Performance Management Solutions

The collapse of General Motors has nothing to do with the current world economic crisis and it has everything to do with the failure of GM’s management to actually know what it was doing.

For many years the unions and their bloated and unrealistic pensions plans have been bleeding General Motors and will continue to bleed GM until it implodes and becomes little more that an interesting case study for university professors specialising in the collapse of Western manufacturing. Are the unions to blame for this – well, yes … and no! They did what they were supposed to do and extracted whatever they could from the employers on behalf of the workers BUT their interest was strictly short term and focused entirely on what they thought they were entitled to rather than what was sustainable for the company over the long term. In many ways, the unions thought that long term planning was concerned with what they would do at the weekend, while short-term planning was about what they would eat for lunch.

Unfortunately, the management of GM had much the same mind set but they also had a profound lack of understanding about their own industry and where globalisation was taking them. Although the problems go back decades, one only needs to look back at 2005 when, despite having invested billions of dollars in new cars, GM found that it had lost market share and by the end of 2004 hand just 27% of the US market – the lowest for many years. They immediately ramped up product and marketing of gas-guzzling SUVs as the answer to their problems but promptly lost $1.1 billion in the 1st quarter of 2005. And the management reaction was to say ‘no problem we have $19.8 billion in available cash and $8.3 billion in bank credit lines.

That didn’t stop them losing $10.4 billion in 2005 and by early 2006 the company was well on the way to bankruptcy – their cash mountain was gone, their bonds had little more than junk ratings and their share price had shown effectively no growth for the last decade. Further more they were obviously and suicidally focusing on the wrong products and service – the price of fuel was on the increase, customers wanted smarter, smaller, and more economical cars and GM was focusing on bigger and bigger SUVs, Hummers and other fuel-inefficient vehicles.

The loss of a further $38.7 billion in 2007 should have sent up warning signs and focused the minds of the management but instead they continued to push their clunky inefficient vehicles and also embarked on a channel conflict approach to selling cars: they started to use websites to sell vehicles – completely ignoring the evidence that tactility was a critical issue in car buying decisions (Tactility is the term to describe the fact that a buyer needs to experience a product in physical reality when making a buying decision.) The channel conflict was with the dealers and the evidence was that GM had launched either a deliberate or stupidly unintentional war with the dealers and promptly lost their loyalty.

In the autumn of 2007 – before the sub-prime market collapse started to be a worry – the death throes of GM were evident and a self-fulfilling prophecy. By March 2008 inventory was through the roof, sales had plummeted, and the management were fighting for survival – but you can’t get things so wrong for so long to be able to survive without huge amounts of pain and that became apparent in July 2008 when there was no question but that GM was doomed.

The rest, as the saying goes, is history: the unions still want their generous conditions and pensions, the company can’t pay them; suppliers want payment in 15-30 days given the tightness of credit but GM can’t and wont pay in less than 55 days so the suppliers are going out of business; sales are in free fall because no one wants to buy a car from a company that will probably not exist in a year’s time.

And the GM solution: to ask for $30 billion from the US government (more than the entire 2009 NASA space budget) and even that won’t save them. They need $86 billion (by their own calculation) to restructure even under Chapter 11 protection. GM then hauled their battered, broken and incredible story to Europe and asked for $6 billion from European governments – all without any real sense of how they were going to get out of the mess they were in.

With all its European businesses now up for sale, GM has decided to sell its stake in Suzuki and will probably have to sell its Asian businesses as well. In the US, they are offering to shed 20,000 jobs (13.5% of the workforce) – but to hold onto the corporate jets and CEO’s perks, no doubt – when, in reality, they need to halve the work force and get a completely new management team. And in a sign that the situation is not devoid of irony, Fiat, in which GM invested $2.4 billion some years ago, has offered to take over running the company in exchange for a 35% stake.

No, the collapse of GM has nothing to do with the world financial crisis no matter what its management try to claim – GM’s collapse is self-inflicted and the solution is Chapter 11 bankruptcy at the best and complete oblivion as the most likely. This is a harsh message for the people of the USA, but GM is no longer fit for purpose and it would be kinder and less traumatic if the company closed down now and allowed everyone to get on with their lives.