In the early years of the American Civil War, President Lincoln’s greatest frustration was his inability to find the right commanding general for the Union Army.
Lincoln went through generals the way George Steinbrenner used to go through baseball managers—one after the other. And like Steinbrenner, Lincoln even hired the same general twice, and fired him twice.
That general was George McClellan.
Vain, self-righteous, arrogant, and supremely competent at organizing and outfitting an army, McClellan was loved and admired by his troops almost as much as he loved and admired himself. In his first term as leader of what came to be called the Army of the Potomac, McClellan did a terrific job of organizing, drilling and molding into soldiers what had been a disorganized and dispirited bunch of raw recruits.
McClellan had just one big flaw: he couldn’t bring himself to fight.
Every time Lincoln expected “Little Mac,” as he was known, to finally move against the poorly equipped, ill-clad and undersupplied Army of Northern Virginia (brilliantly handled by Robert E. Lee), “Little Mac” protested that the troops weren’t ready or he didn’t have enough wagons or the roads were too muddy or his plans needed perfecting or the Confederate Army was too strong.
With McClellan, as the expression goes, it was always something.
I got to thinking about Little Mac while reading a remarkable op-ed piece by Rick Wagoner, the man at the center of perhaps the nation’s greatest current economic crisis—the melt-down of the U.S. automobile industry—in yesterday’s Wall Street Journal.
That piece is called “A Portrait of My Industry,” but it might just as well have been titled “It’s Always Something,” and its author could have been a corporate ancestor of Little Mac himself.
Mr. Wagoner sets up his premise—that GM is not merely suffering from self-inflicted wounds, but is, along with Ford and Chrysler, the victim of an uneven playing field—with the following howler of a statement:
Despite public perception, the answer [to the question of why GM is in trouble] is not that foreign auto makers are more productive or offer better-quality or more fuel-efficient vehicles. In this year’s Harbour Report, which measures manufacturing productivity, GM plants took three of the top five spots in North America, including first and second place.
This is written by the CEO of a car company whose dependence on gas-guzzling SUVs caused its sales to collapse 24% in September, while sales for Toyota—led by the Prius hybrid—rose 10%; Nissan rose 16%; and Honda rose 12% the same month.
Mr. Wagoner compounds his McClellan-like obsession with self-justification in the very next sentence:
In the latest J.D. Power Initial Quality Study, GM’s Buick and Cadillac ranked among the top five vehicle brands sold in America, ahead of nameplates like Toyota, Honda, Acura, Nissan, Infiniti and Mercedes-Benz.
Read that carefully: Mr. Wagoner cites the Buick and Cadillac brands, but leaves out Chevrolet, Pontiac, Saturn—in fact, he leaves out 85% of GM’s vehicle sales from the quality comparison.
Thus, like Little Mac, who, before complaining about his lack of horses, guns, blankets, and whatever else was keeping him from marching, was careful to lard his dispatches to Lincoln with encomiums about his soldiers’ parade-ground capabilities, Mr. Wagoner puffs up his own situation with meaningless statistics.
Then, like Little Mac, he proceeds to the it’s-always-something that he regards as the real problem—in this case, the uneven playing field upon which GM finds itself.
First, Mr. Wagoner blames the “social contract” made by “traditional manufacturers” to provide good benefits to American workers, which have left a staggering legacy of health-care costs on domestic auto companies.
Second, he decries the explosion of litigation abuse made possible by an irrational American judicial system.
Third—and I am not making this up—Mr. Wagoner decries a deliberate effort by Japanese policy makers “to artificially weaken the yen.”
I’m no expert in the car business, but I do rent a wide variety of automobiles when I travel, in order to see what is happening in the world of automobile market share.
And I always find it profoundly depressing to open the door of a Ford Taurus or Chevrolet Whatever and feel—just opening the door and getting behind the wheel—the poor quality of a Big Three automobile, compared to a comparable Toyota.
Mr. Wagoner’s protests aside, The Problem has nothing to do the Japanese currency or the health care burden with which Mr. Wagoner finds himself saddled. And the last time I checked, lawsuits do not directly impede the ability of any company to assemble a great car.
I have a brother-in-law in the auto business. I know how it works: everybody gets a nice car as part of their work. They drive it for a while and then they get another, newer model.
And I imagine Mr. Wagoner gets the pick of the GM litter—not a Chevy or a Saturn, but an Escalade or a Hummer.
