china and so own, to maximize profits. How much money do you think GM spends a year on, Golf, client dinners, private flights, CEO payroll. GM has TONS of overhead, so don't push the blame down to the little guy because he is part of a union who fights for fair wages and benefits. WE can agree to disagree, but in my eye there is 1 solution. That's to build a better car. Something they choose to neglect. Thier current situation is the cumulative outcome.

[Pitcom]

Originally Posted by HotRedRoadster

I agree with this also....I think its a combination of both...Unions milking the system and bad product! But hey....the unions are doing the job their members have asked them to do and they are doing a great job at it!! If unions could just take a step back and look at the big picture and the US auto makers can pump out better cars it would be a big win for both in the long run.
Its kinda like what I tell my employees.....I tell them to go out there and work hard, safe and with the quality that is expected from them. If they can do this they will have a job for as long as they want because our customers (the phone and cable tv companies) will give us more work.......ultimately everybody wants quality at a fair price and thats something they cant get with their own worker.

Marco

I agree with that. Stepping back and taking a look at the big picture. In securing more jobs and keeping secure the current ones, it's definatley in thier best interest to compromise on the contracts.

[JohnD]

Originally Posted by Pitcom

That's the type of logic i find sad from people in america. Companies ship jobs overseas to maximize profit. That's exactly it. Once Nafta went into effect some companies went down south, look at Johnson controls. Fortune 500 companies sent thier CS departments to India, china and so own, to maximize profits. How much money do you think GM spends a year on, Golf, client dinners, private flights, CEO payroll. GM has TONS of overhead, so don't push the blame down to the little guy because he is part of a union who fights for fair wages and benefits. WE can agree to disagree, but in my eye there is 1 solution. That's to build a better car. Something they choose to neglect. Thier current situation is the cumulative outcome.

Corporations exist to make profits. That's why they are in business. They do not exist to provide work. If they can't turn a profit, then everybody loses. And, shareholders (including millions of little guys and pension plan holders) want the businesses to be profitable, too - and the more the better. Profit is only a bad word in socialistic societies, and there it's just a matter of the corrupt government stealing the profit instead of it being distributed among the owners (including shareholders).

As for unions, if they just fought for "fair wages and benefits" then I wouldn't have a problem with them, but they left that playing field a long time ago. The truth of the matter is that there are lots of people willing to do these jobs for less than union scale, and the rules of supply and demand should allow employers to get these workers who are willing to work for less so that the businesses can maximize profits, produce a better product and/or pass the savings on to the consumer. All three of those are good things. Also, if there are other people willing to do the work - and for less - that would force the American auto worker to do a great job so that they can keep their job and earn more. Right now there is no real incentive to do a great job, except pride in America, and that went out even before everything was George Bush's fault.

And, finally, before we talk about golf outings, fancy dinners and private flights, let's not forget the union bosses. Lots of them live pretty high on the hog, too.

Paying too much for workers is not - be they the guy working on the line or the CEO. Profits are not a bad thing. You have to remember that businesses are in business to make a profit. No profit, no business.

[richmcc]

Originally Posted by jdigiant

Corporations exist to make profits. That's why they are in business. They do not exist to provide work. If they can't turn a profit, then everybody loses. And, shareholders (including millions of little guys and pension plan holders) want the businesses to be profitable, too - and the more the better. Profit is only a bad word in socialistic societies, and there it's just a matter of the corrupt government stealing the profit instead of it being distributed among the owners (including shareholders).

As for unions, if they just fought for "fair wages and benefits" then I wouldn't have a problem with them, but they left that playing field a long time ago. The truth of the matter is that there are lots of people willing to do these jobs for less than union scale, and the rules of supply and demand should allow employers to get these workers who are willing to work for less so that the businesses can maximize profits, produce a better product and/or pass the savings on to the consumer. All three of those are good things. Also, if there are other people willing to do the work - and for less - that would force the American auto worker to do a great job so that they can keep their job and earn more. Right now there is no real incentive to do a great job, except pride in America, and that went out even before everything was George Bush's fault.

And, finally, before we talk about golf outings, fancy dinners and private flights, let's not forget the union bosses. Lots of them live pretty high on the hog, too.

Paying too much for workers is not - be they the guy working on the line or the CEO. Profits are not a bad thing. You have to remember that businesses are in business to make a profit. No profit, no business.

Interesting, Jobs have left this country because of the Unions. Except for the fact that they didn't started leaving the country until well after Unions went on the decline. BTW NAFTA is Clinton's fault not Bushes.

