Ever since GM CEO Rick Wagoner announced his first turnaround plan (turn around while I pocket $100m), Wall Street and the mainstream media have reacted positively to his cuts. And every single time TTAC's responded with Death Watch warnings that the cuts don't mean jack shit. GM's octo-branded, dealer-bloated, product-lame, legacy-intensive, union-stifled, fiefdom-protecting business model is broken. Last week, Rabid Rick did it again. And once again, the stock emerged, zombie-like from its grave. Only this time, those supposed to be in-the-know are, in fact, in-the-know. CNNMoney [finally] rolls with the changes, proclaiming "GM's Stock Surge May Be Short-Lived; Earnings, Sales Eyed." Hmmm. Could be. "In announcing the liquidity-boosting plan, the company also said that it expects to report significant losses when second-quarter financial results are announced in the next few weeks. GM hasn't announced a date for the release of its quarterly financial report. July sales results, set to be released Aug. 1, could bring more bad news for GM and its Detroit-based counterparts, which continue to lose market share to foreign-based rivals." As sure as eggs are eggs, GM faces yet another credit downgrade. If GM hocks its foreign ops– it's only remaining asset of value– then even Chapter 11 may not save The General.
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That’s a really good analogy – that you have to have your sword draw at all times, ready to fight off some unknown danger that could strike at any time.
The closer to the shop floor someone is, the more fatiguing it must get. Plus knowing you could never speak out, and say the skipper is asleep at the wheel.
I don’t think I could handle the stress the regular people at GM must feel, those who care anyway. I wonder if employees will(/have) start(ed) to bail on their own?
GM, three years into a turnaround plan, is burning through as much as $3 billion a quarter amid sinking U.S. auto sales and rising costs.
As has been said, the turnaround plan has no actual deadlines/targets. We could assume if NOT losing more than 1 billion dollars a month is a target, mission accomplished.
I was going to buy some GM stock if it went to $7.50, 8… I don’t know why it has gone up so high since Monday, I guess I missed the boat. Saving a couple billion so you can last another couple months losing those couple billion= 60% increase in stock price since Monday. I’m retaking Eco 101 now I guess.
Robert,
You truly do have strong insight into the core issues that have brought GM to this point. And there is no question that GM management has laid much of the groundwork for its troubles. But sometimes you jump off the cliff.
To proclaim GM’s products as lame is an over-shoot to be sure. There’s plenty of good product within GM, something even some of the most jaded experts now agree with. What GM lacks is a reason for people to leave other brands to buy them. When the Big Three were sucked into the vortex of the first oil shock in the 70’s, the radical shift from RWD V8 vehicles to mostly FWD V6/I-4 vehicles drove the radical decline in quality. None of the Big Three had a clue what they were up against and the quality gaffs forced customers out of their cars into foreign brands in droves. In other words, people had great reasons to buy Hondas and Toyotas…but today nobody has the need to go buy a Chevy, no matter how good it may be…why leave a brand you love?
The fact is that the US auto industry is broken. Period. It’s not just Rick…all three companies have had the same decline across the board. Are we to believe that all three Boards, all the collective leaders, and all the tens of thousands of employees all got stupid at the exact same time and wrecked their companies? Or is it that the fundemental foundation that the companies were built on is simply not relevant or sustainable anymore? Ford and Chrysler are in the same or even worse shape than GM, both are being lead by execs from the “outside” who are having no more success at turning their companies around than Rick is.
There was a documentary on the plight of AIDS called a Cloer Walk that was released several years ago. In the opening narration, Glen Close opens by saying…”this is a movie about the way the world IS.” I think this is true for the US auto industry…the situation just IS. Customers who are now driving foriegn cars they have no reason to leave, labor agreements that are rooted in the 1960s, decisions made in the moment by Boards and execs who were unable to see the long-term, a government that essentially hates its manufacturing sector while other countries rally to the aid of theirs, and a core of journalists who think they’re smarter than everyone else covering it all.
@prthug:
Amazing post. You’ve summed up the thoughts I’ve had on the subject for years, but was never able to organize in a logical manner even in my own mind.
Spot on in every regard.
prthug,
All I can say is +1, especially the part about our government not supporting manufacturers, indeed seemingly trying to drive them under. Have you considered contributing editorials to TTAC? Robert is a fair guy, and if you write a good editorial, I believe he will publish it.
prthug
There’s plenty of good product within GM, something even some of the most jaded experts now agree with.
Plenty? Define plenty.
GM has eight brands and well over 45 products. Even if we assume the new Malibu and CTS are class-leaders– which they are not– that doesn’t leave much else to write home about.
Is the Silverado a great pickup? Sure. Is the G8 great? Yup. But remember: just because a product’s GOOD doesn’t make it POPULAR, and just because it’s POPULAR doesn’t make it PROFITABLE. And just because an automaker may make a few good, popular, profitable vehicles doesn’t necessarily mean the company itself profitable. In this case, for sure not.
windswords:
Have you considered contributing editorials to TTAC? Robert is a fair guy, and if you write a good editorial, I believe he will publish it.
Of course we will. I’d love to have more dissenting opinions on this site. We pay $100 for published work. The only requirement: some semblance of coherence and strict adherence to our writers’ guidelines.
Email: robert.farago@thetruthaboutcars.com for our guidelines.
Thanks for the kind comments…and looking past all my typos. A few years ago I quit contributing to blog chats because they started to overwhelm all my available time…so I’m being careful not to relapse! I have a family afterall.