And I don’t doubt that he honestly believes GM’s problem is not in the cars themselves, but in all the other problems his top lieutenants blame their troubles on at every monthly sales meeting.
But if the CEO of General Motors wants to learn something about the quality of the 85% of GM’s production that is being systematically replaced by better-built cars with foreign nameplates—many of them assembled right here in America—he ought to be given a Toyota to drive around for a month.
Then I believe he would stop wasting time writing self-justifying op-ed pieces and more time trying to fix what’s broken at GM: the cars.
Like “Little Mac,” whose organizational abilities were unsurpassed, I imagine Mr. Wagoner is a very good executive for handling certain aspects of a large automobile business.
But not, if his Wall Street Journal piece is any indication, during wartime.
And while I know nothing about the politics within GM, I suspect that, like Lincoln, whose search for a general “who fights” only ended when he brought in U.S. (“Unconditional Surrender”) Grant from the western theater to get down to the bloody but necessary business of fighting Bobby Lee on the battlefields of Virginia, the GM board has not yet found its wartime commander.
Jeff Matthews
I Am Not Making This Up
© 2005 Jeff Matthews
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.
36 replies on “McClellan Awaits Battle…in Detroit”
McClellan went on to become the Govenor of NJ . I’m dying to hear what the newly elected Govenor Corzine ( and Jim Cramer pal and ex head of GS ) will have to say about the troubles in the USA auto industry . ..Lets see what we elected here in NJ . A Grant or a McClellan .
I read that editorial yesterday and thought to myself…stop blaming everyone else. GM cars (ex-Cadillac) are boring, unreliable and have horrible resale value. GM trucks are great, but you waited too long to redesign and now people are looking for smid size SUVs that get better than 15mpg. GM needs MASSIVE change soon. I don’t think they go BK, but I’m not sure how bad it gets before it gets better.
I think this is a perfect example of the problem GM faces – a perception gap. You say you’re disturbed at getting in a “poor quality Chevy” as a rental car and would prefer a Toyota. Well go to JDpower.com and compare an 05 Malibu to an 05 Camry. While you’re there, look at the Midsize/Full Size car segments for the highest ranked cars. Chevrolet Malibu/Impala, Pontiac Grand Prix, Buick Lesabre, Ford 500. I don’t see a Camry there anywhere. I’m not saying GM’s cars are perfect, I just think they’re infintely better than the public’s perception. Especially when it comes to gas mileage and SUVs — the new full size SUVs get just as good or better mileage as a Toyota Minivan (20.5 for 2wd, 20.1 for 4wd vs 21 for Toyota Sienna 2wd and 19 for AWD).
When the battery failed on my wife’s still in warranty 1997 Taurus, she was at work. I was out of the state. She had to call AAA. After arriving at Magic Ford in Santa Clarita California, it was almost closing time; therefore, it was come back tomorrow. She had to get up earlier and call AAA, but she got there too early for the customer service shuttle. A ten minute job was turned into a major hassle by Magic Ford.
This the third vehicle we had purchased from Magic Ford. Our next vehicle was our first vehicle purchased from Frontier Toyota. Now, we no longer wait in line for vehicle service.
The big three are blind to the real problem. It is the executives really do not care about their customers. Their bonus is first with the bottom of the food chain (the customer) somewhere down the line, i.e. the rolling over Explorer.
I read the op-ed piece yesterday as well and was left very curious about the quality issue. I previously owned a Chevy Blazer and now own a Toyota 4Runner. The 4Runner is a quantum improvement in every aspect of quality and satisfaction. This is GM’s problem: They build junk to fill rental car lots, not to stimulate demand with individual consumers (Hummer and Caddy notwithstanding). And, Cameron, check the JDPower scores for a 4Runner vs. the Blazer and you’ll see why GM lost significant sales in the SUV market (not to mention the past couple of years of big incentives just to move their SUV product out the door).
Ramble On.
Unfortunately, I can’t speak to the quality of GM cars. No one I have ever known drives one. Rich (the midwest, plainspoken sort of money, not “real” rich) old people and rappers drive Cadillacs (maybe I exagerrate, I think rappers may be moving past the Escalade).
Why wouldn’t I buy a GM vehicle? They are ugly. ugly. ugly. I’d say they were the ugliest vehicles EVER EVER, but Dodge has that all wrapped up. There is something severely wrong with the designers at GM, Dodge, et al.
They had a splash with these big, HUMONGOUS vehicles, but that’s fizzling out.
