The Slow Death of General Motors

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By Martin Hutchinson
Contributing Editor
Money Morning

U.S. President Barack Obama's firing of General Motors Corp. (GM) Chief Executive Officer G. Richard Wagoner Jr. may be the beginning of the final act of a long and sad drama – the slow death of GM. The company nameplate may soldier on in some form, but it seems increasingly likely that unless Ford Motor Co. (F) can forever avoid government intervention, the once-unique capabilities of the U.S. automotive industry will be forever lost.

In 1970, GM had nearly 60% of the U.S. automobile market, and imports' share was below 10%. Today GM's market share is little more than 20%, and imports and domestically produced automobiles of foreign brands) dominate the market.

There are three reasons for GM's decline, none of them easily reversible:

The first is notorious – GM has a major cost disadvantage: When foreign automakers had no automobile factories on U.S. soil, GM could – and did – allow the United Auto Workers (UAW) union to ramp up costs ad infinitum. Any cost disadvantage that GM thereby acquired compared to foreign brands produced in cheaper-labor economies could be overcome through careful lobbying to provide barriers against excessive imports.

However, the arrival and establishment of foreign-owned manufacturers in America's less-unionized states – combined with the inexorable aging of GM's former and current work force, which greatly increased the U.S. automaker's health and pension costs – shackled GM with an impossible cost disadvantage against its competitors. Some of that disadvantage is now being slowly negotiated away, but without a GM bankruptcy it seems most unlikely that the company's costs can be brought down to competitive levels.

Second, GM has been bedeviled by government regulation: One great example is the Corporate Average Fuel Economy (CAFÉ) standards introduced in 1975. As a specialist in the traditional large cars that the U.S.-consuming public favored, GM was badly affected by the CAFÉ standards that, by mandating average fuel economy ratings for the entire fleet, enormously benefited Japanese and other makers that specialized in small cars. Eventually, GM and the other U.S. manufacturers found a loophole, and developed the sports utility vehicle (SUV) that, being based on a truck chassis, was not subject to the CAFÉ restrictions. By the time Chrysler, Ford and GM made that discovery, however, the damage – in terms of market share – had been done.

A further round of tighter CAFE restrictions introduced in 2007, this time including SUVs, has once again imposed gigantic development costs on GM, making its entire product range obsolete. A moderate gasoline tax, particularly one introduced over a lengthy period, would have been far less disruptive to the market, and to GM's operations. It would also probably have achieved rather more in terms of fuel economy and combating global warming. "Cap-and-trade" regulations, as proposed by the Obama administration, will further increase GM's costs, providing the biggest relative benefits to manufacturers in such low-wage countries as China and India that are not subject to such impositions.

However, the principal threat to GM's competitive position, one which Wagoner's departure will intensify, is the "culture war" between the upscale bi-coastal opinion formers and the general U.S. public: In 1970, the standard upscale car for all but the very rich was a Cadillac, a Lincoln, or a Chrysler Imperial. This was as true in New York as it was in Detroit or Dallas; only a small minority of consumers bought top-of-the-line foreign cars, generally with academic pretensions. Equally, for the upper-middle bracket, Buick or Mercury was the choice of the vast majority.

Today on the East and West coasts, consumer tastes are very different. Saloon Cadillacs and Lincolns are rare; the upscale driver generally chooses a Mercedes, BMW or Lexus. Only among those with families (such as the Obamas) is a large SUV sometimes chosen, although generally an imported one. Buick now sells far more cars in China than in the United States; the traditional Buick or Mercury driver on the East or West coast has migrated almost entirely to import models. Before his presidency, then-Sen. Obama himself drove a Chrysler 300C followed by a Ford Escape hybrid, but one has to guess that his choice of U.S. vehicles was strongly influenced by his political ambitions.

This preference for foreign automobiles is reflected in the media commentary (media bigwigs being almost entirely upscale and bi-coastal). GM and other U.S. manufacturers are persistently accused of "poor management," although there is little or no evidence given, or discussion of what they might have done better.

Objectively, GM and Ford products perform extremely well in quality surveys, and represent much better value for money than most imported brands, yet without support from opinion-formers they are terminally unfashionable, with the upscale models destined to sell relatively poorly except between Pittsburgh and Boise. Even technological breakthroughs like the Chevy Volt electric car seem unlikely to change this.

President Obama's decision to get rid of Wagoner reflects this attitude. His announcement was full of denunciations of poor management, with no acknowledgement that overblown union contracts are GM's No. 1 problem (at least, the No. 1 problem that there is any possibility of solving in the short term). There appears to be little recognition in the Obama administration as a whole that recalcitrant unions and media-induced disdain for GM's product range were far more important causes of GM's decline than any shortcomings in Wagoner's management moves.

Over his eight years as GM's CEO, Wagoner has done about as well as he could have. He has overseen a considerable and successful restructuring of GM's operations, together with an extraordinary success story in the Chinese market, where GM has emerged as one of the leading competitors in the world's fastest-growing car market.

With the Obama administration overseeing GM's operations, the company will move towards producing the cars that opinion formers want it to produce: cramped, dangerous and uncomfortable, but fuel-efficient or powered by subsidized energy sources. However, the "New GM" will reap little reward for its docility; unless it files for Chapter 11 bankruptcy, it still will have excessive costs, and it will find itself competing in a market crowded with foreign producers, but containing only a minority of the U.S. consuming public.