I agree that Robert is a somewhat fair guy and a obviously a very smart one. But what is so
interesting/disheartening to me is the intensity of the venom that he and many others spew against the domestic industry. I know the past..to be honest, Toyota and Honda should pay the Big Three royalties for the way the domestics drove their customers to the them…the product was horrible. But that era of product stupidity ended (for the most part) many years ago. But the reality is that many of the decisions made through the past 10 years…after the all the damage was done….were driven from dealing with the enormous and almost impossible liability of legacy costs. And I mean every decision…it’s like flying a loaded 747 with half a wing missing.
Imagine if you and I each started an auto company and got to select 100 each of the best automtive engineers and management execs in the world. But you got a clean start on debt,captial and distribution, the support of friendly government (including highly taxed fuel that drove consumer demand for small and efficient cars, billions in subsidized R&D, etc.), minimal health and pension obligations and home markets that protected the market postion of your start up, while you got to freely expand into others.
And let’s say I got to start with $95 billion in pension liabilies, $6 billion annually in health care costs before I bent a piece of metal, an overloaded and inefficient dealer distribution system in my home market, a legacy of too many brands, dystfunctional and overloaded labor system, an indiffernent government that has systematically built itself on cheap cheap petrol (which, BTW, is why the Big Three built all the trucks…it’s what the people wanted with cheap gas and why Toyota flushed $2.5 billion on new truck plants in Texas last year, something we don’t hear much chat about here), and on and on.
At the end of day, do you think just maybe your auto company might be a little better positioned to compete? Scenario one was Toyota, scenario two is what the current teams leading the Big Three got.
Another point that should be made is that Rick and the team also had the benefit of much of the first startup scenario when they went to China and other growth markets and GM has soundly kicked the crap out of Toyota and just about everyone other company when everyone started in the same relative position. In fact, they beat VW into the ground in China. How could the same team so soundly smacking around the industry in other parts of the world be so seemingly dumb and blind here? Hmmm. Could there be other forces at work??
I already know the response from Robert and the others on this point…if Rick were real visionary he’d just bankrupt it, reorganize it and make all those other things go away. Pretty easy decision to make when your not the one flushing more than one million families’ incomes and security down the toilet.
Good article and good link Robert.CNN has it right,Rick has bought some time.How that time is managed will make or break GM.
The market is watching to see if GM is serious about cutting bloated management empires.Do they really mean it this time?
The truck heavy domestics may catch a break if oil keeps droping.Senior management has to take advantage of every opportunity to improve thier position.
Anyway RF keep the info and links comming.
prthug: I could have not said it better. I have no love for the executives (past and present) who helped engineer the decline of what once was a very important industry. Even if the domestics don’t have a top tier product for each (or any) category that does not mean all the products are non competitive. You don’t see much ink about Japan’s second tier automakers – Mitsubishi, Suzuki, etc. Most just lump everything into a “us vs them” group. Hence the oft quoted statement “I don’t buy American, just FOREIGN” Fact is, there are plenty of foreign nameplates that are substandard in quality/reliability/performance to the expectations set by Toyota and Honda’s best products. Way more.
if Rick were real visionary he’d just bankrupt it, reorganize it and make all those other things go away. Pretty easy decision to make when your not the one flushing more than one million families’ incomes and security down the toilet. …
A sense of honest compassion. How refreshing. Sad when so many people lose their lives through no fault of their own and there are those who cheer “bring it on”
“just because a product’s GOOD doesn’t make it POPULAR, and just because it’s POPULAR doesn’t make it PROFITABLE.”
True, true, true. But if a product is good, what is preventing it from being popular? Dare I mention the “perception gap” While blindly thrown around by Rick and Company, there is some validity to the statement…
“I already know the response from Robert and the others on this point…if Rick were real visionary he’d just bankrupt it, reorganize it and make all those other things go away. Pretty easy decision to make when your not the one flushing more than one million families’ incomes and security down the toilet.”
Ah but to most the industries comentators these people are the over paid great unwashed that are to blame for the downfall of the big 3. Funny how Honda and Toyota can match CAW wages here in Canada and I never hear anyone calling them over paid. Yet their friends and neighbours that do the same work for the same money at GM,Ford,and Chrysler are.
Its as if the line worker takes the blame for rock hard interiors in Chrysler products, or awsome design work such has say a Pontiac Aztec. Is the hourly help to blame for the Ford Taurus going from the best selling sedan in America to a rental car zero.
Sorry for the rambling rant and my poor writing but “prthug” put into words more truth than I’ve ever read on any auto blog before now.
Gentlemen, you’re missing the big picture. GM IS going down. The don’t have a sustainable business plan. That dog won’t hunt.
Millions of jobs have ALREADY been shed. If Rick Wagoner and Co. continue, the end result will be the same, only worse. GM will not have enough money or talent to recover from Chapter 11, which is, I’m sorry, inevitable.
A true leader makes the right decision for long term survival and the greater good, regardless of the short term pain. Usually, he doesn’t pocket $15m+ per year for doing so, but that’s another story.
Robert: <>
True statement. But is every Toyota a homerun? Echo? Solara? two attempts at Tundra (before the current)? Is the Avalon inspired? The Camry? No..they’re simply good enough, given the brand strength. Is the Prius a profitable car? Hmmm…biggest, badest, most efficient car maker on the planet..that builds millions of Corollas a year…can only pop out about 120,000 Prius after 11 years of production (which means, no, it’s not profitable, if not a brilliant marketing play)?
