General Motors: An Autopsy
As the world watches General Motors, once the “bluest” of blue chips, enter bankruptcy court to seek protection from its creditors, pundits roll out explanations for its demise. Missing from almost all of the discussions is monopoly power — the root cause of GM’s troubles. What is in play here is not the monopoly power of what was once the largest corporation in the U. S. — for GM never had such market dominance — but rather the monopoly power granted by law to its workers through its union, the United Automobile Workers. It is this that has brought GM to its knees.
With the passage of the National Labor Relations Act in 1935, U.S. labor unions were granted exemption from anti-trust legislation, thus effectively achieving monopoly status in the labor market. Notwithstanding this legislation, over the ensuing years U.S. workers have understood the dangers inherent in this arrangement and routinely rejected union efforts to organize in most industries. As a result, union membership has declined in the U. S. with the notable exception of public service-employee unions. Those industries where union membership maintained dominance have experienced continuing disintegration evidenced by an inability to compete effectively.
It is part of human nature to seek security from change. Citizens, companies, and other interested groups have regularly sought market, pricing, and/or job protections through the intercession of the one institution that can, through the use of legal force, protect those interests: the government. Such protectionism is simply legalized theft in the form of the transference of wealth from one group (taxpayers, consumers, etc.) to another, more favored one (in this case, organized labor).
The consequences of such protectionism make for a baleful tale. For example, in an ever-frustrated effort to protect agricultural interests, we have witnessed the destruction of crops and the slaughter of “excess” animals; providers of utility services have prospered at the expense of their customers in a marketplace where prices are fixed and competition is prohibited; and educators, at taxpayer expense, have evolved into mere workers insulated by their unions from accountability for the corrosive effects of their poor instructional methods. The list is endless, and the victims are not just consumers forced to pay higher prices and accept poorer service, but, ultimately, the protection-seekers themselves who suffer as the protected enterprise shrivels and becomes less and less vital. In a relatively free market, more competitive enterprises will, over time, replace these high-cost dinosaurs; in a less free market, relative economic activity will atrophy and overall standards of living will decline.
Taxpayers have $20 billion in GM already with another $30 billion planned for ‘investment. There are internet predictions of a 50-100% higher rate of ‘investment.’ What does the U.S. taxpayer receive for this incredible amount of infused money? Sixty per cent of a company created for the benefit of UAW pension plans. What George Bush should have said when acting on GM/Chrysler at the behest of ‘the office of the president elect’ was that creative destruction would be suspended, not that free market would take a back seat. Even ‘new’ GM will collapse because of government influence and interference. What will we receive as taxpayers for our dollars? Perpetual demands from the UAW and democrats lining up to give their biggest financial support organization the money to continue funding the socialistic tendencies of same.
It’s obvious that car executives never earned their salaries and bonuses.
If they knew how to treat their workers well, there wouldn’t be unions.
If they knew about marketing and distribution, they would’ve beat the competition.
If they would’ve applied Just-in-time techniques, their inventories and production would’ve been more effective and avoid wasted dollars.
It all comes from the TOP.
“It all comes from the TOP.”
Those at the top of the unionized auto industry are similar to a racehorse that must carry the additional weight of a 500 pound piece of lead. They had the odds against them before even pulling out of the gate. The government literally forced them to build cars few customers wanted to purchase. Their union workers, for all practical reasons, were also allowed to stick it good and hard to the bosses by the same government when the labor contract was up for renegotiation. This madness continued to a point while the auto giants possessed something of a monopoly. It all ended once non-union foreign automakers could compete.
Unions help only help their own members—in the short run. They always immediately hurt investors and consumers. The unions particularly damage the poor by significantly increasing the price of the finished product. In the long run, unions inevitably destroy jobs. The historical record is crystal clear on this point. There may not even be one union in existence that has seen its membership grow after a fifty-year period.
One union controlling contracts for all the hourly workers in three competing companies? One union defining promotion, pay and benefits for all . . .? Seems a bit conflicted. Just who does a UAW member work for? Ford, or Chrysler, or GM? Or, does he work for (and at the convenience of) the union. If the UAW had split, with the workers for each of the manufacturers (as well as the union pension fund) having a stake (ownership) in the company they worked for there might be a mutual feeling of real obligation. But the union does not want that, they want the workers beholding and obligated to one master . . . the union. The rise or fall of one manufacturer (or all) is immaterial in comparison to the UAW’s leaderships quest for political power. Democrat politicians (especially in UAW states) are the wholly owned subsidiaries of the union . . . hard to fathom sometimes who is working on who’s agenda. Though with the UAW owning the controlling percentage of Chrysler it seems clear.
Unfortunately, it appears that you still may not “get it”. Although corporate welfare of a stagerring scale is never a good idea, there is a huge amount of industry in the suppliers that feed the big three that cannot sustain the loss of any large customer. These suppliers also feed all the auto manufacturers as well. These suppliers are folding and will continue to do so. If GM was allowed to disappear, many, many suppliers would disappear with it. And make no mistake about it, many are non union. I live in KY and there are hundreds of non union suppliers that are on the cusp of bankruptcy or already closed. The slightest additional blip will be too much for many of them.
Granted, our government has begun to make the Italian mafia look like a bunch of panty wastes in regards to how to extort money from the masses. But honestly, where is the outrage on bailing out the financial sector? We demanded to know what they did with the money and they pretty much told us, “It’s none of your business”. Meanwhile, they paid themselves big, fat bonuses and bought more small banks. They did and have still done NOTHING to justify receiving the TARP funds. They still downsized, we still lost the jobs and the credit markets remain frozen. We could have accomlished that without spending a dime, as opposed to over a TRILLION dollars. That is a 1 and 12 zeros. That is a lot of zeros. Here is a tidbit of info for you that ought to help put this in perspective. If you doubt it, use the calculator on you computer. (It’s probably the only one you have with 13 or more spaces.)
Here you go…. A trillion SECONDS is over 31,000 YEARS. So, when bashing the idea of propping up the automotive sector, realize it ushered in the industrial revolution and gave us the assembly line. It employs several million people and we stand to get a return on our investment. With the banks, we just gave away money with no strings attached. So please, if your going to complain, find your focus button, huh?
Bush didn’t want the automakers to fail on his watch.
Barney Frank cried that allowing them to fail was union busting.