My only recent experience with an automobile from a US company is Ford. My sister’s ’98 Ford Mustang was a piece of junk. The interior started to fall apart relatively quickly, everything seemed to be made of cheap plastic. She just traded it in for a Toyota.
There should be a survey where people are asked what the first car they purchased was. I would bet that any young people who leased, bought US vehicles got the less expensive ones, and the less expensive ones turned out to be junk. Thus, the next car was a foreign made vehicle. (Isn’t it majestical how I extrapolate to the entire nation from one data point?) If GM, Ford, Dodge would focus on making well made starter-vehicles, then they might build some brand loyalty. (If their starter-vehicles are well made, ignore what I suggested.)
Ramble Off.
I think this is a perfect example of the problem GM faces – a perception gap. You say you’re disturbed at getting in a “poor quality Chevy” as a rental car and would prefer a Toyota. Well go to JDpower.com and compare an 05 Malibu to an 05 Camry.
This is exactly the problem — initial quality surveys mean jack to the average hard-working person out there. It’s long-term reliability that matters and this is where much more than a perception gap exists between Detroit metal and Japanese. What, is the product market inefficient and stupid? We’re talking long-term trends here, not hemlines. The flaws are deeper than design — it goes to how the basic engineering and manufacturing characteristics manifest themselves over the long-term in these products and Detroit still, on the whole, blows.
I agree with DaleW – I never read the initial quality surveys. I’m an engineer and understand the difference between building something that will last for a month or for 10 years. I also think one does not need an engineering degree to get a grip on this concept, too. There’s not a single American vehicle on my company’s parking lot.
Small Investor Chronicles
This is exactly the problem — initial quality surveys mean jack to the average hard-working person out there. It’s long-term reliability that matters and this is where much more than a perception gap exists between Detroit metal and Japanese.
Dale, once again, I suggest you go to jdpower.com and compare the Malibu and Impala to the Camry. Malibu Dependability is 5 stars, Impala 4 Stars, and Camry 4 stars. If you go to the corporate site and look at the vehicle dependability study, it’s filled with GM and Ford vehicles (there are more Japanese vehicles here than on the Initial Quality Survey). GM’s quality is nowhere near as bad as people think, and the flipside, Japanese quality is nowhere near as good as people think.
Cam… your exactly right. The American bashing takes on a life of its own to a point where you would think that the foriegn brands are indestructable steel balls. They’re not!! Only people wish to be in fashion with the times and thus remain silent about the flaws in their toyotas, nissans etc etc. Its fashionable to bash without reviewing the real hard data and Cameron has it right. American brands ARE equal or better than the foriegn brands and a heck of a lot cheaper in price. You think the foreigns are great in service work? They are by far more expensive when you need parts and often you are forced to buy a whole unit rather than replacing a single part. My two GM’s have 126 k and 265 k respectively on my ’96 chevy s-10 and my ’93 GMC 1500 pickup. I guess I should whine about how American cars are junk LOL!!! Just like in life, people run thier yaps and give opinions totally deviod of factual information. I feel for Wagoner trying to overcome this flywheel effect of ” dog piling ” onto American cars because its fashionable to run them down.
Let’s see, on your 1996 S-10 I see recalls for:
Safety Recall:
1) Windshield Wiper failure (2003)
2) ABS Front Axle Signal Malfunction (2000)
3) High/Low/High ABS Brake Anomaly (1999)
4) Windshield Wiper failure (1998)
Emission Recall:
1) Incorrect Exhaust Gas Recirculation Valve Used (1997)
General Recall:
1) Fuel Injector Sticking Closed (2003)
2) Incorrect Fuel Pump in Sender Unit (1996)
3) Engine Block Heater not installed (1995)
I find two recalls for the 1996 Honda Passport (4WD), one recall for the Toyota 4-Runner (4WD). None for Toyota’s RAV4 (4WD). None for Toyota’s T100 (4WD). None for Toyota’s Tacoma (4WD).
I would suggest that ingnoring your recall notices does not mean they do not exist.
Ryan
From Jeffrey Dyer’s book “Collaborative Advantage”, results of a survey of 453 auto supplier – automaker relationships.
