Posted tagged ‘gm’

Environmental Foolishness

October 30, 2019

Three major automotive manufactures, GM, FiatChrysler, and Toyota showed a sorry lack of vision (or backbone) when yesterday they announced support for the Trump Administration’s “lower” new car emission standards.  Rather than join Honda, Ford, BMW, and VW and agreeing with California’s standards, GM, FiatChrysler, and Toyota chose to go it alone.  Why?

Of course we may never know for sure but here are some guesses.

  • Avoid continued confrontation with Trump Administration.  The prospects of Trump Administration disrupting the supply chains for all three or initiating trade wars with new tariffs, GM, FiatChrysler, and Toyota all want to avoid short term business interruption.  Go along and get along.

 

  • Avoid investing in lower emission technologies in order to maximize current balance sheets.  With the current glut of oil, gasoline prices should remain attractive for consumers.  Why offer them hybrids and all electrics when demand is still weak and future consumer demand is not assured?

 

  • Why change in times of uncertainty.  GM, FiatChrysler, and Toyota have coldly calculated that any backlash from environmental groups can be managed by continuing to offer a range of lower priced cars which do not reflect added costs for environmental controls.

Regardless of how these companies justified their decision, the wisdom behind joining the Trump Administration on weaker standards than previously accepted during the Obama Administration, may prove to be short sighted.  The Trump Administration may end in 18 months or so, and any Democrat President will be likely to return to California influenced goals.  Maybe GM, FiatChrysler, and Toyota will simply shrug and say, “nothing ventured, nothing gained”.

Beyond the hard nosed business aspects, all car companies want to make and sell what consumers want, but the Wall Street ideal route is often viewed as the path with the least change.  This is the mentality of a dying industry when a product as important as a motor vehicle can not foresee the potential for changing environment’s unanticipated consequences.

Since the late 1970’s when Japanese Automotive Manufacturers invaded North America with automobiles which already met stringent California standards, the Big Three missed the wake up call.  The Japanese did not have one car for the Japanese market and another for the US.  Japanese vehicles were “world cars and trucks”.

The behavior of GM and Chrysler is, sadly, not that surprising.  They thirst for a “no change” world that does not exist.  Rather than lead, GM and Chrysler want the world to stand still.  Hmmm.  The Trump world has no soul and gets it relevance from winning one-offs.  Not a wise option to align your company’s future to.

What is more perplexing is Toyota’s  behavior.  Have Toyota’s Lexus, fully decked out Camrays, and pick up trucks grown to such a significant share of today’s sales that Toyota has lost confidence in change, and by default, leadership?

The Trump Administration’s track record on loyalty to friends seems like a “fair weather” policy, and any Trump support is always secondary to what wins today.  This announcement reflects brightly upon GM, FiatChrysler, and Toyota’s environmental foolishness.  

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GM Lessons

May 20, 2014

General Motors has hit a few big bumps in the road recently. The company has been charged in Federal Court as well as the court of public opinion with covering up for 10 years an ignition defect linked to 13 deaths. How could any company but the most sinister try to get away with something like that?

Any needless death is one too many most would agree. Consider, however, there are over 30,000 deaths each year attributable to automobile accidents. Do the math on the probability of 13 over 5 years.

Automobile accidents happen for a wide range of reasons. Linking the ignition to the cause of any death is not straight forward. In this situation, the smoking gun was the failure of air bags to deploy.  This could happen if the ignition had turn off. Hmmm.

One needs to know more about GM to understand how 10 years could have past.

Consider, however, that GM is composed of regular, although talented, people. GM strives for excellence in each of its disciplines or functions. So GM tries to have the best engineers, the best sales and marketing people, the best finance and logistics types, and the best lawyers. GM then works to make a team out this collection of “bests” and align these teams around the support of certain car brands.

Sounds straight forward but it turns out to be much harder than one might think.  Each GM employee has their own life aspirations and plans.  Usually earning more is a central part of these plans.  Do what the boss asks.

Another real life factor facing GM in its chosen business is the behavior of people not part of the corporation. Over the years GM has learned that authorized dealers will charge GM as much as possible for any work they perform under warranty or recall notice. With the size of the US and the number of cars involved, it is impossible for GM to verify each claim. GM’s reaction has been to not trust field reports.

Even more feared than repair facilities is plaintiffs lawyers. Lawyers specializing in product liability and personal injury make fortunes at the expense of GM. While most of us would argue that if GM was at fault they should pay, many of the settlements’ sizes boggle the mind.

