Matthew Yglesias (August 01, 2008) - It's All Management (Domestic Policy)

OMG McArdle is wrong and full of shit. Stop the wordpresses!

Posted by rickm | August 1, 2008 4:40 PM

Speaking as someone whose old man worked in the auto industry for thirty years, you have to remember that this is a very cyclical business and that it was probably felt that the current bad trend could be ridden out.

Also, GM in particular had been hoping to jump a generation by going directly to the hydrogen-powered car; they obviously came a cropper on that.

Two, you have to remember that there's not a tremendous value-added between a large and a small vehical in terms of what it takes to build, but you can sell the larger vehical for so much more money. While one can bemoan the "Big Three" not making an earlier switch to smaller machines, there's a reason why this didn't happen and there is no point in selling what people don't want.

Three, I don't want to hear anyone trotting out quotes from "The Economist" about the fall of the US auto industry, as those are in the category of the broken clock, which is right twice a day.

Posted by Shrike58 | August 1, 2008 4:43 PM

Not even a loss of $15.5 billion phases the glibertarian. Wanna bet who doesn't own GM stock?

Posted by David B. | August 1, 2008 4:45 PM

Chairman and CEO of General Motors Corp. Rick Wagoner said that although GM had the technology to produce more fuel-efficient vehicles when gas prices were lower, a significant portion of its customers would not have bought them.
"We have to build cars and trucks that people want to buy," Wagoner said in his address to the Dallas Regional Chamber on Thursday.

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=ACBJ&date=20080710&id=8881084

Meanwhile, Honda and Toyota have been drinking this dillweed's milkshake.

Posted by blah | August 1, 2008 4:49 PM

"Meanwhile, car company management could have strongly backed the Clinton administration's effort to get health care under control back in 1993."

Fuckin' ay, bubba.

I am a fan of Megan 'cause she has the balls to be vegan, but the idea that the marketplace is infallible (which, to some extent, underlies this post and others) is just childish.

Posted by John McCain: More of the Same | August 1, 2008 4:53 PM

I am a fan of Megan 'cause she has the balls to be vegan...

Why? Is the produce department located in a rough neighborhood or something?

Posted by daveNYC | August 1, 2008 4:58 PM

GM's historical pension and healthcare obligations, and the vast difficulties they have in permanently laying off workers, mean that the company had to maximize cash flow as best they could.

Of course, GM needed to make money. All corporations need to make money.

The strategy that management came up with make this money was to build monster trucks, treat fuel efficiency as a dirty word, and cede the small car and hybrid market to the Japanese. Because it would make them so much money, you see.

Oopsie.

Posted by joe from Lowell | August 1, 2008 5:00 PM

Remember how a few years ago the auto executives went to the Bush White House looking for pension and health care relief and Chimpy snubbed them?

I recall being surprised at how poorly they did, given their status as very big Business Men.

Posted by Hedley Lamarr | August 1, 2008 5:02 PM

I think this NYT article from earlier in the month sums it up best.

In 1961, G.M. was able to get away with a skimpy 2.5 percent increase in wages by also guaranteeing a 12 percent rise in pensions.

Posted by nirad | August 1, 2008 5:06 PM

I think this NYT article from earlier in the month sums it up best.

In 1961, G.M. was able to get away with a skimpy 2.5 percent increase in wages by also guaranteeing a 12 percent rise in pensions.

Posted by nirad | August 1, 2008 5:08 PM

You really have to blame management way back in the 50's and 60's as well as current management. But you also have to blame the employees as well, for failing to see that they needed to work with management to foster a more creative and forward thinking organization.

First of all - GM's management back in the 50's & 60's struck a bargain with its workers, deferring compensation through long-term guarantees for retirement and health care benefits. Unfortunately, like all long-term plans, the are based on assumptions that literally begin to fall apart and change the next day. Sure - deferring payment in 1960 made sense, as who could have foreseen the rise of global competition way back then.

And it made management and shareholders happy back then, as returns in the short-term looked better, even though they were delaying the inevitable payback.

Fast-forward to 1990. The 1990's was where the long-term obligations began to really take root. And GM had a few choices, and management again took the approach of maximizing short-term gains (i.e. - focusing on Truck Sales) versus longer-term thinking. But then again - who in 1998 could have foreseen $4.00 gas? Again - more evidence that assumptions and forecasts are worthless when you are so micro-focused and short-term oriented.

Union Leaders themselves failed to help either. All they wanted was to grab as much of the pie as possible, without thinking that the GM's share of the pie is getting tougher and tougher to maintain. As much as I hate anti-union sentiment, in the case of the UAW, they needed leaders to point out some cold, hard facts to the members about the challenges facing domestic auto manufacturers, and unless they acted to help even the playing field between American and foreign manufacturers, the pain was going to be massive down the road.

