Saturday, August 2, 2008

Whither GM, and whose fault is it anyway?

Megan McArdle offers this gloomy forecast for GM's future. She thinks they will be bankrupt inside of ten years. She may well be right. Skimming thru the raft of comments, and finger pointing following her post, I find a couple a things missing.
Most important cause of GM's trouble is simple; lousy cars. They have small sedans, but who wants 'em?. Styling varies between drab and ugly. Gas mileage no better than my 99 Caddy DeVille. Mostly painted grey. Reputation for breaking down often, followed by GM's reputation for gouging on repair part prices. Same car sold under multiple names which dilutes the effectiveness of advertising and blurs the brand names together. Cars sold under new made up silly sounding names that nobody has ever heard of. Awful dealer service. Lousy resale value. Everyone would rather buy a Toyota Corolla or a Honda Accord than anything in GM's lineup.
This is management failure, the union doesn't control this. GM needs a real car guy like old Lee Iacocca. He is the guy that invented the Mustang, the K cars, and the minivan. Revolutionary cars, that no committee would ever have approved, but Iacocca pushed them thru and they all sold like gangbusters. The few car guys at GM are doing Corvettes and Camaro's, nice enough cars, but niche markets. There aren't enough guys with Corvette/Camaro money to keep a behemoth like GM running. So, number one GM problem, crummy cars. Fix that and a lot of things get better.
Number two problem is expensive labor. UAW workers get twice as much pay and fringe benefits and Toyota and Honda workers. That's Toyota and Honda workers in the US. This is a legacy of wimpy management in the past. Back then, GM management caved to the UAW by promising rich retirements, rather than a pay hike. The retirement benefits wouldn't come due on their watch, whereas a pay hike takes money now. Back then, gutsy management would have taken a strike to hold wages down, in fact, wimpy management kicked the can down the road. That's history now. We are down the road now, and that can is right there, big as ever. GM cannot pay the rich retirement and health care deals promised in the past, one way or another the company will welsh on it's commitments. Bankruptcy is one way to skip out on your debts.

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