dispatches from the new world of work

Failing to Read the Tea Leaves Again

Cool Friend Sally Helgesen joins our blog again. This entry appears on her website, too. We welcome Sally's voice here:

As someone who grew up in Michigan, I've always followed the news from Detroit, and been particularly fascinated by GM. So I've found the announcement this week about massive layoff and shutdowns riveting, not only because of what it means for the prototypical corporation that shaped America's industrial age, but also because of what it seems to say about how the U.S. practices market capitalism in the global era.

Of course, we all know the obvious reasons that GM is undergoing its present agony. Periods of stunningly mediocre leadership (think Stempel) have often alternated with periods of a willful but misguided visionary approach (think Roger Smith). And then there are all those pensions and the extraordinary burden of having to bear soaring health care costs for millions. Why, given the latter, Rick Wagoner hasn't led the charge for government health insurance, and brought a couple of his Business Roundtable buddies along for the ride, is a mystery best explained by experts on the subtleties of corporate suicide. But what seems above all to have gotten GM into trouble is its astonishing inability to read the tea leaves—despite having been punished for this same failure once before.

I'm not going to jump all over SUVs. I drive a Jeep Grand Cherokee, a car that must warm Dick Cheney's heart every time he spies one at the pump. Still, despite my fondness for my car, it was hard not to conclude watching the start of the Iraq War, and reading of unrest from Lagos and Caracas, that oil prices would indeed be going up in this decade, and that people like me were going to be stuck with cars they wished they hadn't fallen for and so put fuel efficiency at the top of their must-have list when they made their next purchase. This could not have been more obvious, yet Detroit continued to buy into the conventional wisdom that Americans have such an abiding attachment to roadhogs that they will happily go broke keeping them up.

Of course, Detroit made the same mistake in the 1970s, when the OPEC oil embargo made all those guzzlers we loved suddenly impractical. I was able to buy a seven-year-old De Ville in the late 70s for $900 because dealers could hardly give the things away. So why weren't the automakers on their guard this time? Why didn't someone say, yes, Americans will continue their love affair with SUVs for as long as gas is reasonably priced, but given what's happening in the world, that's not going to last. So let's learn from the past and put our best efforts into developing cars that suit the way the planet seems to be heading.

No such luck. And that brings me to my point about whether the U.S. has the right stuff for long-term competitiveness in a global arena. For the truth is that the financial structure of our corporations forces them to sacrifice long-term development for short-term profit. The markets would have brutally punished GM for not turning out SUVs at a torrid pace in 2002-2003, even though all the signs said that change was coming. Shareholders would have been storming out of annual meetings if the company hadn't been rolling the hogs out fast enough.

So GM's managers let themselves be blinded by ideology ("Americans insist on big") in order to avoid the evidence of what was coming, because if they had confronted that evidence it might have impacted their value as gauged in quarterly reports. It's hardly a stretch to see a similarity between this and the company's refusal to use its influence to lobby for changes in how this country pays for health care—despite this being a major reason that GM cars have an uncompetitive cost structure from the get-go. Yes, this represents a failure of both leadership and imagination, but I also believe it represents something else: an inability to recognize that some of the structures that made American capitalism the wonder of the industrial era won't be adequate in the global era that this same form of capitalism has spawned.

Sally Helgesen posted this on 06/15/05.

Comments

I've never driven a GM car before, although I've stared lustily at Corvettes.. but is the low mileage of GM cars the only problem with them?

Perhaps a solution could be that GM employees swap the fixed costs of healthcare benefits for stock and bonds in the company - stock markets be damned. If GM survives, and survive it will, the employees stand to make a hell of a lot more than their health care benefits are worth.

Then GM should focus on selling dreams - not cars with accessories, but dreams at a price that customers will pay, and at a much reduced cost. At the risk of sounding trite, GM needs to innovate its way out of trouble.

...

I realise that it's easy to sit on the outside and prescribe easy solutions to tough problems, so I'll just stop here.

Regards, Arun

Posted by Arun Sadhashivan at June 16, 2005 1:26 AM

"I've found the announcement this week about massive layoff and shutdowns riveting. . . because of what it seems to say about how the U.S. practices market capitalism in the global era."

The rules of the global economy are starting to hurt the developed world so much that many people want off the downwards treadmill. For example, the EU referendum results in The Netherlands and France suggest the will to escape. If other countries in the developed world got a chance to vote on economic globalisation, they'd probably vote 'no' too.

Posted by IJ at June 16, 2005 5:59 AM

The EU votes against the constitution had nothing to do with globalization and everything to do with rejecting the 400 page radical liberal manifesto authored by low IQ EU "elites". Naturally, the global economy has been and is here to stay - it vastly benefits consumers [who "drive" economies].