But honestly, where were the shareholders in the 1990's pushing for a change in direction for the Company? In fact, management was likely doing exactly what analysts, shareholders and even employees were all pushing for - maximize profits. And quite frankly (as you see this with tax policy discussions in the current campaign), no one like the "Dolly Downer" (Or Al Gore) telling everyone that the current strategy in the long-run may be heading to disaster long-term.

Instead, we always think there is going to be a way later on out of whatever predicament appears beyond the horizon. Unfortunately for GM, that never came, and now, they are trying to right the ship a bit too late.

In the end, the story of GM is really the story of human nature.

As an aside - I think another part of the problem for GM was that it was publicly traded. If you think of it, a public company has stakeholders with the ability to abandon ship at the first sign of trouble. And, unlike private companies, where investors often are invested for the distributable earnings potential of the entity, public shareholders are often in it for the price growth potential. This difference in intent or rationale for holding the ownership stakes results in a much more short-term, who cares about 10 years from now attitude. Especially for the institutional investors and those likely to see their ownership stake purely from an asset growth potential. Why are they concerned about 10 years from now? Hell - if the times change, they will just sell out of their position, and get out before the s*&t hits the fan.

Privately held entities are much more likely to have investors who are in it for a long-term investment, and therefore, much more receptive to a management team is looking at the long-term horizon.

Posted by Brad | August 1, 2008 5:08 PM

GM could have struck a different bargain with its workforce that entailed higher salaries and lower long-term pension obligations. Its management thought it would be wiser to strike a different bargain, and the results have wound up being non-pretty.

This misses an important point: the executives who traded short-term wage relief for long-term pension obligations don't have to deal with the repurcussions. They've long retired, handsomely in most cases. Sure, the decisions they made have locked the company into a decidedly uncompetitive cost structure, but that all-too-foreseeable outcome happened so long after the decisions were made that the punishment (for the company) doesn't act as a deterrent (for the executives).

The teenager who takes up smoking may well become the old man with lung cancer, but the specter of a gruesome death decades later isn't great enough of a threat to make the teen think twice. And in the case of corporate decisions, it's as if the teenage smoker gives someone else cancer while he gets a clean bill of health.

Unfortunately, the ultimate outcome for GM, Ford and Chrysler will be a reorganization that lets them skip out on all those long-term obligations. The workers who traded real wages for promises of long-term security will be left with nothing. On the one hand, that's what they get for trusting management. On the other, that's why we shouldn't rely on private, profit-motivated companies to provide social services.

Posted by jlw | August 1, 2008 5:12 PM

1. GM in particular had been hoping to jump a generation by going directly to the hydrogen-powered car; they obviously came a cropper on that.
2. GM's historical pension and healthcare obligations, and the vast difficulties they have in permanently laying off workers, mean that the company had to maximize cash flow as best they could.

Those appear to be 2 big bad business decisions. They are so bad that now the big 3 are stuck with a giant backlog of SUVs, trucks, and mini vans, no body wants to buy and banks have no money to lend for somebody to buy. What I find amazing is the plan 'maximize cash flow'...that has nothing to do with building cars people want to buy.

Crysler's sales were down 34%. Why are they still in business?

Posted by jerri | August 1, 2008 5:13 PM

I just want to know how big the bonuses have been for management as they have been bleeding market share?

Posted by athena | August 1, 2008 5:16 PM

Well, you have to blame management and unions. Sure, GM management "could have struck a different bargain with its workforce that entailed higher salaries and lower long-term pension obligations". And the unions could have asked for that different bargain. It takes two to tango. When the tango turns out badly, you need to blame both partners.

Meanwhile, the following makes no sense: car company management could have strongly backed the Clinton administration's effort to get health care under control back in 1993.

The problem is retiree healthcare and pensions. As far as I'm aware, we already have single payer, government-run health care for retirees. It's called Medicare. (We also have government-run pensions. It's called Social Security.)

Posted by Al | August 1, 2008 5:16 PM

Thank you for calling her out on that -- it's one of the most tired and pathetic cliches in business journalism to blame the UAW for everything that ever goes wrong in the American auto industry.

Apparently the union possesses such phenomenal superpowers that they can negotiate both sides of labor contracts, design ugly cars behind the engineers' backs, telepathically manipulate the Board into making short-sighted business decisions, and still find the time to take 3 coffee breaks per hour. Truly, the corporate officers are powerless to resist such supervillainy.

Posted by LaFollette Progressive | August 1, 2008 5:17 PM

I'm not sure I buy the meme that the unions are also culpable for the current state of GM and other automakers.

The argument that the unions should have been more far-sighted and worked with management to prepare the company for the future presupposes that GM management was amenable to working with the unions to determine the direction of the corporation.