Having had to deal with unions myself I have found that they want more and more of the money but none of the responsibility which I have always found frustrating because I have increased my income by accepting more responsibility.
To paraphrase Lek Walenska “A union should not become a parasite that kills the host”
So raise your hands, who didn’t know GM’s UAW contracts could not be sustained?
The UAW is an intvention of the fascist FDR. He needed unuion thugs to force the public to accept his fascvism, same as ZERO.
Remember those spontaneous SEUI rallys at the AIG execs homes? Classic FDR.
I spent 3 summers on a GM production line in the 80′s. I’m surprised they lasted this long. The union only cared about their pay and benefits. Plant management only cared about keeping the line running and not making waves with the union. Nobody cared about the products or customers.
CAFE standards had a big role in this, too.
For the record, the Canadian taxpayers are in for at least $10B and, today, our Prime Minister is warning us to not expect to see that money repaid. It is, in effect, a transfer of the wealth of Canadians to the CAW, the UAW’s little brother.
$50 billion / 50000 jobs = $1 million per job
Wow, it’s all the union’s fault.
I guess it was the union’s fault that GM ignored the imports and refused to make smaller efficent cars. It must have been the union that forced GM to buy Hummer. That darned union was so fixated on high profit vehicles that it left GM with lumbering tanks that nobody wanted to buy. Those short-sighted unionists deliberatly designed vehicles that fell apart in a couple of years.
When it comes to wasting money, GM might consider all those highly paid executives (why nobody has compared the salary of GM’s CEO vs. Toyota’s CEO is beyond me). If the unions were setting corporate policy and designing terrible cars, what were the executives doing? Learning to panhandle so they could go begging to Washington?
Let’s face it, GM was so in love with high-profit vehicles that they refused to think past the next quarter. They lost their lead in market share to Toyota because GM makes crappy vehicles.
How about the intake gasket (that GM knew was faulty)on a GM vehicle going out at just over the warranty period and the customer having to foot the whole $700 bill to repair it? Multiply this by thousands of vehicles over the last few years and maybe an answer will come up as to one of the reasons GM is in the dirt.
I agree with vivo.
It is the job of ‘top’ management to know where socialism ends.
We will all be poorer, and buy less cars.
But the polies we have, and their payoffs to voting blocks, are known to ‘top’ management.
‘Top’ management is adept at knowing what it can get away with, and who is voting for whom. So in the end, they caused the demise of GM, because it was not their money.
And now, we have a new voting block.
Eternal vigilance.
ADE
Watch and see if the government doesn’t figure out a way to make it more difficult for foreign car manufacturers in this country to remain competitive through various new rules and regulations that favor the rescued auto companies, in an effort to force buyers to buy lower quality, more expensive vehicles from the “Big 3″. After all, the government needs their financial rescue plan to be successful, and what better way to make that happen than to legislate it.
Unions had their place years ago when companies did whatever the hell they felt like doing, typically trampling workers underfoot. Somewhere along the line, however, they became the biggest hindrance to continued progress and innovation in this country. Today, it’s all about money and power for the unions; they are an antiquated dinosaur whose time has passed and now should be put out to pasture.
Likewise, the execs of big companies such as GM should no longer be able to earn millions of dollars each year, a practice that occurred even when they weren’t profitable (pay for performance, anyone?).
Politicians, unions and big business all bear partial responsibility for the financial mess we’re in today, yet now we’re expected to believe that they’re suddenly, magically capable of making the right decisions? Don’t hold your breath…
The two fleet CAFE rule, passed in the 1970s, was the most important reason GM, Chrysler, and Ford are in trouble — not the 1930s labor laws. This law gave absolute power to the UAW, which it used to whipsaw management and derive outlandish wages, benefits, and work rules — and prevented the long term rationalization of the business. With the passage of the two fleet CAFE law, the union was the defacto controller of the automobile companies’ fate; coming out of bankrupcy, the union will be s significant shareholder and have additional indirect control though a “Democratic” government. There is no discussion of reversing the two fleet rule; consequently, even if the present restructing is successful, the country will again be faced with the same problems in 10 to 20 years.
GM management reminds me of the current GOP leadership. The UAW is to the Democrats as GM Management is to the RNC.
Both GM management and the RNC lack backbone to stand up to what is unsustainable. As it led to he demise of GM, so to is the RNC’s compromising on basic principles leading to the demise of the United States.
You like fair pay for a decent day’s work? You like holidays? Holiday pay? Basic health and safety regulations. Child labour laws? Oh and many other things now taken for granted by humans in the western world. The union movement brought profound, very necessary and much welcomed changes to workers’ lives and the wealth of the entire nation increased with its growth. Salt is a good thing and necessary for health. Too much salt is not good for you. The problems you talk about are the problems of excess and institutionalized power, not unionism, per se. It’s always been a question of balance.
Everyone is pretending that GM “Executives” and the “Union Leaders” are different people with different goals. They are all in on the same game. They play golf together, they send their kids to the same private schools, and they run the same scam.
Together, GM management and union leaders have ripped off shareholders and customers for decades. That well has run dry so they have moved on to ripping off the U.S. taxpayers – together.
The Unions, or in this case, the UAW is the rot that has grown like a cancer over the years; it has brought down the American auto industry since Unions cannot compete with non-union companies with better product, better customer service, & superior quality.
General Motors is dead; however, the Democrats will be in denial since the Unions own the other Democrats & President Obama. No one in their right minds is going to purchase Chystler or General Motors vehicles since the US government cannot effectively run any businesses.
The rot will continue until GM ceases to exist at all.
@ Northern Light
“High profit, crappy vehicles that no one wants to buy”?
High profit vehicles are by definition, vehicles that people want to buy.
Your statement is a perfect example of why all this Obama fascism is doomed to failure. Illogic, class warfare, and elitism.
You want to use political power to force others to consume what you want them to, because you don’t like what they like.
It all starts to remind me of the old Soviet Union in which people were forced to buy the substandard vehicles produced by the State.
Oh crud, now I agree with Vivo. I’m resigning my commission as a conservative.
