How to succeed in business in the twenty-first century: Outsource as much as you can, to the point that the CEO makes over four-thousand times what the poor schlub doing the grunt work is paid. Ask the government for bailouts, and then make sure you have an excuse for not paying back all that you were loaned, by compensating the government with stock you know will never be worth the amount you borrowed. Concentrate your efforts to specific models or types of products as the future, even when you’ve suffered huge losses by betting on that model’s marketability, and your firm’s limited ability to make new models profitable (let alone work) before. Put all of your bets on unproven models, unproven technology and areas where your firm has limited experience and expertise, especially when your firm’s past experience with innovation is sketchy at best, and when your business has a track record of abandoning innovative thinkers. The American car culture is passing on. Read on to see why.
“That men do not learn much from the lessons of history is the most important of all the lessons of history.”- Aldous Huxley
Just In Time Just Insane
GM was by no means alone when, after decades of success, its market share was purloined right out from under its leading, bloated and pedantic nose. GM’s first attempts at small cars were disasters such as the Vega and the Chevette, of which thankfully few have survived, to remind GM of its ineptitude. GM joined with Toyota (a corporation called NUMMI, or New United Motor Manufacturing) and made cars at the Fremont California plant where Tesla now produces its innovative, market-making, and tradition-shattering all-electric cars. At NUMMI, Toyota learned that they could produce cars profitably in the U.S. and GM learned how to stress out everyone in the supply chain by adopting JIT (Just In Time) manufacturing. JIT was created out of necessity on an island nation (Japan) whose land mass was only slightly more than California, and the livable part even less. Despite having all kinds of room, GM adopted the JIT model, where one missing part shuts down an entire assembly line, costing up to six thousand dollars and hour, (you read that right, $6,000 an hour) until the part is delivered. One of the Japanese manufacturers, after one of the hard earthquakes, lost $4.5 million due to lack of a piston ring costing $.89. J.I.T. was a system that dumbfounded thousands of workers, along with one of my former-GM business professors, whose disdain for JIT was palpable.
Rationalization of Reduction
According to CNBC: “Consumers, ages 21 through 34, are taking out new auto loans at a 21 percent higher rate than Gen X borrowers did when they were that age, according to a study released Wednesday by TransUnion.” It’s nice to see people buying cars, because the automotive industry accounts for 1 in every 22 jobs in the U.S. Nonetheless, it seems from observation that the “car culture” of America is fading. The Gen Xers scaled back buying cars, and the latest research indicates that Americans will be buying fewer cars.
The speculation that Americans will be buying fewer cars is prompting GM to reduce manufacturing cars in advance, that is to say, within the near future GM will stop producing several models of passenger cars. According to Onpoint, consumers are switching to SUVs, crossovers and pickup trucks. Ahh, yes, GM needs to make more pickup trucks, just like they did between 1997 and 1999, when the showrooms and dealer lots were crowded with pickup trucks that no one wanted to buy. This time, it will be permanent, shutting down the American plants that make the “Chevrolet Cruze and Volt in North America as well as the Buick LaCrosse, Cadillac XTS and Cadillac CT6.” It’s not like GM’s competitor, Honda, sold 322,655 Honda Accords in 2017 (not even counting Honda Civics) or anything like that; the conclusion is that GM’s future is in trucks, crossovers and SUVs.
GM’s management is as sure of the demand for trucks in 2018 as they were when, in the late 1990s, they made pickup trucks by the thousands and ended up with thousands of pickup trucks sitting at the dealers and no interested buyers. “That men do not learn much from the lessons of history is the most important of all the lessons of history.” Their ability to predict future demand has been dismal, but this time they’re even more serious, by closing plants and shedding workers. A rebound in the passenger car market will have to be covered by Ford, Honda, Toyota, Nissan, and the others.