This is bad news for consumers between Pittsburgh and Boise, and for those on the coasts seeking low-cost, high-comfort transportation, but possibly very good news for Ford, if it can somehow avoid being caught in the government maw. If GM is emasculated by the government and Chrysler is downsized and sold to the small-car-oriented Fiat, Ford will have a huge market to itself, that of U.S. consumers wanting traditional U.S. automotive qualities.

Wagoner doubtless now wishes that in December he had chosen a GM bankruptcy over government aid. In the long run, the U.S. car-consuming public, its automobile industry and the U.S. economy (let alone U.S. taxpayers) may come to share that view.

In closing, let me offer a personal note of disclosure – and a final thought: Being "bi-coastal" but determinedly not "upscale" I drive an ancient Buick.

It's a wonderful car …

[Editor's Note: When it comes to banking, there's literally no one better than Money Morning Contributing Editor Martin Hutchinson, who brings to the table the kind of high-level expertise that our readers have come to expect. Fans and followers of Hutchinson's work will soon be able to subscribe to a new product that focuses on income investing that will feature more of his - insights and essays. Watch for that to debut in the next two weeks.

For a news/analysis story on General Motor's failure to land federal bailout aid that appears elsewhere in today's issue of Money Morning, please click here.]

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  1. Fritz | March 31, 2009

    Consumers purchase Japanese cars because they are more reliable. Ask any mechanic. Their resale value is better. Funny that you have such a low opinion of American consumers' intelligence that you feel they buy based on what the media tells them rather than real-life experience. Once an American car as 100,000 miles on it, it is just a matter of time before it starts to fall apart. But for a Honda a Toyota, driving 200,000+ miles with no significant mechanical problems is common.

    I will continue to exercise my free-market right to choose the product that I think is superior, not the one that you think I should be buying.

    • jeff | December 4, 2012

      I do agree on some levels, especially with cars..one level that I do not agree is trucks..an F150 or a chev silverado 's drive train is very strong…I own a '04 Sierra 5.3l with 220k and it still drives like new..from what I understand this engine was designed to go 500k. and I do believe that It wil l and still piles the miles on before anything major. One point to keep in mind when buying used..the jap & german vehicles are much more expensive used for the same yr vehicle …so this leaves you alot of extra money for repairs as they arise if you buy a domestic product. maybe they last longer, maybe not…

  2. Chris | March 31, 2009

    Fritz:
    I think it is a bit more complicated than the way you present it. Let me cite an example. Actually I own two cars; one is a 1999 Chevy Suburban and the other is a 2008 Kia Optima. The Suburban despite its poor fuel economy is one of the most reliable vehicles I have ever owned. It has 185k miles on it with virtually little in the way of major maintenance. It is the MOST COMFORTABLE car/truck I have ever owned and the only vehicle that has allowed me to drive 1,000 miles in one day (not something I would generally recommend however). Being 6'4" that would be virtually impossible with the Kia. Speaking of the Kia it also is a terrific vehicle. Solid handling, excellent fuel economy, and good road feel. I did test drive a Chevy Aveo and Ford Focus before I purchased the Kia. In my opinion both performed poorly in comparison with the Optima. So I guess what I am trying to say is it depends on the size and type vehicle needed. Chevy/GM makes one of the best trucks in the world (Suburban) yet they don't seem capable of building an economy car that people want to buy. So if you need a utility vehicle to haul things the Suburban is an excellent choice. If you are commuting (50-100 miles a day) the Optima is another fine choice.

  3. gary | March 31, 2009

    I have to agree with Fritz. I got off of the "American car Merry-go-around" years ago. For years I drove Volvo's because I drive 30,000 miles a year for business. The Volvo's lasted 250,000 miles plus.

    My American cars had little or no trade in value with 100,000 miles on them at 3 years. American car manufacturers seem to be setting the expectation that you need to buy another new car within 3 years, or start paying for expensive repairs, probably to keep increasing their sales.

    I started buying Japanese cars when Volvo went to front wheel drive only.

  4. Larry Singer | March 31, 2009

    You put your finger on the problem with GM. IT's the Market's fault. GM is right and the market is wrong. One thing that you didn't mention is management. The purpose of management is to chart a course that will result in cars people want to buy. Example: The Mini. I made a special effort in the 80's and early 90's to buy American (Ford). The dealership service department was the, "Take the Customer for Granted Department." Now I have a up-scale foreign brand car. They just make it so easy to own their products.

  5. Larry Hunter | March 31, 2009

    Our friend Fritz has a point on the reliability issue.
    However, he totally missed the point. The government and the unions have put the domestic producers in a situation which does not allow US manufacturers to effectively compete. That is not to say the management style, short term thinking of share holders, looking for quick profits, did not contribute to the downfall. US companies are forced to live by share pricing on a quarterly bases, not long term as the Asian manufacturer do. The MBA mentality taught today, which President Obama champions, is this country no longer will be a manufacturing nation. This coupled with outsourcing by major corporations is and will continue to harm our economy. This thinking is slowly erodeing our manufacturng base. History shows we won World War II partly due to our manufacturing capabilities. We no longer have this capability and it is continueing to worsen due to our government, the teaching of our educational system and the so called expert econimist. The question to people like Fritz is if the auto industry goes away where will folks who lost the jobs work? McDonalds! What will happen when to public has no money to spend? Will we all be getting our paycheck from the government? All segments of the economy will suffer, I would say even Fritz with his foreign car. We need to stand behind and improve our manufacturing base. Not give up on it. We are a great country because of it and the people who make it up. God Bless America.