Scale: 1 = not at all; 4 = to some extent; 7 = to a very great extent
Extent to which automaker can be trusted to treat supplier fairly: Toyota 6.4, GM 3.2
If given the chance, extent to which the automaker might try to take unfair advantage of supplier: GM 5.4, Toyota 1.4
Automaker has a reputation for fairness among supplier community: Toyota 6.3, GM 2.8
Extent to which supplier shares confidential information: Toyota 6.1, GM 2.6
Automaker shares information to assist supplier with cost reduction: Toyota 3.3, GM 2.1
Automaker shares information to assist supplier with quality improvement: Toyota 3.7, GM 2.2
Automaker shares information to assist supplier with delivery and inventory management: Toyota 3.8, GM 1.9
Dollar value of goods procured per procurement employee: Toyota $12.6 million, GM $1.6 million (quote from a GM executive: “Our purchasing activities are huge and extensive. Most activities have been geared to making sure we don’t get stung by an unscrupulous supplier out there.”)
Percentage of time the supplier re-wins the part business at a model change: Toyota 92%, GM 58%
Percentage of face to face interaction time between supplier and automaker negotiating contracts and prices and assigning blame for problems: Toyota 21%, GM 47%
Maybe Waggoner needs to write a letter to the supplier community telling them that as with misguided consumers, their perceptions are incorrect.
Cameron and Why,
I grew up in Buffalo, a good old American steel town, watching my Dad bust his rear running a good old American manufacturing and distribution company. I have nothing against American labor, technology, or know-how. But Cameron, this is exactly the point — there are more Japanese autos on the dependability survey than on the initial quality survey. That’s what makes the difference to the average consumer and that’s what drives perceptions. On average, the Japanese cars are more dependable. It’s an easy answer. Initial survey means jack and it’s obvious American cars don’t live up to their initial perceptions while Japanese outperform them. Which way do you think market share will go until that changes?
I have little sympathy for the American auto worker. They have priced themselves out of the market and they are not worth their compensation rates. It’s ridiculous UAW members are generating such outsize returns for their labor while the OEMs are generating such under-sized returns for capital. If it were for labor laws that virtually guaranty a monopoly by the UAW, most of these people would be earning $18 an hour in wages and maybe another $5 per hour in fringes.
Is it their fault American cars are not that great, long-term? No. But their wage rates certainly leave little for R&D to fix the situation long-term and little to address the quality of the product from a finished goods perspective short-term.
The Vehicle Dependability Survey (VDS) measures long-term quality after three years of ownership. Thus, the 2005 study measures the dependability of the 2002 model year. Three years does not fit my definition of long-term. Leases, which are designed to be short-term, are most often for a period of 36 months. I would argue that 90,000 miles, or 6.5 – 7 years (driving 12,000 and 15,000 per annum, respectively) would be a better measurement period for “long-term”.
Perhaps poor resale value can explain some of GM’s sales problems?
No, GM management isn’t in denial.
GM Vice Chairman Bob Lutz: “If you have hybrids you’re OK, and if you don’t you’re not. I’d say Toyota scored a major coup with hybrids even though they didn’t have a business case.”
You see, it wasn’t a matter of foresight and management competence that Toyota was ready with hybrid vehicles when gasoline price soared and GM was slashing prices in an attempt to unload full sized trucks and SUVs. It was luck, and GM management was once again unlucky, as they have been for most of the last 40 years.
With regard to this Wagoner comment in the WSJ editorial: “A leading Japanese auto maker reports that for each movement of one yen against the dollar, it gains 20 billion yen in additional profitability – or nearly $170 million at today’s exchange rate.”
His reference is to Toyota and apparently they’re getting lucky again with the exchange rate. They’ll make $12 billion or so in net income this year, without the exchange rate tailwind it would only be maybe $10.5 billion. Meanwhile, GM is looking at losing a couple of billion or so. Yeah, the exchange rate must be the reason Toyota is whipping GM.
We had a Chevy S-10 at work. We beat it , we beat on it , we treated it with zero respect and the thing just wouldn’t die until someone hit some ice just as they were hitting the Jersey side of the GW bridge. It was a great machine . I had a Ford Explorer that lasted 197,000 miles until the gas tank started to leak and had to junk it. And my 95 Explorer with 156,000 miles is running just fine . …..When i started driving you were lucky to get 70,000 miles out of a new car and the Japan cars were worse
Dale’s last point is right on the money. The union screwed itself. Their compensation is insultingly ridiculous. I’m definitely in the wrong industry – I should’ve learned how to operate a forklift, instead of taking finance courses.
