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GM: General Motors, Government Motors, or Going, Going, Gone Motors?

Posted by Larry Doyle on June 3, 2009 6:00 PM |

What will the future hold for GM? I believe there are three potential scenarios, with likely overlap in the short run but less overlap over the long haul. Let’s see if the real GM is behind:

Door #1: A Revitalized and Profitable General Motors

Behind this door, for GM to be a viable entity they need to address the deeply embedded culture and values within the organization. In order to effect change, the people of GM need to understand dramatically different expectations, define and live a new value structure, and execute.

Why do losing teams in professional sports change general managers and coaches? Culture. GM has a culture that allowed a failed financial framework to gain a foothold and ultimately crush the organization.

Without new management at the senior level and throughout the organization, how does the new culture – predicated on total discipline – get established?

Some may argue that Chrysler came out of bankruptcy with no cost to the taxpayer. That is a fair point. Time will tell, though, if the same can happen with GM.

In my opinion, Chrysler benefitted from the growth of the shadow banking system in the mid 1980s which increased leverage throughout the economy. Currently our economy and culture are headed in an opposite direction, that is, consumers and corporations are delevering and will likely continue to delever going forward. As such, I do not envision vehicle sales rebounding as strongly as GM needs to prosper.

Sense on Cents handicaps a vibrant General Motors as a longshot.

Door #2: A Bureaucratic “Government Motors”

Behind this door, I see an entity burdened by red tape, sluggish proceedings, and social agendas. Why?

Any organization is ultimately a reflection of the people and its ability to attract dynamic, entrepreneurial, intelligent leaders at all levels. With all due respect to those currently working at GM, I have a hard time believing this organiztion will be able to attract sufficient numbers of these leaders going forward. Why?

Leaders of that ilk do not tend to enjoy and thrive within an environment burdened by systems, processes, and hurdles inhibiting its success. With government ownership, those hurdles just got much higher.

What are the hurdles?

– How will success be measured? Will it be bottom line profitability? Market share? New vehicles? Social goals, such as environmentally efficient vehicles?

– Is it better to survive than thrive? Organizations in the private sector take prudent risks to drive growth. Will GM be risk averse in an attempt to maintain stability rather than pushing ahead in the spirit of venture capitalists?

Sense on Cents handicaps a bureaucratic Government Motors as a better than even money bet over the next 5 years.

Door #3: A “Going, Going, Gone Motors”

Behind this door, I see an entity that will ultimately utilize the $60 billion (and potentially more) government injection of equity capital as nothing more than an interim bridge loan.

Is the new GM on the other side of the bridge? No. Behind this door, GM will have been flushed down the river and out to sea unable to compete in the Brave New World.

The equity injection of government funds will actually be utilized as more of a stopgap to prevent the immediate dissolution of the company.

Robert Reich addresses this likelihood at Wall Street Pit.

Reich flies in the face of his Democratic Party leaders in asserting that the true motive of the government takeover of GM is ultimately:

The only practical purpose I can imagine for the bail-out is to slow the decline of GM to create enough time for its workers, suppliers, dealers and communities to adjust to its eventual demise.

Reich views the GM situation from a macro standpoint and in the context of a shift in our economy and the world to new technologies. GM is not well positioned currently to adapt and thrive in that environment. Over and above that, GM will be downsizing and not in a position to invest the necessary human and financial capital to lead the company and the industry.

Although Reich’s assessment is not exactly a rosy picture, I give him credit for voicing his opinion and looking beyond the immediate landscape. While Reich sits in the comforts of academia, where are the political leaders who are willing to take these risks in making these statements. As Reich asserts:

US politicians dare not talk openly about industrial adjustment because the public does not want to hear about it. A strong constituency wants to preserve jobs and communities as they are, regardless of the public cost. Another equally powerful group wants to let markets work their will, regardless of the short-term social costs. Polls show most Americans are against bailing out GM, but if their own jobs were at stake I am sure they would have a different view.

So the Obama administration is, in effect, paying $60 billion to buy off both constituencies. It is telling the first group that jobs and communities dependent on GM will be better preserved because of the bail-out, and the second that taxpayers and creditors will be rewarded by it. But it is not telling anyone the complete truth: GM will disappear, eventually. The bail-out is designed to give the economy time to reduce the social costs of the blow.

So once again the American public is forced to deal with a correction based
upon the lapse of time. What do we know about time?

“Can you teach me about tomorrow
and all the pain and sorrow running free?
Cause tomorrow’s just another day
and I don’t believe in time
Time, why you punish me?”

– Hootie & the Blowfish

LD

  • fiscalliberal

    As I listen to Fritz Henderson, I do not hear the words of change. One of the biggest factors in a fluctuating market is to drive the business to variable costs versus fixed costs. So – when Reich talks robots, that is a fixed cost burden(capital and maintenance labor). The Unions have pushed labor costs into a fixed cost variant with their termination benefits being paid up to a year.

    He talks about break even with the auto industry at 10 million. We just experienced 9 million. To be certain, the middle level management and blue collar ranks have taken a hit on salary (50%) and they have trimmed down the labor force (blue and white). However he has not fixed the company to address the 9 million.

    They point to the current auto scrap rate of 13 million and hope that the economy will pick up. It could be the cars are going to chop shops for fix up parts. There seems to be no cognizance of the fact that the general public is in debt to historic levels (pointed out in the Elizabeth Warren COP May Oversight Report, Figure 1 – household debt). Other reports point out that the economy will be slow in recovering. So how is 10 million realistic.

    So – the job of management of being able to assess, take and manage risk is not being done. The answer is to ask for more money from the government.

  • Fiscal,

    Thoughtful analysis on your part. Looks like a vote for Door #2…

  • kbdabear

    Why do losing teams in professional sports change general managers and coaches? Culture. GM has a culture that allowed a failed financial framework to gain a foothold and ultimately crush the organization.

    When they promote the batboy to manager and the assistant traveling secretary to general manager it’s pretty much a sure bet that they’re not serious about winning or don’t have a clue.

    I see a zombie GM run as a patronage mill a la Amtrak

    Door # 2 it is, Monty






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