So the stage is set. Engineers can easily diagnose a major black and white problem. Parts fail or they don’t.  What do engineers do if parts seem to function as designed?  What do engineers do when other conditions like crashes are involved?

When a car is mangled in a crash, analyzing the parts post the crash is difficult and always suspect.  Was the part was defective or had the crash rendered the part defective.

Considering the current ignition issue, it appears GM engineers suspected that the ignition switch design on certain models, could under certain situations, did “not perform according to design”. The term “not perform according to design” is the preferred language which GM’s lawyer community insisted upon.

From GM lawyers perspective, ignition switches were not a problem and were not defective. Why this double speak? Subpoenas and depositions drive fear into the modern corporation. The written or spoken trail can be taken out of context by industrious trial lawyers and used to beat down the reputation or integrity of the GM witness.

So, GM like most other large corporations attempts to train their subordinates to use as neutral and non-inflammatory language as possible. The obvious question might be does this neutered language also make it more difficult for senior management to recognize a real problem from a nuisance?

The situation GM finds itself in is common to all large corporation. GM being so big and well known, issue like this one, makes the front page news much quicker. So what is GM to do?

Who knows?

The most common corporate reaction is to eliminate the “few bad apples” who caused this problem and assure the public there will be no repeat.

Another popular reaction is to change the product complaint handling procedure, eliminating any loop holes.  Assure the public it is unlikely thee will be a repeat, but in the odd chance there was, the issue would be caught quickly.

Or, do what is most natural in big organizations, deny there was anything wrong and attempt to minimize any financial settlements without admitting guilt.

From my experience, these types of product failures and the stone walling that follows are most associated with overgrown bureaucracies where one discipline tries to gain more internal power at the expense of another (finance over business, or legal over engineering, etc), and top management prefers the “managing business” to the real business of satisfying customers.

It will be interesting to see how Mary Barra deals with the root problem, the GM infrastructure.

Denying What Worked

November 10, 2011

During last evening’s GOP Presidential candidates’ debate, the nation saw someone wholly unfit to lead and someone wholly mis-focused to deserve to be President.  Governor Rick Perry was sure he would do away with three federal departments but could only remember two of them.  So much for focus.  Former Governor Mit Romney decided to renew his opposition to the government rescue of General Motors.  Romney’s answer would have been structured bankruptcy.  What did he say?

Every major country that has an automobile company takes all steps necessary to ensure that automobile making remains a national strength.  You make cars and trucks the same way you make ships, tanks, and airplanes.  It is no wonder why countries protect their automotive industry.

There is another and even more compelling reason.  Automobiles represent jobs, lots of jobs.  The car or truck brings together all sorts of electronics, plastic and precision metal parts,  and stamped, rolled, polished and painted body, trim, and exterior skin.  Generally speaking these are “good” jobs and plenty of them.

So what’s so good about a bail out and why not a structured bankruptcy?

The answer is that neither of them are a desirable outcome.  One is simply better than the other.

In the case of GM, the situation involved a company that had been poorly managed for many years.  With the economic slow down, GM was short of cash and would go bankrupt if it did not get an infusion of capital.  GM, however, did have a good manufacturing process and their cars and trucks were good values.

When government stepped in with cash, it also replaced the board and the top executive.   These actions were aimed at the root cause of the problem.

With respect to a structured bankruptcy, the goal is finding the largest value for the creditors.  In other words will the creditors get 80 cents on their dollar or 30?  As Romney knows from his early business success, carving up companies, selling off the parts, and not worrying about the consequences to employees is an acceptable and often profitable path forward.

Last evening’s Perry omission is not very significant since he is drifting into single digit poll numbers.  Romney, on the other hand, remains a serious possibility to become the GOP nominee.  I certainly hope Americans realize that you can’t deal with today’s problems the way Bain Capital dealt with its targets when Romney was active.

What is even more incredible is how can he criticize GM’s rescue and all the jobs that went with it?

What Did They Say?

August 7, 2010

Every so often, you hear a phrase that reflects not original thought but rather a repetition of some talking point. One of the standard conservative lines these days goes something like this… “I can’t back (insert the Democratic candidate’s name) because during the last 4 years the national debt has ballooned and (insert the Democratic candidate’s name) voted for the stimulus, the bank bail out, and the GM/Chrysler take overs. We need to keep Government out of our lives. We need more jobs and less taxes”.