The thing that a lot of you are not understanding is that chapter 11 is exactly designed to help a struggling company get relief from ALL of its contracts. In this case the f**king US government, (Obama), stuck its nose into the process and changed it to be a union bailout. I was a pilot with Delta when it declared bankruptcy and I can tell you first hand what they did to our pension and retirement plans. There was no bailout or union consideration in the process and the NEW plans were forced upon us. This is supposed to be what happens to companies or local and state employees when their governments run out of money but is not allowed to because they can raise taxes. We will never get our bloated governments back to a reasonable level because they always have a back door to escape from. This is the same principal that Obama has used on the auto and financial companies.
The UAW/CAW were allowed to have a monopoly
position in the domestic car market. This
resulted in a stifling situation where GM was
forced to build cars simply to maintain volume.
Eventually union and management become two
sides of the same coin. Bright guys tend to
work at places that offer more freedom. The
rule on the floor becomes don’t piss off the
union or they will screw you.
There are so many GM retirees who are still
in their fifties. I have to work to 65,
instead of worrying about their pensions
let them reenter the workforce just like
everyone else who lost their job. The
CAW{Canadian UAW breakaway] was even more
extravagant in their benefits than the UAW.
The Unions of yesterday are NOT the Unions of today. It is unfortunate that they do not have to make cuts (like EVERYONE else)as it would certainly help the root of the problems our Auto makers are experiencing. I am all for Unions but, nowadays, they are nothing but a big parasite and they need to get rid of all the Thugs and no longer be so important to the Political scene. The workers of this country should realize that most things in life are privileges and if you work hard and not depend on ‘the kindness of others’ (i.e. GOVERNMENT), you will succeed. The sad truth is a majority of people have forgotten the American Dream, hard work and GOD forbid…..living within your means..sacrifice. The whole Union scene is one bloated mess.
My Dad retired from a huge Corp. with great retirement benefits, many of those benefits have been cut. He didn’t sit around and whine about it. Sometimes, one just needs to figure out, you just don’t get a free ride. He looked at what he had and made adjustments. He is living a little more leaner. But, NOT whining!
Sometimes, one will not live the way they think they should and cry, others, well, they just keep at it and do fine.
What is happening to all our Private businesses is obscene. The Gov’t (TOTUS) has NO business taking over and deciding how these businesses should be run.
They have made a mess out of this whole country, why, allow them to take over the Banks, Auto Industries, next will be our Healthcare, then who knows…the oil industry, coal, ???
Re-distribute the wealth. No thanks…I am by all means not wealthy. I am fine with what I have. I chose to be where I am. I admire people who start from nothing and build a life and a business and so what if they make good money? Not my business. How about all the others who sit on their hands and whine about how it is not fair? Get over your self absorbed whiny selves and do something about your situation…it is not the Gov’t's place to help you to succeed.
JMO.
This gov’t is rotten to the core and should be purged in 2010! Blah
Listen up people, the demise of General Motors isn’t the unions fault. Got it? This is a bull$hit line being fed to us by the same a$$hats who shipped most of our jobs overseas, and who will continue to do so as long as they can get away with it. It was pi$$ poor decision making that killed GM, and Chrysler and yes the unions were part of that process but in the end it’s the guys who wear the biggest hats who should shoulder the blame.
The unions came into being as the only way to fight the robber barons of the late 19th and early 20th centuries. Yes, they’re no as much of a problem as the robber barons they used to battle, but don’t delude yourself into thinking they’re the only problem in todays American manufacturing environment. Unions don’t decide to build factories in China, or to continue building gas guzzlers that nobody wants, or to use their collective power to quash alternatives to they products they want to offer.
GM’s management killed GM.
Since blamethrowing seems to the sport of choice here I guess I’ll weigh in too; Plenty enough to go around. Unions 40% management 60%, the latter, after all, agreed to those unsustainable compensation packages right? Thinking Old Soldier above is definitely onto something there.
And Mike, you have legitimate concerns and questions about favortism and choices in who we bail out. The difference betweeen banks and GM/Chrysler is fundamental and should be easy to grasp. The geography argument, i.e. Wall St against Detroit, smacks of class warfare and is irrelevent. The entire economy, that would be all of us, everyone, requires a healthy banking system. That same economy can survive perfectly well,and arguably better, without a couple of domestic manufacturers who have proven they have neither the capacity or propensity to compete on a fair palying field.
Sometimes we have to face the hard truth that crushing the skull of mortally wounded roadkill is the only, and most merciful, course of action. GM and Chrysler are wounded roadkill. Boycott them and get it over with.
Its just a shame they wasted so much money propping it up. It should have gone up the swaney quite a while ago. The UAW ban on importing cars is pretty daft as well, viz GM’s future.
A couple of points:
– The UAW no longer represents current auto workers. They are an organization that represents retired workers. Notice that the New GM will have only a fraction of the number of workers that were employed by the Old GM. The UAW doesn’t care about its working members. If intervention was needed it would have been far cheaper to just fund the UAW pension program and allow current GM and Chrysler workers to either dump the UAW or form a new union that represents their interests.
– The blame GM management posters always revert to myths and talking points about the industry. Vivo, every automobile manufacture uses just-in-time logistics. To the extent that GM was late to the party was their fear of wildcat UAW strikes at parts plants that were quite common in the past. The idea that the American industry relied on big cars while the wise Japanese specialized in small cars is nonsense. Toyota, which by the way lost 33% then GM in the first quarter, has the same product mix as GM. They introduced the Prius so they could sell more V-8 powered trucks and the Lexus brand without paying the CAFE tax. Honda, Toyota and Nissan make most of their money of their gas guzzling luxury brands. The CAFE standards keep out the Big Three’s import not lack of desire on their part. The UAW got a domestic content provision for high mileage cars built into the law. If Ford were to import their high mileage diesel Fiesta their Cafe numbers would get worse, not better.
I think the Obama adm. could find themselves hauled into the World Court on restraint-of-trade charges if they try to impose their policies on foreign owned auto companies. We have signed many economic treaties with foreign governments, thus are bound by International law in these matters. The global chickens have come home to roost.
Both the parasite and host died from bad diet decisions. Both were too big and important to fail. Both clung patriotically to their loyalties. Both are now surrendered to government management. Who would buy stock in GM?
#2 Vivo, a few points…
“It’s obvious that car executives never earned their salaries and bonuses.”
They get what is offered to them. If this was such a concern when it came to company profitability then the shareholders would have ousted them or never allowed compensation higher than what the market demands.
“If they knew how to treat their workers well, there wouldn’t be unions.”