As Dale pointed out, the UAW gave no room for American automakers to spend on improving their products through R&D – which is zero for GM (Honda spends about 5% of sales on R&D). There seems to be a lack of collaboration between UAW and management, whereas it’s the opposite story in Asia. It’s that “me first” mentality that screwed GM and the likes.
GM’s spending on R&D is quite a bit more than zero. They spent $5.1 billion on R&D in 2004, 3.2% of sales. Ford spent 5.0% of sales, Toyota 3.6%. Of course, it’s not just how much you spend on R&D, it’s also how productive the spending is.
My take on this is that they’re completely myopic in most respects.
Lets take a comparison I did last year between two somewhat similar vehicles: Chevy Malibu and Mazda 6 (5 door). Similar in size and in overall characteristics. And I susepct that the mechanical reliability will probably be similar.
Start with design. The Mazda has a great seating position and beautiful visibility all around. The Chevy has lousy seats and the rearward visibility is a disaster! Worse than my old converitible with the top up. The tailgate on the Mazda opens up nicely and the cargo area cover pulls right up with it, leaving a large space for me to load cargo. The Malibu has a confusing and difficult to move cargo area cover that — I’m told — can also be configured as a picnic table but for normal use is a major pain. the Malibu has an odd rear-seat glass roof section, but no normal sunroof. The Mazda has the latter.
Inside, both are largely plastic, but the Mazda (like my Acura) is less cheap, more solid. Probably won’t make a difference in long term reliability, but sure makes a difference in how I feel about getting into the car.
The Mazda features a smooth 5-speed automatic. The Chevy is still using an antiquated and jerky 4-speed. The Japanese, of course, are quickly moving to even smoother CVT and six-speed autos.
Bottom line to me is that GM’s execution of the 5 door hatchback concept is lousy and clunky. Might it be reliable? Sure. But reliability is only one part of the game. It’s a car I don’t want to drive. Period.
This is sad, because the whole concept of such vehicles was originally developed and perfected by Saab. Even the Mazda6 is clearly a knockoff of concepts that Saab perfected more than a decade ago. GM, of course, has dispensed with making those vehicles in favor of making more “me too” GM box-mobiles with the Saab nameplate bolted on. And when they decided to try pursuing that kind of vehicle again, with one of their other brands, they couldn’t draw on knowledge and design experience that they clearly already had. It’s pure incompetence, plain and simple.
The Mazda6, BTW, is made in an old Ford plant in Indiana.
On another note, I find the “long term reliability” figures to be close to useless. Few models remain substantially unchanged for more than three years. By the time those numbers come out, you’re usually talking about a completely different vehicle than the one that is now offered.
Finally, to reinforced Jeff’s point, I would remind you of Ross Perot’s comments as a GM board member (somebody could Google them), which is a role he held after they purchased EDS and he inherited a huge slug of GM stock. He commented at the time that everybody in senior GM management had a company car and driver to take them wherever they were going (this was justified with their need for “security”), as well as company-provided and maintained vehicles for their families. They neither had to drive nor maintain their own vehicles. He felt that all GM’s problems would be solved quickly if GM execs were required to:
1) Purchase their own GM vehicles, from a local dealer.
2) Drive those vehicles exclusively.
3) Maintain those vehicles themselves, at their own expense and on their own time, also at a local GM dealer of their own choice.
You should all recall that after several years of agittion, GM basically paid Perot a lot of money to go away. Nothing has changed.
-btc
You’re right. After searching through the 10K, I did find that GM did spend on R&D. Thanks for pointing out that correction. Anyways, I was just trying to make a point that the union is giving them little room to spend on other critical things besides on overcompensated labor.
http://fastlane.gmblogs.com/
Blog of Bob Lutz, GM Vice Chairman. you get to listen to alot of defensive posts. I will say Lutz is somewhat of an outsider and is bringing some decent product to the market in the next few years. Decent, not revolutionary or leading edge. Let’s see. Good ole GM. And Ford for that matter. Chrysler is off the hook because the Germans actually know how to manage a car company. Or so it appears. The difference is Ford realizes the problem is inside of its walls and is a result of lack of innovation, execution and a product the consumer doesn’t want. Or at least that comes from Bill Ford himself unlike the insular Wagoner and team.
Here is my major peeve in this whole dilemma. This is not a new problem. GM has lost market share nearly every year for thirty years. Roughly 60% to 26%. Unbelievable but true that no transformational change took place and corporate executives pocketed billions while the average joe working for them dwindled by the hundreds of thousands and marketshare cratered because of mismanagement.