  6. Richard Nelson | March 31, 2009

    Hi Martin,
    I am one of those rare birds who repair my own car. I do not want anyone working on my cars but me. (fewer lemons produced than lemon heads working on them) That being said, GM has had some real issues with quality, most glaringly in the electricial systems.
    I would rather drive an American name plate car, but in the mid 1990s I switched to Honda cars and have had to work on them MUCH MUCH LESS. I just got tired of spending my time working car problems that Honda solved years ago.
    Thank You,
    R Nelson

  7. alex czerkaski | March 31, 2009

    you are like a parrot, repeating what it heard out of some textbook. in fact your article reads like a page out of some economics textbook. In the real world, if a business has an advantage and exploits it, it is lauded for its business acumen. However, in your "twinkie land economics" world,a union should not nor would not do that. GET REAL. In your "parrot" analysis you could not see what they may have done better. Firstly, in the 60's when i was in school, we wanted small economycars. 15-20 % of the student body drove VW's. GM was not listening to the market but was telling us what we wanted- big cars. They started losing market share here. Secondly,we all know about planned obsolescence which cost more market share. Thirdly, CAFE affects all car manufacturers not just GM. Fourthly, isn't it amazing how companies with high labor costs like BMW and Mercedes did not lose as much market share but grew?

  8. Jason | March 31, 2009

    So here is a lesson for entrepreneurs, investors and management teams: This is what happens when catering to unions becomes more important than catering to customers and shareholders.

    I think my brother said it best…"Having lived in the Detroit area for 3 years, there is no way in hell I'd buy an American car." It was all about the attitude of the people building them.

    Another lesson is obvious: Where government money goes, control follows. Ford made a difficult but smart decision not to take the money.

  9. Harry | March 31, 2009

    Amen to Fritz's comments. I spent thirty years repairing GM and Ford products before switching to Honda and Toyota with low maintenance cost on the foreign cars.

  10. Jim Kuntz | March 31, 2009

    I bought my first foreign car , Camery LE, in 1998 after the Buick dealership couldn't come come up with a Buick Special. Drive a 4 cylinder, never!! That was before the 98 Camery. I drove it for 7 yrs before I titled it to my sister that still uses it is the main vehicle in her household. It gets 38 mpg on long trips. I replaced the Camery with a Maxima SE in 2005 which is also an elegant ride. A bit small for my 250 lb bod so I do'nt drive it much. It's dedicated to the Wife.
    Now for my RIG — 2005 EXCURSION LIMITED 4X4 , solid black with LS's "FREE BIRD" decals in the windows. Capable of towing my 12,000 GVW trailers with ease. That V-10 really has balls. Because of the weight distribution of the EXcursion the trailers tow beautifully w/o whipping the truck around. Best truck that I have ever owned and I have owned a lot of pickups starting with a 1953 F 1 or 100. Boy, that was a long time ago. As you may know FORD ceased production of the Excursion in 2005. To replace the Ex I would go to GM 's Suburban. Did I tell you that I owned a Suburban at one time , a 1963 2 door with a 283 V8, 2 wd . A decent truck, prone to rust as most Amer-made cars were in the 60s, 70s & 80s. In my book the last great Gm vehicles were bilt in the 1950s. Check the auction stats !!

  11. Larry | March 31, 2009

    I believe there is one overwhelming element that lead to the current demise of this industry. I bring this up as a lesson to be learned by every business that hopes to suceed. Ford was the first to figure the error of their ways, earlier than Chrysler, with GM being the last. IN that order we seem to also seem to be tracking their slow death, GM, Chrsler then Ford. It takes a multiplier to the years in error to reinstate what was lost.

    The decisive moment arrived some ten years ago when the consumer realized that quality performance became their burden. GM was notorious for ignoring or purposely refuting a warranty problem . It was common practice to 1) ignore a problem, 2) deny the problem, and to 3) charge the consumer through a declaration of non warranty. The only remedy was through legal recourse invoking the lemmon law. The process and expenses obviously angered the consumer. That mis-conduct was so prevalent and lasted for so long that the opportunity was recognized and fully exploited by Toyota and Nissan.

    My personnel issues included complete computer intermittant shut down, brake failure due to software disfuntions, and other serious quality issues that were life threatening. These items were finally recognized after much effort and some twelve years after original purchase and only warrantable to the original buyer, how refreshing! Needless to say I was out well over $30,000.

    My day was in March 2008 when I decided GM needed to go Bankrupt. That decision was directly linked to a phone call I received at my office from the VOP of quality at GM, Detroit.

    That was the moment I and my circle of influence shifted to Toyota and never looked back. Unions, management, materials, processes, product, service it's all fodder to the fire. Once that decisive point is made, when you loose the consumer, there is nothing to be done to save the business.
    Safety and quality are not options and service is an intangeble that is assumed. If any or all are not a part of the package, the consumer leaves.

  12. W Hagar | March 31, 2009

    I have driven nothing but American cars for over 50 years. One was a 4cyl Chrysler minivan which we drove over 200,000 miles w no problems and then sold to someone else. Two more minivans went over 150,000 with ease. Currently own a Pacifica and a Grand Prix. Both about 95,000 mi, no repairs, and in excellent shape. The Pacifica has great space & comfort for frequent 700 mi days, still gets 22+/gal. The Grand Prix drives like a sports car and yet gets 29+/gal in highway driving.
    Our worst experience was with a VW Jetta (my daughter's)which got into electrical trouble that no one could fix; we threw away over $2000 attempting repairs.
    I find foreign cars crowded, uncomfortable, with feature&control arrangements that are obtuse to understand. Reliability differences today are miniscule. Even consumer reports says so – Read and THINK about what their stats really say.