Now I didn't work for GM in the 80s or 90s. But everything I know about the big automakers is that they were very much the autocratic top-down corporation. And top management was in no way interested in sitting down with the unions to plan the direction of the corporation. This was the era of "Roger and Me".

What were the unions supposed to do? Turn down hard-fought wage and benefits for the sake of the long-term health of the corporation? Because that's certainly what top management did during those years--when executive compensation was curtailed to provide for the long-term health of the corporation....Oh wait. Nevermind.

Posted by Kent | August 1, 2008 5:21 PM

Let's see: Honda, Mercedes, Toyota, Subaru and other foreign companies all profitably manufacture and sell cars and trucks in America; the big three don't. What could be the differentiating factor? Oh yeah: The Big Three are stuck with the parasitic UAW. The others aren't.

Posted by Juan | August 1, 2008 5:23 PM

Oh, Al. There you go again. You don't read very carefully, do you? By "pension" the glib lady quoted up top meant "pension"; by "healthcare" she meant "healthcare" -- i.e., health coverage for employees.

Posted by mary | August 1, 2008 5:24 PM

Let's see: Honda, Mercedes, Toyota, Subaru and other foreign companies all profitably manufacture and sell cars and trucks in America; the big three don't. What could be the differentiating factor? Oh yeah: The Big Three are stuck with the parasitic UAW. The others aren't.

Posted by Juan | August 1, 2008 5:25 PM

Al's right, Mary. The issue for the big three has been the gold-plated retiree health care and pension benefits. Current UAW members have continued a tradition of selfishly bleeding GM dry without caring what of its corpse will be left for future workers.

Posted by Juan | August 1, 2008 5:30 PM

"The company had to maximize cash flow as best they could." Um, as opposed to what? You see, if only there hadn't been so much pressure bearing down on the corporation from those greedy unions, GM would have had the luxury to try some business model other than maximizing cash flow. Such as, I dunno, fashioning all the steel into modernist sculptures and building an art museum open to the public at no charge?

Posted by bobbo | August 1, 2008 5:30 PM

Let's see: Honda, Mercedes, Toyota, Subaru and other foreign companies all profitably manufacture and sell cars and trucks in America; the big three don't. What could be the differentiating factor? Oh yeah: The Big Three are stuck with the parasitic UAW. The others aren't.

Or perhaps the Big Three are stuck with a parasitic overpaid executive class and the others aren't.

Posted by Kent | August 1, 2008 5:31 PM

Juan, Mercedes a German company, located in a country with labor laws and standards that are quite a bit more onerous than those that exist in the USA. It may well be that GM's management was simply less competent.

GM Management was not interested in hearing input from unions regarding their future direction. GM was more interested in making pie-in-the-sky promises to unions in the future and then getting straitjacketed by the pension obligations that it didn't already loot. And they thought they could make all those problems go away by manufacturing cars with little future potential in the hopes of big payoffs now.

Posted by Tyro | August 1, 2008 5:32 PM

Tyro,

Did you miss the part where I wrote that Mercedes and other foreign car companies foreign companies all profitably manufacture and sell cars and trucks in America? I would think that you are aware that when Mercedes, or any other foreign company, operates a factory in America, it is subject to the same labor laws that the big three are subject too.

Jesus, please work on your reading comprehension.

Posted by Juan | August 1, 2008 5:37 PM

McArdle again? Seems like the Atlantic should permanently lay off a certain worker.

Posted by HeavyJ | August 1, 2008 5:43 PM

Juan, for a while, GM also profitably made cars and trucks in America. The problem: they planned for the wrong kind of cars; ones that aren't profitable today.

To give you an idea of how poorly GM planned for the future, it was effectly held afloat by running a very profitable financing business. Many of GM's problems are due to the credit crisis. It's hard to look at Mercedes and say that the only difference is that they didn't have the UAW to deal with: the problem is that they planned better.

Posted by Tyro | August 1, 2008 6:00 PM

It's always fascinating to see the wage-serf mentality displayed by folks like Juan. If he tugs his forelock any harder, he'll scalp himself.

Mike

Posted by MBunge | August 1, 2008 6:01 PM

"Let's see: Honda, Mercedes, Toyota, Subaru and other foreign companies all profitably manufacture and sell cars and trucks in America; the big three don't. What could be the differentiating factor? Oh yeah: The Big Three are stuck with the parasitic UAW. The others aren't."

Well, you're quite wrong, actually. None of these companies is selling trucks profitably in America right now, regardless of where they are made. The major difference is product mix, and Honda and Toyota have the small and mid-size cars that people want. GM (and to a lesser degree, Ford) don't offer competitive small cars here. The Big 3 were wholly dependent upon pickups and SUVs for all of their profits and rarely put any effort into other vehicle lines for over a decade.