First they whined about unfair exchange rates as the Japanese crushed them with cars made in Japan. (Btw, energy, land, labor, logistics, etc in Japan are atrociously expensive in sum total.) So the Japanese moved their plants, marketing, sales, advertising, finance, engineering, research and the like to the US. I believe Toyota alone employs 120,000 Americans. Not to mention the ripple effect of jobs created by those 120,000 jobs. Likely a minimum of another 30,000 non Toyota jobs created here.
The reality is GM is likely the most insular major corporation in the world. The movie Roger and me isn’t too far off in my mind. And you don’t find a change agent who has been indoctrinated in the corporate culture of an insular company in most situations. Wagoner has had five years. His time is up as far as I’m concerned. GM is in need of a frontal lobotamy, not a bandaid. Bring on Kerkorian and team. It is a pathetic show of board room politics that he is still in the driver’s seat. I’d say it’s almost criminal. Corporate governance in the US? That is a joke on many fronts. Frankly, I root for the corporate raider and hedge fund executives that drive these mules to change or better yet out the door. Same goes for Time Warner. To watch AOL crater while Google and Yahoo eat their lunch is criminal. Premium brand to back water stench.
Want to hear something unbelievable? In the last thirty years GM has spent an estimated $100 billion+ on R&D. That money could have been used to buy Toyota, Nissan, Honda, Mercedes and BMW at their market cap in 1980 and left GM a tidy $75+ billion left over. Or, the entire NASA manned moon mission took $100 billion from start to finish. And it created thousands of new technologies and new industries from nothing. Obviously we have a time value of money here but nonetheless. And for all of this, we get the Pontiac Aztec, Chevy Chevette, Chevy Beretta, Buick LeSabre, Cadillac Coupe De Ville, Chevy Cavalier and on and on and on. And we get an engine that really hasn’t changed except for the electronic fuel management system that took a V8 from 14mpg then to 22mpg now. What would GM be today if someone would have mounted an assault as Kerkorian is doing……thirty years ago? Or if Welch were the head of GM instead of GE? Or Andy Grove? Or Steve Jobs? GM doesn’t need a car guy. They need an environment of innovation and execution.
It is infuriating.
Funny you should mention the Aztec. I remember being fairly excited when that one came out, because the concept is one that would have been great for my somewhat outdoorsy lifestle.
The concept was, the execution sucked. The angular rear of the vehicle made it a poor choice for cargo and outdoors equipment. Lots of little gimmicks and gadgets that looked cool were included, but most of them were really not all that practical. The design looked just plain weird. Distictive, but not a “good” distinctive more of a “I am a dork” kind of distinctive. And the overall fit and finish was poor.
Needless to say it sold poorly and died. The potential customers stayed with their Subaru wagons and (old style) Nissan Pathfinders.
But the concept was a good one. Honda took it and ran with it. It’s called the Element. It sells well and does everything that the Aztec claimed it would. And since it’s based on the popular CR-V platform (which itself is based on the Accord chassis), it didn’t cost much to bring to market and doesn’t require a whole lot to be sold in order to be profitable. The new Acura RDX compact SUV will leverage the same underlying platform.
Incidentally, there was an article in the LA Business Journal about the lead designer on this project (who also led the team designing the Acura TL and most of the other “North America” projects in the Honda/Acura world). He doesn’t own a car. Honda allows him and other members of their North America design team to borrow various cars for their own use: both Honda/Acura and other manufacturer’s vehicles.
Compare that to the world of the “Big Three,” where “import” vehicles — the defintion of “import” includes American made Toyotas, Hondas, Nissans and others — are all banned from the main parking lots! Talk about insular businesses.
-btc
Two quick points:
A) I think resale value, in addition to reliability, also plays a part in whether a consumer purchases a car from a domestic or foreign auto manufacturer. Both Honda and Toyota have been quite adept at building cars that ganer decent resale values when sold, but then, I guess that goes back to reliability, which Ford and GM have suffered from for quite a spell.
B) I think Mr. Wagoner “doth [not] protest too much” as the line from Hamlet goes. The problems that GM faces are real, and I think Mr. Wagoner is aware of them. My wish (hope) is that GM gets out of the finance business by spinning off its GMAC subsidiary, and get back to what should have been GM’s core focus all along – building great cars! It could happen, but then, I could be wrong, though….
Jeff,
Your blog is awesome. I’ve learned so much about the car industry just by reading the comments posted on your board, which made me look into the matter a bit more.