At first this seems like a tough set of charges. Yet probably the simplest response would be, “yes, that’s correct, and I am proud of it”.

When things get really screwed up with the economy, the position of last resort is the Government. A Republican Administration got the country into this round of financial mess and did little or nothing to manage the economy during the run up to the housing bubble burst. Short of seeing another depression, Government had to act. In doing so, more billions were unavoidably added to the national debt. A national debt that had doubled during the George W Bush years with little or nothing to show for this spending (unless you count Iraq, Afghanistan, Katrina, Abu Ghraib, and Guantanamo as sound US investments).

Probably the hardest to understand of conservative criticism is the stimulus program. Most economists find fault with Obama’s stimulus because they say it was not big enough. If there was no stimulus, the jobs and economy situation today would be far worse and tax revenues would be lower. The debt might be just as large due to the weaker economy. Conservative usually say “oh, we would have cut taxes as a way to stimulate the economy” and guess what, lower taxes would, yes, also increase the debt.

So you are left with “what did they say” again.

What Do You Expect?

July 19, 2010

A Government watchdog agency issued a report Friday that claimed the bail out of GM and Chrysler failed to take in account the economic impact of allowing GM and Chrysler to shed so many of their dealerships. The report stated that, as a result, there were a lot of lost jobs that have not been replaced. California Republican Congressman, Darrel Issa, could not resist adding that this report just goes to show what you get when Government intervenes with the private sector.

Not mentioned in the report or Issa’s comments is the simple observation that had the Government not intervened, GM and Chrysler would have surely failed and there would have been no work for any of GM’s 6000 dealerships and not just the 600 that were closed. There was also no mention that Toyota sells as many cars as GM with only 1200 dealers. And of course, it was not mentioned that few who have visited GM or Chrysler dealerships, can point to having had a pleasant experience.

Congressman Issa is far less interested in facts than in slinging mud and hoping it sticks. The auto industry, warts and all, is the single largest source of employment in America. Bailing out GM and Chrysler should not only have been expected, it should have been demanded. Share holders for both companies lost their investments, top management in both companies were replaced, and both companies got new owners and new boards.  Not your usual bailout.

In return, jobs have been saved and tax revenues preserved. What is it about this that Congressman Issa really does not like?

General Motors – Employee Free Choice

June 2, 2009

The GM bankruptcy is a testimony to an abject management failure, not in one quarter, or one year, but steadily over 5 decades. General Motors was not alone in the failure department. Hand in hand with the management failure was the “mod rule” imposed by a greedy and not far seeing union. And not to be left out of this debacle, the regulatory arms of several administrations aimed well intended but ill conceived rules at GM.  For example, rather than impose CAFE (corporate average fuel efficiency) standards, the government should have increased gasoline taxes steeply and the free market would have accomplished the rest.

The on-going questions are (1) will GM top management become any more strategic and sound thinking in its decision making? And, (2) how will the UAW behave and will it be a return to mob rule?

There has never been a shortage of extremely bright and hard working people at the top of GM. Today’s likely leaders should be as competent as any in the business. The issue now as in the past, will be balanced management, that is tending to the four stakeholders in the proper balance. GM must heed the wants of the consumer first and foremost. They must truly care about their employees (they should respect the UAW but care about their employees). They must also observe their responsibilities to the communities (cities and States, suppliers, and lenders) in which they operate. And, of course, they must earn a fair return for their investors (shareholders). If GM seeks to balance these obligations, they have a very good chance of maximizing their performance.

The UAW represents a different problem. It is a business that lives off the dues paid by its members. The UAW is like a one party political system where the game is “we the UAW will get for you the worker the highest wages and benefits possible and do the best possible to insure your job for life. In return, you the member will pay dues, buy our insurance, strike when we tell you to, and support a closed shop”. Missing from the UAW promises is anything to do with keeping worker skills current or working cooperatively with management on continuous improvement or solving any other issues affecting GM competitiveness.

Although not in the Chapter 11 discussions, it could be very healthy for GM and for the UAW if 25% of GM sites were designated “union-free” for 5 years and then at the five year mark all GM workers could have a card signing on whether to retain the UAW or to cease their association. That sounds to me like an employee free choice act.

What’s In It For Me?