There are clearly problems with the unions, but those problems were a result of management creating a deferred compensation structure in lieu of pay raises.

The management is to blame for product mix and deferred compensation. The unions only for the mess of deferred compensation.

Posted by Mr Crabby Pants | August 1, 2008 6:03 PM

Also, GM in particular had been hoping to jump a generation by going directly to the hydrogen-powered car; they obviously came a cropper on that.
===
That's being generous. There is a school of thought that hydrogen cars were always just window dressing. The dollar figures for hydrogen research sound big, but they're really not - not if you were seriously trying to replace the gasoline engine. If $20m/yr on research for The Future to make it look like you're trying real real hard helps you avoid $200m of lost sales from increasing CAFE standards - you do that deal. The ratio of R&D: lobbyist expenses is not flattering for GM.

The Sunday NYT business section had a big article a few weeks back about how the US car companies got in this mess. Yes, pensions play a big part. But their main problem is that they are selling an inferior product and are ill-prepared for the future (disclosure: I like my old Ford just fine). Cheap oil bought them a ten-year reprieve. They could have used that time to straighten some things out (R&D, brand consolidation; rationalization of dealers), but those things were hard so they didn't bother. And now they're f****ed.

Toyota and Mercedes-Benz also made fat profits on big cars the last decade, but they were smart and invested in future tech (hybrids, fuel cells) because they knew the good times wouldn't last. They're both hurting a bit now, but nothing like the Big Three. Hell, MB even went and BOUGHT on of the Big Three, realized its mistake, unloaded it and they're still OK.

GM has its own special problems. For years GM was a car company like Berkshire Hathaway is an insurance company. Yes they sold product, but mostly to generate cash for their finance arm. When GM sold off GMAC Finance, they cashed out the profitable part of the company and backloaded the old-school manufacturing business with all the nasty liabilities and other financial landmines. GM Auto hasn't had to stand on its own for years. There's no particular good reason to think they'll be able to do so any time soon.

Posted by hubcap | August 1, 2008 6:09 PM

Tyro,

American car companies somehow are able to profitably manufacture and sell cars in China and other countries. The albatross here is the union.

Posted by Juan | August 1, 2008 6:10 PM

Juan, if unions are to blame, why is it that most of the European car makers are able to build cars profitably in even more heavily unionized Europe?

Watch the unions are coming to get you! Booo!

Posted by Mr Crabby Pants | August 1, 2008 6:14 PM

Be careful, Matt. She'll use that famous libertarian trick and just decide that "management" means something else. You know, like how they say price gouging doesn't exist. It's just "supply and demand." Riiiiiiight....

Posted by Herb | August 1, 2008 6:16 PM

Also, if we're to blame the unions, doesn't this put the lie to the idea that we all act in perfect Randian rational self-interest? Isn't it in the union's interest to ensure that their demands don't cripple the company?

Maybe they're just not rational...

Or maybe that meme is as weak-kneed as Charlie Sheen in a room full of hookers.

Posted by Herb | August 1, 2008 6:21 PM

Megan McArdle, clueless? Do tell. Megan McArdle repeating the same lame empirically unsubstantiated (or often disproven) statements so she can hold on to her irrational prejudices?

Sounds like business as usual to me.

Posted by tim connor | August 1, 2008 6:22 PM

I am not certain of the legalities; does anyone here know what GM's legal obligations are in funding their pension plan? My understanding has been that large companies are under a legal obligation to provide a certain level of investment to meet future pension obligations. I had understood that during the 1980s the Reagan administration led the effort to loosen the investment requirements. Afterwards firms could use more optimistic assumptions about how quickly pension funds would grow in the future and reduce the required investment (and short term costs) each year. If you know more about these laws and their history, I would love to hear about it.

If the above is true, the mismanagement of pensions actually has two parts. First, the firms chose to negotiate contracts which exchanged lower wages for higher future benefits. Second, the firms underestimated the level of investment necessary to fund future obligations. I don't know the history in detail but a third mistake may have been applying political pressure to revise the law which allowed for under-funded pension plans. If any of these mistakes had not been made GM's current financial woes would be greatly reduced.

It is hard to see why this shouldn't be seen as failures of management.

Posted by sven | August 1, 2008 6:23 PM

Crabby,

All unions aren't equal. The UAW has been an especially parasitic and destructive union. Others have had more constructive relationships with the companies in their respective industries.

Posted by Juan | August 1, 2008 6:28 PM

Saying that they sold SUVs and trucks becasue that is what the market wanted is too simplistic.

Any doofus with a high school reading level can figure out how to sell what the market wants today. Management makes the big bucks because they are supposed to be figuring out what people want today, 2-5 and 5-10 years out.

Thinking that what sells well today will keep on selling well for the forseeable future is the height of mismanagement.

