By on June 1, 2009

How do you write an obituary for an entity that’s been dead for seventeen years? Like that high-school Biology frog-leg experiment, GM’s twitching since 1992 was due to externally administered stimuli. Yes, I would have much preferred to write GM’s obit in ’92. Back then, the guilty party was merely GM’s brain-dead management. It would have been easy just to rag on about all the lame cars they built. But it’s become a lot more complicated and uglier. Now we all have blood (and red ink) on our hands. And it’s not going to wash out easily.

While we rub on our damn spots, let’s refresh our short collective memory. In 1992, GM posted a $23.5 billion loss, coming off multi-billion dollar losses the year before. It was the culmination of GM’s most disastrous decade ever. Market share collapsed from 45 percent in 1980, to 34 percent in 1989. Share price was down 90 percent from its all-time (adjusted) peak of $358 in 1965. GM’s bonds lost their vaunted AAA rating. The whiff of bankruptcy was in the air. If only the plug had been pulled then. It would have spared us all hundreds of billions and untold agony, not to mention well over 250 General Motors Death Watches.

Up to ’92, it was pretty much all GM’s own (un)doing too, from Astre to  John Z. DeLorean. Nobody else to blame. Well, mostly, anyway. Some of the “artificial stimulus” had already begun, in the form of 1981’s Japanese (not at all) Voluntary Export Restraints (VER) deal. Denial and the blame-game were high on GM’s agenda, and curbing Japanese imports was going to fix Detroit. It turned into a classic example of “be careful of what you wish for.”

The Japanese responded with higher prices, and reinvested the resulting outsized profits in Lexus and Marysville, Ohio, among others. Is that what the Motown boyz had in mind when they beggared Washington for relief? And who paid for it all? The consumer, of course. Japanese car prices jumped some 15 to 30 percent during the VER era; Detroit’s, not. Somebody was paying for the development costs of that Caddy-killing Lexus LS400.

The Lexus was overkill anyway; by 1985, the pathetically-shrunken Cadillac DeVille was just a mutated Chevy Celebrity. This self-inflicted damage was mortal, too. GM’s premium brands had been their money printing press since the 1920s. Reel in the consumer in with a cheap Chevy, but make the killing when they trade up.

GM could live with Ford or Plymouth getting into Chevy’s pants once in a while, as long as Mercury, Edsel, Lincoln, DeSoto and Chrysler kept their hands off their “golden girls.” Having managed to keep them chaste for decades, they proceed to royally fuck themselves with ugly look-alike dwarves in 1985. I could go on (and have), but need I say more to explain GM’s death as an auto-maker in 1992?

Going forward from 1992 is an oxymoron. Since the mid eighties, the domestic automobile industry, as well as much of the domestic economy, has been all too heavily influenced by government policy, or the lack of it. What might have seemed good for the US might have also seemed good for GM, but . . .

Let’s call the lack of political will to implement a steadily rising gas tax to curb demand and stimulate long-term investment in an appropriate (and stable) fleet mix of vehicles Exhibit A. Alan Greenspan’s repeated downward pressure on interest  rates in the face of both the stock bubble of the late 90’s and the subsequent real estate bubble makes Exhibit B.

The explosion of the financial sector due to the low interest rates and the lack of regulation or enforcement is “C.”  American’s eagerness to slurp up the resulting brew of over-leveraged mini-MacMansions and oversized SUV’s with which to make their forty-mile commute is Exhibit D.

The end result: an epic F.

This unsustainable potion of cheap gas and cheaper money created the Zombie Three, with GM at the head of the pack. Even during those boom SUV years, GM’s cost structure and low transaction prices on cars resulted in profits from vehicles that were dismal, at best. In a decent year, like 1996, GM’s North American operations had a 0.8 percent return. What profits GM booked during these past seventeen years were primarily from financing and whatever overseas operations were having a good run, for the moment.

Yet investors were still willing to pay $100/share for a company that couldn’t make a profit on a car. Artificial stimulus indeed.

Meanwhile, it’s no secret that Toyota and Honda were generating around 70 to 90 percent of their global profits out of the US market alone. By building cars and light trucks.

Reality’s last hope would have been C11 in 1992, restructure oppressive union contracts, and hire Roger Penske to vacuum the tubes from top to bottom. Oh, and a tax-stabilized price of gas. And a genuine, effective national health care policy. And a responsible financial industry. And a functioning regulatory system. And awake consumers. And . . . so much for wishful thinking.