It’s the whole sum of the parts that makes the profit and GM’s foundation is built on quicksand in North America and Western Europe…the sins of the past have snuffed out much of the potential of the future. GM has ample excellent, if not good enough, products. One analyst (I think Ron Harbor of the Harbor Report, but don’t take that to the bank) consumer tested the Buick Lucerne without a Buick badge and it was a hit. Then they put a Lexus badge on it and it was off the chart…but with the Buick badge…you know the answer. Hence GM’s dilemma. CTS, Enclave, Acadia, Vette, Malibu, G8, Aura, Astra, Lucern, the 900 trucks…the coming Insignia, Cruze, Traverse, and others are all more than competitive…some are arguably leaders. The reality is that 90 percent of the import buying public won’t take a look because they don’t need to. Bummer. But I would suggest that the market forces at work…those ripping GM’s pre World War II roots out of the ground forever…will allow it survive and perhaps even thrive. Every company out there makes mistakes…Toyota and Honda make plenty. But when you’re operating on zero margin for error…the mistakes are glaring. When you’re making $10 billion a year, they don’t look so bad.
@prthug:
Sure, GM and the other two make a lot of decent cars now. But they are not good enough to give me a reason to buy them over a Toyota, Honda, Subaru, or Nissan. GM is not putting out the extra effort.
prthug:
Although your nic indicates PR spinmeister chops, your words reveal your talent in all its glory. And I mean that in the nicest possible way. Really. I never met a PR guy I didn’t like.
But is every Toyota a homerun? Echo? Solara? two attempts at Tundra (before the current)? Is the Avalon inspired? The Camry? No..they’re simply good enough, given the brand strength.
You completely ignored my first/last question (“Plenty? Define plenty.”) It’s an excellent rhetorical ruse– my Porsche guy also ignores a question he doesn’t want to answer. But it goes to the heart of the matter. Define “good.”
Ultimately, the market place defines good. Not you. And not me. We may differ with their opinion, or the reasons for that opinion, but you can’t invalidate it just by contradicting it.
And the ultimate decision on whether or not an automaker as a whole is “good” is profitability. Period. GM’s market cap is less than Toyota’s annual profit. That indeed makes Toyota better than GM. Deal with it.
Can only pop out about 120,000 Prius after 11 years of production (which means, no, it’s not profitable, if not a brilliant marketing play)?
Only? How many Saturns will that brand sell this year? How many Camaros or Volts or plug-in Vues will GM sell, um, whenever? As you well know, demand for the Prius far outstrips supply; ToMoCo’s investing in the U.S. to build an entire factory to produce them. Which GM product shares a similar predicament?
One analyst (I think Ron Harbor of the Harbor Report, but don’t take that to the bank) consumer tested the Buick Lucerne without a Buick badge and it was a hit. Then they put a Lexus badge on it and it was off the chart…but with the Buick badge…you know the answer. Hence GM’s dilemma.
Are you blaming the customer for their badge snobbery? I hope that chip rests uneasily on your shoulders. Badge identification is a valuable shorthand that’s existed since the first flint was exchanged by our ancestors. And, lest we forget, Cadillac was trading on its badge snobbery for decades when its cars were steaming piles of crap. So to speak.
Every company out there makes mistakes…Toyota and Honda make plenty. But when you’re operating on zero margin for error…the mistakes are glaring. When you’re making $10 billion a year, they don’t look so bad.
And whose fault, pray tell, is that?
Robert:
You stated that GM simply can’t be saved. Generally speaking, if the product improves enough, the marketplace will notice, and sales will improve accordingly. Witness Hyundai’s transformation from a stinking pile of crap to good solid transportation. GM it seems, will not be afforded the same luxury. As it’s products improve (Not best, but the Hyundai success model shows that you don’t have to be) nobody notices. The “badge test” has been performed by others, and predictably, with the same result. With the GM badge workmanship and desirability always test lowest. So you are correct in stating that GM is basically a doomed enterprise because no matter how much improvement each model may bring, there is no financial payoff. Further, as the general public becomes more aware of GM’s financial troubles, a paralyzing negative image becomes more deeply ingrained in the customer’s mind which in turn will further depress sales. While I will agree 100% with you that GM made its own bed and should be forced to lie in it, the market seems hell bent on not allowing for redemption. It is most ironic that the best cars GM will ever sell will be on its deathbed.
Witness Hyundai’s transformation from a stinking pile of crap to good solid transportation. GM it seems, will not be afforded the same luxury.
Sure, because for every gem (or least cubic zirconia) that GM produces, it has a few steaming piles to blight the view and stink up the room.
Take Pontiac. It’s easy to be cheered by the low-volume G8, a car that is meant to be a halo for the brand. Not a bad idea, but then that halo leads you to the attractive but disappointing Solstice (yet another low volume halo car), the G6 second-rate rental and the badge-engineered second-rate G5. The G5 and G6 hurt the brand, yet there they are.
The Corvette is a lovely car. (Need to do something about that interior, but with the motor, almost all is forgiven.) The Malibu is decent. But they are parked next to some thirsty trucks nobody wants, the mediocre Cobalt and the embarrassing Aveo. That bowtie on the Malibu doesn’t look so good when you realize that it’s glued to the back of a lot of turkeys.
It’s not enough to make a few decent cars. If you surround them with mangy dogs, the potential customer can’t help but notice the kennel surrounding them.
Combine this with a history of shoddy products and customer abuse, and it can be very difficult to justify a test drive, let alone a purchase. These are the proverbial chickens, doing their roosting routine.
You stated that GM simply can’t be saved. Generally speaking, if the product improves enough, the marketplace will notice, and sales will improve accordingly. Witness Hyundai’s transformation from a stinking pile of crap to good solid transportation. GM it seems, will not be afforded the same luxury
Let’s say that the new Malibu is “good solid transportation”. If GM were to follow Hyundai’s example they would price it at $21K with a 100K bumper to bumper warrantee. After 2-3 years (assuming it is a well built car) they could start raising the price and perhaps between year 5-7 match the price of a Camry or Accord. That is the path that was followed by Toyota, Honda and Hyundai as they developed market share in the US.
As others have pointed out, even if GM had the long term resolve, they don’t have the management talent or resources to implement such a recovery plan.