Posted by eric k | August 1, 2008 6:48 PM

If the permanently adolescent libertarians like McArdle choose to opine on the history of US manufacturing and auto industry without having first read Max Holland's When the Machine Stopped, then they should just shut the fuck up.

Posted by gerrard in the middle | August 1, 2008 7:15 PM

It's not necessarily fair to say that GM has been profitable in the late 90's and early 2000's on the back of truck & suv sales. While the company did have large profit margins on trucks & SUVs they experienced losses or tiny profits on North American operations for most of those years. It was the GMAC finance operation that lined GM's coffers. Where's GMAC these days? In the toilet and 51% owned by Cerberus. No profit from trucks plus no profit from GMAC and none from other operations... Well...

Juan suggests it's a parasitic UAW, while Kent suggests 'or it's a parasitic executive class.' It's not OR, it's AND. Golden parachutes for management and better retirement benefits than I'll ever see for line workers. Unfortunately for the UAW members, their retirement benefits will be tied to the financial health of their former employer. It's not like union members weren't well compensated during the boom years. Free computers, huge bonus checks, and lots of promises were flowing from the Detroit OEMs to keep the masses happy and not shutdown the works down.

Posted by rm | August 1, 2008 8:01 PM

Juan,

Last time I checked, GM was obligated to provide healthcare obligations to employees as well as retirees. Healthcare obligations to employees are something that big employers have been complaining and trying to avoid for a long time now. And those union workers who negotiate with management are trying to preserve a certain level of benefits for themselves as well as future workers -- whatever they give up will be gone forever. Or until the rapture comes.

Posted by mary | August 1, 2008 8:20 PM

Running a large enterprise is difficult which, I think, is why the executives make the big bucks. But when decisions don't pan out, you take the blame.

Ezra, sometimes I'm astounded by your naivete.

The reason executives make the big bucks is that executives decide who makes the big bucks.

Posted by joel hanes | August 1, 2008 8:55 PM

Many years ago I met a rising young executive at GM. He was proud to be going to GM University, an inhouse school where he would be taught how to be a good manager. This struck me, even then, as ludicrous. If they had sent him to Harvard, Yale, MIT or some other outside school, he might have seen a less incestuous picture. GM has been an incestuous monopoly (OK, they only had about 1/2 the market) and they had no way to break outside the box. A hard look at Saturn, which was supposed to do that, tells the story of how they got sucked right in to the "old GM culture" all over again. Stupid, arrogant people who made the same mistakes over and over again. Sorry, no sympathy for them; only for the workers they destroyed.

Posted by OCPatriot | August 1, 2008 9:04 PM

GM poisoned labor relations how many decades ago? They made their basic pension and health care decisions when? Matt's argument is pretty weak.

Megan is saying that GM is burdened with legacy costs that force them to be too short-term, which is true. Still, does Megan really think GM management is on the same level as Toyota or Honda? Really?

Perhaps the core truth is something neither really get to; GM's management is compensated far more generously than Toyota's or Honda's, yet is worse. That is more a U.S. problem than a GM problem. GM's slow fade is a symptom.

Posted by tomtom | August 1, 2008 9:24 PM

As far as GM's legacy costs are concerned, all the relevant stakeholders at the time (including both GM management and the UAW) thought deferring compensation was a good idea based on their assumptions about the future. It turns out they were all wrong, but it doesn't make sense to me to try to figure out who to blame the most--it was a mutual error.

Posted by DTM | August 1, 2008 11:28 PM

Of course GM management is to blame.

This is the same company that single handily destroyed mass transit/public transportation in the country in 1950's. Payback's a bit**. Good riddance.

http://en.wikipedia.org/wiki/General_Motors_streetcar_conspiracy

Posted by TMoore | August 2, 2008 12:33 AM

Perhaps the core truth is something neither really get to; GM's management is compensated far more generously than Toyota's or Honda's, yet is worse. That is more a U.S. problem than a GM problem. GM's slow fade is a symptom.

Quoted for effing truth. Something that folks like "Juan" upthread miss when they say that the only difference between Europe/Asia car companies and US car companies is the UAW is the fact that both Europe and Asia have much lower compensation for their high level executives AND hold them more accountable for failure than US companies do. They also use metrics to determine success/failure based on the long term actual health of the business and not on day-to-day stock prices.

Also, the flip answer that the "unions should have been working with management" to strike healthier deals is utter bullshit. Management has all of the numbers - the union doesn't. The union can only "trust" management to be telling them the truth. Unfortunately, management doesn't tell the truth - they have historically used their information advantage to exploit the negotiations. If the "big three" management wanted to get the unions to make sacrifices, they could start by lowering their high-level execs compensation packages to European levels. A "good faith" effort if you will. Everyone expects labor to take it on the chin in these negotiations, but no one ever asks why the management of these failing companies shouldn't take a pay cut for their goddamn incompetence over the last 30+ years.

