Still trying to process all of my objections to the current Afghan strategy into something moderately coherent, so I’ll start with a very different story: Fritz Henderson was rather suddenly and unceremoniously dismissed as CEO of GM.
General Motors Co. Chief Executive Officer Fritz Henderson resigned after eight months on the job as directors concluded he hadn’t done enough to fix GM’s finances and culture, people familiar with the matter said…Henderson’s exit caps a tenure that included aborted deals to sell the Saturn, Saab and Opel units, a struggle to replace top managers such as Chief Financial Officer Ray Young, and U.S. market-share losses.
I am all for firing GM managers. But I cannot help but suspect that the real reason Fritz was fired isn’t that the board wants change, but rather that this is the most change-looking thing they can do without really changing anything.
Let’s be clear: the love child of Steve Jobs and Napoleon Bonaparte couldn’t fix GM in a hundred days. So saying that Fritz failed to accomplish enough during his tenure is a bit ridiculous; he is probably still waiting for them to pull the RICK WAGONER stencil off his parking place.
And what of the terrible comedy of errors that is GM. The decision to sell Opel, followed by the hasty backtrack. The blowup of the Saturn and Saab deals. The continued loss of domestic market share.
That would be a lot easier to fix if anyone had any idea what the controlling shareholder wants, now wouldn’t it?
If the goal is to build a globally competitive auto company, sure, it would be silly to unload a solid, functioning European brand – Opel – for a modest price, especially when you know that two things are going to happen within a decade:
- GM will want to set up its own distribution network in Europe to avoid being shut out of the market;
- An independent Opel will follow Volkswagen into the US market with small, fuel-efficient cars and a German feel.
But if your goal were to be the best car company you could be, you would also have dropped all of the dealer contracts in bankruptcy and picked them back up one at a time on the terms of your choosing. You would have abrogated your UAW contract and health care obligations in one fell swoop, let the union strike your bankrupt estate, and either shut down for want of DIP financing or allowed your overseas facilities to sell into the US market. You would place all of your new facilities in the cheapest place possible, diversified to reduce exposure to any one government or union.
But that’s not what the owner wants. The owner wants production in the Great Lakes. And the owner isn’t exactly quiet about his desires. This means the CEO has to play cards-up; the UAW knows that he can’t go to the mattresses, the dealers get to cry to their congressmen, and every buyer of a foreign asset understands the pressure to repatriate cash.
After all that, you turn around and claim the guy isn’t running GM like enough of a business? That’s rich.
The problems holding GM back aren’t in the CEO’s office. More visionary CEOs might do better, but only by immediately crossing the red lines the government established. Playing by the rules, no one – not John Malone, not Richard Branson, not Sam Walton (even a living Sam Walton), no one gets the company to improve.
General Motors makes cars that are inferior in user experience to the competition, spends more money making and distributing them, and has to date failed to come up with a compelling reason for the consumer to buy them. A great CEO would build better cars for less money and give the brands a sense of purpose.
Building better cars takes a few years and billions of startup costs, and before any of that could even start the existing engineering and design teams would have to be purged. This would blow up the largest chunk of white-collar jobs remaining in Michigan.
Building cars more cheaply means either getting UAW workers to receive less money per unit of productivity or reducing the proportion of cars assembled by UAW workers. The UAW wouldn’t like that, and they vote.
Building a compelling brand identity is probably the longest and most difficult of the projects. GM’s brands are known; they are just known for being lousy, or at best indifferent. Each needs to be revitalized until it makes people outside the pickup truck market identify with the brand. Until someone is proud to drive a Buick.
These are difficult tasks. They are difficult because they offend large interest groups and contain a large risk of failure. Since the board didn’t want to do difficult, it chose “change” instead, banking on the fact that most people associate “change” with “dynamic” and “progress.” In this case, “change” means the path of least resistance; piss off one guy who has no constituency, and let everyone spend the next several months assuming that you’re on their team.
Sending more soldiers to Afghanistan doesn’t do anything to address our foreign policy, security, or geopolitical challenges. It costs more and gets a few more people killed, but the money is hard to track and the dead don’t vote. Mostly, it lets everyone run around talking about the need to give the “new” strategy time to play out, even though the new strategy is the old strategy in a different font. We celebrate the surge in Iraq, but we are just as stuck there as we were before we surged.
