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What I Learned Today crunches the numbers on GM and the results are not pretty.
So $83,000,000,000 is what New GM would have to be worth in order for us to break even on our investment. But $56,000,000,000 is what GM was worth at its all time peak in 2000.
GM declared bankruptcy yesterday and the rush is on to explain what went wrong. Here are a few explanations I found, along with some possible solutions.
After 101 years, why GM failed, Peter Cohan, DailyFinance:
4. Failure to innovate. Since GM was focused on profiting from finance, it did not really care that much about building better vehicles. GM’s management failed to adapt GM to changes in customer needs, upstart competitors, and new technologies.
Seven reasons GM is headed to bankruptcy, Sharon Silke Carty, USA Today:
When GM realized how fast 1990s buyers were switching to trucks as personal transportation, it overreacted, pouring time and money into SUVs and pickups at the expense of car development. The result: As long ago as 2000, Wall Street was warning that GM could be overcommitted to trucks and wind up out of phase if the pendulum of buyer preference swung back to cars. Once consumer tastes began changing, the market was awash in new truck models, and profits were sapped by discounts needed to keep sales boiling.
Goodbye, GM, Michael Moore:
The products built in the factories of GM, Ford and Chrysler are some of the greatest weapons of mass destruction responsible for global warming and the melting of our polar icecaps. The things we call “cars” may have been fun to drive, but they are like a million daggers into the heart of Mother Nature. To continue to build them would only lead to the ruin of our species and much of the planet.
G.M.’s Road From Prosperity to Crisis, NY Times:
The company reached a deal with Saab to expand its European presence. Having an extensive brand lineup had been a primary strategy at G.M. since its creation in 1908. But this tactic eventually became costly, as brands overlapped and competed for business and money.
GM Reinvention, GM. Twitter, Flickr, Facebook, it’s all there. Oy.
Ten Vehicles That Bankrupted GM, Matt Hardigree, Jalopnik:
The Pontiac Aztec was one of the first major crossover vehicles brought to market in the U.S. [It was] combination of car-like handling and fuel economy with SUV-like space and aggressive appearance. The concept was a hit and now most automakers are shifting towards crossover. The Aztec was a massive failure. It was an attractive idea in an amazingly unattractive shell. It failed almost entirely based upon its appearance.
Who’s to Blame for GM’s Bankruptcy?, William J. Holstein, BusinessWeek:
GM simply was not ready to respond to Toyota Motor and other Japanese manufacturers when they began to gain serious ground in the early 1980s. Toyota, in particular, had developed a lean manufacturing system that was completely different from the mass-assembly-line techniques GM was still using, many decades after Henry Ford perfected them. GM’s fractured structure meant that each division had its own manufacturing processes, its own parts, its own engineering, and its own stamping plants.
How GM Lost Its Way, Paul Ingrassia, WSJ:
The picture of a heedless union and a feckless management says a lot about what went wrong at GM. There were many more mistakes, of course — look-alike cars, lapses in quality, misguided acquisitions, and betting on big SUVs just before gas prices soared. They were all born of a uniquely insular corporate culture.
The Quagmire Ahead, David Brooks, NY Times:
Over the last five decades, this company has progressively lost touch with car buyers, especially the educated car buyers who flock to European and Japanese brands. Over five decades, this company has tolerated labor practices that seem insane to outsiders. Over these decades, it has tolerated bureaucratic structures that repel top talent. It has evaded the relentless quality focus that has helped companies like Toyota prosper.
The End of the Affair, P.J. O’Rourke, WSJ:
We became sick and tired of our cars and even angry at them. Pointy-headed busybodies of the environmentalist, new urbanist, utopian communitarian ilk blamed the victim. They claimed the car had forced us to live in widely scattered settlements in the great wasteland of big-box stores and the Olive Garden. If we would all just get on our Schwinns or hop a trolley, they said, America could become an archipelago of cozy gulags on the Portland, Ore., model with everyone nestled together in the most sustainably carbon-neutral, diverse and ecologically unimpactful way.
