GM at the Abyss

Now that General Motors, Ford Motor Company and Chrysler Corporation have all presented themselves to our elected representatives seeking taxpayer capital to keep whatever semblance of a business model they have alive (for how long?), it seems appropriate to share an excerpt form my upcoming book, "Tea at the Abyss":

On Thursday June 5, 2008, Rick Wagoner, CEO of General Motors attempted to defend recurring criticism of his company’s strategic and financial results. The Financial Times reported that Mr. Wagoner had asked, in an interview with their reporters, “Is it the US manufacturers who are stupid? I don’t think so,” adding that the Japanese car manufacturers had made similar errors in predicting the US car buyer’s demand for large vehicles.
In April of that same year, Alex Taylor published an article in Fortune Magazine entitled “Rick Wagoner's worst nightmare. Events beyond his control are jeopardizing General Motors' fragile recovery”, which listed several factors for the harrowing challenges facing this shrinking industrial giant. Among the ills generally seen to be present at GM, as identified by industry analysts were:
- Production, marketing, product design and other basic components of the company too focused on SUVs and trucks – the products the consumer was running from in droves
- Looming lease liabilities on end-of-term valuations far in excess of reality
- Too many brands, and too many marginally performing (Saturn) or obsolete (Hummer) brands
- Bloated pay & benefits packages
- Subprime loan exposure in the GMAC financing unit
- Too few high-mileage or alternative-powered vehicles
- A possible cash crunch by early 2009
All of this had conspired to create a response from the equities markets that brought GM’s share price down to where the company had last traded back in the mid-1950s. In economic value terms, it was like the company had been on some type of corporate treadmill for 60 odd years. All the results from Cadillac, the SUV program, GMC, the dealer incentives and other marketing creativity, the Corvette, the great sedans of Buick, the innovations of GEO and Saturn, the partnership with Opel AG, and even the legendary muscle cars across the decades – none had brought them an inch ahead.
Taken at face value, Rick’s question is a valid one. Are the US car manufacturers stupid? We might recall actor Tom Hanks’ line from the 1994 film Forest Gump: “stupid is as stupid does”. In this sense, the results, as least in GM’s case, may answer Rick’s question all on their own. In fact, we might wonder that, if these performance results from GM were not the result of stupidity on some level, then what would stupidity for a large automotive company look like?
The other dynamic in the way Rick posed his question is the attempt to answer it himself – going on to cite certain failed strategies of the Japanese carmakers principally Toyota, he pointed out that GM was not the only one to have made errors in its product mix. Yet looking at Toyota as a whole, it is clearly a stronger company. Toyota has Lexus, and shorter product development cycles, and higher resale values, and the world’s top hybrid car program. While GM was developing the Saturn brand, Toyota developed Scion. But even if Toyota were equally out of step strategically as GM seems to be, would that lessen the need for GM, and the other GMs of American business, to develop sound and adaptive strategies that are prepared for shifting external conditions? Attempting to deflect criticism to one’s competitors is hardly adequate evidence of “not being stupid” ones self.
Like many questions posed after a failed strategy has taken a company off the rails, there is much more that is raised by Rick’s questions than appears on the surface:
- Is “not being stupid” a legitimate metric for senior management success?
- If someone else was stupid, does that excuse our stupidity, to whatever degree?
- Won’t there always be others somewhere, in some fashion, which are stupid?
- Don’t we always have an obligation to reduce our own stupidity wherever possible?
- If we can conjure up an explanation for being blindsided, does that suddenly make it OK?
- If the company is put at risk by “unforeseen circumstances”, is the problem our ability to foresee, or is virtually any level of inaccuracy acceptable?
- What level of stupidity and negative surprises should be acceptable in a company that spends billions on “R&D”?
- Where do we draw the line for conditions that we indeed foresee, anticipate, and perhaps plan for?
- What are CEOs paid for by the shareholders, if not to manage the enterprise to deal with conditions “beyond our control”?
While the absence of stupidity is not the metric I would choose for determining a company’s success, it does serve as a proxy for a host of issues we might well summarize as “out of touch”, “unaware”, or “inattentive”. We can think of many organizations, from Xerox PARC to Bell Labs, that were rather low on the stupidity scale yet somehow became irrelevant. In GM’s case, most of the issue here appears to be a company that lost its way over time. While attending to the most minute of internal details, they lost track of the world outside and woke up one day to find that the world had moved on – without them.