Perhaps the taxpayer will be asked to keep GM on life support through a combination of subsidies and protectionism. That would take away any incentive they might have to improve product.
Toyota and Honda earned their reputations over decades. There is no easy way around it.
You can lose your reputation in a couple of years. Euro brands for example with their unreliable and sometimes poorly implemented electronics in the late 90’s and early 21st century.
“GM’s octo-branded, dealer-bloated, product-lame, legacy-intensive, union-stifled, fiefdom-protecting business model is broken.”
Gee Robert, why don’t you tell us how you really feel about GM?
“Although your nic indicates PR spinmeister chops, your words reveal your talent in all its glory. And I mean that in the nicest possible way. Really. I never met a PR guy I didn’t like.”
Compliment taken…had I the energy and inclination, we could joust for days. But as for me, I have spoken my peace. You would never budge…and you haven’t the burden of making real decisions anyway, so it’s all foolsplay. I can only hope and pray that the US auto industry emerge well…alast, I doubt as much. But my bet is GM will not be on the one on the debris pile when all is said and done.
Peace, Out!
prthug, I agree with you-the problem with the Detroit 3 started decades ago. Sales fell, so costs increased per vehicle sold (like the number of retirees per vehicle, the costs for R&D and tooling per vehicle, etc.), so they cheapened the product, so sales fell, so costs increased per vehicle, so they cheapened the product, so sales fell, etc., etc., etc. It’s a death spiral, and it started in approximately 1979, give or take a couple years. It’s actually amazing it took this long, although the concept of “too big to fail” is a large part of it-that is, they had to get smaller first before they failed for good.
The Detroit 3 probably had only one chance to escape from said spiral since it began, in that in the mid-1990’s, when they were flush with cash with profits from SUVs and huge pickups, they should have invested for the future, in things like better small cars and hybrids. They should have realized gas wasn’t going to remain 89 cents a gallon forever.
But they didn’t, so they die. Now, it’s not like many other stupid decisions made between 1979 and now didn’t hurt matters (GM paying $2 billion to not buy Fiat, or GM shutting down Oldsmobile at a cost of $1 billion, or starting up Saturn as a full line brand to sell one car when it should have been a sub-brand of Oldsmobile, or…), but even if they did every single thing correctly, they probably would still be in a fair amount of trouble today (except for their one chance in the 1990’s).
Prthug’s first post and my subsequent surfing this morning gelled another thought for me, after I visited Edmunds.com. There, one article mentioned a $46K Toyota RAV 4 turbo diesel on sale in Britain, pointing out the high price.
Well, I’m not sure I agree the price is too high. It’s got every option known to man. The first thing to take out of that price is the 17.5% tax, which brings it down to $39K. Virtually everywhere outside North America, prices include the applicable tax right on the sticker. It also means that secondhand prices reflect the true original purchase price, not the discounted new price before tax.
I have kvetched against the high prices we pay for cars in Canada versus the US, but fair play also makes me admit our prices seem consistent with those in all other countries except the US. I am also not much of a conspiracy theorist, but one does have to come to a reasonable conclusion that car prices are artificially low in the US and have been for years, and that foreign manufacturers meet those price-points by sudsidizing them from their worldwide sales, irrespective of whether they have US assembly plants or not.
If this argument holds water, then the conclusion one must come to is that US manufacturers are in fact highly, and I mean, HIGHLY efficient. Particularly if one takes into account their legacy costs. The only thing they could do to remain profitable overall over the last ten years was to build vehicles that had inherently high profit margins, yup, SUVs and pickups. They really had no other choice, and they know that whining about “unfair” competition would get them nowhere under the market economy we have had for 35 years, because they tried it before and got criticized for it.
Just as the US-dominated World Bank loaned every country with a Treasury Officer (and a pen to sign on the dotted line) as much money as it wanted to create industry, with the idea that the free market would mean that rich countries would buy their cheap exports and grow that country, reality meant nobody wanted those goods. Pressure groups, established interests and people manufacturing similar goods in Western countries put a stop to those imports really quickly. Result? Countries could not repay their loans, nor even the interest.
The US acted this way itself for a time, in virtually every industry except vehicles. Imports were let in by the bucketload with virtually no tariffs to speak of. The French halted Japanese imports by having importers fill out mountains of illogical forms, littering ports with brand new Toyotas and Datsuns, until the beleagured importers crossed every t and dotted every i, only to discover that they should have instead written their answers in italicized capital letters. Etcetera. The Japanese had been famous for doing the exact same thing to European and US imports, except those they really wanted like food.
The US did make enough fuss about unfair trade practices that Japanese firms (and VW) felt forced to open assembly plants in the US. When France rebelled against the Japanese onslaught, Nissan opened a plant in the UK, and a few years later Honda opened one in partnership with BLMC. At least these plants were in the Euro zone.
But you do have to ask yourself: Why are there virtually no foreign cars in Japan or Korea? Except Bimmers and Mercs for the elite? Should trade be such a one-way street? Are foreign vehicles really that bad that nobody would buy despite horrific import tariffs? No, I don’t think so. Rather, it is a cultural thing, where the average person would not be caught dead purchasing something not made by his/her neighbors, because it would undermine their jobs and perhaps the overall economy.
In the meantime, transplants have so muddied the waters in North America that people here feel genuinely that they are almost domestic, or couldn’t care less anyway. It’s not that way in Japan and Korea, not at all. It is not a level playing field for US manufacturers, except in manufacturing or software activities where a country has no domestic industry to speak of.
The trouble is, the problem is largely self-inflicted by the US’s free market policies, which over the years have become ever freer. Other societies do not play by these rules in reality, even if they pretend to acknowledge them.