The workers also had the choice of working somewhere else. Instead they decided to unionize and forfeit their rights to individually negotiate for their labor.
“If they would’ve applied Just-in-time techniques, their inventories and production would’ve been more effective and avoid wasted dollars.”
When a large chunk of your profits go to meeting CAFE standards and feeding the beast of legacy costs, gold-plated benefits, and above-market labor costs, what else are you going to do? Make crappy cars that have to be replaced every few years, and make them impossible for the average car owner to maintain on their own. There were few other options to keep cash flow going. GM and Chrysler had been trading on their good name alone, now they have nothing except government subsidies and bailouts.
“It all comes from the TOP.”
I sort of agree with you here, if by the “TOP” you mean government protection of unions (instead of protecting free markets) and the imposition of expensive efficiency and environmental standards.
GM’s management was the most doddering, ineffective, out of touch group anywhere: they were that way in the 60′s. Wanna see a view from 45 years ago that castigated GM for its failure to innovate and out of touch management? Read former GM vice-president DeLorean’s book, “On A Clear Day You Can See General Motors”. GM stopped innovating and increasing quality and focused on selling remodled autos for short term profit. That’s what happens when CPA’s take over.
The Unions were corrupt: they moved from wages and hours into work rules requiring special workers to hand wrenches to assembly workers, divided work responsibilities to add and maintain jobs, and demanded unsustainable pensions and health benefits that burdened its productivity and profi. It had to sell big cars sice smaller ones did not provide enough profit for its obligations.
GM at its end was an insurance company that sold cars. It existed for everyone but the customers.
I’ve worked as an engineer for both GM and Ford, and also for suppliers for the last 20 years. For a portion of that time, I worked directly with skilled trades installing and maintaining manufacturing equipment in the plants. The UAW might have had some use in protecting workers at one time, but their true purpose now is to suck the company dry. They prevent useless people from being fired, and they grind the work ethic of good people into dust once those people figure out they will never be paid more than the most useless of their peers.
That is not to say that management is not culpable. GM, Ford and Delphi are (were?) some of the most bureaucratic, top-heavy organizations that you can imagine. There were plenty of engineers with menial jobs, A LOT of management who could talk a good game but didn’t know anything about the product, and usually you felt that the people with the real power were the secretaries.
I agree that both are at fault, but it looks like we’ll be keeping the worst of both worlds. Without the UAW they might have had a chance, gutting their management might have given them a chance, but with both of them still there, Government Motors will be sucking on the teat of the US taxpayer until we all go Galt.
And now GM and the government have sold Hummer to the Chinese.
Why don’t we foreclose on the White House and sell it to China?
My parents, in their 70s, have lost thousands of dollars in GM stock and it’s not right. The stockholders should have been paid first, then the union people and CEOs.
Oh boy, so many reasons, so many solutions, Henry Ford please reincarnate, your industry needs you. …. Allan Akbar
With the passage of the two fleet CAFE law, the union was the defacto controller of the automobile companies’ fate; coming out of bankrupcy, the union will be s significant shareholder and have additional indirect control though a “Democratic” government.
Our “Democratic” government has paid off their voters in the UAW with a 17.5% ownership in the new GM. But there’s no reason, beyond that pay-for-votes corruption, that the union should have been ‘given’ that ownership. Why? The union has already been paid off, through its bloated wages and benefits of the last 40 years, for every last effort it made to produce cars. It deserves nothing more, and should be thankful that GM will still exist in some form and that some of them will continue in their luxurious employment – with the same bloated wages and benefits.
Had UAW wages and benefits been more closely representative of manufacturing jobs in general, GM would not have become so uncompetitive. But the UAW insisted on coercing more and more rewards for doing the same old same old, and their unsustainable grasping for more payment than any other workers in the country did much to kill the company.
I think Jerry’s got the right answer. The UAW represents the retirees and not the current workforce. To complete that thought, it follows that the end game is that GM will disappear into the sunset. The bailout is really a bailout of the pension plans. The new CAFE regs pretty much assure that GM can’t survive.
And if you think it’s unthinkable, just remember what the loony left did to the timber industry in the Northwest over a supposedly threatened owl. Don’t ever underestimate the willingness of the bourgeois environmental left to decimate entire industries and ways of life.
Yes, they can. They’ve done it before. As long as they can import their Volvos, the autoworker in Michigan is just more flyover trailer trash to be tossed out.
Kathy: Obama says your parents are evil “Speculators” and deserve the shaft he’s giving them.
(Technically, creditors and bondholders are ahead of stockholders in a normal bankruptcy – those folks are getting the shaft too)
36 Kathy: Sooner or later, someone ought to sue the institutional investors that put client money into a company with 8b assets and 134b in debt. If their basis was it was “too big to fail,” they ought to be flogged too. GM was dying on the table since 1970.
#5 Mike; Point taken, but why can’t those suppliers sell their products to the Toyota plants in Tennessee, the BMW plant in South Caronlina etc? Demand for and production of those vehicles are going to rise. Simple Economics 101
Its not like American consumers are going to just stop demnding the number of vehicles we demand each year. Those other companies are going to have to increase output to keep up, which would include buying more supplies, hiring more workers.
Man, if I was a laid off or soon to be laid off GM worker, I would move my ass out of Detroit ASAP and head south. Tennesse and South Carolina are lovely this time of year.
Unions had their place years ago when companies did whatever the hell they felt like doing, typically trampling workers underfoot.
I wish folks would stop with such mindless stereotyping. “Typically trampling workers underfoot”, bullshit. Not typically.
Some companies did, some didn’t. The very first mass-production car company under Henry Ford deliberately paid its workers far above ordinary wages – he had the bizarre idea that he wanted his workers to be able to afford his products.
I’d have to weigh in on the side of those who place primary blame on GM management, but not in a broad-brush sort of condemnation.
The command economy of WWII disrupted the model of successful free-market competition that Alfred Sloan had developed and refined over more than two decades. During the war GM adapted its manufacturing facilities to the production of tanks, planes and armament. There begins the long and painful atrophy of the skills that built the corporation: marketing, distribution, styling and design and manufacturing efficiency.
The demands of wartime production shifted management’s focus to the urgency of meeting production schedules while complying with narrow government quality standards.