  13. Christine | March 31, 2009

    I like this article, but what is missing for me, is an answer to this question, "does Chapter 11 release GM from its long term obligations to the unions?" In other words, assuming GM is resurrected from the bankrupcy in some form, if it would then start fresh without all the pensions and health care issues it would be attractive.

    On the car selection issue, because I buy a car every decade, I buy Japanese cars, for their higher reliablility. I presently drive a Honda, built in Canada. My husband likes to trade in every three years, and for him, it is foolish to pay a $10K premium for a Japanese model, when the North American cars are so much cheaper. He got the new Buick Enclave in Dec. and has put at least 20,000 miles on it already. It is a dream of a car, more features than my Honda, very comfortable and at least $20K cheaper than the Acura MDX he was looking at. With a 5 year warranty it was an easy decision. GM has finally come out with a very competative SUV at least, I hope it survives in some form, but it really needs to reduce the number of models it produces. My understanding is that in addition to GM's labour woes, it designs and maintains more like 30 models, compared to competitors offering 10 or so.

  14. Morris | March 31, 2009

    The American auto makers had a long history of building crappy cars and treating customers like crap. I received a recall a year after the accident caused by the defect and because it was totalled and I didn't have the car I received nothing.

    Also, I had a Cadillac that had a well known problem with leaking of anti freeze that was never fixed in their cars and this went on for many years of manufacturing.

  15. Dan in Colorado | March 31, 2009

    GM had a great idea when they created the Saturn brand.
    Built the plant in Tennesee to avoid the union, then allowed the plant to be unionized and starved Saturn. I've owned 4 Saturns and have been in the shop maybe 6 times total. Highest MPG cars I've ever owned. The interior quality leaves much to be desired, but the mechanical quality is great. If GM had nurtured the concept behind Saturn instead of allowing it to wither on the vine, they might have turned GM around. I call that bad management. My mother-in-law still draws a GM pension and health insurance even though my father-in-law (GM retiree) died 13 years ago. That will disappear with a GM bankruptcy and probably will kill my mother-in-law from worry.

  16. Walls | March 31, 2009

    The best way to destroy any US successful Business is to eliminate import tariffs, mandate who they hire ie affirmative action, mandate that they buy from minority based companies, set management compensation where figures never lie but liars figure, manufacture for the rich who are the only one who have income, subsidize nations who subsidize competition and have slave labor, and tax the living sheet out of any thing related. It also helps to set mileage standards and clean air standards, and plan scheduled obsolescence in the product to create a service economy! Destroy the low and middle income population who can no longer afford to buy the product! Oh we have already done all this stuff and it seems to be working! We can declare success and that the war is won and unions destroyed! What can the government screw up next? But Obama didn't cause this but he is trying to perhaps vainly turn decades of political stupidy around! Wake up America!

  17. Patrick | March 31, 2009

    The demise of GM and Chrysler couldn't possibly have anything to do with poor quality, ugly products and a lack of innovation during the last two decades? Let's face it, they rode the V-8 horse to their graves.

    Labor had a hand in this, but it angers me when they are blamed for all the shortcomings of poor management, poor design and poor foresight.

  18. Paul Coote | March 31, 2009

    Martin, you are correct for most parts,but you cannot exonerate Richard Wagoner Jnr and his managemet team from their share of the blame. Prudent Management demands that you think at least one generation ahead of you.
    The Japanese came here and did it, so what is GM,s excuse, the Unions. The lesson here seems to be that you run your house, do not run around it.

  19. Chris | March 31, 2009

    All these comments are excellent. And having owned both foreign and domestic autos it really is a "mixed bag". Here is a sample of the cars I have owned since 1969:

    1. 1969 Olds Cutlass-probably one of the worst cars I 've ever owned. Needed a new tranny at 50k miles and you felt every bump on rough roads. Absolute gas hog with 350 hp under the hood.
    2. 1973 Nissan- OK with adequate fuel economy but as others pointed out not very comfortable for people requiring head and leg room.
    3. 1982 Volvo-DL Wagon- One of the best vehicles I've ever owned. Donated it in 1999 to American Lung Assoc with 275k miles on it. Even with that high number it still did not even burn a drop of oil. Incredible. Best 4-cylinder engine I have ever seen.
    4. 1996 Honda Civic- superb car that I bought off a lease and ended up driving until 205k miles. Agree that Honda is a top-notch auto maker.
    5. 1991 Ford Aerostar- durable, comfortable 6-passenger minivan with decent fuel economy. Very comfortable smooth ride. My only complaint is that when we moved to Fla the A/C never worked properly ever again.
    6. I recently bought the 2008 Kia Optima because I felt it was superior to comparable domestic compacts and $5-7k cheaper than the Honda Accord. I wanted to purchase a used Toyota Camry hybrid but was told there are none available. Personally, I believe that's crap. But I have no complaints with the Optima.