Posted by NonyNony | August 2, 2008 12:45 AM

when i grew up in detroit, i thought everyone's father worked on the auto company assembly lines.
i watched the auto industry make horrible decision after horrible decision, losing an entire generation of auto buyers along the way.
they always made decisions that benefited their industry - and individual company - in the short term. heck, they had trouble looking past the next quarter.
the auto industry, generally, and gm, specifically, are in trouble because management made stupid, idiotic decisions that are coming home to roost now.
this has been in the works since the 1970's, when imports first started making inroads in the domestic car market and instead of addressing the issues that should have been addressed, the car industry has simply muscled lawmakers into helping them limp along, with an occasional burst of real success.
i have relatives and friends who are being destroyed by the devastation of the industry. but the industry, and management, which has made the horrible decisions that have crippled the industry, are solely to blame.
end of discussion.

Posted by frankie d | August 2, 2008 12:59 AM

Will we be having this same discussion about XOM in 2036?

Posted by Interesting Question | August 2, 2008 1:06 AM

What DTM said. The executives wanted nice massaged balance sheets for the quarterlies to keep Wall Street happy, and the UAW took it in the form of deferred benefits.

GM and Ford make a profit in Europe with a union workforce. Even today, GM's European operations turned a (greatly reduced) profit, and the Latin American operations -- based around small cars -- were the one bright spot in today's announcement.

It's schizoid. In those markets where GM is primarily a car company, there's a decent amount of success. In the US, GM is not a car company. In truth, I think jlw is right: the only way to salvage the US operations of the US makers is to start afresh. In the short/mid-term, foreigners will continue to laugh at the American-marque cars driven by Americans, even as they buy foreign-made Fords and Opels and Holdens.

Posted by pseudonymous in nc | August 2, 2008 1:26 AM

GM/Canada is a huge advocate of the Canadian single-payer system for many years. Just because GM/USA management choose to suck up to the Republican Party agenda for the past doesn't make it the unions fault that they negotiated good benefits in the past that left big legacy costs for GM/USA. I'm sure the unions would have agreed to drop all financial claims to health care uon passage of a national health care plan that delivered equivalent benefits -- which in most of the world would have cost GM/USA about 1/2 of what they choose to pay here because GM/USA execs like the other items on the menu (tax shelters, banking deregulation (GMAC), and lower marginal rates).

Posted by joejoejoe | August 2, 2008 2:02 AM

Re: There is a school of thought that hydrogen cars were always just window dressing

Probably not window dressing. The amount of money they sunk is too much for some meaningless public relations ploy. More likely the hydrogen research is a hedge: not something they intended to move forward with any time in the near future, but a small stake they could build on in the far future when the time came. Of course the time has come much sooner than they thought and they may have bet on the wrong hedge.

Posted by JonF | August 2, 2008 7:21 AM

There's no doubt that the UAW is partially to blame, for focusing on wringing every last dollar out of GM that they could, instead of working on a more sustainable pension model.

There's no doubt that the current management at GM is dysfunctional and incompetent. They should have done a better job of managing for the future, instead of the next quarter.

But the worst offenders are definitely the previous management of GM - the ones who made the gobsmackingly bad choice to offer huge, unsustainable future pension benefits to their workers. Only idiots would shoulder their "descendants" with such huge liabilities.

The obvious thing to do now is to go look at who else has huge pension liabilities, so we can understand which managers are incompetent and need to be replaced.... Especially the ones who are making these insanely poor long-term choices right now.

Oh wait, that's right - it's the city and state governments who have the most generous pension plans that are morbidly underfunded and generating huge liabilities for the future. Clearly, the political leaders of the cities and states are incredibly bad managers, and should be replaced immediately with others who are more financially savvy and capable of looking out for the long-term financial health of their constituents, instead of padding the pension plans of their fellow public servants.

Posted by jb | August 2, 2008 7:50 AM

It's simple: GM cars are crap.

Posted by novakant | August 2, 2008 9:42 AM

Met a German manufacturer who moved to the US for the cheap labour. He only paid $35/hour which was less than the going rate in Germany. The US also had nearly zero union requirements, which is not so for the EU.

Blaming unions for retarded working-class drones owning boats, houses, and vacations is simple whining.

Funy how the other car makers can put out so much better product with less compensated executives. I was astounded to discover that the CEO of Toyota made less salary than a deputy assistant VP at GM. Corporate welfare maybe OK for the owner's kids. It isn't when all your golf buddies are on the company dole.

