General Motors Death Watch 39: Cassandra Crossing
For over 30 years, Maryann Keller's kept tabs on The General. The auto industry analyst has watched GM lose billions in overseas investments, surrender great chunks of market share to its rivals and sacrifice shareholder value in an endless pursuit of The Next Big Thing. According to Keller, GM's inability to face-up to its structural weaknesses is nothing new. Nor are the excuses coming from RenCen. "It's one big idea after another," Keller said. "This time it's crossovers. Well, they've used that 'there's a new product in the pipeline' routine for years. GM's problems are NOT temporary." OK, but are they terminal?
Like most observers, Keller's brain balks at bankruptcy. For one thing, The General is sitting on an estimated $30b cash pile– which will grow by another $12b or so when GM jettisons controlling interest in its GMAC mortgage and financing business. For another, Keller says bankruptcy would have a cataclysmic effect on GM's business. "Customers would disappear," Keller says. "They'd think, who's going to pay for my warranty claims? What will my car be worth? And what bank would write a loan for a car sold by a bankrupt company? Would fleet customers do business with them? I don't think so. The long-term damage to GM would be incalculable."
That said, there's no doubt in Keller's mind that GM's current situation is extremely bad, and getting worse. "In October, GM pulled down a 22% market share. If you remove fleet sales from those numbers, they actually had a 13 to 14% share. That's less than Toyota. November and December aren't going to do anything for them, and if Delphi goes out on strike, there's no telling how long current inventories will last. Even as it stands now– 14% of the market, eight brands, 70 plus models– it's simply not sustainable."
Keller is convinced that this doomsday scenario's increasing likelihood will motivate GM's management to address the company's flawed fundamentals. Call it the cornered car company concept. Keller points to Nissan and Chrysler's comebacks as examples of automakers brought back from the brink because… they didn't have a choice. Keller predicts– and clearly longs for– a signal from inside GM that reality bites. She hungers for a bold and comprehensive recovery plan that acknowledges the full extent of GM's problems and pledges the company's full resources to solve them. She calls it the "moon shot solution":
"What I'm hearing is platitudes. What I'd like to hear is a plan. A plan that says we're going to the moon. We're going to spend as much money as it takes to rebuild the brands– even if we don't make a profit on a single car for ten years. We're going to use that money to build substantially better cars than the competition, and significantly under price them… This is not rocket science. GM needs to give customers more than they expect at a price they can't ignore."
Keller doesn't see the unionized elephant in the room as an insurmountable obstacle to this as yet unexpressed turnaround plan. In fact, Keller says GM's recovery is doomed without "shared sacrifice" from management, the United Auto Workers (UAW), suppliers, bankers and dealers. In that sense, Keller feels the UAW is getting a raw deal in the court of public opinion. "It's currently in vogue to blame GM's ills on runaway health care costs, but if things are that bad, why is GM 'giving away' money in the form of stockholder dividends… The only way GM's going to solve its union problems is if they solve all the other problems at the same time. There's no way out of this mess except for GM to fix it."
While I agree with Keller's analysis, I don't share her optimism in the power of self-preservation. Keller says "People buy one car at a time." By the same token, people contemplate their employer's future one person at a time. Nothing I've read, heard or seen convinces me that any of the participants pulling the levers of power in this twisted saga have enough at stake to make them, as Keller puts it, "do things that are not in their character". Even on the fateful day they clamber aboard their golden lifeboat and watch the mother ship sink beneath the waves, they will insist that they did the right thing. To paraphrase Richard Nixon, they will accept none of the responsibility, and none of the blame.
Capitalist enterprises have a way of bouncing back from adversity. Even so, it takes more than a comprehensive plan. It takes leadership. Until and unless GM dumps Wagoner, Lutz, et al. from their lineup, and finds a team with genuine backbone, the company will not have the will nor the skill to sidestep the looming disaster. As Keller says, "Despite its success, Toyota operates with a sense of urgency. I still don't see that from GM. I wonder if I ever will."
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