April 15, 2009

As the GM and Chrysler restructuring talks grind on, one is struck with the apparent slow pace of progress.  Each of the stakeholders seems anxious to resolve the question of whether the two auto companies will survive, but each seems reluctant to put any “skin” in the game… until the other guy does.  My, oh my, do we have a lack of trust here?

The car companies are suffering from

  • Too many brands (leading to dilution of effort and competitiveness in selling more cars and trucks)
  • Too costly and inefficient work rules and union contracts (leading to higher operating costs and subsequently higher selling prices)
  • Too much legacy pension and healthcare costs (leading to higher costs and higher selling prices of cars and trucks).
  • Too much debt (leading to a cash drain in order to pay interest and to refinance the debt, the cash being robbed from investments in product to pay debt holders)
  • Too many dealers in their distribution network (leading to highly variable customer service which too often to below foreign competition standards.

If there is no movement and the Government insists upon Chapter 11, all the stakeholders have a good chance of losing.  Quite possibly the UAW is thinking that its political pull will help it obtain favorable treatment but that is anything but certain.

Once again I return to the idea that there can be “no winners” in the settlement if there are to be “no losers”.  In other words, each stakeholder must surrender something and in return obtain a hope for something better in the future.  The most obvious solution is that GM and Chrysler need to issue new common stock, and trade blocks of it for willing give backs by their stakeholders.

For example if a dealer must lose his franchise because there are too many or their brand is being eliminated, then the dealer should receive common shares of stock.  At the current bargain basement prices, there will be a lot of upside for potential gain.  The same idea should be applied to the UAW, the retirees, and the debt holders.  With respect to management, a similar one time grant could be used in exchange for changes in remuneration packages.

The last step should be symbolic.  The CEOs and the Boards of GM and Chrysler as well as the UAW President should resign as a sign that there will be change in the way things are done in the future.  Then we can let the car people get back to doing what they know how to do, making cars people want to buy.

They Are All Victims

April 5, 2009

The drama that is unfolding with General Motors and Chrysler is hard to watch.   Everyone seems to be a victim and nobody is accountable or responsible.  Everyone wants GM and Chrysler to survive but everyone is unprepared to move before the other.  The Unions won their contracts and benefits fair and square and not selling out retirees has a ring courage and fairness to it.  Debt holders gave GM and Chrysler money in good faith and have every right to expect it returned.  The dealers won their franchises also in a fair process and have carried high inventories (floor plans) for GM and Chrysler for years.

Everyone is a victim and none seem able to see how they all will lose unless they act to together.  Does this situation call for a leader?  It doesn’t call for a leader, it screams for one.

GM and Chrysler’s top management are the leaders everyone should be looking for and are also the leaders that got everyone into this mess.  For anyone who has had contact with Big Three management, especially senior management, one knows that there are only two ways things can be done, their way and the wrong way.  Yes-no, right-wrong, and win-lose have been the way of the American auto industry for years.  When times were good, there was no expense to great or union agreement too rich if not doing it meant loss of car sales.

Today we need an automotive leader who sees the situation from all sides and proposes a path fair to each stakeholder yet omitting no one including themselves.  The stakeholders, however, are numb from years of make believe and have turned off their hearing.  The automotive train is racing down the tracks towards Chapter 11 where instead of some losing a little, all stakeholders will lose a lot.  Both GM and Chrysler may end of with management teams that are just that.  Management but no “car sense”.

What’s Wrong With GM?

March 31, 2009

If you own a GM product or you have seen the 2009 new models, you might scratch your head and ask what anyone could see wrong with GM cars and trucks.  Some may be quick to say, “oh, they do not have any fuel efficient cars or trucks, no hybrids, and all they make are large cars with lousy quality”.  Surprisingly that is not true.

GM’s quality and product line up is very competitive and represents a good value for the consumer.  The problems with GM lie elsewhere.  The chronic problem is that GM makes too little money for each car or truck it sells to cover its overhead and put money away for a rainy day.

The selling price of GM products is largely set by competition who also make wonderful cars and trucks too.  The answer lies on the cost side where GM’s legacy costs, their current wage rates and work rules, and their breadth of models has driven up their unit cost.  New UAW contracts will help but they will not be enough.  GM must shrink their product pallet considerably in order to get inventories in line and to be able to concentrate better on fewer models.  While difficult, this will help a lot, but still not enough.