The inconvenient truth: for decades, GM has not been an automaker, but a wealth and capital-destroying dragon. Some $200 billion dollars in equity has been wiped out. Throw in another $27 billion in debt gone tits-up, as well as “your” contribution of some $45 billion: well over a quarter trillion dollars up in smoke. Where’s Saint George when we need him?

There was a time when we just said goodbye or good riddance to our failed companies. Studebaker was once the biggest wagon maker in the land. No more. Now we’re incapable of killing GM, and it’s too late to genuinely revive it. Just think up some new (electric) stimulus to keep it twitching.

It’s a waste of time and energy to blame GM for anything it’s done, or not, since its real death in 1992. Rick Wagoner’s immutable face is just another mask in our national tragedy play. Even worse, he’s what we see when we look in our collective mirror. In Pogo’s immortal words: “We have met the enemy, and he is us.”

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29 Comments on “Editorial: General Motors Death Watch 257: Paul Niedermeyer’s GM Obit...”


  • avatar

    you blame DeLorean? while portrayed as a maverick he was actually a visionary.

    agree that management is mostly to blame, but let’s not forget unfair trade practices by foreign manufacturers that our government did virtually nothing to counteract. this includes Japanese government supporting R&D while ours issued unrealistic mandates. then there are the currency manipulations and dumping practices left unchallenged.

    while our competitors hired our best and brightest, we stood by as former gov’t officails became lobbyists for Toyota and Honda.

    basically we got outsmarted and beaten at our own game.

    these are things I am familiar with but no expert. what I am expert at is retailing cars and from that vantage point I repeat…we have the dumbest and most ineffective marketing. in fact, much of what comes from GM disguised as merchandising actually causes harm.

  • avatar
    MikeyDee

    Quoting Wikipedia…

    “General Motors (GM) was founded on September 27, 1908, in Flint, Michigan, as a holding company for Buick, then controlled by William C. Durant. It acquired Oldsmobile later that year. In 1909 Durant brought in Cadillac, Elmore, Oakland (later known as Pontiac) and several others. In 1909, General Motors acquired the Reliance Motor Truck Company of Owosso, Michigan, and the Rapid Motor Vehicle Company of Pontiac, Michigan, the predecessors of GMC Truck. Durant lost control of GM in 1910 to a bankers’ trust because of the large amount of debt taken on in its acquisitions coupled with a collapse in new vehicle sales. A few years later, Durant started the Chevrolet Motor car company and through this he secretly purchased a controlling interest in GM. Durant took back control of the company after one of the most dramatic proxy wars in American business history. Shortly after, he again lost control, this time for good, after the new vehicle market collapsed. Alfred Sloan was picked to take charge of the corporation and led it to its post war global dominance. This unprecedented growth of GM would last into the early 1980s when it employed 349,000 workers and 150 assembly plants.”

    …so you see, this has happened in the past and a new GM emerged from it.

  • avatar
    jackc10

    I guess I will always be amazed by the media and individuals who find so much extraneous to GM to blame, (the feds, no nationalized medicine, crafty Japanese negotiators, Southern States, bad marketing, etc.) when the fact is most of the product has been crap for most of three decades at least.

    Management blames the UAW, UAW blames management and everybody but the management and UAW members know it is their product. They are to blame.

    Scarey part is the Obama administration negotiating in 2 years with the UAW. If folks think we the taxpayers are getting screwed, “You ain’t seen nothing yet”.

  • avatar
    jpcavanaugh

    You make some excellent points. One that needs to be emphasised is that GM came through the 1979-82 recession virtually unscathed, unlike Chrysler and Ford that both suffered near-death experiences. But while Chrysler and Ford adjusted to a “new normal” and went on to stabilize and grow through the 90s, GM began a long, slow slide in quality and product offerings that continues to this day. It was only its huge size with the attendant inertia that allowed them to coast until now.

    It’s been many years since I read John Delorean’s book On a Clear Day You Can See General Motors, but I recall him making the point that in the early 70s, the company was so big that it could be mismanaged horribly and it would be decades before anyone would notice. He was proved right. What he did not mention was that those doing the mismanaging would be the LAST to notice.

  • avatar
    moedaman

    Buickman :
    June 1st, 2009 at 9:35 am
    agree that management is mostly to blame, but let’s not forget unfair trade practices by foreign manufacturers that our government did virtually nothing to counteract. this includes Japanese government supporting R&D while ours issued unrealistic mandates. then there are the currency manipulations and dumping practices left unchallenged.