Unions and workers may be a little more willing to work with companies, if they saw the corporate officials also be willing to make sacrafices as wells. Instead CEO's are making record salaries, while working wages have remained stagnant.

Businesses are absolutely in business to make a profit and they should be making profit. It also important to remember that profit is their only concern. Not the people who work for them, not the country they are in, not the enviroment or even the economy. So this mentally that businesses should be able to do anything they want for the sake of our economy is a failed mentally. You just need to go back to the era of Robber Barons and sweatshops and child labor of the turn of the century to see that. Do you not think that if corporation could they would not go back there in a heartbeat.

Also, your argument about companies getting workers at a lower rates, would result in better products, savings to the customer and higher profits. The reality is businesses, unless forced to either by competition or regulation would never opt for the first two (better products and cheaper) unless forced by either competition or regulations. There our countless incidents of companies putting out products that would kill people, just to save a few dollars or less. After all as you say they are in busines to make a profit and I am not sure how more profits are beneficial except to the shareholders and top executives.

I personally think we need a resurgence of Unions, look at the crap Walmart gets away with. Look at all the people who are losing the pensions (which was promised to them if they did concede wages), because companies can bail out on them and there CEO get multi-hundred million stock options. Allowing corporations Carte Blanc will in the end hurt this country, since it will mean that most of the people will be living near poverty with a very few Rich.

This country's biggest period of economic growth came in Union's peak period and when corporations were also well regulated.

The more money that is put in the hands of the common man, the more that will be spent, the more that will fuel the economy. Unions brought decent wages to all Americans which allowed for the boom of the middle class in the 50's and 60's.

I keep hearing how this economy is "vibrant". From where I sit and most americans it is not true. The cost of living is increasing (mostly due to Gas Prices while the Oil Companies are making record profits) and for most people wages are stagnant. The current governments solution is giving the Gas Companies a twelve billion tax break and not funding Heating Oil assistance for the poor and elderly.

BTW is the Gas companies gouging good for the economy? Walmart is seeing a decline in sales that they attribute to the price of gasoline.

You describe Socialism as a corrupt government stealing profits off of corporations. Well currently we are heading closer to Facism, which is a corrupt government in bed with corporations to suppress the common man.

GM has a lot of problems and part of them are due to Unions. Just as much are due to the top heavy buearacracy and the decisions that has resulted from it.

::whewww::

[nighttripper]

Free trade is not about trade it's about investors rights. There is not one clause or rule that protects a single worker or a single job.It's about the race to the bottom of the labour pool and jobs, as investors and multinationals push for cheaper labour. Jobs once were headed to Mexico now they head to China and India. It's been happening since 1989 with FTA. And let's not forget Chapter 11

[GMguy]

Second, GM has a legendarily bureaucracy that drives up product design, marketing and administrative costs.

That idea is pretty obsolete. After all of the wage cuts and personnel cuts
of the salaried employees over the past 20 years, anyone who believes that GM is overloaded with administrative and engineering staff is living in a dream world.
GM's problems begin and end with one thing and only one thing. ALL of their
other problems (fewer engineers, longer time spans between redesign) in
other words EVERYTHING is due to their exorbitant union labor costs, both for those now on the job and a good part of every person who worked for GM over the past 40 years. Everything else fades into trivial insignificance. Companies that lose money year after year don't lead the world in anything except red ink. Only the union executives and their political stooges try to shift the blame to poor designs, longer redesign cycles, etc. which are all directly the result of union workers raping the company and the American consumer. No one would pay those unskilled uneducated and overweight buffoons 10 cents and hour to do anything. But they contribute more money to political campaigns than all of corporate America combined and bring out the block votes. I love the way the unionized news media parrots the union propaganda and blames management for GM's 45 years of woes. You'd think at least one of those 20 successive CEOs would have had some talent, wouldn't you? Don't expect any in depth news media or Hollywood documentaries that ever hints that unions killed the American industry. Those folks are all unionized. Unions constitute a restraint of free trade and are guilty of price fixing of labor rates in their industries. The worst law ever enacted was the Wagner Act of 1933, which essentially gave unions
the right to extort - it required companies to negotiate with their unions, which in effect gave companies two choices : pay the union what they demand or go out of business. Calling management/labor talks "negotiations"
is pure fantasy - negotiations only occur when both parties enter into talk on a voluntary basis and have the freedom to walk out and reject the offers of the other side. Labor has that right, but companies don't.