It’s pretty obvious that GM’s additional board members (from Kerkorian) will have a field day with the labor union. Have any of you looked at GM’s pension liabilities?
GM cars’ lack of appeal to the masses is a problem, but dealing with rising health care costs have made the company’s core focus on dealing with the labor union – instead of what really matters.
I’ve known that S. Korea also shares its own problems with unions, but Japanese automakers typically don’t deal with unions.
Cases could definitely be made to show how unions hinder a company’s growth. I see this because (taking S. Korea for example) I’ve seen companies that refuse labor unions outpace those that deal with the union nonsense.
“BTC”: glad you brought up Ross Perot!
I remember a story from his days on the board. During one of those get-with-the-trend phases GM seems to go through, the CEO told the board, in one of those grand pronouncements about The Future, “We’re going paperless.”
So Ross threw away his big thick notebook that all the board members got and said “Okay! We’re all paperless!”
And of course the board couldn’t conduct their meeting without their big thick notebooks.
I don’t think it was too long afterwards that they paid him to go away.
I’m not sure I’m convinced the UAW has anything to do with GM’s problems. A couple of reasons I say that. Some anecdotal and some factual.
During college I co-op’ed with GM at a stamping plant. That plants labor relations had one of the worst reputations within that division. I spent 70 hours a week on the plant floor working as a supervisor. I had dealings with the union bosses and dozens of union members on the floor as well as witnessing how the general flow of factory work went.
The net is that day to day operations had little to do with anything different than a nonunion plant, where I also worked. In fact, my experience was the environment was more inhospitable in the nonunion plant. People have this general view of sloth and stupidity when it comes to the UAW. The plant workers were just like your neighbor, your brother or your work associate. They took pride in their work and did it honestly. Not to believe that simply reveals a lack of faith in the human spirit and dignity. That is my anecdotal commentary.
Now, here are a few facts. Germany is highly unionized and their unions are much more powerful than the UAW as they actually extract board seats and play a significant joint role in corporate management. Germany is the world’s largest exporter of finished goods. They also have some of the highest labor rates. Yes, I understand Germany has its fair share of economic problems. But, so do we if you actually care to believe true comparative statistics rather than government fed pablum on things such as the unemployment rate where labor participation in the US is down significantly. ie, Our economic miracle is a little less miraculous and our employment rates/underemployment rates are closer to Germany than one would imagine. I’m surely not defending socialism.
But, here is the biggest supporting evidence I will make. Caterpillar was recently recognized as the most admired industrial company on earth. They were a mess fifteen years ago. Komatsu and others were eating their lunch. Innovation was a joke and decision making/execution was akin to a group grope.
Cat management set out to totally transform their business. Now, they crush everyone globally, are the innovation leader and move at such speed their competitors have scrapped products before they are launched because of Cat’s speed of execution. A good article at Booz Allen’s periodical web site on this transformation.
http://www.strategy-business.com/
Search under Caterpillar. Now does that sound like a UAW shop? It is. And so is Deere which ships its products globally as a segment leader and show of American manufacturing might. A paradox to many in the world of uninformed.
Does the UAW need to change? Does the UAW need to recognize it must allow more flexibility? Does the UAW need to adopt a policy of working with management? Yes to all and more. Are they even remotely responsible for GM’s demise? No way.
There certainly is more than enough blame to go around at GM.
However, using Caterpillar and its dealings with the UAW in a defense of the UAW seems odd.
I would suggest anyone interested do a Google search on “Caterpillar” and “UAW” and decide for themselves if Cat’s success has been done with the aid of the UAW or by finally taking them on.
From my reading it seems Caterpillar began to soar right after it began taking on the UAW.
If one were using Cat’s experience to inform GM management it seems the lesson would be to play hard-ball.
It was asked: ‘does that sound like a UAW shop?’
No, it doesn’t and since management has won virtually every showdown with the UAW (to the extent where the UAW worked many years without a contract) I’d say it isn’t really a “UAW shop”.
-Ryan
I’m not claiming that union members are dumb. Instead, it’s their ability to distrupt business operations and drive up compensation costs. There is a reason why Toyota is whooping GM and why WalMart has become the largest company (in terms of revenue). They refuse to deal with the union, which allows them to focus on gaining market share.
Regarding CAT, it was the union strikes in the 80’s that nearly killed the company. It was the same story in the early part of the 90’s. The reason why CAT came out of the slump was the fact that they began to apply 6 sigma. It appears that union can do more harm than good.