I have the sneaky suspicion Obama just punted on second down.
“In this case, “change” means the path of least resistance”
Sadly, I think you’re right. Yes, Obama was handed a pretty crappy situation by Shrub, but all he has done is nibble around the edges. When you campaign for “CHANGE”, and nothing really appears much different, people tend to discount your words after a while.
Just to expand on your football analogy, he seems to think that it is still the 1st quarter, when actually, we are deep in the 4th quarter and down by 2 touchdowns.
First-time caller, long-time listener. Love your stuff.
If I may, I would like to respectfully disagree with a few of your suggstions/conclusions.
Firstly,
“A great CEO would build better cars for less money…”
Why should the target be to be cheaper? Almost all other brands, Honda, Toyota, BMW, Mercedes, et. al. cost *more* than US makes, yet led the US makes in sales.
Apple is making a booming business in a near depression selling MP3 players for $400 when you can get them everywhere else for nearly free.
Why ‘cheaper’? Why not just ‘better’?
Secondly,
“You would place all of your new facilities in the cheapest place possible…”
Sure, this kills the unions, but now leaves us with the question “Who exactly, will be buying these cars?” Without jobs, GM’s (and the world’s) largest market is bankrupt. There’s no money to buy cars. How does shipping one of the country’s largest employers overseas put purchasing money into the hands of the world’s largest consumer?
Germany is *filthy* with unions, but seems to be doing better than most, even in this “downturn”.
I believe these and other similar memes have led us to where we are today. “Make it cheaper!” “Move jobs to where it’s cheaper!” “Cut labor costs at any cost” has done but one thing: make recipients of such “savings” richer and the consumer poorer. We’re now seeing the very predictable end of that process.
Everyone thought that buying Chinese products at Wal-Mart “saved money”. Now, we can afford to shop nowhere else.
I am in violent agreement with you on the first part of your comment.
“Better cars for less money” was my way of saying “improve the value proposition.” The value proposition can be improved by improving quality or by reducing cost. Ideally, both.
It is perfectly possible to build high-quality cars with a well-paid organized labor force. Indeed, just about all quality cars are built in union shops. To build a quality machine, however, is a very difficult task.
The folks at Ford and GM woke up in the middle of the 1980s and began to listen to the customers who were deserting them in droves as they realized they could get reliable Japanese cars on the same terms as American monsters with panelling that fell off going over speed bumps. Remember those “quality is job 1″ ads? Well, at great effort they got the defect rate down. But they did it in part by simply accepting wider tolerances than the Japanese and lower-quality materials than the Germans.
Japanese OEMs routinely reject internal parts with paint errors or surface scratches. No one will ever see the defect, but they figure that if they can see something wrong, they don’t want to know about the underlying metal. So they pay more per part (Tier I suppliers have one foot in the grave at all times, so all systemic cost increases are passed through). Pull that stunt at GM and the purchasing manager would get fired; his job is to deliver the lowest cost, damn it all, and he does. You want better parts, you have to change that guy. And everyone who would fire him for doing his job as he sees it.
If you touch something inside an Audi, it is what you think it is. The wood came from a tree, the seats were once cattle, the aluminum was in a smelter. If you touch something in a Cadillac, it is a petrochemical of some sort. Cheaper and easier that way. So Audi may have a higher error rate in ppm than Cadillac – a weird wrinkle in the grain, an odd burl in the wood – but the quality is actually higher. No one at Cadillac looks at it that way; if they did, they were fired a long time ago.
It would be fantastic if a new management team at one of the Detroit Three could put a better attitude in place. In even the medium term, better to make good products at a fair price than fair products at a good price; in a pinch, the good guy can discount. But the rebirth that would be necessary is likely beyond the capacity of the current organization. In the meantime, what do they do?
I disagree with you on the link between the compensation of the workers and the end market for the company. Boeing is generally considered a successful airplane manufacturer (curious that the two major commercial aerospace countries, the US and France, are unable to build cars), and I would venture that not a single employee of the firm could afford to buy a Boeing product. Very few employees of Four Seasons could afford to stay in their hotels. Your typical Master of the Universe derivatives trader cannot ante up from his personal balance sheet.
Paying workers more money so that they can buy the products they make is a losing battle. You need to be able to sell outside the factory.