Posted by Mold | August 2, 2008 1:26 PM

This whole comment stream and no one has said the words "EV1 Electric Car"? California tried to drag carmakers, kicking and screaming, into the 21st century. GM managment prevailed again and got exactly what they wanted.

Posted by Fermi Pyle | August 2, 2008 7:00 PM

Some of you seem to forget that managers are productive rational producers who are Good.

Though some are different to this, many libertarians seem to have imbibed of Rand's inverted Stalinism, which seems to have the same universe of Producers and Parasites, just with the labels switched.

Posted by Gerald Fnord | August 2, 2008 7:27 PM

Blaming the UAW for any of this impending disaster is bullshit. I swear sometimes GM is trying to fail. GM management has had six quarters to adjust to an obvious forthcoming plunge in light-duty truck sales and has utterly failed to prepare. Why? Because SUV's have the highest per-unit profit, and these assholes cannot think past the current quarter and are unable to think market share long term.

It's not like they can't rush something into production, and I expect we will see more Vegas or Chevettes: good ideas disastrously executed or just more stupid ideas. Then we can blame the engineers. Oh well. As the Japanese Minister of Trade and Industry said many years ago, 'Your first-rate engineers work on weapons. Our first-rate engineers work on consumer goods. Maybe your first-rate engineers are better than our first-rate ones, but don't you think it is a little arrogant to assume your second-rate engineers are better than our first-rate ones?'

Posted by mflehman | August 2, 2008 11:25 PM

"This whole comment stream and no one has said the words "EV1 Electric Car"? California tried to drag carmakers, kicking and screaming, into the 21st century. GM managment prevailed again and got exactly what they wanted."

From Joe Nocera's New York Times column, Talking Business - "Costly Toys, or a New Era for Drivers?":

In the documentary “Who Killed the Electric Car?” — about the EV1, an all-electric car General Motors began making in 1996 and killed once and for all in 2003 — the filmmakers posit the theory that the vehicle was done in by a grand conspiracy involving the oil industry, the Bush administration and the car industry. But that’s not what happened. Gas was cheap when the EV1 was on the market; auto buyers preferred S.U.V.’s. And the technology didn’t exist to allow the EV1 to become a viable mass-market automobile. Among its flaws, the EV1 used a nickel metal hydride battery that couldn’t get more than 75 miles before needing a charge.

“My daily commute was 37 miles one way,” wrote a man named Michael Posner on a Web site called The Truth About Cars, who drove an EV1 for several weeks back in 1997. “Every trip was loaded with drama,” he added. “If I went to lunch, I gave up a few precious miles. That could mean disaster.” At General Motors, they took to calling this problem “range anxiety.” Is it any wonder the car didn’t catch on?

Worth reading the rest of the column, even though the columnist doesn't seem to actually understand how a plug-in hybrid works (it doesn't "switch back" to electric; it only runs on electric -- the gas motor is just there to recharge the battery). The salient point that he gets right is that it has mainly been technological challenges (mainly with the batteries), and not a grand conspiracy, that has delayed the mass-market introduction of electric cars. Their day will come though. But not, I think, within the next five years, so partly for that reason, I think the secular bull market in oil will continue at least that long.

Posted by DaveinHackensack | August 3, 2008 3:29 AM

The executive pay difference between Japan/Europe and the US is meaningless. While executive pay in the US is high, cutting it to European levels wouldn't really do much for the bottom line (it's a rounding error for GM). Also, the European system is completely different and industry has nowhere near the legacy cost as in the US (ie, the government ends up taking that on, but the details are obviously pretty country specific).

GM is screwed because they have large legacy liabilities--the union and management cut a deal that turned out to be bad 40 years later. Why can't we leave at that and not try to make this into a good guy/bad guy thing? Seriously, the world isn't that simple. Sometimes people just make bad decisions.

Posted by Justin | August 3, 2008 12:42 PM

While executive pay in the US is high, cutting it to European levels wouldn't really do much for the bottom line (it's a rounding error for GM).

That's a bit like saying that the tapeworm in your intestine only draws a "rounding error" in terms of your calories per day. That may be true, but it's not doing you any favors in being there - especially if you decide that it should also be in charge of your major decisions.

The largest problem facing American corporations is the parasitic CEO caste. As near as anyone can tell, most CEO's don't have any particular experience or expertise in what they do; they've simply convinced some of their board-member buddies to let them feed at the corporate money trough for a while.

Posted by Chet | August 3, 2008 1:16 PM

Don't forget that GM, Ford and Chrysler all lobbied against higher CAFE standards. They were afraid that would cut into their ability to make and sell their precious sports utility vehicles. If they had just bit the bullet and made vehicles with better gas mileage standards, they'd be in a lot better shape than they are now.

Posted by mwg | August 3, 2008 8:05 PM

I skipped to the end at some point, so sorry if I missed it. But...