In the immediate post-war years the rapid expansion of the economy continued to provide a robust market with little serious competition. During the early 60′s GM was consistently profitable, and its greatest fear (with a 55% market share) was government divestiture under anti-trust laws. The company’s reactive strategy was to integrate Chevrolet (its largest Motor Division) into its Assembly Division so that they could argue that Chevrolet was not a stand-alone entity.
After two decades of enjoying a strong, largely unearned market and high profits, GM began to concentrate on financial management — securities investments, GMAC — while minimizing re-investment in plant and equipment. That began a change in hiring and promotion that inured to the benefit of accounting and money-management ‘whiz kids’ and to the detriment of those ‘Car Guys’ with the motivation and skills essential to the vitality of the Sloan model.
The trend of the power shift in GM management culminated in the appointment of Roger Smith as CEO. Smith will be remembered as the architect of the disastrous Reorganization Plan in 1984, which resulted in monumental inefficiencies and a thorough bureaucratic balkanization of management at every level. Though the ascendancy of Roger Smith was not the beginning of the end of General Motors, it was certainly the denouement. Humpty Dumpty was teetering on the wall. Ross Perot was the last man who (if ceded power by fellow board members) might have rescued the business.
Unresponsive, as they, were to the realities of increasingly serious competition, corporate dysfunction and unaware of their own incompetence, GM’s top management, dating from the 70′s, never really understood the business they were paid to manage. In sharp contrast, many — if not most — in lower levels of management as well as industry critics (notably Marianne Keller, Brooks Harbour) clearly saw the failures of corporate management and where they must inevitably lead.
As to the UAW, the work rules under the contract are almost as destructive to profitability as benefits. But in the matter of contracts it takes two to tango. The truism that management gets the union it deserves applies. As with the housing bubble, a generation of GM management were led to base their plans on optimism.
One last remark about the UAW. I was associated –off and on — with one GM assembly plant (though I had worked in many others) for more than forty years, first as a management employee and later as a consultant. The plant closed in 2008, but for the last two or three years of its operation the great majority of hourly employees were contract workers. During that short time the plant set records for efficiency, profitability, meeting production schedules, low absenteeism and quality. But perhaps most striking was the quiet calmness in the facility – the lack of conflict, generalized confusion and discontent that characterized all its former years. With the exception of reduced numbers management was unchanged. I have drawn conclusions from this experience.
The UAW has extorted and bludgeoned GM over the years, demanding ever more pay, less work and more phantom jobs on the company payroll but working for the UAW.
Now the UAW is “ownership” and management works for them. Instead of dealing with management on the other side of the table, the UAW will be dealing with federal politicians and bureaucrats who, currently, work for the UAW. Car quality will diminish as plant internal discipline disappears. Who would dare fire drunken assembly line workers?
Also look for graft to increase as the politicians and federal bureaucrats begin to believe that they are entitled to “company cars” just as VPs are. There will be scandal as many cars are marked “sold” and there isn’t money in the till. It will then come out that thousands of the cars are “on loan” to politicians and bureaucrats and that their cars were better built than the ones foisted on the public.
GM was a massive bureaucracy. Management was unable to change the direction of the company, despite being keenly aware that bankruptcy was impending. Obama, or a “restructuring artist”, will still have to deal with the same realities.
Any honest effort to turn GM around will require massive investments. These investments should be going into Ford or Toyota instead of GM. I think the most criminal act is trying to save this zombie when instead we could be building on a different company with a brighter future.
I do not believe in the utopian fantasy that everyone can win all the time, and GM was a clear loser until Obama stepped in.
“Its not like American consumers are going to just stop demnding the number of vehicles we demand each year. ”
Well, actually, yes, that’s exactly what American consumers are going to do. Laid-off people don’t buy cars, and people who are afraid for their jobs will put off the purchase of a new car or buy a used one. Businesses in trouble don’t buy fleets of vehicles, either. If all the cars that would normally be replaced this year are kept in service for one more year instead, that will have a huge impact on the auto industry all by itself.
There are three players in business crisis. The companies, union workers and the CONSUMERS. We love to talk about the former two, and the latter, not so much.
Unions will readily screw over the consumer in their fight with their employers. We had a major supermarket and bus strike in CA, and narrowly avoided a teacher strike (the judged ruled against it). When the bus drivers struck, hundreds of minimum wage workers who can’t drive to work were screwed. I know a few fast food restaurant workers who walked to work and back.
The union isn’t comprised of suffering workers simply asking for a livable wage. I’m talking about grocery baggers who think they Ralphs should fully cover their healthcare and raise their wages, while places like Walmart outcompete them. They can be certifiable thugs – during the strike they barricaded the entrance to the market, chased around consumers who dared to cross the picket line (even senior citizens) and even videotaped shoppers loading groceries in their cars.
Often the union and the companies settle their dispute by lowering wages on new incoming workers who’s bottom in the pecking order. In CA most of the laid off teachers are apparently new teachers, not their tenured counterparts, who are paid 50 thou a month and virtually impossible to fire. If they’re suspected of sexual harrassment and such, they’ll be herded to a secure room where they’re still paid while doing zip. That’s really going to hurt the students.
Mike (#46), GM is still a loser since the government own 60% of the company; GM will continue to rot as the UAW shuffles its way in its new role. GM will continue to lose money since no one is going to buy their defective, dangerous PC products.
If the government builds something, run the opposite direction. The government always cuts corners & builds for cheap. Too cheap to the point the product is defective & needs continual maintenance.
The UAW-GM relationship was that of co-dependents. The precedents for the kind of dysfunctional relationship between management and labor were built in the era of GM domination of the market place. Union and management merely argued about the distribution of the treasure. Then along came the 1970s and the first wave of Japanese imports that began to erode GM’s market share. To be honest, the new imports were not really that much more reliable then domestic cars and the early Toyotas, Hondas and Datsuns had the propensity to rapidly turn into iron oxide. However, they were more value for the money and their dealers acted like they cared about your business. Neither the company nor the union understood this. The Japanese learned from their mistakes, build better cars and expanded their market share at the expense of the Big Three.
The domestic industry, both management and labor, never learned a new cooperative strategy that would allow them to compete effectively against the rising tide of imports. Failure was inevitable and the onus belongs on unimaginative bureaucratic management; a union that more and more represented non-workers over the interest of actual GM workers and an intrusive government who paid more attention to fringe environmentalists then it did to sound science.