US industries, faced with competition from cheap overseas products, took the logical way out and outsourced, designing products in the US and making them in Indonesia at first, then China. The advent of modern glass-fiber communications now means that outsourcing also encompasses software development, call centers, engineering, whatever you want.
So, in a very real way, the US has enriched the world and impoverished itself, relatively speaking. The fact that Detroit automakers can actually make product here in North America that is not complete and utter dross means that fundamentally they are really efficient. The companies had to get wages down or disappear from the scene even sooner.
Look, we can discuss Wagoner’s bone-headed decisions all day long, laugh at Lutz, call out Nardelli, rail at ridiculous executive pay, say with the benefit of hindsight or logic that SUV profits should have been plowed back into better car designs, etc, etc. Sure, those guys are dumb beyond belief at times, but that’s in the context of day-to-day operations. But, and it’s a big but, those guys are trying, however ineptly, to try to salvage a manufacturing sector for their country. Consumer electronic CEOs sold out years ago: RCA, GE, Zenith, Admiral. Appliance manufacturers, pretty much the same thing. Lots of one-horse (factory) towns across the USA are dead or dying, and to my mind, the country gave it away for no clear or valid reason other than the pursuit of theoretical free-market economics.
As I’ve said above, other countries do not approach these kinds of problems in the same way, and therein lies the disadvantage for the US. I guess I’m arguing against flat-out free-marketism unless all the players ACTUALLY play by the same rules.
If Toyota and Honda sold their vehicles in the US at their average prices from other countries, then a Malibu for $22K would be an utter bargain against a $27K Camry. Because almost good enough would translate to one hell of a bargain instead. Do you think a loaded Acura TSX made in Britain (as a Honda Accord) sells for 15,000 pounds ($30K) in Britain before tax? Hah! Try $40K for the EX, not dissimilar from the Canadian price. The US is being eaten out from the inside by predatory pricing.
Toyota suffering from a lack of Priuses? Sorry, I don’t believe it. They’re selling them for $32K and up in the rest of the world. Why bother supplying the US for $22K when you can get $10K more anywhere else in the world for the same damn thing and still sell all you can make? Battery shortages is the official Toyota response to the 8 month waiting list in the US. BS, I say. Corporate profit is the motive for the lack of US supply — makes up for all that cash piled on the hoods of Tundras right now. 100,000 Priuses sold for 10K more each is one billion dinero. Another couple years and they could sell the Tundra factory for next to nothing as an abbatoir.
Sadly, the run-up in oil prices is the final straw that broke the camel’s back for domestic auto manufacturing in the US, unless the country enforces some level-playing feld tactics on the foreigners. It’s got to the point where only bad times lie ahead. And I have to predict, however unpopular it may seem, that when the big 2.8 lie six feet under, a Camry will cost a lot more, perhaps $5K more, and Toyota will become even richer.
So will OPEC when they start pricing oil in Euros.
And now, back to your regular programming.
Some good points made all around, but one thing with prthug’s comparison of a legacy cost encumbered GM and an unencumbered Toyota is that it excuses GM for arriving at that state. Until GM had competition in the Japanese, they didn’t believe they were encumbered nor did they imagine the possibility of market share gains by the Japanese. That’s the crux of GM’s decline. Denial.
How can the same GM execs be studs in China and dopes in the US? Again, it’s a simple difference in attitude. China is a new market for GM where consumers and success are not taken for granted.
Toyota definitely doesn’t hit a HR with every product, but they don’t have to. They position themselves so they can absorb a strike out and get ready for the next at-bat.
I don’t believe Toyota products or Hondas for that matter are any better than GM’s, but I do believe that GM’s prior success has impaired current management’s ability to recognize reality and admit past failure. If Waggoner was the captain and sailing through stormy waters, he would keep saying everything’s fine until his final breath.
We may very well write the same about Toyota or Honda in a decade. The Honda engineer who insisted their ugly new grills will grow on us in the face of complaints is already set for that future.
@prthug
I have a hard time taking you seriously.
GM has completely sabotaged their own game, over decades, by stubbornly refusing to accept what the market wants, instead trying to build margins through artificial niches, of varying sizes, that had insufficient mass market potential in the long run.
And you want to excuse GM by pointing out that Toyota doesn’t hit it out of the park every time?
That’s not PR, that’s delusional jabberwockery, and it reminds me of Emperor Hirohito, who upon Japan’s surrender announced that: “Despite our best efforts, the war situation has developed not entirely to our satisfaction.”
When will GM take the necessary long and hard look into the broken mirror and accept its string of fumbled games? All I read, everywhere, is how everything and everyone else is to blame.
Here’s Bob Lutz on his blog – NOW!!!!!!!!!
“generalized economic weakness due to the mortgage meltdown,” a “big decline in the dollar” and “an unpredictable and very rapid rise in fuel prices.”
Seriously. Wake up.
prthug
You make some good statements, even some pithy remarks, yet taken as a whole, your argument is simply wrong.
As others have pointed out, it’s the fault of the D3 that they have high legacy and labor costs – it’s not something that just happened to them by accident.
Not every decission has been driven by those costs – though even were it true who’s fault would that be?
Why do legacy costs drive the decission to pretty much do a crap job on small car development at GM? And I mean, they’ve done a crap job since the last Corvair rolled off the line. They’ve had about half a century to get the message – there is a market for a well made, nice, small car. They made one honest attempt, it didn’t work out for them, so they threw up their hands and decided they’d never really make another good effort.
Ford and Chrysler did a bit better with their Focus and Neon, but they let them rot on the vine instead of making continuous gradual improvement with an occassional new generation. How was that decision driven by legacy or labor costs? There was more than enough money in the ’90s and well into this decade to finance modest improvements of their car lines – not to mention Ranger.
