More About GM's Failures

Last Thursday's Wall Street Journal featured a significant editorial concerning GM by longtime auto sector expert and former WSJ and Dow Jones executive, and former squash partner of mine, Paul Ingrassia, entitled, "Can America's Auto Makers Survive?"

I am pleased to see that most of my criticisms and conclusions about GM's recent performance are echoed in Paul's piece. Specifically his remarks about the 'dumbing down' of financial failure under Wagoner, about which I wrote here recently.

As Paul put it,

"The late Sen. Daniel Patrick Moynihan used the term "defining deviancy down" to describe the acceptance of behavior that was once deemed intolerable. Now Detroit's car companies are defining disaster down.

In 1991, General Motors posted a then-amazing, full-year loss of $4.45 billion, and 10 months later CEO Robert Stempel was out. Last week, GM reported a $15.5 billion loss for just one quarter, and GM's board this week reaffirmed its support for CEO Rick Wagoner. GM's loss easily eclipsed the quarterly loss of $8.7 billion announced by Ford just a week earlier."

Paul goes on to conclude, as have I, that GM, Ford and Chrysler should have seen the gasoline-price-related crisis in their sales and profits coming, Ford has the best chance of survival, and the demise of any of the three, while sad and disappointing, would no longer be a body blow to the American economy.

On this last, and crucial point, he wrote,

"Detroit's fight for survival doesn't threaten economic doomsday for America, but it's incredibly sad nonetheless. The three companies, and General Motors especially, once symbolized the bedrock strength of American capitalism. If they can restructure and recover, as must be fervently hoped, they will symbolize the potential for renewal."

Perhaps Paul is correct to believe that a return from the edge of the financial and business abyss by any one of the three, especially GM, would symbolize 'the potential for renewal.'

But, might it not also symbolize an overly-nostalgic preoccupation with past American business success, in lieu of moving forward into product/markets where we can create more value-added?

Products such as computers, autos and commodity chemicals were once dominated by American companies, but are no longer. And, tellingly, they are no longer sources of large-scale, proprietarily-based value-added creation or consistently-superior total returns for shareholders in those companies.

The significant decline in the fortunes of all three large American auto makers without a recession or consequent severe economic dislocation in the US economy provides evidence of just how little the performance of these former industrial titans now matters for the average American.

If labor productivity is sufficiently high, some auto makers will build vehicles in American plants. They may not be US companies, and the factories/assembly plants may not be located in Michigan or, in fact, in the northern part of the US. But, as I wrote in an earlier post concerning GM, wouldn't it be better for those workers to be part of a growing, healthy auto maker, than an ailing one?

Paul Ingrassia is right. Detroit's demise, while sad, is no longer an issue or risk of economy-wrecking magnitude. And the boards of all three companies- GM, Ford, and Chrysler, when it was public- are responsible for presiding over some of the worst US management in recent decades.