The Ugly Road Ahead
GM's in trouble -- and it represents a frightening prospect for America. GM is "no ordinary company." It's representative of the American industrial might -- it's a conglomerate. It's huge and sprawling, with annual sales of $193 billion and supporting close to 1 million jobs. Annually, it puts $8.7 billion into assembly workers pockets. In 1998, a union sponsored strike that lasted 54 days, shutting down GM, resulted in 1 percentage loss to the US economic growth rate for that quarter. What's bad for GM is bad for America -- and there may be nothing that anyone can do about it. GM is about to shrink, whether they like or not.
The trouble: GM lost $1.1 billion in the first quarter of this year. They have a $1,600 per vehicle legacy cost -- mostly due to retiree health and pension plans. That's $1,600 off every car sold going to retirees that its Japanese rivals don't have to worry about. In the last five years, GM has lost 74% of its market value -- $43 billion. Today, the sum of its parts are worth more than the whole. Today GM is burning through more money than its making. To top it off, GM automotive is not productive. They're producing too many vehicles and not turning a profit. To move to productivity, GM needs to slash production -- but there's the catch. They can't close plants without a cost. The union has contracts that sees GM continuing to pay employees their wages and benefits if plants are closed.
To make matters worse, GM may not see the trouble they're in. GM has always been number 1. They can't fail. They've never failed. It's cultural and psychological -- and if they can't see the trouble, how can they get themselves out of it?
For related reading, refer to the following:
The trouble: GM lost $1.1 billion in the first quarter of this year. They have a $1,600 per vehicle legacy cost -- mostly due to retiree health and pension plans. That's $1,600 off every car sold going to retirees that its Japanese rivals don't have to worry about. In the last five years, GM has lost 74% of its market value -- $43 billion. Today, the sum of its parts are worth more than the whole. Today GM is burning through more money than its making. To top it off, GM automotive is not productive. They're producing too many vehicles and not turning a profit. To move to productivity, GM needs to slash production -- but there's the catch. They can't close plants without a cost. The union has contracts that sees GM continuing to pay employees their wages and benefits if plants are closed.
To make matters worse, GM may not see the trouble they're in. GM has always been number 1. They can't fail. They've never failed. It's cultural and psychological -- and if they can't see the trouble, how can they get themselves out of it?
For related reading, refer to the following:
Modeling General Motors and the North American Automobile Market [PDF] The Evolution of the US Automobile Industry and Detroit as its Capital [PDF] The capabilities of new firms and the evolution of the US automobile industry [PDF]
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