When RIR has seven or eight years at the helm, and all he does is run the ship aground, it’s pretty hard to avoid the conclusion that he’s not a very good helmsman. But maybe it’s God’s fault (God seems to be the only entity not yet blamed by GM management) for putting the sandbars in the way.
Yes, the management at at three Detroit automakers have been startlingly stupid and short sighted. The exceptions, such as Don Peterson at Ford, stick out in our memory. When one inherits mulitple long term difficult problems, one has to start deaing with them. Either that or sit at one’s desk and say “it’s so F’d up it can’t be fixed”. Rick has decided to pay lip service to option one, while in reality employing option two.
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This is a little off topic – but not too far. I was thinking the other day that I know the CEOs of the D3, and that’s primarily because there is so much bad news coming out of Detroit.
Car-heard that I claim to be, I really have no idea who the CEO of Honda is right now. Maybe a good investment rule of thumb is this – if you know who the CEO is, don’t buy the stock.
Witness Hyundai’s transformation from a stinking pile of crap to good solid transportation. GM it seems, will not be afforded the same luxury. As it’s products improve (Not best, but the Hyundai success model shows that you don’t have to be) nobody notices. The “badge test” has been performed by others, and predictably, with the same result. With the GM badge workmanship and desirability always test lowest.
But there is a fundamental difference between Hyundai and GM. When most people buy a Hyundai now, they have no first hand experience of what the car will be like. But a lot of people do have first hand knowledge of GM’s products. If they have had a bad experience with a GM auto, they’re going to have a negative expectation of anything new. So Hyundai’s success cannot easily be transferred to GM. It will take someone a longer period of time to forgive and forget the prior bad experience. This is something that will take years for GM to get back.
“There is no such thing as loyalty to one’s country (at least in the US). People actually prefer to buy an import. All part of the “hate America first” malaise.”
I love my country. But why should I buy a car from GM when the union and executives will use that money to support the Democrats in raising my taxes, endangering my health by nationalizing my health care, and risking my job by forcing raises in the minimum wage so they can make even more? The GM workers make double to triple my salary yet it is my patriotic duty to support them by buying their inferior cars? Even when those cars have more foreign components than my old Accord or current Camry? Why are the GM workers more deserving than the Camry makers in Kentucky or the Accord makers in Ohio? What makes the GM worker more American than them?
“What? You mean all those millions of customers didn’t really want TrailBlazers, Silverados, Tahoes, Suburbans? You mean GM force fed them down the consumer’s throat?
Please. Somebody indeed needs to”wake up””
No, but they generally ignored the millions more customers who wanted comfortable, safe, reliable sedans with decent mileage (the Accord and Camry buyers) and they totally ignored the millions more who buy the Corollas, Civics, and other small cars. They ignored a huge part of the market when they had the cash to start competing in that part.
In defense of Honda and Toyota, if being a Japanese company was so big an advantage why is it Mitsubishi, Nissan, Suzuki, Mazda, etal. don’t also dominate here? Instead, they’ve all struggled. Until recently, Honda hasn’t been that big a success in Japan. So clearly, they — and Toyota — are doing something more to succeed here.
Do you think a loaded Acura TSX made in Britain (as a Honda Accord) sells for 15,000 pounds ($30K) in Britain before tax?
You really need to do your homework before you make statements like this, lest you take information out of context.
The sticker price of a base model 1.8 liter Saturn Astra 5-door with a stick is $16,495. The same car in Britain has a sticker price of £15,465, which is just a smidge under $31,000.
(I do hope that you aren’t accusing GM of dumping products into the US market, because according to your logic, they are.)
The US is the world’s largest car market, and manufacturers fight tooth and nail for our business and market share. We are such a large consumer that we are able to motivate these companies to sell to us for a lot less than they would elsewhere.
TTAC has some extreamly intelligent writers on both sides. prthug and wmba please keep contributing, some of the best I have read.
@Skooter Says:
July 19th, 2008 at 5:17 pm
“GM has completely sabotaged their own game, over decades, by stubbornly refusing to accept what the market wants..”
What? You mean all those millions of customers didn’t really want TrailBlazers, Silverados, Tahoes, Suburbans? You mean GM force fed them down the consumer’s throat?
Please. Somebody indeed needs to”wake up”.
===
That argument doesn’t work, Skooter, and here’s why: The only reason you establish a brand presence in the marketplace is because you want people to return and buy more. That’s the sole purpose of a brand – to build a loyal following, to help people find you when they decide to go looking. You build expectations, and you meet them.
That’s precisely what GM, Chrysler and Ford haven’t been doing. They’ve been taking big hacks and stabs out of their brands, to meet short term goals.
Yes, they’ve sold millions of cars in the process – to regular customers and to fleets. And what do you know: selling the cars, and matching them with lousy service, has chased away their customers.
Which is why your argument doesn’t hold.
You build a brand when your customers recommend you to their nearest relatives and closest friends – you destroy a brand when people spend their time warning their acquaintances about your lousy ways.
“Are we to believe that all three Boards, all the collective leaders, …. all got stupid at the exact same time and wrecked their companies?”
Actually, yes. Group-think is a massive problem and it has infected the thinking of the decision makers in Detroit for a very, very long time.
Remember when GM ran Ross Perot out of town on rails for trying to shake things up? Any intelligent dissent is dealt with swiftly, but virtual firing squad if need be.
How about the years in which the Japanese companies agreed to “voluntary” import quotas in order to give Detroit the time needed to catch up?
What about the taxpayer’s investment in the Partnership for a New Generation of Vehicles which resulted in plenty of payments to Detroit’s automakers, but none of the resulting products got produced?