  20. nick laurey | March 31, 2009

    We all want to be patriotic and "buy American", however, we should also try to get the highest quality for the lowest price.
    Unfortunately, the foreign autos fit these criteria.
    Who's to blame for U.S. auto downfall?
    1. Greedy unions.
    2. Management who gives in to unreasonable union demands
    3. Marketing who can't or won't read the public's preferences
    4. Governments' cafe' requirements, plus, their failure to
    increase the import taxes on foreign autos
    5. Governments' preoccupation with money and power, instead
    of looking out for the citizens

  21. A. Pearsall | March 31, 2009

    He's as reliable as clockwork, I'm afraid, but this time Mr. Hutchinson has outdone himself: it turns out that GM's slow death is to be blamed on–EVERYBODY EXCEPT GM! It's all the fault of the assembly-line workers, the federal government, and needless to say, those no-good liberals out in California. Of course! The executives of GM never made any catastrophic errors between 1970 and now, they were never complacent, never shortsighted, never slow to make necessary changes, never resistant to even incremental changes to match what the villainous Japanese were doing. They were never, ever, stupid and uncomprehending failures.

    NOW I know that if the danged unions, feds, and Toyota-buying lib'ruls hadn't screwed everything up for GM, it would still be riding high with 60% market share, just like way back when Chevy Impalas with big-block V-8 "Turbo-Jet" engines were setting the pace! As they say in Michigan, you betcha.

  22. Rick | March 31, 2009

    Martin your analysis is right on.

    I have worked in this automotive industry in Detroit for over 30 years and in the supply base we could see this coming. You can blame the management for not addressing the #1 issue labor cost. But they kept their shareholders happy by squeezing suppliers to make up margins (sometimes to the point of driving the supplier out of business)

    But I think you underemphasize the political aspect. This is about a larger agenda which I believe to be socialism. Take a look at the players and actions.

    The Union: Already Socialist
    The Man-made Global warming hoax: Driven by whom?
    Government takeover of the private sector: Socialism.
    Obama's action: Attack management not the union. (Secure the votes). Socialism.

    If anyone thinks this is not about votes and that the unions will not be taken care of (whether GM goes under or not) you're not seeing what is going on.

    For those of us who will be supplying the funds to support the agenda. Welcome to slavery, courtesy of the US Gov't.

  23. Jeffery Biss | March 31, 2009

    Martin Hutchinson is absolutely wrong in blaming CAFE standards. The problem is that high CAFE standards were not mandated since Reagan's administration took office. Had Reagan continued Carter's sustainability and independence policies with regards to overall energy efficiency, GM and the other auto manufacturers would not be in the position they are in today because:

    1. The auto manufacturers would have retooled to produce higher efficiency cars to meet high CAFE standards in the 1980s.
    2. The American consumer would have already been used to the products produced to meet high CAFE standards and high profit gas guzzlers wouldn't have been brought into existence.
    3. Peak oil would have been postponed because demand would have been reduced. Ever increasing efficiencies, including better mass transit, would have continued to reduce demand for oil, thus moderating prices and reducing extraction rates. This would have looked like an ever increasing supply of oil.

    The American people are facing a crisis of their own making. Faced with the choice between Carter's realistic call for sustainability and Reagan's claim that we needn't worry about resources because Americans are special, Americans chose Reagan's free market delusion. We are now starting to pay for that decision. Markets themselves are wholly incapable of resolving problems simply because they are people and people are concerned only with satisfying their desires until the situation is so dire that they are forced to deal with them. That fact is proven by our current situation but lost on free market ideologues. We could have made the tough changes then that would have avoided today's situation but chose not to.

  24. Rich | March 31, 2009

    Trying to blame the consumer for GMs woes is a load of crap. For the past 20-30 years the quality of these cars in no way compares to some of the foreign brands. I suppose consumer reports is just another of those intellectual snob publications that puts american cars down for reasons other than quality. I have gone through a series of fords, chevys, and Jeeps with continuous repair problems and short life spans. I finally did some research and switched to Toyota and Honda. I am now able to keep my cars for 10 plus years and cycle them through my family for many more years without spending a fortune in repairs. I hear that they are making improvements but I have been burned too many times to go back.

  25. Fritz | March 31, 2009

    I have really enjoyed all the responses. Just one more point I wanted to bring up in counterpoint to the article…Japan also has regulation and labor unions, but they succeed anyway. The article cites a law passed in 1975 (!). So GM has had 34 years to adjust and has still not been able to do so… I agree that UAW has too sweet a deal, and they are going to get theirs soon by basically killing the golden goose.

    Finally, regarding European cars, quality is not the same as Japanese, and you might be better off with an American car in terms of value simply because repairs are cheaper. But Mercedes, BMW, Volvo, etc. owners tend to be very loyal and they are free to spend their money as they wish, of course.

    By the way, I have several family members who work for Nissan in Kentucky and I would hate to see them lose their jobs due to protectionist sentiment!

  26. Searcher | March 31, 2009

    Read a lot of posturing in the article and many of the responses. Have owned many foreign and domestic cars, most at the same time. Cavail all we like, the market, only, is the arbiter. Mileage standards and taxation policy all contribute to the environment which management must accommodate. Management includes managing labor negotiations. Management of design, of segmentation marketing, of dealership relations, of service and of follow-up to feedback have been found wanting by the market. No amount of revisionism can change the past. Lets fix it and get good cars into the hands of our good people.

  27. van | March 31, 2009

    You are entirely wrong in the contents of this article. GM is already in the turn-around mode. Your assessment of this company is incorrect to say the least. The VEBA and Bondholders items are the only concerns that need finalization and are being addressed as we speak.

