By on February 26, 2008

gm1916cleanvig.jpgIn the comments section below the most recent General Motors Death Watch, natredde asserted that the series' longevity argues against its existence. “Calling it a Death Watch after having the time to write 165 articles is silly… Somehow I think being on GM Death Watch 2752 wouldn’t necessarily add a lot of legitimacy.” As a student of GM history, I’ve been keeping my own private GM Death Watch for decades. It was suspended (at number 2751) when I discovered and joined TTAC. But the challenge of adding legitimacy to number 2752 was simply too great to resist.

Corporations don’t “die” in the human sense; failed executive stewardship along with changing circumstances causes them to be restructured (voluntarily or involuntarily via Chapter 11), sold, stripped and/or flipped. They’re reincarnated as very different entities than their creators originally intended. Think IBM, Kodak, Xerox, RCA, Zenith and a host of other once proud, high-flying household names. None of these companies are “dead” per se. But there’s no question that they’re mere shadows of what they once were, or could have become.

For example, IBM’s pioneering and potentially dominating personal computer business didn’t “die” when it was sold to China’s Lenovo; it began to wither in 1981 when IBM foolishly gave away the rights to its operating system to Microsoft. In the same sense, GM is never going to just roll over, die and disappear.

While it’s impossible to predict GM's final disposition, General Motors will never again be what it once was: the world’s largest and most profitable automaker. And as we monitor The General's transformation, again, it's important to note that the company began its long, lamentable decline several decades ago. But if I had to identify the company's zenith, the point at which it began to fall from its lofty perch, I would peg it at 1947…

GM Death Watch 1: Cadet RIP

In 1947, GM killed its Cadet small car program, after spending millions on development. In response to surveys showing that urban Americans wanted smaller, less expensive and more efficient and functional cars, GM set out to create the definitive modern small car. GM’s Financial Operating Committee, based in New York, refused to authorize the funds to put the Cadet in production. They feared the program wouldn’t provide the automaker’s [then] customary 30 percent return on investment.

On this day sixty years ago, GM began to die. The whole premise of its success was based on the ever-more rationalized manufacture of full-sized cars (and trucks). When GM refused to accept a less than full–sized profit on a small car, it sealed its future. To this day, GM has never had a successful, profitable small car program.

GM Death Watch 7 (1948): Inflation is Our Best Friend 

Prior to WWII, Alfred P. Sloan’s management of GM was based upon extracting continuous improvements in costs and manufacturing efficiencies, while providing an ever-improved product. The rise of inflation after WWII (and Sloan’s exit from the CEO position), allowed GM to simply keep raising prices. One executive, Donald Brown, sounded the alarm: “[I am] deeply concerned over the dangers of managerial inefficiencies creeping in due to the ease with which abnormalities in costs and expenses can be offset by price increases.”

This was the era when GM management became lazy, when the process of identifying and rewarding superior managers for their performance in finding efficiencies was tossed overboard, forever.

GM Death Watch 26: The Billion Dollar Cover-up

Riding the wave of the mid-fifties economic tsunami, GM announced a one billion dollar profit for 1955– the first for any corporation in the world. Hidden in the depths of GM’s financial statements was an ominous admission: return on investment (ROI) has been steadily declining since 1950 “due to declining efficiencies.”

GM Death Watch 31: Wheeler Dealer

In 1956, GM President Harlow Curtice unilaterally extended dealer contracts to five years, making it much more difficult to cancel inferior dealers. Curtice’s rationale: placate dealers furious for having unwanted cars forced upon them. Former GM President Alfred P. Sloan was aghast at the deterioration of “the once respectful and mutually-beneficial relationship with dealers due to GM’s heavy-handed tactics.”

GM’s tactics led to Congressional hearings and franchise laws that overwhelmingly favored dealers, making it extremely difficult and expensive to shed dealers and eliminate divisions. Forty years later, it cost GM over a billion dollars to shut down Oldsmobile.

Public awareness of GM’s decline only began in the mid-eighties. But by that time, forty years of rot had taken its toll (as well as providing fodder for some 1462 Death Watches). If it hadn’t been for the SUV boom of the nineties, my DW series would likely have ended with number 2107 in 1993, when GM came precariously close to bankruptcy.

So the chronicle of GM’s decline and metamorphosis continues, here on TTAC’s e-pages. Judging from the current situation, it’s much too soon to start a Death Watch Death Watch.

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58 Comments on “General Motors Death Watch 2752: The Story So Far...”


  • avatar
    quasimondo

    *At the risk of being criticized for being critical of this editorial:

    If GM won’t ‘die’ then shouldn’t it be called something other than a deathwatch? After all, it would be highly disappointing to those who want to sing and dance (and piss) on GM’s grave if they’re denied that ultimate opportunity.