#48
I hear my first-year teacher wife bleat out the some complaints nightly about the tenured bunch at her elementary. We should replace the concept of tenure with “pasture” as in put out to pasture. There’s some nearly 300+ blob with a trick knee with nearly 30 years who in some cases has to be lifted off his students and carried from room to room.
I would gladly trade a performance pay scale with high ceilings but a maximum of 20 years in the profession (exceptions perhaps for effective Math/Physics teachers). I think if you’re there more than 20 years, your probably doing more harm then good.
The President, prior democrats acting on behalf of the autoworkers, and the UAW acted in concerted fashion to bring down GM and Chrysler. They are probably surprised Ford is still on its feet and probably still working on bringing it down.
President Obama and the Democrats have been working hard on trying to create a permanent control of the Congress and if possible the Presidency, usually at the expense of the American people.
It is not a coincidence that President Obama spoke out to the health of the banks and automakers so as to exert market influences to accelerate their demise. If the Automakers had gone through Chapter 11 last fall and the governemtn had not thrust the “Stimulus Package” stake through the heart of the economy, I would not be surprised if the economy would have been on its way to recovery and the automakers could have started down the road to recovery.
The continued attacks on big business and its CEOs and othe executives are further evidence of the intent of this admninistration to create a permanent group of unemployed, unemployable, and poor in America.
As stated by Abraham Lincoln in his Lyceum speech in 1828, the American people will put up with a lot before they rebel against an oppressive government, and yet, every American must protect against the enemy within. I content that President Obama and the Democratic Party controlled Congress are that enemy within. It is clear that they no longer represent the interests of the Majority of the population.
If it weren’t for greedy corporations, there wouldn’t be greedy unions.
Indeed. “Consumer advocate” Ralf Nader was complaining that this deal is conceding too much to capital, and not enough to labor. Hey Ralf, ‘member the consumer? ‘Member him? The guy you made all of your millions from supposedly championing? You didn’t say squat about his interests.
Once a community organizer, always an asshat…
I think it’s all Bush’s fault…
2. vivo writes:
“It’s obvious that car executives never earned their salaries and bonuses. If they knew how to treat their workers well, there wouldn’t be unions. If they knew about marketing and distribution, they would’ve beat the competition.
If they would’ve applied Just-in-time techniques, their inventories and production would’ve been more effective and avoid wasted dollars.
It all comes from the TOP.”
Right, old son. Now your favorite by, President Training Pants is running the show, we’ll see how well he can do.
I’m guessing that there’ll be more campaigning and more “date-nights” in New York but little in the way of executive guidance from this sack of manure.
Of course, he (and you) will find some way to blame Bush for this.
Here lies GM, killed by stupid, short sighted management and labor.
Why am I as a taxpayer being forced to pay retired UAW jerkoffs pensions? Those overpaid underworked selfserving commies with the help of their bought and paid for Democrat puppets destroyed their own pension provider. Ill never buy another GM or Chrysler again. I’m even reluctant to buy a Ford as long as they are in bed with the UAW.
I guess the guys in the Ford trucks with Calving peeing on the bowtie were right after all…
Ford 1, Chevy 0.
Ford’s above market wages had nothing to do with workers affording anything (that doesn’t even make sense), and it had everything to do with slashing turnover. The typical Ford worker quit after a few months on the job because it was exhausting. Training replacement workers was time consuming and expensive. Hiking the wages by 150% slashed the turnover rate. People are willing to put up with exhausting work if you pay them enough.
I was in the market for a sedan last October. I looked at all the vehicles, drove maybe 12 of them, and bought my second Korean automobile. Value, warranty, quality, reliability and at a stellar price. GM was never in the game (neither was Chrysler).
Many things nixed GM, union fools, idiot management, too many useless employees, pensions, health care costs, lazy designs, poor quality. Sad to see a once great company die in my lifetime.
The irony is the UAW & the Democrats are unaware GM is dead & they help kill it.
36. Kathy:
Good point. How about all the retirees who now have lost money on the deal and should have been 1st in line under normal rules. I hope they sue as a group.
44. Wynne:
Good points too about the wrong guys running the company. Lee Iaccoca said 20 some years ago that the problem with the American car companies is that the beancounters are now running the show and not the car guys. It really shows in the type of quality that has come out of Detroit in the last 40 years. Iacocca also said that the Japanese companies were going to do well in the American market because they were run by car guys who knew how to make cars.
My take in all this is to not buy either GM or Chrysler products. Ford is it. At least, so far, they are keeping their hands out of the public till.
To 5 Mike >> The auto industry (and all related suppliers etc) is indeed a very large sector of our economy, but it is just that: a sector. The financial industry, on the other hand, is the very “blood” of our entire economy. You unfortunately have to bail out the latter. It’s ugly, but you have to do it or else the whole economy goes down the toilet. However, you don’t have to bail out the auto sector just because it is large or because it has a great history. That is a very slippery slope (what else is large and must be bailed out?). Auto got bailed out purely for political reasons (i.e. union votes).
The two fleet CAFE rule, passed in the 1970s, was the most important reason GM, Chrysler, and Ford are in trouble
And yet Honda and Toyota succeeded under the same regulations. Sorry, that excuse doesn’t pass whatever you think about the nature of CAFE.
No matter what, a Chrysler 300 will be missed badly. Even if not the best engineered, it is nevertheless the best looking car in the world.
bastiat:
The two fleet rule only applies to the three (at the time four) US automakers. It did not apply to the imports even when they started producing in the US because they were not union plants. Foreign automakers are free to produce high profit large vehicles in the US and import cars like the FiT and the Prius and have them count in their CAFE numbers. The entire purpose of the two fleet rule was to limit the ability of domestic automakers from outsourcing small car production to the most cost effective locations around the world. It was designed to protect union jobs at the expense of company profits.