  28. Dale Rush | March 31, 2009

    Consider the following:
    The domestic car makers answered the first need for fuel efficient smaller cars with the following:
    Chevy Chevette-without doubt the worst car GM ever built
    Ford Pinto and Maverack-Ugly, cheaply built, junk
    Chrisler K cars more ugly, cheap, unreliable junk
    That was the beginning of the end for US automakers.
    Over the years I read the UAW-Big Three contracts, each time with more incredulity and anger. It was clear to anyone who read them that the car makers were systematically giving away the store in both the short and long run. It was pure stupidity that a twenty-something person could see could not work over the long run. I can only hope that the UAW eventually also gets what it deserves which is to disappear.
    In that sense the Big Three are getting exactly what they deserve, only it should have happened sooner.
    We owned 5 Toyotas, all OK, but all severely under powered and not particularly safe or comfortable by the day's standards.
    When we had kids we switched to big (safe) US cars. The best, cheapest, most reliable and fuel efficient car we ever owned was a 1990 Cadallic Sedan Deville. Cheaper than a Volvo, just as safe, 30+ MPG, powerful V8, huge trunk, great ride, etc.
    Next was a Tahoe – great car, then we bought a Honda Mini Van which was a piece of junk. I would buy just about anything before I would even consider another Honda.
    We now have three Jeep Grand Cherokees – all good inexpensive, and reliable, and one 2008 Chevy Silverado, also a great vehicle from all standpoints.
    The Big Three now do build great cars but apparently it is too late.

  29. Steve B | March 31, 2009

    Jeffery Biss pretty much wrote what I was thinking … but there is one other point I have yet to see mentioned … The "big 3" auto makers knew that they could throw their weight around to get things to come out their way.

    Case in point, the California mandate for hybrid/electric vehicles. GM knew that they'd be able to use their "too big to let fail" influence to get the Californians to back down [ironically after producing perhaps the best electric vehicle to date] where the foreign companies couldn't afford the gamble of possibly losing the ability to sell cars in California. Clearly, Toyota won out big time with the Prius, which was a result of the "Californis gamble."

    I have always wanted to buy US cars, but have yet to be able to convince myself to do so. That said, my next vehicle purchase is likely to be a US brand … but it will not be GM.

  30. James Yamaki | March 31, 2009

    The U.S. automobile market has changed.

    In the past it was basically an oligarchy comprised of GM, Ford and Chrysler. Today it is a free market with a large number of car manufacturers in the business.

    It is more difficult to do business in a competitive market.

    To survive and become profitable, domestic car manufacturers like GM, Ford and Chrysler must downsize quickly to conform to its current market.

    Now is an opportune time with the market and car makers in disarray. Car makers have a freer rein to make the necessary adjustments now in this kind of environment.

    That is the greatest challenge facing management. It is going to be interesting what each company does to return to viability.

    One thing, a paradigm shift has occurred and GM is not the mega-giant it once was. It is going to be hard for people to reframe their minds to a smaller sized GM.

  31. don | April 1, 2009

    Your failure to recognize the problem is the reason the NA car industry in on the verge on bankruptcy. The Japanese for 30 years made more reliable, fuel efficient vehicles. After a while the general public figuires it out. Your excuses make it easy to understand why their product doesn't match up. Wake up.

  32. Mr.Theodore | April 1, 2009

    I think this says a lot about your own prejudices against American cars.

    "Before his presidency, then-Sen. Obama himself drove a Chrysler 300C followed by a Ford Escape hybrid, but one has to guess that his choice of U.S. vehicles was strongly influenced by his political ambitions."

    It seems you have a har dtime believing anyone intelligent would drive these cars without ulterior motive. I agree ! Generally American cars are junk, but worse they're ugly if only because the stylings change so often owners are stuck with something that looks outdated. True even for iconic brands such as Corvette or Mustang.

    Asian and European makers have more conservative looks – read : less ugly, and stick with a gestalt much longer.

    That said, probably no brand has worse reliability than BMW overall. I was lucky that mine would die or break down, but many other peoples' BMWs seem to do nothing but break down. For is pretty bad too in my experience, once they're 8-10 years old whereas a Honda is still good as new at that age in looks and performance.

  33. Mark T, Salt Lake City | March 31, 2009

    Fritz is right on all three points. However, the poster who cited quality issues due to bad attitudes amongst union workers is also right – I grew up in Michigan and heard plenty of stories about lazy, uncaring workers. Not that all of them fall into that category, or even a majority. But those who did undoubtedly caused quality problems. Management should have done more to address it though. Now that it has been addressed, and Detroit is putting out much better cars (Ford and GM, anyway), there has been woefully inadequate recognition of it – as Fritz has said.

  34. Doug McMane | April 1, 2009

    I agree with those who think poor dealerships for American brands are a big part of the cause. That has to be the brands fault; Ford, Chrysler, and GM should have had fewer dealerships and demanded more of them. I could have tolerated the few mechanical failures on my 1994 Crown Vic if the local dealer had done a professional job of diagnosing and fixing them. The dealer could not, and did not, because unqualified people were hired. I dumped a great American car for a Honda.

  35. RFDLPA | April 1, 2009

    American Auto Industry: … "It was killed by everybody and It's diying of natural death"

    There are a lot of reasons for the actual state of things in the american auto industry:

    Quality issues, and believing that the public is no fool; Greedy and narrow minded management integrating in their products… PLANNED OBSOLESCENSE, as a way to force the american public to buy a new car more often, raising or keeping sales numbers. Hey ! you have to keep selling.