    You can use this argument, but if Japanese vehicles where crap, they still wouldn’t sell, no matter what the price. Just look at the earlier Korean vehicles. Come on, in 1980 would you rather own a Civic or a Monza? And remember, foreign cars meet the same standards US cars do. Instead of using their vast resources on side ventures, the D3 should have put it into R & D. Why is it the D3 would buy up everything during the good years and then end up selling them when times were hard? That cash should have went into making a better product.

  • avatar
    Joe O

    Thanks for the article.

    In this country, I thought we let companies that screwed themselves fail. Even big companies like GM.

    The short term pain stimulates long-term stability. Or so I thought.

    This is a sad day for America, but not because GM has declared bankruptcy. It’s a sad day because our government is trying to run the company post-bankruptcy.

    Joe

  • avatar
    jpcavanaugh

    so you see, this has happened in the past and a new GM emerged from it.

    Fritz Henderson is no Alfred Sloan.

  • avatar
    akear

    Well, America is now out of the car making business. It will join the consumer electronic and machine tool industry into the toilet.

    Lets just move money and not produce anything in the US.

  • avatar
    KatiePuckrik

    @MikeyDee

    Remember, in those days, there wasn’t Honda, Toyota, Nissan, Mitsubishi, Hyundai, Kia, Mercedes-Benz, BMW, VW, Jaguar, Land-Rover, Mini, Volvo, etc

    There is so much competition nowadays, GM has the odds stacked against them.

  • avatar
    Stein X Leikanger

    My first involvement with GM was in 1994, through Saab. I’d seen “Roger and Me” before that, and considered it anti-capitalist propaganda.

    By the end of my years working for GM, to and from, I had to accept that either this company was doomed, or there was something seriously wrong with my bearings and ability to think. There is probably something wrong with the latter, but GM screwed itself by absolutely refusing to foster a necessary culture of internal criticism.

    Whatever. It’s history now. As Paul writes, GM turned into a wealth and capital destroying dragon.

  • avatar
    paris-dakar

    Good editorial to a point, but blaming the collapse of GM on lack of Euro level gas taxes and single payer national health care is a bit too much.

    GM and the UAW could have prevented this even without $5.00/gal gas and socialized medicine. In a sense, that sort of blaming outside forces is one of the things that led us here.

  • avatar

    GM turned inward and became hopelessly insular and arrogant in the 1960s, if not earlier.

    Anyone who hasn’t read DeLorean’s “On a Clear Day You Can See General Motors”–read it.

    A retired GM exec I spoke with last week traced GM’s problems to 1958, when the U.S. government forced DuPont to sell their large stake in the company. As a result of this sale, the Board of Directors no longer had powerful independent directors.

  • avatar
    Kristjan Ambroz

    I can only second Michael Karesh’s comment about the De Lorean book – definitely worthwhile reading. ‘The Decline and Fall of the US Automotive Industry’ by Brock Yates from about a decade later is educational as well – in the sense that things were really not about to improve. A similar account (more limited to specific technical aspects) can be read in ‘Drive On’ by LJK Setright. None of this is new, it’s just that lessons were never really learned. And the arrogance that went with being the largest cost them dearly in the end.

  • avatar
    Paul Niedermeyer

    paris-dakar,

    I’m not. The opposite. I’m blaming cheap gas for creating the SUV boom, which artificially sustained GM way beyond its expiration date. Or its possible regeneration.

  • avatar
    paris-dakar

    Paul Niedermeyer :
    June 1st, 2009 at 10:32 am

    paris-dakar,

    I’m not. The opposite. I’m blaming cheap gas for creating the SUV boom, which artificially sustained GM way beyond its expiration date. Or its possible regeneration.

    I still don’t see it. GM could have made the decision to maintain competitiveness across a full line of vehicles (like Toyota did). They simply chose not to.

    No one forced GM to sell the J-Car for nearly 20 years. And no one else need take responsibility for that decision.

    GM Management and the UAW bear sole responsibility for this mess. They’re both acting like kids who blame Mommy and Daddy for not stopping them from doing something stupid.

  • avatar
    Paul Niedermeyer

    paris-dakar,

    Of course I hold GM management accountable for every mistake they made. What I’m pointing out is that GM is part of a larger American problem. Inability to do what needs to be done. Can you see that?

  • avatar
    psarhjinian

    A retired GM exec I spoke with last week traced GM’s problems to 1958, when the U.S. government forced DuPont to sell their large stake in the company. As a result of this sale, the Board of Directors no longer had powerful independent directors.

    That’s probably it. Thanks for digging that up.