The Central Point is accurate thought the UAW became a monopolist in terms of labor as such it was bound to eventually start to exploit it position hurting its customers in this case the Big Three. Monopolies are bad no matter whether they are suppliers, manufactures, or providers. They innately work against competition. I am willing to bet that the cost structures and productivity of Ford, Chrysler, and GM are almost identical at least in comparison to there UAW plants and contracts. Therein lies the problem the worker was a UAW member first and a Employee of the Firm second as such his loyalty is to the UAW before his employer and the UAW has little or now interest in improving the competitive advantage of one firm over another. Additionally if a cost cutting benefit came along that had a negative effect on labor they had every incentive to block it from all firms. This worked well enough in the 40s, 50, and 60s because you essentially have a cartel of US auto manufacturers. Europe and Japan’s manufacturing economies are essentially non existent after world war II. So the Cartel pushes up prices and the Union benefits from the excess. Once foreign competition solves its entry problems they are almost always going to kill the cartel. They have had the benefit of competitive pressures that the cartel was isolated from. The government can try to prop up a cartel for a while (protectionism, subsides, local content rules, etc) the problem is if the prize is big enough and the competition good enough they almost always will find a way to be competitive and that will eventually wear down the cartel. Plus since propping up a cartel hurts consumers it will eventually be unpopular enough that Politicians will abandon it.
Why do people ever even take vivo’s bait? Do you notice that he makes his comments and then never comes back?
And whatever part of the problem did or did not start at the top, it has all ended at the bottom, hasn’t it?
5. Mike: I live in KY, too. At the Georgetown Toyota plant (which has been a tremendous boon for the economy of central KY), if you walk into the plant with the word “union” on your mind, the electronic mind readers detect it and you are escorted to the door. Just kidding, but you get my drift. That having been said, Toyota pays very good wages for this area. It’s hard work and such, but the financial rewards are quite tempting. It’s been great for the local economy.
Some really good posts here! That’s why I visit this site. So many people are so well-informed and knowledgeable who post here that it’s heartening to see. I even agreed with Vivo’s post (a little)!
Here’s where my argument lies with the government getting involved: GM should have been allowed to go into chapter 11 first-before any government interference-so that they could nullify the UAW contract. After that, the government could get involved (which I find personally distasteful, but necessary.) Now that they are involved, I hope they have the cojones to regulate wages for the workers/execs and bring it into line with reasonable compensation. It just got too out-of-whack to be sustainable.
Next, what’s with people being retired at 50 and getting full pension/medical benefits? Ridiculous! These workers should have been required to work until they were 65 before getting ANY benefits/pension. That’s how it works in most industries, no?
I read a few months ago that the average pay for workers at a UAW plant was $72/hr. I also read that the average pay at an import plant (non-union) was around $40/hr. Therein lies one of the biggest problems. 40 bucks per hour is pretty good money. $72/hr is REALLY good. No wonder GM is bankrupt.
63. Mike2: I’m with you. The government is defying the law by not paying off the secured bondholders first. It’s criminal!
regards
We’re in the process of selling my mother’s house. Several weeks ago, as part of this process, I hired a guy to come over with a sidekick and help me do things like tear down an outdoor patio cover my mom had built years ago, which was falling apart. During the day, this guy and I got to talking. He had at one time owned a multi-million dollar construction company located in Detroit (he got divorced, and lost everything in the process). He told me that, during the late 80s and early 90s, it wasn’t uncommon for a guy from one of the auto factories to call him and have some work done on their house. He and his construction crew would show up at 8am to start work, and the homeowner would leave for work. He’d reappear at noon, having put in a full 8 hours work, because somebody else on the shop floor would clock him out.
Did GM have bad decisions made by their executives? Sure. Did they have other difficulties that added to their demise? Of course. Does that mean that the Unions aren’t responsible for what’s happening? Don’t be silly. Of course they’re responsible: they’ve ensured that GM and Chrysler will fail, regardless of management decisions. Think about it: if the UAW workers were so efficient and worthwhile, wouldn’t all the Toyota plants be around Detroit and Pontiac?
Does anyone know …
Whether or not it is legal for the UAW to both own a manufacturer and negotiate with a competing manufacturer on behalf of the autoworkers at the competing manufacturer? I recall reading that in the early 1900s there was a court case (against a steel company I think) that declared company ownership a bar to a company union negotiating with anyone other than the single company it owned. Can anyone recall such a thing or maybe give me a pointer to some good references on the early unionization in this country? Seems to me like it’s grossly unfair for the UAW to both negotiate with Ford and be the primary owners of the competition to Ford.
Regards
22. rocketeer:
“Oh crud, now I agree with Vivo. I’m resigning my commission as a conservative.”
Agreeing with me doesn’t link you to my independent views. I keep telling people to take your time and reflect on what I write here. You never see me writing long paragraphs because language can be condensed. Some of it sounds liberal and some of it is liberal, but it’s mostly pragmatic common sense. I support several conservative views because that’s what life is all about: a little if this here and a little of that there.
29. jerryofva:
“Vivo, every automobile manufacture uses just-in-time logistics. To the extent that GM was late to the party was their fear of wildcat UAW strikes at parts plants that were quite common in the past.”
You are right, my statement was too general and I should have said that they got into the JIT game too late and not completely. It’s a tough discipline and unions can be uncooperative because JIT is a direct threat to their status quo.
32. TheMightyMonarch:
#2 Vivo, a few points…
-It’s obvious that car executives never earned their salaries and bonuses.
“They get what is offered to them. If this was such a concern when it came to company profitability then the shareholders would have ousted them or never allowed compensation higher than what the market demands.”
What I meant here was that many car executives lacked vision and leadership to be front runners.
-If they knew how to treat their workers well, there wouldn’t be unions.
“The workers also had the choice of working somewhere else. Instead they decided to unionize and forfeit their rights to individually negotiate for their labor.”
Workers unionize when they feel they are exploited.
-If they would’ve applied Just-in-time techniques, their inventories and production would’ve been more effective and avoided wasted dollars.
“When a large chunk of your profits go to meeting CAFE standards and feeding the beast of legacy costs, gold-plated benefits, and above-market labor costs, what else are you going to do?”
A well implemented JIT can reduce costs and improve quality, but many executives don’t understand it and just give it lip service.
-It all comes from the TOP.
“I sort of agree with you here, if by the “TOP” you mean government protection of unions”
I mean the top layers of executives, CEO and top operating officers who develop vision, goals and strategies throughout the supply chain.
56. Войска ПВО:
“Now your favorite by, President Training Pants is running the show, we’ll see how well he can do.”
By letting GM go bankrupt, he’s trying to make them rethink the whole enchilada and become a profitable industry. Are they up to the challenge?
69. Class Clown:
“Do you notice that he makes his comments and then never comes back?”
Here’s why:
-Responding to insults is a waste of time.
-By the time I come back, the thread is dead or dying.
