Felicia Muftic – What happened to GM?
Grand County, Colorado
The announcement last week that General Motors entered Chapter 11 bankruptcy triggered memories of my professional involvement with the auto industry over the past 35 years. I am not one of those in love with cars. To me they are a vehicle that gets you from point A to point B safely with minimal hassle and cost.
No, my connection has to do with my career in consumer affairs. Somehow the auto industry always played a central role in whatever I was doing. As head of a district attorney consumer fraud division, car repair and questionable or illegal sales practices demanded a major part of my attention. Credit and finance issues were part and parcel of the automotive business, and I was a commissioner on a state regulatory board on consumer credit for years. I served on an auto industry warranty board and toured assembly plants. For 12 years I helped an honorable Denver car dealer give nearly a million dollars to charity and to help minority students go to college. I saw firsthand both the very good of the industry and the very bad.
What went wrong with General Motors? It was not just General Motors that made some bad decisions, but all U.S. automakers. In the early 1970s the United States had its first oil crisis, thanks to the manipulation by the Mideast oil cartels. There was a shortage of gasoline and prices soared. We were driving around gas guzzling tin cans. However, a large segment of the American public wanted small and GM and others did not have an acceptable model.
Into the void stepped Toyota, much to jokes about the “toy” part of the name and the shoddy quality. The Japanese got the quality control religion adopting techniques that became the worldwide standard. VW became a culture unto itself. U.S. automakers have lost market share ever since. GM sank from 50 percent to 20 percent.
In the meantime, labor unions demanded high fringe benefits of health care insurance and pension plans. These legacy costs saddled GM with the equivalent of $70 per hour per worker. Older workers retired so there were more retirees than the numbers of workers making products. GM added $2,500 to the cost of each car it assembled in benefits.
Non-union and other foreign manufacturers answered calls to “buy American” and opened up manufacturing plants in the South, with labor costs including benefits of $40 an hour.
GM repeated its prior mistake. When the price of gas rose to $4 a gallon, GM did not have products anyone wanted to buy. They did not have the flexibility or the commitment to produce high-mileage vehicles at a marketable price. They had them in their research department, but they did not have them on the dealer floors, except expensive, large hybrid SUVs getting 30-plus mpg that entered the market recently.
They didn’t learn from the debacle of the ’70s. The most damning reason was the culture of GM executives based on making the boss happy. SUVs produced the largest profit margins so bosses steered marketing money to create consumer demand for them. Muscle sized fully loaded SUVs became a status symbol even for warm climate flatlanders. Quality control slipped, giving GM a black eye they could not overcome, even after they improved quality. They fought government attempts to enforce air pollution standards and impose mileage caps, too. Ironically, if they had not resisted standards so vigorously, they might have had the flexibility to swing with today’s market demand changes.
When the economy began tanking in late 2007 and the specter of joblessness loomed, consumers stopped buying cars, clothes, and nearly everything else. The consumer credit market froze so that even the 30 percent who felt economically secure could not get car financing.
Tough luck, you say. Either make the tough decisions or close the factory gates. Neither GM execs nor the unions had the will to make those decisions, and Washington was unwilling to live with the consequences of the ripple effect on a fragile economy. With 6 million nationwide already unemployed , another 3 million auto sector employees were facing layoffs unless government acted. Washington made the decision for them. Unions and bond holders took hits in a last minute deal. Benefits were reduced; 20,000 more workers will be laid off. Taxpayers now own 60 percent of GM because we infused $50 billion in total. In return, GM shed an albatross of debt and government will guarantee our warranties.
Was it the right thing to do? It will take years of restructuring before we know. The measure: GM survives and ownership reverts to the private sector as a lean mean competing machine, with a new corporate culture driven by consumers and a sadder but wiser union. Some of the bailout money gets returned to the feds. If that happens, we could say it was the right thing to do under the circumstances.
– To read more commentary by Felicia Muftic, visit her blog at http://www.skyhidailynews.com (recent topics: Have we become Marxists; The Limbombing of America; Sotomayor; Cheney; GM) or visit her Web site, http://www.mufticforum.com
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