Isn't the reason that GM and the union struck a deal on pensions and healthcare, because it is the US tax policy to favor pensions and employer health care?

There are alot of people to balme here, but ulimately, I think it is a consequence of the unintended consequence of US policy. Both a more market-centric approach (no favoring of any so-called socially good) or a heavy safety net with generous universal healthcare and pensions would have averted this.

Ultimately, though, as Matt says, it is all management. Captial is the final arbiter of whether or not to sign a deal.

Posted by theCoach | August 3, 2008 8:10 PM

While executive pay in the US is high, cutting it to European levels wouldn't really do much for the bottom line (it's a rounding error for GM).

There's a different value to cutting exec compensation levels, though. It's not just about the balance sheet.

If you want to attract people to the position who are really interested in the subject, you motivate them by letting them innovate with the subject the love.

GM could hire executives who loved all kinds of cars and wanted to do everything possible with them. Or they could hire executives who run the company for the share price.

If you use enormous bonuses to attract executives, you just end up hiring a bunch of greedy bastards.

They don't care about the mission statement of the company.

Cutting executive compensation is a great idea, all around. The big money is not buying great quality.

Posted by blunderdog | August 3, 2008 9:21 PM

Doubtless GM's management made some poor financial decisions. But let's not lose sight of the heavily-documented fact that their cars are lousy: inefficient, unattractive, and unreliable. Toyota and Honda have just kicked their ass on product quality for 20 years.

See this summary of consumer reports survey, for example:

http://www.msnbc.msn.com/id/17385761/

"Japanese vehicle brands continue to rule the roost when it comes to car reliability, according to the latest annual survey from Consumer Reports.

Toyota and Honda’s brands scored top marks overall in the magazine’s “2007 Annual Car Reliability Survey,” which was compiled from survey responses from over 1.3 million magazine subscribers. The survey results will appear in the April issue of Consumer Reports magazine, which goes on sale March 6.

Toyota, Honda, Scion, Acura and Lexus took the top five places, in order, in the Consumer Reports list of the 36 most reliable car brands for 2007. Ford’s Mercury brand was the highest-placed U.S. nameplate, ranking 10th, while General Motors’ best-ranking brand was GMC, which came in at 14th on the list"

"What’s more, for the second time in the 10-year history of the annual list, all of the magazine’s top car picks were Japanese brands. In addition, 55 of the 59 used car models recommended by the magazine were Japanese, again dominated by Toyota and Honda"

Posted by Richard Cownie | August 4, 2008 12:54 PM

The reason the Japanese cars are on top is because they had to be.

When they first entered the North American market, they had a rep as being cheap crap (all Japanese products did). Well, if you could buy a cheap-ass foreign car or a cheap-ass American car, why bother buying the cheap-ass foreign car? So they went out of their way to start producing good, and then superior cars. Now it was a choice between a good foreign car...or a cheap-ass American car.

But they didn't build trucks. First with half-tons and then SUVs. If you were a company manufacturing a range of products, and you saw a competitor taking over product A, but you still dominated B and C, well, wouldn't the thought cross your mind to give up A as a lost cause and focus on B and C?

It's not that the North American car companies were being exceptionally stupid: they simply made a business decision that many companies in many industries make all the time. Consider computer manufacturers. Apple doesn't focus on the big desktop or server markets, they've tended to push their laptops. Does that mean they're dumb? No, they're just focusing on the area where they've had success, and their advertising is based around that, similar to the way other companies don't have much more than a nominal presence in the laptop market and instead put their money in heavy metal computing.

You only notice this choice because the auto industry was so large. And, as it turned out, the choice turned out to bite them in the ass. If, for some reason, there was massive decline in the laptop market, Apple would be similarly screwed.

Posted by KeithM | August 4, 2008 1:43 PM

"If you were a company manufacturing a range of products, and you saw a competitor taking over product A, but you still dominated B and C, well, wouldn't the thought cross your mind to give up A as a lost cause and focus on B and C?"

If an upstart competitor has apparently figured how to do a better job of designing and manufacturing attractive and reliable cars, I wouldn't just shake my head and say, "well, it's impossible for us to match them on design or quality, so we'll go hide in some other market segment". Because hell, it's pretty obvious that if you can design good reliable cars then it's only a matter of time before you apply the same expertise and process to design good trucks and SUVs, if that segment is profitable.

The fundamental trouble is that the US auto industry has always been driven by marketing and style; whereas the Japanese companies decided to focus on the difficult unglamorous nuts-and-bolts issues of superior engineering. And ultimately most consumers prefer a car that's efficient, reliable, cheap to run, and holds its resale value.

The decline of GM is not *just* about poor engineering: but that's a large contributing factor. And when your competitors kick your ass for 25 years or so and you fail to respond, then you deserve to fail.

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