-My original statement says it all, why repeat things all over again?
70. HonestJon: you have really GOOD points.
73. vivo:
“What I meant here was that many car executives lacked vision and leadership to be front runners.”
Good point and I agree. I might add that they also lacked the vision and leadership to devote themselves to quality and concern for the customer.
70. HonestJon:
I too don’t understand why they didn’t just take the plunge and go into Chapter 11. Ford still has that option if needed. It’s going to be a hard road for them because;
72. Rashputin:
As you mention about the possible conflict of interest that the UAW will be in, the question is whether Ford will now be able to compete. They are kind of out there on their own now.
Good points all. Great conversation and few insults!
74. Mike2: Somebody correct me if I’m wrong, but I bet that the government didn’t want GM to go into bankruptcy before the Dems had “paid back” their constituency (the UAW). My understanding is that if a company declares chapter 11 that all contracts with unions are then null and void. However, I’m not sure if GM could have declared chapter 11 when it was in so much debt. If that’s the case doesn’t it have to declare chapter 7 and get liquidated? Not sure here, but I think they really didn’t have much choice.
By the way, thanks for the dibs, vivo!
regards
“The two fleet CAFE rule, passed in the 1970s, was the most important reason GM, Chrysler, and Ford are in trouble
And yet Honda and Toyota succeeded under the same regulations. Sorry, that excuse doesn’t pass whatever you think about the nature of CAFE.”
Honda etc succeeded because their (North American) labor cost per vehicle is much less than Detroit’s: they can still make a profit on low-margin compacts.
But wait, there’s more! Detroit has to price its small cars $2-4k lower than the equivalent Japanese, to compensate for their cruddy build quality- thanks, UAW.
CAFE rules have forced Detroit for years to sell econoboxes below cost: losing money on every single government-mandated sippy-cup sold, one great big cash hemhorrage.
For UAW cheerleaders-Why is it that where they
exist the situation is crap and where they
don’t exist the car maker is okay? Ford
dodged a bullet for now and will only continue
by getting the rollbacks the other two got
plus maybe getting some of the their market
share.
If the Detroit Three want to build econo
boxes for profit they have to go to Korean
wage levels not Japanese ones. Large trucks
and luxury cars yeah, but not small cars.
70 and 63: I wouldn’t lose sleep over the poor bondholders. They deserve your contempt not your sympathy. They invested in a failing enterprise that was obnoxious to commmon sense and fairness. They got hammered.
Anyone that invested in a company with a debt/asset ratio almost 20 times the wrong way was counting on a state bailout. No one that bothered to read any article on GM could have thought it was a sound enterprise. So their choice was simple: go into a straight BK and get nothing as administrative costs and fees consumed the few assets, or strike a deal with the contributor of new cash. It happens all the time.
I have purchased my last new GM vehicle. I refuse to support a collective entity (GM management and the UAW) that has made so many bad decisions over the past several decades. And now, with a Democrat-led government at the controls, look for it to be “all downhill from here”. Good by, GM.
GM was run by idiots. They let the Japanese eat their lunch and now they want my help. I’m tired of them offering me crappy cars.
If we’re going to have “free market” economics, then lets actually do it. Everybody go for the best value – Everybody buy Japanese.
And why are we still blaming the unionized workers? How much of the legacy costs could we be spared if GM execs didn’t collect outrageous bonuses for running their company into the ground?
Unions exist solely for one purpose: to obtain above-market wages and benefits for their members through the cartelization of labor. All of the other consequences flow from this fact, most of which are severely negative to the enterprise upon which they prey and its competitiveness in the global marketplace.
Whether or not GM executives are poor or not, the fact is that the legacy costs of the Big Three are due to the absurd labor contracts the companies have carried for decades. As David Thompson said, these costs alone make competitiveness extremely difficult–even with good products, market strategy and so forth.
What a proper bankruptcy would have done for Chrysler and GM–but which has prevented by the administration–is to cleanse these companies of significant legacy health care and post-retirement benefits so they can continue without that anvil around their necks.
Ultimately, the companies will still probably sink, only with massive taxpayer expenditures drifting to the bottom with them. Thanks a heap, Zero. You are now officially the worst president in history and you still have 1,326 days left to make your feat untouchable.
HonestJon: Going into bankruptcy without all that government protection is a crap-shoot. If the creditors don’t agree, and the judge doesn’t think re-organization will work, he can order liquidation of some or all of the company.
Crysler would certainly have been split up and auctioned off in a real bankruptcy. Jeep would have brought in some decent cash for the bondholders – instead of Fiat getting it for free.
Regarding exec salaries, the shareholders have no say. That’s why the salaries and bonuses are out of control. These things are determined by the board of directors, who scratch each others’ backs. It also didn’t help that government limited exec pay, so huge bonuses had to be offered as compensation. Governmental Foreign Object Damage.
I’m tired of the arguments that bailouts were necessary. They were not! They accomplished nothing. GM is still banko. It just took another year. Credit is still essentially frozen a year later, and we’re hemorrhaging money to cover the bogus debts of the financial institutions. They, too, will soon be banko. The investment banks and other banks do nothing on a large scale that can’t be done on a small scale. Other better-run banks would happily have picked up the market share and grown large. You either believe in free-markets or you don’t. Do not drink the Kool-Aid!
Bush was a fool to put Bernanke in as Fed Chair and Paulson as Treasury Sec. They’re both Dems, and they helped make this problem. Bernanke cut rates below inflation, contributing to the bubble (loose money policy). Paulson in 2006 was head of Goldman Sachs, one of the institutions needing a bailout. He got it into the mess it was in. So, they told Bush we had to bail them out, and it became the meme. This was nothing but a Friends of Paulson bailout plan. This is what comes of electing non-experts to POTUS. It also is what comes of electing moderate Pubs who drink the Dem Kool-aid and believe in bipartisanship. You get a Pub Prez with Dem policies. Lunacy.
In the long run, only the labor bosses won–big time.
GM failed for three reasons:
1. They stopped producing cars people wanted.
2. An enormous and unsustainable debt load.
3. The toxic work rules and unsurvivable cost of their union contracts.
Throwing billions at the problem, forcing the manufacture of cars people don’t want at prices they won’t pay, without dealing with the suicidal union work rules and costs won’t change that.
We’re pumping blood into a corpse.