    POOR QUALITY MATERIALS; to save or spend less in the manufacture of their products (bottomline), i.e. like using less UV protection agents in the plastics they use in dashboards (and everywere) so they get dry and crack sooner and look shitty so you decide to buy a new car; not to mention the rest of the non cosmetic parts; like the transmission that goes at 100k miles.

    SHODY LABOR; performed by lazy workers; pushed and backed by labor unions, as a way to pressure management to get more money and benefits from their employers.

    Greedy and dishonest dealers; it has become a second nature tought in the american's mind: if you take your car to the dealer it's going to cost you an arm and a leg.

    With the more and more technological advances integrated in todays cars, tens of specialized onboard computers performing specialized tasks, like air bag management, antilock brake systen computers, the engine and powertrain management computers, PCM, ECM or whatever you name it, computers with integrated tradeware, near to impossible to service by no one but the dealer, you are IN THEIR HANDS, defenseless and they will kill you with the bill.

    The stupid show off need of the american public, they like to show-off with whatever is at their reach, BIG Cars, Hummers and SUV's, yeah its got to be a FOUR WHEEL DRIVE… they hardly drive a mile in the dust over the life of the vehicle. But it makes them feel SOOO POWERFUL driving sitting 5 foot over everybody else's heads. ah but they can say it's for "safety" reasons, they feel safer when they can kill everybody else, driving those smaller cars in a crash; oh yeah!, and don't forget that they are puting the USA, with the 4 % of the world population to consume 25% of the world's oil production and trash the whole planet's atmosphere in the process… but they love their big gas guzzlers; very intelligent indeed.

    Part of that insatiable show-off spirit is the need to drive anything that comes from overseas, a Mercedes, BMW or Lexus or whatever they can afford after selling their mothers, wife and kids to the car loan and credit card companies. That also adds up to the monstruous debt this country is growing; about that, the government should say, OK.. you want to drive a foreign car: a foreign luxury car… that's good, you will pay 100% import tax on your foreign car, as happens EVERYWERE around the world.

    Then the government should take measures to force american carmakers to improve their quality, with real 150 K miles no fault guarantees.

    Those are only a few steps towards the american auto industry recovery.

  36. Phill Horne | April 1, 2009

    Martin might know something about banking, but he hasn't a clue about foreign cars. Foreign cars are not 'dangerous, cramped, and uncomfortable Martin, they represent good value, not to mention aesthetics. American cars are basically squared-heavy chunks of CO2 emitting iron. I think you coined the right word, Obsolete!

  37. William Puishys | April 1, 2009

    It seems that Mr. Hutchinson has a rather large blind spot-similar to the ones in GM cars. He does not mention the single biggest reason for the consumer migration to foreign cars; domestic automobiles absolutely stunk for a long period of time. They were shoddily made, prone to breakdown & rust, and their performance suffered in comparison to autos made by Toyota, Honda & Datsun (Nissan).
    Once you have a reputation for building crapola, it's very difficult to convince people that you no longer do so. Lack of trust is as much of a factor as anything Mr. Hutchinson.

  38. Poonie | April 1, 2009

    Everyone talks about market share, but does GM in fact sell fewer cars today than it did 30 years ago? I can't even find this information on GM's website. Granted, 2008 was a really bad year, but I'll bet my Nissan that GM sold more cars in 2007 than it did in 1977. "Market share" is a convenient excuse for explaining why GM is losing so much money. If in fact they are selling more cars but losing billions then GM's management looks even worse.

  39. MARVIN WILSON | April 2, 2009

    I have to agree that dealerships are the biggest problem with the American auto companies. The greed and underhanded tactics used by dealerships to get every penny possible from customers is deplorable. Customers almost never get to talk to anyone from the auto companies, they only talk to the dealerships. Wether it's a bad deal on a new car, a rotten trade in deal, after sale service, or excesivly high service charges at dealerships, the customer only talks to the dealerships. When a complaint get to the auto makers their response almost always favors the dealerships. I beleave the reason for that is customers inexperiance againsrt dealerships experiance. A salesman sells up to tewo or three vehicles a day. He knows all the tricks of the trade The service dept also services many vehicles a day. They know all the tricks to uo the total on the bill. on the other hand the average customer buys 1 new vehicle once every 3 or 4 years if not less(inexperiance). How often does he take his vehicle in for service (also inexperiance). Dealerships take advantage of that inexperiance and exploit it to the max. Thua you usually end up with a dissatisfied customer. He will usually not return to that dealership, and eventually will not return to that product. Thus the auto maker looses a customer. How long can this senario go on before an auto maker looses to many customers. But big management continues in their infinate greed, continues to let the sales staff. the service dept and all others in the customer relation positions keep backing the dealerships and ignoring the customer

  40. John King | April 2, 2009

    I drive a 1997 Mercury Grand Marquis with 234,000 miles on the odometer. I drive it by choice, not because I can't afford nearly any car I would want to buy. This car has only ever had four parts installed other than the normal maintenance items like tires and brakes. They are; a power seat swicth, the dash dimming switchtwo, a water pump and a belt idler.
    The car still runs like new, looks practically new and the leather interior is still in excellet condition. By the way, it will get 32 to 33 MPG on the highway unless I run gasoline that contains ethanol. Then it drops to about 28.
    Foreign car owners, beat that record.