As far as government support, the Japanese government tried very hard to keep Honda OUT of the car business, but Sochiro Honda would have none of that and pushed ahead against the wishes of MITI, massive regulatory hurdles laid down by the Japanese government, and every possible interference by the rest of the Japanese auto industry. Honda didn’t clean GM’s clock on account of being coddled by it’s home government … and rest assured, Honda has cleaned GM’s clock by all measures of profitability AND customer satisfaction. Simply put, Honda’s management has been smarter and worked harder (for much less executive pay) than has that at GM, Ford or Chrysler.
http://www.autohistory.org/feature_7.html
As far as things like the JD Power (paid company lapdog) saying that the latest Buick would sell better with a Lexus badge … who’s fault is that? GM squandered Buick’s brand equity with abandon for years and put a nail in the coffin by killing it’s historic model names. How many Buick buyers got stiffed with the diesel-disaster, the X-body’s worthless transmissions and/or over a decade worth of intake manifold gasket problems on V-6s? How about the self-removing paint jobs of the 1980s? Throughout these nightmares, GM’s attitude was almost always that if it lasted through the warranty period and then stuck the customer with expensive repairs, tough ****.
Now we are supposed to be surprised that customers don’t give Buick the love? Lexus built a positive reputation the hard way and now benefits from it. GM/Buick flushed it’s reputation down the crapper. This is not the customer’s fault.
Do you think a loaded Acura TSX made in Britain (as a Honda Accord) sells for 15,000 pounds ($30K) in Britain before tax? Hah! Try $40K for the EX, not dissimilar from the Canadian price. The US is being eaten out from the inside by predatory pricing.
You do realize that pretty much every thing in the UK is double the US price? From public transportation, to alcohol, to food, to clothes, to cars. If something is $5 in the US, it will invariably be £5 in the UK.
It’s hysterical how people here think the legacy cost issue is should be credited to the current leadership’s tab…but whatever. But this remark just has me ROFL…
“I love my country. But why should I buy a car from GM when the union and executives will use that money to support the Democrats in raising my taxes, endangering my health by nationalizing my health care, and risking my job by forcing raises in the minimum wage so they can make even more?”
Where have you EVER seen a GM or Ford leader advocate for socialized health care or raising the minimum wage.
History lesson class…pull up your chair and understand a basic truth. If you want to spin the dial back and find the genesis of the legacy issue for the Big Three, you must blame the US government. The US…right or wrong…chose to have social support for health care and pension provided by the private sector. It gave MASSIVE tax breaks to do it. Do you think back in the day — when there were five active workers to every one retiree — that any sane executive would have walked away from that opportunity? Of course not…nor did 90 percent of the execs of every other major corporation. Throw in union leverage over the years and cha-ching…you have a disaster. That wasn’t Rick’s, Nardelli’s, or Mullaly’s decision.
The hindsight spun around here is beyond 20/20…what a brilliant executive you can be when you can see the future!!
RF: We pay $200 for published work.
TYPO ALERT! That should be $100, and the original post has been corrected.
History lesson? class, pull up your chair and understand a basic truth. If you want to spin the dial back and find the genesis of the legacy issue for the Big Three, you must blame the US government. The USA, right or wrong, chose to have social support for health care and pension provided by the private sector. It gave MASSIVE tax breaks to do it. Do you think back in the day when there were five active workers to every one retiree that any sane executive would have walked away from that opportunity? Of course not! Nor did 90 percent of the execs of every other major corporation. Throw in union leverage over the years and cha-ching! you have a disaster. That wasn’t Rick’s, Nardelli’s, or Mullaly’s decision.
The hindsight spun around here is beyond 20/20. What a brilliant executive you can be when you can see the future!!
If we’re having history class, let’s tell the whole story. Walter Ruther proposed that pensions and health care should be provided by the Fed. Govt. He asked the automakers to help him make the case in Washington. The automakers would have none of it. The automakers expressly chose to be the provider of these benefits rather than have anything to do with “socialism”. Ruther knew in the late ’40s that this system of employer provided pension and health care was not going to be sustainable. As a labor leader, it was the only option available to him, so he took it.
It’s no good saying the legacy costs were “inherited”. It’s like saying the next POTUS can just say “Hey, the budget deficit didn’t happen on my watch, therefore I don’t have to deal with it”. It’s true that Rick, Allen, and Bob didn’t create the legacy costs, but it’s still up to them to figure out what to do about it.
John Horner:
“Actually, yes. Group-think is a massive problem and it has infected the thinking of the decision makers in Detroit for a very, very long time.”
Be careful. Sometimes I think Group-think affects us here at TTAC as well.
It’s no good saying the legacy costs were “inherited”. It’s like saying the next POTUS can just say “Hey, the budget deficit didn’t happen on my watch, therefore I don’t have to deal with it”. It’s true that Rick, Allen, and Bob didn’t create the legacy costs, but it’s still up to them to figure out what to do about it.
Excellent analogy. Bottle that one up and sell it.
Great leaders play the cards that they are dealt. If times are good, they strengthen their hands and put aside chips for a rainy day. If times are bad, they get cracking, fix what’s broken and turn a losing game into a winning one.
You know that things are broken when you have upper management genuinely convinced that their products are not a problem. Nobody with a sense of decency or good taste can park an Aveo or Cobalt or G6 or Aura next to the class leaders and argue that they are competitive or that they don’t mar the view of the few good products in the lineup.
The greatest legacy cost that the Big 2.8 have to pay for are the millions of dissatisfied customers who they have pushed into the arms of the competition. Many of those customers and their money are never coming back, and they help to spread the word to their friends and colleagues to buy transplants and imports. Their children have been raised in the passenger seats of these vehicles, so the youth of America now believe that Detroit makes only trucks and rental cars. For the most part, they are right.
Hoping and praying that the competition will stop making good vehicles is not a plan. Blaming history is also not a plan.
