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  1. #1
    GM: A View from the Back Seat 6 Shooter's Avatar
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    :G GM: A View from the Back Seat

    By David Welch
    June 2, 2009, 12:01AM

    To understand how trapped General Motors management became in its own version of groupthink, here's all you need to know: At one point in the early 2000s, the company's strategy amounted to outliving its workers.

    As former GM Chairman and CEO Rick Wagoner explained in a story I wrote for BusinessWeek in February 2003, management's big-picture strategy was to wring out costs where possible within the confines of its union agreements, keep improving cars and trucks under car czar Bob Lutz, try to catch the Japanese in productivity and quality, and stay afloat until the middle of the next decade. By then, it figured, retirees would be dying off, GM's huge cost disadvantage for paying retiree pensions and health care would narrow, and it would be on more equal footing with competitors.

    It might have made sense—if GM weren't underinvesting in new car designs, and if its profits at the time weren't coming from gas-guzzling SUVs and mortgages.

    An Inevitable Endgame

    It was, and they were. Both of those shortcomings became glaringly apparent. Within two years, fuel prices had soared and decimated truck profits. By 2005, Wagoner was cutting thousands of workers and looking for health-care concessions, and the company was in the process of losing almost $11 billion.

    Now no one should be surprised that a company that suffered 40 years of nearly nonstop decline has arrived in bankruptcy court. The signs were apparent for years even to the casual observer. Journalists, analysts, consultants, and, yes, even insiders with the temerity to buck the system pointed out that GM's business was flawed and that the company was playing itself to an inevitable endgame. It had too many brands demanding new cars, advertising money, and executive attention to changing an image scarred by past quality problems. It couldn't sell the handiwork of its outsize network of factories and workers. Union contracts made quick downsizing all but impossible.

    Why couldn't management, labor, and dealers see what was coming? Blame a combination of hubris, myopia, and short-term thinking. During my 10 years of covering GM for BusinessWeek, I heard plenty of explanations from GM insiders of why its business model couldn't be dismantled: It's too expensive to fight dealers and labor, so we shouldn't even try. We have to put money into trucks because Americans don't like fuel-efficient cars. The next new slate of models is the one that will reverse the sales slide. Hovering in the background of all these management arguments was the assumption that GM's size—its seat on the throne as the world's largest automaker—was an important asset that was not to be squandered.

    Mired in "Profitless Prosperity"

    But of course it was. GM only kept market share in the U.S. by buying it. Deals like 0% financing and fat rebate checks had GM briefly growing its share early in the decade, but at the expense of margins. That "profitless prosperity," as former Goldman Sachs (GS) analyst Gary Lapidus once called it, kept lots of people busy in plants. But it was GM's version of losing money on each item and making it up on volume.

    See, GM viewed its market share the way Michiganders view their thermostat in February. If you want to be warm in Detroit, just crank up the thermostat and you can walk around your house in Bermuda shorts. When the bill comes the next month, you panic, turn the heater down to save money, and pull on a wool sweater.

    GM would spend, say, $4,500 a car in incentives in a given month and drive its market share to 28% or so. As the cash flew out the door, profits cratered. Then GM would pull back spending, letting share slip down to, say, 23%. Up and down it went.

    BusinessWeek link for the rest of the article...

  2. #2
    Mike G

    Default GM, etc

    Great high-profile event, guaranteed to grab public attention in the lamestream press. Not so much for AIG, Goldman Sach, JPMorgan, FannyMea, FMac, etc, huh? Where did all those $Trillions - ya know, x10^12 - go? GM made all their errors and we'll never hear the end of it, but where's the outrage over all the fraud, lies and deceit in the finance sector over the last 15 years?!
    I just hope GM comes out the other end and continues standard production of THE American sport car.

    I also wonder about the voodoo financing at Ford. Losing as much market share, sales, costs, etc and just blithly sailing along? That's a little much for reality, don't ya think?

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