    Not having adequate oversight is probably the most significant problem a large company can have. Without someone to ask the tough questions (and honestly, the current GM BoD didn’t even ask the easy ones) there’s little chance that upper management will ever consider itself capable of doing wrong.

  • avatar
    Martin Schwoerer

    Correct me if I’m wrong, but I think it was 1992 when corporate raider James Goldsmith was planning a hostile takeover of GM.

    He thought GM management was breathtakingly stupid and that its board was made of cowards. A meeting with banks and fanciers came to an agreement that a successful breakup would create great value and unleash the company’s potential. However, GM at the time had already developed powerful and sophisticated anti-takeover plans, so Goldsmith gave up before trying.

  • avatar
    mikey610

    Agree 100% with psarhjnian.

    Would also add that the blaming of ‘externals’ for GM’s problems started a long time ago. When it first started, it was probably an attempt to cover up/avoid any ‘bad news’ about the company in the media. But it is a slippery slope and soon ‘not our fault’ became not only a talking point for execs withthe media, but an internal mantra as well, everyone from the boardroom to the shop floor.

    First it was unfair trade practices, then yen manipulation, then government regulation, then 9/11, then Hurricane Katrina, then gas prices, then ‘perceptual quality’, then the credit crunch, then Consumer Reports, then Delphi, the list goes on.

    And once you convince yourselves of this, it’s easy to convince yourself that if you just keep doing what you’re doing, the sun will come up tomorrow and profits will begin soon:

    2 decent products out of 50 classifies as a ‘product renaissance’, new UAW contracts that don’t cut wages or benefits for active workers are ‘revolutionary’, one Buick gets a good score in a dependability study and suddenly we are ‘on par with Japanese quality’.

    We’ve heard it all in the last few years.

    It’s been said here more eloquently 100 times, but the steadfast refusal to agree on the stark, unbiased reality of the situation led to the downfall.

  • avatar
    geeber

    I can’t link the price of fuel to GM’s demise, or even how long it lasted.

    The simple fact is that during the late 1970s and early 1980s, GM DID dramatically downsize its vehicles. That crappy 1985 front-wheel-drive Cadillac was the result of GM management’s strong belief that regular unleaded would hit $3 a gallon (in 1981 dollars) by 1986.

    Higher gas prices would have forced GM to make more fuel-efficient cars, but not necessarily better cars, unless one concludes that fuel efficiency, in and of itself, makes a car better. This is a dubious proposition.

    Plus, if gasoline prices were higher, every other manufacturer would place more emphasis on fuel efficiency, too. So GM would still be competing with the best from around the world.

    For that matter, gas prices have been high in Europe for well over a generation, and Opel/Vauxhall hasn’t exactly been setting the world on fire over there…

    GM has been poorly run for well over 35 years. The rot was setting by the mid-1960s. It spread throughout the corporation during the 1970s and 1980s. Roger Smith, for all of his faults, tried to do something about it, but his solutions were either completely wrong, or just not enough.

  • avatar
    psarhjinian

    Agree 100% with psarhjnian.

    I’m just agreeing with Mr. Karesh. Credit where credit’s due.

  • avatar
    Paul Niedermeyer

    Michael Karesh: GM turned inward and became hopelessly insular and arrogant in the 1960s, if not earlier.

    Try 1946: http://www.thetruthaboutcars.com/general-motors-death-watch-2752-the-story-so-far/

    geeber, the point is that low gas prices has not only been unhelpful in general, but artificially sustained GM longer than it should have.

  • avatar
    James2

    Deviating from the subject slightly, I’m reading through all of these related articles and editorials and comments on GM’s demise… and I can’t believe the average reader spends ONLY 3 minutes, 36 seconds on this site. I’m on 1 hour and 23 minutes and counting… ok, that’s probably enough. :)

  • avatar
    charly

    GM foreign competitors all come from markets with higher fuel tax. This means that their main, home market already requires them to make fuel efficient cars and that knowledge gets carried over to the American market.

    GM main market is a cheap fuel market. So there is less pressure to make fuel efficient cars so GM is toast when the tide turns and fuel gets dear.

  • avatar

    A retired GM exec I spoke with last week traced GM’s problems to 1958, when the U.S. government forced DuPont to sell their large stake in the company. As a result of this sale, the Board of Directors no longer had powerful independent directors.

    The DuPonts backed Wm Durant’s reacquisition of General Motors, after he lost the company to bankers and started from scratch with the Chevrolet brothers. DuPont brought in Alfred Sloan to run the company. GM’s corporate structure was based on that of the DuPont company. The business relationship benefited DuPont in two ways. They made money from the 43% of GM stock that they owned, and they made money selling GM lots of paint and plastic. The antitrust action, though, wasn’t in 1958, it was in 1948, under Truman. GM & DuPont fought it but eventually DuPont divested its shares in GM in 1961.