I love my country. But why should I buy a car from GM when the union and executives will use that money to support the Democrats in raising my taxes, endangering my health by nationalizing my health care, and risking my job by forcing raises in the minimum wage so they can make even more?….
Now I realize that it really wasn’t dangling chads or butterfly ballots or the Supreme Court who got George Bush into office…where’s H.W. Bush when you really need him…
LenS: Please please please explain to me how raising the minimum wage will result in “they” making more? Assuming from the distaste you spewed regarding the Democrats, I am assuming they are the “they”. So how is paying the girl at McDonalds a scrap more going to affect you and enrich the Democratic party? By making sure the “minimum wagers” are more likely to vote Democratic? They already are, if they vote at all. Raising the price of your fries by 10 cents? Fair enough. If paying the very bottom rung of wage earners a bit more raises the cost of these services provided by them I have no problem with that. Waaaaay cheaper than welfare. Either way, we pay. I’d rather get some services out of it. If you are really concerned about pay forcing up the cost of goods and services, why not look through the other end of the telescope? Just look at all the previous posts. Look what Rick and Company make and the quality of the job they do. If they were the ones whipping up the fries, they would have burned the store down years ago. Attack the fat cats, or at least the ineffective ones.
Endangering your job? Unless you are in the minimum wage category (which I very much doubt judging from your comments) I don’t see how your job is in jeopardy. On the outside chance that you are in that group, here’s a nice Republican answer: Tough crap, deal with it. You made your bed, lie in it. Go to school, retrain, night school while working during the day, two jobs, do without. (sarcasm here)
If ther hadnt been the EPA loopholes allowing light trucks to comply to lower emissions standards, would that have made pickups and SUVs less of a cash cow? Perhaps spurring the then Big 3 to concentrate om developing better cars?
golden2husky:
“LenS: Please please please explain to me how raising the minimum wage will result in “they” making more?”
I can’t answer for Lens, but I believe he met that in many union contracts the base pay is based off the minmum wage, so when the minimum wage goes up, thier pay rises a proportionate amount, if not immediately then when the next contract takes hold. I don’t know if that is the case with the UAW.
“If paying the very bottom rung of wage earners a bit more raises the cost of these services provided by them I have no problem with that. Waaaaay cheaper than welfare.”
Actually government setting the minimum wage instead of the market has kept people out of entry level jobs. If you can’t hire labor at market prices then you do with less labor or find other ways to provide services without the labor or unfortunately pay people under the table/hire illegals to do the work. These are not jobs you can outsource overseas so paying market prices is not going to send the work to China. But judging from how long I have had to wait in line at MickyDee’s for my lunch tells me they are doing with ess labor then they should. And I realize that that is just an annecdotal observation of mine, but I think it has merit. Working an entry level job does more to keep a young person out of trouble than midnight basketball.
“Tough crap, deal with it. You made your bed, lie in it. Go to school, retrain, night school while working during the day, two jobs, do without.”
It’s easier (and seemingly more kind hearted and caring) to forgo short term pain and it’s place offer something else. But many of these programs to help instead end up doing more long term damage. Better to endure the short term discomfort in exchange for long term security and prosperity. At least offer programs of temporary help not permanent dependency.
You are spot on about Rick and company. But healthcare, daycare, eldercare, mortagagecare, and anything else that government (on all levels) can come up with is not the answer and is often the curse.
Stein X Leikanger: That argument doesn’t work, Skooter, and here’s why: The only reason you establish a brand presence in the marketplace is because you want people to return and buy more.
You originally said that “GM has completely sabotaged their own game, over decades, by stubbornly refusing to accept what the market wants..”
Skooter correctly countered that GM built lots of big pickups and SUVs that people DID want. The Silverado, was, until recently, the second-best selling vehicle in the land. So to say that GM completely refused to build what customers wanted is incorrect. His argument does work, to a point.
GM builds what one segment of consumers wants. That segment wants large, body-on-frame vehicles powered by smooth, reliable V-8s that are available in a variety of body styles and drivetrain configurations. Up until the late 1970s, this was what the majority of buyers wanted. At that time, the way for buyers to get these attributes was to buy a passenger cars. Now they buy trucks and SUVs.
It was a very large and profitable segment. It’s still a large, although shrinking, segment.
GM’s mistake was in ignoring customers who wanted a high-quality subcompact, or a family sedan that didn’t look like it was designed primarily for the purchasing managers at Hertz and Alamo.
prthug: Where have you EVER seen a GM or Ford leader advocate for socialized health care or raising the minimum wage.
A year or two ago William Clay Ford, Jr., said that the auto makers and government needed to find “new solutions” and consider new ways of addressing the auto makers health care costs, which was basically an attempt to have the government take over health care costs.
Which sounds suspiciously like socialized medicine to me.
Dynamic88: Ruther knew in the late ’40s that this system of employer provided pension and health care was not going to be sustainable. As a labor leader, it was the only option available to him, so he took it.
So, in other words, he was as dumb and shortsighted as the executives regularly lambasted on this site. Putting the companies that employ members of your union on the slow path to oblivion isn’t the smartest strategy.
Incidentally, we already have socialized medicine – it’s called Medicare, and it’s aimed at senior citizens (also known as retirees). The same group of people who are costing GM the most money. Notice that UAW retirees aren’t exactly rushing to dump their company provided plan for Medicare. Notice that even during the last round of contract negotiations, the union wasn’t about to tell retirees that they should expect to rely on Medicare instead of the company plan for their benefits.
Why? Because Medicare is not nearly as generous as the current GM plan. Which makes one view the union’s calls for nationalized health care as disingenuous, at best. Unless the union really believes that a nationalized plan will provide all citizens with the same level of coverage and care as the current GM plan for retirees. In which case, union leadership is delusional. We can’t afford it.