  • avatar
    GS650G

    Nice. And true that.

  • avatar
    Badger

    I, for one, thoroughly enjoy the Death Watch series. Chronicling all the small miscues that add up to failure for America’s automotive industry is a very noble task and one that future generations can learn from. Simply because it takes years (decades?) to unwind doesn’t make it any less spectacular. And yes, there will be periods where these companies show signs of life, but viewed over a longer timeframe, these companies are still on a downward trajectory. Long live Death Watch!

  • avatar
    frontline

    The reason that Harlow Curtice extended dealer contracts was to get the dealers to commit to larger , more attractive facilities.

  • avatar
    geeber

    Very interesting article…

    I would add a few points…

    If I recall correctly, the Cadet was also killed because management feared that the car would cut into sales of the more profitable “regular” Chevrolet.

    In 1950, GM and the UAW negotiated what was hailed as “The Treaty of Detroit.” It was a very generous contract that was a reaction to the tumultuous postwar era. In the aftermath of World War II, inflation was a concern, so companies tried to keep a cap on wages, while unions (which were much stronger then than they are today) did not hesitate to go out on strike.

    GM endured a very long strike in 1946 that made national headlines, but in that case management held firm, and did not give away the house to the UAW.

    In 1950, GM “bought” labor peace with very generous (for the times) terms and a five-year contract. One notes that, in 1955, GM said that its “return on investment (ROI) has been steadily declining since 1950 ‘due to declining efficiencies.\'” Hmmm…

    The Treaty of Detroit hurt GM, and the entire American auto industry, in an indirect way. The smaller companies had to match the wages and benefits offered by the Big Three, but spread them over a much smaller production base while still competing on price. It was another nail in the coffin of the independents.

    Please note that I am NOT blaming the UAW for the fall of GM or the independents…but the simple fact is that when smaller companies are saddled with the same costs as larger companies, but must still compete with the larger companies on price, they are seriously handicapped, and have much less room for error.

    This further ensured that only the Big Three would survive, and only two of them – Ford and GM – would really be strong in the long run. The lack of vibrant competition in the American automobile industry led to technological stagnation and complacency…by the mid-1960s GM, Ford and Chrysler were basically sticking with tried-and-true technology, and competing on marketing and style.

    It is noteworthy that the biggest success of the 1960s – the Ford Mustang – was really a restyled and tweaked version of another car, the Ford Falcon, which itself was completely conventional. The other big success – the Pontiac GTO – involved stuffing the V-8 from the full-size Pontiac in the intermediate body.

    When Detroit did come out with something really different – the rear-engine Chevrolet Corvair, the “rope-drive” Pontiac Tempest, the aluminum V-8 in the Olds F-85 and Buick Special, the engine in the Chevrolet Vega – it was underdeveloped and unreliable (which is the norm with something really new – BMC had many problems with the original Mini, for example).

    Management didn’t see the point of committing money and resources to make it viable and reliable, especially when it was cheaper (and more profitable in the short term) to sell the same old technology.

    Even the front-wheel-drive drivetrain of the Oldsmobile Toronado and Cadillac Eldorado, which was very well developed, was downplayed, and its advantages were lost as GM made the cars softer, fatter and less efficient with their 1971 restyle.

    Unfortunately, this led to disaster when the first Arab Oil Embargo hit in late 1973. Detroit found itself without engines that were efficient and still offered good performance. Its vehicles were also too heavy, as the companies had never really had to engineer vehicles that were both strong and light.

    (This was the real source of the Pinto’s infamous fuel-tank problems – Ford could make a subcompact strong, or it could make it light, but not both, especially if it was building the car to a price point. When Car & Driver tested the 1971 Pinto, it remarked on how flimsy the structure felt…which would show up a few years later in a much worse way.)

    The requirements of the Clean Air Act only compounded the problems, especially since, prior to the adoption of the catalytic converter, Detroit seemed determined to use the most irksome and crude ways to control emissions. Detroit suddenly had to redesign its entire fleet for better efficiency.

    The dealer complaints came out of the infamous “Ford Blitz” of 1953. Henry Ford II decided that Ford would topple Chevy one way or another…so he began shipping cars to dealers regardless of whether they had ordered them or not. Chevy retaliated in kind.

    The result was unhappy dealers, another nail in the coffin of the independents (they could not afford to discount as much) and a serious wound for Chrysler (which lost almost five percentage points of market share from 1953 to 1954!).

    Also note that one result of those Congressional hearings was the opening up of Big Three dealers to carrying other franchises. These laws were supposed to help the independents, but by then they were too weak to take advantage of them. But the Japanese automakers DID take advantage of them….which gave them a strong foothold in the American market.