From General to Specialized
GM wants to become a crossover and pickup truck company. Perhaps they should become Specialized Motors, since they really aren’t general anymore. Incidentally, (according to the Detroit Free Press) of the federal government’s $51 billion investment, $11 billion was never repaid. That story is a bit more complicated. Our government gave GM $51 billion for stock, and then took an $11 billion loss when the stock turned out to be not so valuable. I’m not a socialist, but what is it when the government gives cash (generated by tax-paying citizens) away to someone, isn’t that kind of like socialism? Give me just a month or two, and I’ll create a corporation, make sure it tanks, and ask for just a few million in bailout. I’ll promise to pay the money back, but when I can’t I’ll just tell the government that they made a bad bet, and there’s nothing more I can do. Oh yeah, I’ll have to pay myself several million a year.
Mary Barra, GM’s CEO, pulled down a paltry $22 million last year, 2017. I’m sure Barra’s not a socialist, even if just a few years ago our government pitched in (read socialized) GM to the tune of $51 billion. Top pay at the Mexican GM plants is a generous $2.17 per hour. No wonder GM can’t make any money with those Mexican workers walking away with all of those profits. I’ll bet the Mexican union rep makes Jimmy Hoffa look like an innocent kindergartner. Regarding compensation, management guru Peter Drucker advised CEO pay be no more than 20 times the wages of the average worker. In the case of GM, the CEO makes 4,652 times what the highest paid Mexican worker makes. I’m sure the GM C-Suite suits and I went to different business colleges. For comparison, Honda’s CEO, in 2014, made $1.4 million. I’m pretty sure Honda has been doing as well as GM, yet Honda’s CEO makes $20 million less than the iconic GM CEO. I guess Ms. Barra is just a better negotiator, don’t you think?
America the Abandoned
GM, once an American icon, has, to a large extent, concluded that they cannot profitably make cars in the U.S. anymore. Especially when the CEO makes $22 million and all of the others in the C-Suite are pulling down dozens of millions, all of which are dozens of times what other leaders in the industry make. GM operations in Mexico and China are great, but where the whole thing started has been on a downward slide for several decades. The innovative move that GM is taking, moving to driverless cars and electric vehicles, which are still largely unexplored territories, sounds like a very dangerous course to take. GM has not been an innovative firm by most measures, and the innovators that have tried to influence GM’s culture have, for the most part, failed miserably. (Read “On a Clear Day You Can See General Motors” by John De Lorean.) GM’s culture has, for decades, been status quo to an exponential degree. Setting out on a strategy of innovation and new products for what has been one of the most stodgy corporations ever, sounds like trying to get the Pope’s Choir to start covering Ramones tunes. The Corvette has been the exception to GM’s stodgy reputation, but Corvette existed in its own enclave hundreds of miles away from Detroit’s button-downed, drab decorum.
All of this sounds like change for the sake of change. Honda and other manufacturers have been able to generate profits making passenger cars, and GM has been making cars a lot longer than Honda. Unexplored territory which really has no road map, combined with the legacy of a company known more for adopting new technology than developing it does not sound like a winning combination. GM considers successful models with a decline in demand as being a permanent market situation in a market whose volatility has revamped many older players into much more nimble competitors, a trait GM has yet to attain. Models yet to be developed, not being bootstrapped on other models is somehow going to make GM great? Vast areas of software that need to be developed, with few working copies, again, being adopted from a manufacturer of cars, not a software company. A complete redirection of a company who major projects and accomplished goals have been closing down and shedding divisions, with successes in products it has made for decades, and little success, or even experience, in innovation.
GM has yet to prove itself as an innovator; is has neither the culture, nor the attitude, nor track record for success in the area of innovation. The turnaround that GM is attempting will be either one of the greatest turnarounds in business history, or the decline and fall of a manufacturing giant led astray by barely competent managers. Perhaps the old guard has been discarded and the new geniuses are taking over. As one of the management consultants once said, “If they can’t get the payroll straight, (see the previous paragraph beginning with Mary Barra) think of all the other things that can’t do.” I have yet to be impressed.