“What’s Good for General Motors is Good for America”
The Federal government’s denial of the $10 billion bailout for the now aborted GM-Chrysler merger took my thoughts back to the Darden School of Business, 1981-1983. There, I first heard the saying, “What’s good for General Motors is good for America,” justified by the fact that 10% of Americans worked in the auto industry (and still do). Somehow, I was not convinced.
On the one hand, several of my classmates were GM managers on leave with full scholarships. They did not have to return to GM, but not one was even interviewing elsewhere. Surely a company that inspired such loyalty was well managed? On the other hand, a case we discussed documented years of mismanagement of GM’s Tarrytown New York plant; we had to decide whether to try to fix it or shut it down (and open a brand new plant). Moreover, Toyota had just begun thrashing the industry. A top GM executive spoke at a doctoral seminar I was auditing. He said GM had considered, and then abandoned, the idea of making small cars because it couldn’t be done profitably. That decision – and similar ones at Ford, Chrysler and AMC – made Toyota’s task a cakewalk. (The executive’s talk led me to undertake the independent research study on financial risks analysis I mentioned in a prior post on the global economic crisis.)
The more things change, the more they remain the same. In 2001, The New York Times published an article on production outsourcing at GM. The existing GM plant was rundown, filthy, and struggling; the proposed outsourcing vendor operated a computerized, almost “cleanroom conditions” plant. In more recent years, we’ve heard caterwauling from GM – and the broader industry – about the inability to anticipate the need for hybrid technology.
Should such executives be trusted with a share of the $25 billion in modernization funds they are still seeking? Over a close to 30 year period, two generations of GM executives have failed to strategically manage their company. I’ve briefly cited two virtually identical stories of factories run into the ground and lack of investment in next generation products. I don’t know about you, but I don’t get the warm and fuzzies they know much about modernization. Two epochal changes (see the very first post in this blog for a definition) and these people blow them both.
GM’s problems are not its labor or its infrastructure; they are endemic in the culture of management practiced there. It was apparent in the sheer audacity – chutzpah is a better word – of CEO Rick Wagoner comparing the denial of the $10 billion to the Treasury’s not bailing out Lehman Brothers. Did he ever consider saying, “I’m sorry America, my entire management team and most definitely I, blew it. We will tender our resignations in an orderly manner so as not to do more harm. In the meantime, please do not take out your anger at us by punishing the people and communities GM operates in.” Perhaps it is the water in Detroit … I’ll remember not to drink any next time I visit that city.
Nevertheless, I would hold my nose and give GM the money. In this networked world, the failure of this large a company will bankrupt many suppliers and dealers and most importantly – as I had mentioned in a prior post – will tank the still-struggling financial markets. However, recognizing that this company cannot be trusted to reform itself, I would insist on the following conditions:
One, the Feds get to appoint a couple of Board members who must be on GM’s Finance committee. (Some people may rage about this taking us closer to “socialism,” but surely that is preferable to the brand of capitalism practiced by Mr. Wagoner?) Two, Mr. Wagoner and his top lieutenants must resign in an orderly fashion, without their golden parachutes (If a company can seek to break binding legal contracts with its suppliers through a bankruptcy court, there must be at least 10,000 lawyers who can figure out ways of getting GM to rescind its contracts with it its executives). Three, the Fed appointees should have veto rights on the replacements for Wagoner and his associates. Four, over the next five years GM (and Ford and Chrysler) must be reduced in size, so they are no longer “too big to fail.” This will require mandatory spin-offs of relatively independent businesses (as some analysts have suggested). Five, no one in the top spots in any of the restructured companies should come from the senior-most ranks of these companies; fresh blood that is willing to be boldly rethink how to operate in a networked world, is essential.
What may be really good for GM is definitely no longer good for America. And what is good for America will most definitely not be good for GM’s management. National policy makers must make incompetent executives pay without destroying the economy. If they pull-off this balancing act, the people will cheer them on to re-election. If not, we will have to bail out many others in the years ahead.