Why GM failed, Jack Lessenberry, Detroit Metro Times:
What’s wrong, in a nutshell, is that it is a narrow, insular culture. Those who make it to the top of the heap, like Rick Wagoner, tend to be white Anglo-Saxon Protestant males who have worked at the same company their entire career, and have come up with the same set of buddies. Sort of like the Delta Tau Delta fraternity Wagoner joined when he was in business school.
Update: The WSJ’s Photo Journal blog has photos and brief stories of a number of people affected by GM’s bankruptcy. Gary Thomas, a mechanic from Kingston, TN, put about $800,000 in GM bonds.
“I thought I was doing the right thing. I wasn’t investing in stocks. GM was a solid company. … The bonds were my entire nest egg. I’m not a whiner and I don’t want special treatment. What really ticks me off is that it seems like we are getting less than everyone else and we deserve to be treated equally. I’m just trying to figure out a way to make it to 65 so I can start drawing my social security.”
Update: After Many Stumbles, the Fall of a Giant, Micheline Maynard, NY Times:
The company did have vast numbers of loyal buyers, but G.M. lost them through a series of strategic and cultural missteps starting in the 1960s. It bungled efforts in the 1980s to cut costs by sharing the underpinnings of its cars across different brands, blurring their distinctiveness. G.M. gave in to union demands in 1990 and created a program that paid workers even when plants were not running, forcing it to build cars and trucks it could not sell without big incentives.
Update: Salutary lessons from the downfall of a carmaker, John Kay, Financial Times:
The factors that had once been the company’s strengths were now weaknesses. Mass production and piece-rate incentives created a workforce with little pride in the quality of the product. The cadre of professional managers became a complacent, inward-looking bureaucracy. The diversified corporation became a collection of competing baronies.
From a couple of years ago, The Risk Pool, Malcolm Gladwell, The New Yorker:
Surely, if you are losing money on every car you sell, as G.M. is, cutting car prices still further in order to boost sales doesn’t make any sense. It’s like the old Borsht-belt joke about the haberdasher who lost money on every hat he made but figured he’d make up the difference on volume. The economically rational thing for G.M. to do would be to restructure, and sell fewer cars at a higher profit margin — and that’s what G.M. tried to do this summer, announcing plans to shutter plants and buy out the contracts of thirty-five thousand workers. But buyouts, which turn active workers into pensioners, only worsen the company’s dependency ratio. Last year, G.M. covered the costs of its four hundred and fifty-three thousand retirees and their dependents with the revenue from 4.5 million cars and trucks. How is G.M. better off covering the costs of four hundred and eighty-eighty thousand dependents with the revenue from, say, 4.2 million cars and trucks?
NASCAR helped GM down its path of self-destruction, Viv Bernstein, True/Slant:
How ironic, given NASCAR’s role in helping the auto industry race down its path of self-destruction. Major auto companies used NASCAR for years to push cars and trucks with poor fuel economy numbers. The sport, in some ways, came to symbolize America’s embrace of consumption. Consider that NASCAR didn’t even switch to unleaded gasoline until 2007. And even today, the racecars and trucks that auto companies are marketing through NASCAR are among the least fuel efficient, from the Dodge Charger to the Chevrolet Silverado.
(thx, fargo & coates)
Unknown (relatively speaking) indie rock bands are turning down large sums of money from GM for licensing their music for Hummer ads. “It had to be the worst product you could give a song to. It was a really easy decision. How could we go on after soundtracking Hummer? It’s just so evil.” (via rw)
September sales of SUVs were down sharply from last year. “Sales of F-Series pickup trucks plunged 30 percent. Sales of Ford’s large SUVs, including the Ford Explorer and Expedition and the Lincoln Navigator, sank by more than 55 percent each. At GM, overall sales of trucks, minivans and SUVs dropped 30 percent.” Most blame the $1/gal difference in gas prices from a year ago, but auto execs blame poor inventory after summer sales. Perhaps everyone went to the movies instead of car shopping.
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