GM's downsizing is going to be via attrition through 2008 - so it is a healthy decision given market conditions - and the financial markets love it when labor is trimmed appropriately.

Posted by Sean at June 16, 2005 7:30 AM

Hi all

Sally, I have blogged here about GM from time to time, and I think you have it mainly right. An exception is that I believe Stempel had great hope. He was the first "car guy" instead of a bean counter to run the show in quite some time. I do not think Smith was a visionary at all, he was a classic run the company by numbers and procedures guy. Stempel inherited a mess. I was in OD at GM during those times and clearly, Roger Smith's legacy is the destruction of a once proud company.
Stempel has gone on to start and lead the country's number one innovator in fuel cells and alternate fuel technology. He is an engineer at heart! Micheline Maynard chronicled the big three's problems well in a book called, The End of Detroit. I recommend it. Lastly, the downsizing strategy has a huge flaw...GM needs to sell ALL of its current production capacity to cover those legacy costs. If and when they shut a produciton facility, their ability to cover their benefits and retirement costs is deeply harmed.

Posted by Mike Neiss at June 16, 2005 8:16 AM

Cathy, your spot on for many USA businesses. The lack of courage and imagination at the top to do the right thing is crippling both small and large ones across every industry. As the world gets flatter and more connected, organizations that are not in step with the market will die off. Too bad so many good people will get hurt in the process. As a small business owner, I am excited by all the new prospects popping up on the net (see Tom's earlier post on "the power of us). What's more, I have a tool - Ideascape - that stimulates the collective intelligence in orgs. Giving them a real shot at re-invetion and real innovation.

Jim Wilde
www.advancinginsights.com

Posted by jim wilde at June 16, 2005 8:37 AM

My parents both retired from GM and even with the employee discount, I've often found myself tempted to buy other cars - specifically because of fuel economy. My dad has been looking seriously at some of the low-cost foreign models (i.e. Kia) for that same reason, and he gets his pension from GM.

Now, if someone who owes most of what he has in life to GM is looking elsewhere for possible vehicle purchases, that should signal the company that they have problems.

Another little-known fact: Delphi Automotive (used to be Delco when owned by GM) was spun off from GM a few years ago. They display Chrysler vehicles in front of their manufacturing facility in Indiana. Again, if those who owe their roots to GM have abandoned them, is it any wonder that thee company is having financial difficulties.

I'm holding out hope that the work that GM is putting into hydrogen-cell vehicles will pay off down the road, and that they have a long-term strategy to pull the company out of the slump, but at the rate that GM is hemorraging money, long-term is a relative term.

Posted by Tony Brinson at June 16, 2005 9:35 AM

I worry when I hear that GM should advocate for socialized healthcare. If it's clearly not working in the microcosm of our society that is GM (fewer workers covering more retirees), how can we possibly believe that this Ponzi scheme could be beneficial on a broader scale?

I agree with Arun that changing the culture from one of adversarial union/mgt. "negotiations" to one of ownership is best, but can that be accomplished in a behemoth like GM at this point? I also agree with Mike that future production capacity is going to be a serious issue--can't sell 'em if you can't make 'em. And I think that's where GM has really gone off the rails. Seems that all management effort is on cost cutting--we don't hear an emphasis on designing and selling highly desirable cars anymore.

Their marketing efforts say two things to me: "Our brands aren't worth the price we put on them (thus heavy discounting and rebates) and our employees are "proud" to give away the one benefit they had as GM employees that no one else had (ee discounts)."

Posted by Russ at June 16, 2005 9:47 AM

Loved the comments. Will check out The End of Detroit. One of my fave books on the industry was Reinventing the Wheels. I am fascinated that any alternative to the present system of having companies bear the burden of healthcare is immediately referred to as "socialized medicine." The epithet ends the discussion. It's time to look forward. Sally Helgesen

Posted by Sally Helgesen at June 17, 2005 12:18 PM

"The EU votes against the constitution had nothing to do with globalization and everything to do with rejecting the 400 page radical liberal manifesto. . . "

This view is questioned in many places. For example, the EU Observer says: "A large part of the reason that the French voted No was fears of a free-market Anglo-Saxon model of Europe, which they felt would cost jobs and social security." And then there's the writer who kicked off this forum: "I've found the announcement this week about massive layoff and shutdowns riveting. . . because of what it seems to say about how the U.S. practices market capitalism in the global era."

The point is that many people, including in the US, don't like way the global economy is progressing. However they might have to wait some time to change things.

Posted by IJ at June 19, 2005 3:40 PM