Now i remember ..Didn’t Herb Greenberg write that Jeff was a Civil war buff ? ….Jeff, did i learn McClellan went on to become the Govenor of NJ in McPherson’s ” Battle Cry of Freedom ” ??? …Man —–O—man do i gotta tell ya…I’m not a educated man and i’m not the sharpest knife in the draw but that was one great book ..I truely enjoyed reading it.
jeff–
thanks for this.
i bought a slug of jan `07 gm $2.50 puts after renting a chevy in orlando for a conference this autumn.
to paraphrase george clooney lifting edward r. murrow…
“the fault, dear brutus, lies with the cars”
and, by the by, you are a really fine prose writer. i just wanted to say that you write more lucidly at 7:30 in the morning than most…
keep on plugging.
I’m not sure I’m convinced the UAW has anything to do with GM’s problems.
I am. Imagine if I ran a restaurant and my lettuce cost $15 a head and my beef cost $25 a pound and my buns cost $30 per gross while all your commodities cost 30% of that AND your chefs had 30% less scrap and waste than my restaurant AND your lease was 15% lower. Observers could point to the lease expenses and say, “that’s it, that’s the problem,” and other observers could point to the kaizen technique of my chefs, which would certainly capture some of it, but any observer who dismissed the labor costs per unit would be missing a big component of the competitive advantage and anyone who misses the cumulative effect of the whole thing plus the compounding of retained earnings and learning would be way off base.
GM has been running a comparative ad between a Chevy Equinox and a Lexus (forget which)
The Chevy is $20k less than the Lexus!
What more needs to be said about GM’s inability to understand the car market?
Oh, and the Lexus brand didn’t exist in the US until 1989. Amazingly, it’s just now hitting Japan.
Chug-A-Bug,
I just ran my own compare of the Equinox vs the Lexus RX330. The difference between a fully loaded Chevy and a fully loaded Lexus was about $15K. ($30K vs. $45K). Granded, it would in practice be a bit more, because GM has to discount heavily just to generate interest and Lexus doesn’t have that particular problem.
When all was said and done, the GM configuration just couldn’t compare. No navigation system, crappy audio compared to the Lexus, plastic vs. wood-trim interior, etc. Bottom line is the Lexus is a luxury vehicle, the Chevy isn’t.
Want to make a fair comparision? You can compare the Equinox to the Toyota Highlander (essentially the same vehicle as the Lexus under the skin), in which case you’ll find that the Toyota is comparably priced while still offering some features or options that can’t be had on the Chevy at any price.
Alternately, compare the Lexus to the Cadillac SRX, which is a bit bigger vehicle and not really in the same class, but is the closest thing GM has to a smallish Luxury SUV like the RX. Pricing and features are close, though still the Cadillac can’t quite match the stuff that you can get on the Lexus.
And of course, the Lexus, for the premium, also includes Lexus service (covers everything right down to the lightbulbs and wiper blades), loaner cars when necessary (Lexus requires this of dealers), and a tightly-regulated selling environment that is designed to avoid the need to interact with typical car salesmen and their sleazy tactics.
Oh yeah, both the Highlander and the RX330 are available in hybrid versions which are sold out months in advance. Last I heard GM is still saying that it’s a “dead end” technology and simultaneously saying that Toyota just happened to get lucky by having it available when they didn’t.
To me, just more excuses.
-btc
My favorite part of the editorial was this:
Another factor beyond our control is lawsuit abuse. Litigation now costs the U.S. economy more than $245 billion a year, or more than $845 per person. That’s more than 2% of our GDP. No other country has costs anywhere near this level. And the perverse thing is that, in many cases, the majority of courtroom settlements go to the lawyers and other litigation costs, not to the injured parties.
Ok ok, I get it. Lawsuits are bad. But it feels like something is missing.
For example, what does that have to do with GM? If it is so impactful, why not tell us how much this costs GM each year and why it is hurting competitiveness.
Also, are Americans not suing Toyota/Honda/Nissan/BMW?
A little late to the party here…People seem to forget the simple fact that GM (and Ford) don’t make cars that people want to buy. Their trucks do well, but the car designs repeatedly miss the mark. Daimler Chrylser has figured it out for the most part, but the big two haven’t. No matter if the reliability is as good or even better than the Japanese or European counterpart, nobody will buy a car that they don’t like stylistically.