  41. Gary Wardell | April 3, 2009

    I work in Minnepolis Minnesota. I live 30 mile from work. My trip home is NOT all expressway. The road I live on is gravel.

    I will pay to get my old trucks fixed until some manufacture comes out with what I call a Big Green Truck. If I purchase a small "green" car, I might not get home in Minnesota snow storms.

    Who is going to purchase a car that might not get them home? Who is going to purchase a gas hog?

  42. George Holloway | April 4, 2009

    Lots of interesting comments! I'm surprised that no one has brought up the obscene salaries, bonuses and golden parachutes of the geniuses who "manage" GM. Moreover, a company that cannot sell enough vehicles to generate enough profit to pay the INTEREST on their debt is doomed.

  43. Luther Rankin | April 6, 2009

    GM and most large companies are not being run for the benefit of the owners of the company, the shareholders.
    They are being run for the benifit of management. The owners have lost control of what they own.

    A large portion of FORD on the other hand is still owned or controlled by the ford family who still looks out for their own interest.

    This point I believe is the reason why Ford today is in better shape that GM.

  44. Jon | April 6, 2009

    "The success or failure of any enterprise is the direct responsibility of its management".The UAW made not the first decision concerning GM or any other automobile company.It amazes that any with a driver`s license thinks they know how to run a car company.I guarantee Timid Tim and his erstwhile employer haven`t a clue.The so-called labor costs are often less than advertising costs for some models.If the U.S. companies labor costs are so unworkable how did Ford set the profitability record (since surpassed by Toyota) a short ten years ago?One huge problem that is never acknowledged is the at least four different subsidies that foreign competitors enjoy vis-a-vis the domestic industry.Government policy ranging from CAFE to taxation has driven half of the industry offshore with the other half hanging on for dear life.Academia in the future will recognize this as no less than protracted industrial suicide in its case studies.Almost all of the previous comments are clearly made by people who know little of which they write.That never seems to stop rhem.

  45. DG | April 6, 2009

    When I read this story about poor build quality; subpar materials and a lazy unionized labour force it kind of makes me smile.

    This is all a deja vu; just look up the history of Alfa Romeo and the Alfa Sud. The Italian state (majority share holder in Alfa; because of the 70's crisis; sounds familiar?) wanted to address unemployement in the South. So they build this plant and offered a job to all these communist day labourers that were used to a 3 daywork-week in the fields.

    Ofcourse the government (they know best!) also mandated exactly what kind of steel should be used for to build the chassis (they ahd negotiated a barter deal with the Soviets).

    The factory was the scene of quasi permanent strikes and outright worker's sabotage. It took years before the state decided to confront the situation and wanted stop hemoragging taxpayers money.

    What happened? The Alfa Sud was sort of a commercial success (it was cheap, sporty and appealled to the young) but it destroyed Alfa's reputation for building cars that were ahead of the competion in terms of engineering advancements. It lost that reputation forever.

    Eventually that state closed the Alfa Sud plant and sold the shared to Fiat. Fiat almost bled dry and went bankrupt in trying to rebuild the Alfa brand.

    Now ofcourse the US govt'is hoping the Fiat can also save Chrysler. But Chrysler isn't Alfa. Alfa was never a multi-billion dollar industrial conglomerate. Before the Alfa Sud it was a minor player that build cars for profit to partecipate in races. Chrysler is way to big for Fiat to succesfully digest it. GM and Fiat tried to partner before; and didn't work out either.

  46. Paul Fox | April 6, 2009

    Martin Hutchinson's fawning support for the now departed GM C.E.O., G. Richard Wagoner Jr., seems to missunderstand the function of managment which is to anticipate the markets and to make products that the markets want/need. One of the reasons that Ford hs not as yet required government money is that they already negotiated a better (for them) contract with the U.A.W. To bame the "bicoastal media" is ridiculous since the bicoastal areas represent the largest car market in the U.S. Obviously, GM has not been making enough new cars that the American public wants to buy. Proof enough for this fact lies in Mr. Hutchinson's admission that he drives an "ancient" Buick.

  47. JIM | April 6, 2009

    Most of the comments here have good points but as a white collar GM employee I can tell you the main reasons for failure are not mentioned.

  48. Supplier Bob | April 20, 2009

    Excellent forum guys.
    I can agree with most of the comments as to the possible(or is that imminent?) demise of GM. While i currently don't drive a GM product, i have in the past and am an avid historian of the company.
    I am loathed to portion blame as to the main reason for the demise, all of those mentioned previously add up to an insurmountable total. I'd like to add one to the list.
    As a supplier to several auto companies, it is GM's purchasing policies/methods/relationship that baffle me most. Why do they have such a hard line with arbitrary , unrealistic cost down targets , hostile take it or leave it type relationships/demands and contract clauses/imbalances that actually stymies improvement and adds cost! The most productive suppler to work with? Toyota. They have a simple partnership approach with suppliers.
    GM use a 'best landed cost' benchmark. Essentially this means i have to match that price. On one part i lost to an overseas supplier, the plant takes longer to fit that part and have more defects. Purchasing dept rewarded for lowering the part cost, plant costs go up for more rework, bottom line, it actually costs them more.
    I want GM to succeed, its an incredibly iconic brand and provides much needed employment and tax revenue.

  49. Sujay | July 27, 2009

    American cars companies have done fairly well in India.. Ford and General motors. I drive an American car in India. In is only in the past one year that sales of American cars have taken a hit.

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