    You make a good point that being controlled by another company made GM more accountable.

    The late 1950s were significant for another reason. The UAW went on strike against GM for 4 months, driving the entire country into a recession. Since GM was making money hand over fist in the 1950s, that strike convinced the company to have labor peace at any cost.

  • avatar
    ExtraO

    Paul:

    “…is part of a larger American problem. Inability to do what needs to be done. Can you see that?”

    Hooo_AAAHHH!!! Couldn’t agree more.

    Just tried posting something similar to your above comment to another article here and it appears to have not passed muster. Glad to see you got the idea onto the page.

    Note to whom it may concern: I do not make nor imply any criticism of TTAC editorial policy.

  • avatar
    Phil Ressler

    Before SUVs, it was pickup trucks that were on the march in market share. I think it was Gordon Baxter, back around 1985, who pointed out that the market’s embrace of pickups as passenger cars (before pickups got plush & fluffy) had nothing to do with cheap gas or preference for trucks but instead argued that Americans really wanted their 1955 Chevy back after distaste for cramped, slopey FWD tinboxes set in. That was cultural shorthand for people preferring a reasonably efficient rear-drive vehicle with upright seating and a greenhouse you could see out of. Pickups were also a rebellion against steeply-raked windshields, which were a serious annoyance for drivers who were raised on less aerodynamic cars.

    No one begrudged the occasional Jeep Wagoneer, Blazer or Bronco, but when Ford enclosed the Ranger and added a rear sear with amenities throughout, the SUV was embraced as an extrapolation of the functional and preferential factors that had started the shift to pickups in the late 1970s. Taxing gasoline to encourage a specific fleet composition in a very large and diverse country is exactly the kind of socio-economic engineering generally decried elsewhere here. There was, in fact, no need for it. You’ll notice that every vaunted foreign manufacturer sprinted in behind the D3 to sell trucks of various types, and often theirs were less efficient than GM’s, Ford’s and Chrysler’s. We didn’t get diluted Cadillacs because half of America’s vehicle-buying public preferred trucks. We got diluted Cadillacs because flatlanders in Michigan forgot what a Cadillac was. The money used to develop GM cars was enough to make them better than they sometimes were, but the car part of the operation forgot what constituted a good car, and finance professionals were hopelessly ill-equipped to fill in for them.

    Far greater damage than that of cheap gas was done by GM marketing. The whole marketing engine, not just the visible elements of advertising, messaging and promotion. Vanished differentiation, abandonment of brand discipline, warranty fluctuations, stripper rentals, inability to stare down the bean counters inside, anemic creative in advertising and messaging — altogether an implosion and disintegration of everything formerly known by GM about marketing and creating and meeting desirable demand for products.

    The surge in imports’ popularity was accompanied by a trend that puts the lie to gas, regulation and markets: The volume entries that ate GM’s share got steadily fatter, softer, ill-handling and fuglier until they met on their way down GM’s improved models coming up.

    If GM was dead but didn’t know it in 1992, let’s try that again. After 1992, The Corvette, Cadillac as a line, Oldsmobile’s Intrigue and Aurora, and further to the Pontiac G6, the GMT900 upgrade, Cobalt/HHR and others were dramatically improved at a rate of progress sharply up from the prior 20 years.

    Don’t fret the quarter-trillion dollars so much. It happens and a Tril ain’t what it used to be. It’s not all gone. A rebooted GM will be the platform for regaining some of what was lost. If Rick Wagoner’s GM is dead, fine. It needed fixing.

    If the revised GM can build cars going forward as good as my current GM ride (my first), I’ll be happy to buy again.

    Phil

  • avatar
    Dave M.

    Cobalt/HHR

    Are you serious about this inclusion???

  • avatar
    Phil Ressler

    Cobalt/HHR

    Are you serious about this inclusion???

    I am. Drive a Corolla and then tell me how bad Cobalt is. The point is, Cobalt is a vast improvement over the GM compacts that came before it. And its replacement will be much better still. The rate of improvement of GM cars after 1992 was much steeper than in the 20 years before then. Further, HHR — the best way to buy a Cobalt — is a solid hit for Chevrolet, both quite numerous and it seems to please its owners nicely. Drive an SS version of the Cobalt platform in either format and you’ll see what that modest but solid platform is capable of.

    Phil


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