GM: What Took You So Long?

June 4, 2009 by  
Filed under Fools of Finance

time_outHave you seen the new “Reinvention” ad from GM? Mr. ToughMoneyLove actually likes it – right message, good production values. So I decided to do the Chapter 11 version of GM a little favor and share the video with my readers. Take a look. Then see if you agree with any of my follow-up comments:


(You may have to click through if you read this by email or feed reader.)

GM says all the right things, including acknowledging that it had too many brands and too many models. It even – but barely – pointed the finger at bloated UAW contracts and retiree benefits by a brief mention of it’s “cost structure” no longer being competitive.

What took GM so long?

The ad alleges that there was a time when having eight different brands “made sense” and that GM could “compete” with its out of control labor and legacy costs.

When was the exactly?

GM has been burdened by its cost structure for much longer than it – and the UAW – cares to admit. Case in point:  GM’s market share and profitability declines have persisted for decades. In just the 8 year period from 1981-1989, GM market share fell from 45% to 35%. This coincided with a surge in Japanese competition. Between 1980-1992, GM losses totaled almost $30 billion.  (Source)  Today, GM’s market share stands at less than 18%.

Critics have been telling GM that it had too many brands, yet it continued to add new ones (Saturn, Saab, and Hummer), reluctantly shedding only Oldsmobile in 2000. (The brand name itself says it all.) In 2006 – a year after GM had suffered an $8.65 billion loss – one of its biggest investors (Kirk Kerkorian) openly challenged the GM board to get rid of under-performing brands. They refused and Kerkorian smartly sold his stock.

GM earned a temporary reprieve by cranking out dozens of new SUV models only to see that short-sighted strategy crash and burn when gas prices went up.

As recently as July 2008, GM claimed that maybe Hummer needed to go, but all other brands were safe. Bankruptcy was out of the question.

Everything about “reinvention” that is being said by GM was being said to GM years before.

I feel bad for most everyone involved in this, including America’s once proud manufacturing industry. China has been waging and winning a war with us on that front. I don’t feel sorry for GM management and UAW leadership. They were fools and have rightly earned mention in this week’s “fools of finance” post. But I suppose their jobs are safe.

Will any U.S. manufacturers that remain learn from this? Will the business school textbooks be rewritten or just thrown out? Or will they also wait to “reinvent” until its too late?

Photo credit: sun dazed


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Comments

8 Responses to “GM: What Took You So Long?”
  1. Matt SF says:

    I would imagine business schools will say planned obsolescence is not the best business model to pursue when your competitors make better products than you.

    Similarly, it’s not a good idea to sit on your can hoping for a recovery, nationalistic pride, or marketing gimmicks to save your sub par company from financial ruin. No matter how much advertising you buy.

  2. I’m not the first to say it, but it’s true – in America, if you can’t build a better product, you invest your money in better hype. With all the hype at large, there is no better time for the buyer to beware.

    Clair

  3. Clair: Well said. My son the audiophile has this to say about Bose audio products: “Better sound through marketing.”

    I think Apple has done a fantastic job of successfully exploiting hype and consumers’ appetite for it.

  4. Rick Beagle says:

    The management team that drove this company and their union counterparts are still running this company. It is appalling that a group with such an abysmal track record has not been scuttled. Buyer beware indeed.

  5. What cracks me up about this video is the whole concept of: how we are right now worked well in the past, but it’s time for change, a time for reinventing ourselves. Oh really! It’s a little like the driver saying “I’m going to slow down and drive more carefully” right after he’s crashed through the guard rail and is headed into the 450 foot deep canyon with a car full of passengers.

    The other thing that’s interesting is to ponder just how much money GM has spent on creating this video, and how much more they’ll spend on getting this out to the consuming public on TV, radio and print media. It’s very expensive hype to convince us that they’re going to change their ways now that they’ve busted through the guard rail.

    I for one don’t care much about their message, even though I drive a GM car. This is supposed to be a free market, and if we don’t let the dinosaur thinking and decision making fail, then we build artificial barriers to new entrepreneurs who might really be able to make a difference with new idea and much more careful and deliberate “driving skills.”

    Clair

  6. TMN says:

    Personally I hope the new GM collapses as well. After they spent the last 90 years systematically dismantling public transit in this country, they don’t deserve to exist.

  7. TMN: Good observation. We traded electric trolleys in the city for stinky buses. It’s probably in part due to the flexibility of changing routes with a bus, yet the bus routes don’t seem to change much more than the trolley tracks were able to. Now, we’re back to electric buses and light rail in the major cities (with routes that can’t be changed).

    The most threatening thing about government intervention in the auto industry is that the auto industry will now become nothing more than another government program that needs funding. TMN, I know you hope GM collapses, but that’s about as likely as the government collapsing since they’ll own about 80% of the company. We’ll all be paying for the auto industry, whether we drive a vehicle or not.

    I wonder what would happen in this country if we let free enterprise and free markets exist and self-correct. It’s what I’d like to see. So far, I’m not at all impressed with government interference aimed at taming or correcting the free market. That’s my job as a consumer.

    Clair

  8. MasterPo says:

    I’d like to know:

    1) Why would anyone want to buy one of the last productions of the models to be phased out? Where would you get parts, service? And trade in or resale value? I don’t think so.

    2) I’d like to see how Government Motors is going to make a powerful and reliable pickup truck using fuel cells or electric.

    3) I’d also like to see how the union is going to treat it’s employees (that’s what they are now) sooooooooo much better then they claimed GM’s former management did in terms of great pay, vacation/sick/holiday/family paid time off, retirement plan, etc etc – basically all they things they forever cried that management was screwing them on. Bet $1.00 they will need to do the same things to their employees/members too in order to run the business but you won’t hear a peep in the news about it!

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