    I would also add that GM began blurring divisional identities in the early 1960s, when it based all the big cars on the same basic body and then spread the same basic intermediate car through Chevrolet, Pontiac, Oldsmobile and Buick. It also undermined the independence of the divisions with the formation of General Motors Assembly Division (GMAD) in 1965.

    The article’s point is valid…GM didn’t get into its present pickle in one day (or because of the actions of one man – blaming Roger Smith for everything is convenient, but inaccurate). It will be interesting to see what happens in the next few years with the company.

  • avatar
    GS650G

    the auto industry reminds me of those old hands that speak volumes of wisdom about things they really have no clue about. In the end it comes down to hubris and not much else.

  • avatar
    Martin Albright

    I have a question about the franchise laws: While I understand that GM (or any other company) may have a difficult time buying out dealers, how can they be obligated to keep making cars that are not profitable? IOW, let’s say they don’t want to buy out Pontiac dealers, but instead they say that they will no longer be making Pontiac cars. What recourse would the dealers have? I mean, obviously, anybody can sue anybody for anything, I understand that, but I don’t understand how a manufacturer can be compelled to make a product that isn’t profitable just for the benefit of a franchise holder.

    Anyone?

  • avatar
    seldomawake

    Paul, I just finished reading an excellent edition of Physics Today, filled with fundamental insights and intellectual A-HA! moments.

    Your article is the perfect dessert to that meal.

    Also, geeber, great points. Where do you get all this info?

  • avatar
    Paul Niedermeyer

    geeber: Thanks for adding Death Watch Nos. 15, 23, 187, 204, 516, and 847. I ran out of (800) words.

  • avatar
    geeber

    Martin Albright: It is my understanding that the under the franchise agreements, the companies are obligated to supply vehicles to the dealers, as long as the dealer meets the standards. It doesn’t matter if the company loses money while doing so…now, if the company goes bankrupt and stops supplying the dealers with vehicles, the dealers can sue, but they won’t get much of anything.

    Note that when Studebaker closed down its South Bend plant in December 1963, it continued to make cars in Canada. This way the company could continue to supply the dealers and avoid lawsuits. But the publicity over the South Bend closure drove away any remaining potential customers, which meant that the dealers dwindled away over the next few years. When the Canadian operation shut down in 1966, no one was left to sue the company, and Studebaker Corporation survived, just not as an automobile producer.

    seldomawake: I have always been interested in the auto industry, and I have way too much time on my hands…

    Paul Niedermeyer: This is a fascinating topic for me. GM’s history is rich, and most people haven’t scratched the surface of this company’s history or the reasons for its decline. I wish someone such as you could have interviewed ex-Olds chief John Rock extensively before he died…I’ll be he had some interesting insights regarding GM in the 1990s.

    Your articles are always enjoyable…pinpointing the beginning of the company’s decline with the rejection of the Cadet in 1947 is an interesting take (and an accurate one), and one that I have never seen before.

  • avatar

    “how can they be obligated to keep making cars that are not profitable? IOW, let’s say they don’t want to buy out Pontiac dealers, but instead they say that they will no longer be making Pontiac cars.”

    If I sign a contract with Widgets R Us for a franchise and pay them say a 100,000 dollars and then invest another one or two hundred thousand dollars on property etc. You can bet they are obligated to supply me with product.

    Why would they not be obligated? Look I hate dealers but GM can no more stop making Pontiacs (all together) than the dealer can take your money and not give you the car after you paid for it. They are legally and morally obligated. The dealers paid GM money for the right to sell product.

  • avatar
    mel23

    There are a number of parallels in the history of IBM and GM. Both did well of course when their industry was growing rapidly; demand pushed and at times exceeded, supply. Both were helped by enormous screw ups by competitors. In one respect IBM is more similar to Ford than GM, that being that the founders, T.J. Watson Sr. in the case of IBM, were reluctant to move away from their first-generation technology believing it adequate to meet any need. And here, too, it was Edsel and T.J. Watson Jr. who played significant roles in saving the companies. GM management has clung too long to insisting on building big expensive products to the exclusion to smaller more efficient, and lower profit cars, while IBM took much longer than desirable to accept market demand for smaller alternatives to mainframes.

    Interesting that today IBM has announced a new generation mainframe, the Z10, that they claim is a more efficient to smaller servers. Kind of like selling a bus instead of 1,500 small cars and gaining efficiency with no loss of convenience. Time will tell.

  • avatar
    beetlebug

    “Death Watch” is just a fun term. We all know that GM will fade away and not die in the end (whenever that may be). However, “Dissolve Watch” isn’t nearly as catchy.