When we consider, however, legacy costs we find the sins of the past.  Retiree health and pension costs, once thought acceptable, are sinking the GM corporation today.  These costs are considerably higher than like industries and far more than what Toyota or Honda must pay.  Dealing with the reduction of these costs is a sensitive and King Solomon like problem.  When these costs are cut, someone else is gets the hardship.  Hopefully there is a lower level, more similar to like industries that GM can afford and will not over burden their former workers.

The more silent but dangerous legacy cost comes from the corporate bond holders who in the past financed “blue chip” GM’s rich life style.  When GM needed cash (for anything), banks and investors would come forward with plenty of cash but of course for a price.  GM was considered a safe corporate bond and trusted to pay bond holders under all conditions.  Often that came from selling more bonds in order to keep current on the current outstanding ones.  (Sound like a ponzi scheme?)  The total bond obligation today is eating GM’s cash supply and leaving too little left to run the rest of the business.  The Obama Administration’s talk about restructuring, if necessary, and wanting to see GM stakeholders with more skin in the game, targets these bond holders.  The message, “take 50 cents on the dollar or face looking at less”.

On top of all these systemic problems, GM, like all other car companies, is selling into a low demand market.  It will need government cash to weather this storm and survive until car sales go up again.  The key, however to long term success is to reduce these underlying costs and then compete upon quality, attractive models, and great customer service.

When Management Fails

January 17, 2009

Corporate management is not as easy as it looks.  I know we have examples all around of CEOs who dress well, take a great picture, and make motivating speeches.  They speak of customer service, or becoming a low cost producer, or bringing new technically superior products to the market place.  We hear them often talk about their prize assets, their employees, and we hear them talk about new killing strategies.  And, let us not forget, their frequent references to the shareholder to whom they bow day and night.

In the case of General Motors, this is an old song.  They love the UAW today and their new cars and trucks are loaded with technology.  GM is green, and its cars and trucks will outlast the best in class.  Is that enough to convince someone that GM will survive?

GM was once a great corporation and produced the best cars in America.  Long after that was true, GM was still a highly profitable and successful company.  But a King with no clothes can only go so long before someone yells it out.  Toyota and Honda convinced enough Americans that there were better (and less costly) vehicles.  It always amazed me why GM did not respond directly to the challenge and price their vehicles competitively with Toyota and Honda.  Now I think I understand better why.

Most everyone knows that GM claims that UAW work rules and the general labor contract coupled with retiree benefits simply add to much cost to a vehicle and that results in uncompetitiveness.  Higher prices will drive almost anyone, even a satisfied previous owner, to try brand X this time.  But how did GM get to this place?

  • In the 60’s and 70’s, GM slept allowing car development and manufacturing quality to regress.  As a result foreign cars got a chance to crack the US market.
  • GM was still making lots of money from sales and financing as long as they built cars (the US was going from one car per family to two).  The result was deals with suppliers and the UAW which were “fat” and uncompetitive.
  • When GM began to awaken they found their cars and image out of touch with the growing needs of American drivers.  GM decided to “spend” it way out of this hole by adopting new technology, buying employees out with expensive retirement packages, and using glitzy advertising to gloss over their disadvantages.
  • Periodically when the car market dropped in annual volume, GM got a jolt as it found it difficult to make dividend payments, but they took no systemic corrective action.
  • It is now 2009 and GM is approaching its day of reckoning.  It is out of cash just when car sales are projected to be their lowest in years.  While GM cars are now of great quality again, and the UAW is willing to play a little ball, we are beginning to realize that GM has a mountain of long term debt (bond holders).  GM has lasted this long because it has used this debt cushion of cash to financed both GM’s recovery and getting it through tight spots in the past.  But not this time.

GM has a book value of about $2.5 billion and is carrying debt of over $45 billion.  It is losing money, so how will it pay the dividends on this debt?  How would it retire any of this debt should it come due?  The normal way in the past was to issue more debt (sort of like a Ponzi  maneuver) and use the fresh money to satisfy the older debt holders.  That technique is not (understandably) working this time.

Either through forced negotiations or chapter 11, GM will restructure (UAW contract, management remuneration, dealer network, and its debt load).  There will be losers every place.  (One might argue that each of these parties enjoyed the high days of the past so that losing today is not that sad, but I do not think everyone sees it that way.)

This outcome can only be described as a sustained failure of management.  GM evolved into a culture that reinforced its weaknesses and could not find the courage to say “no more”.  There needs to be a wholesale restructuring and a new and independent management team installed.  The sooner the better.