  • avatar
    KixStart

    The problem with the Z10, like any other mainframe, is that when it develops a problem, everything in the organization suffers.

    With a broadly distributed decentralized systems, of course, the flip side applies (kinda, sorta), some part is always undergoing a problem, so someone in the organization is always suffering.

  • avatar
    Bunter1

    Good article Paul.

    On your SUV boom note-that also allowed the Debt 3 to ignore reliability issues for another decade.

    Oddly, the SUV boom may have been the last fatal cigarette for them.

    BTW, to those who tend to charaterize people sceptical of the Generals survival as “anti-(fill in American, GM, patriotic etc.)”
    You can still love your Auntie but understand that her 30 years of two packs a day and living on doughnuts has put her in a bad way. You can love her and still think she’s been a fool. You can hope she recovers, but know in your heart she won’t.

    Pessimism and hatred are not synonyms.

    Stay Groovy,

    Bunter

  • avatar
    quasimondo

    You can still love your Auntie but understand that her 30 years of two packs a day and living on doughnuts has put her in a bad way. You can love her and still think she’s been a fool. You can hope she recovers, but know in your heart she won’t.

    But I doubt you’ll be placing bets or making open predictions on when she’ll finally meet her maker or worse, wishing that process was accelerated (unless you’re really a bad nephew).

  • avatar
    Lichtronamo

    Sherman Lin:

    But GM can cut the number of Pontiac models it sells down to one or two, which while combining P into PBG stores and adding product to Buick and GMC makes it easy for the Pontiac brand to fade away.

    Even if it cost GM a billion dollars to shutter Olds, that doesn’t seem like to terribly high a price if it means rationalizing their operations long-term. Add up the cost of creating separate clones for each brand and it might balance out.

  • avatar
    50merc

    Excellent commentaries, Paul and geeber. Bunter’s post is also pithy.

    My shorthand way of summarizing the Big Three’s decline is that they are the high cost producers who lost pricing power. When the marketplace changed, they were unable to change accordingly. It’s a pattern we’ve seen over and over in many industries.

    One correction: IBM did not “give away” the PC’s operating system. They blundered by not getting the exclusive rights to MS-DOS. That error opened the door to Microsoft’s bonanza and PC clones — and IBM was the high cost producer that lost pricing power.

    And finally, I must protest the casual slander of Wal-Mart. Yes, it is declasse. That offends esthetes. But no one is forced to work or shop there, and millions prefer to do so because it serves their interests.

  • avatar
    Zarba

    Excellent article. One of the best ever on TTAC.

    GM (and Ford and Chrysler) built a business model based on ever-expanding markets and no significant foreign competition.

    The cost structure inherent in that was completely inflexible (union and dealer contracts) and unsustainable in a changed world.

    Throw in decades on indifferent product and arrogant management (chicken or egg?), and now they’re reaping the whirlwind.

  • avatar
    yankinwaoz

    Perhaps we need to clarify what “Death” means. In my mind, it is when they can no longer pay the bills and have to file BK. Others might think it is when they fold up and disappear.

    It took the Roman Empire centuries to die. Death does not always come quickly.

  • avatar
    Ken Strumpf

    DW 1474- My Dad, a Marine Corps veteran of the Battle of Okinawa buys a brand-new 1976 Toyota Corolla for his son (me), thus demonstrating that the cultural barriers the Japanese auto makers faced could be overcome. The domestics were all in deep trouble once that happened.

  • avatar
    Martin Albright

    But GM can cut the number of Pontiac models it sells down to one or two, which while combining P into PBG stores and adding product to Buick and GMC makes it easy for the Pontiac brand to fade away.

    Even if it cost GM a billion dollars to shutter Olds, that doesn’t seem like to terribly high a price if it means rationalizing their operations long-term. Add up the cost of creating separate clones for each brand and it might balance out.

    That’s kind of what I was wondering, whether GM could try to “wean” dealers of unprofitable lines. Obviously they could not, in most cases, offer them a Chevy franchise in place of their Pontiac franchise because that would step on the toes of the existing Chevy franchisee. But if they “encouraged” existing Pontiac dealers to obtain a Buick/GM franchise so as to soften the blow when the axe inevitably falls (whether it falls on Pontiac or Buick it’s going to fall) that would seem to be a reasonable compromise.

    Of course, bankruptcy, like love, means never having to say you’re sorry, so I suppose that they could offer the carrot of a low priced Buick/GM franchise while keeping the stick of the “reset button” hidden away, at least for now.

  • avatar
    KixStart

    bunter: “you can still love your auntie… …bad way.”

    LOL.

    quasimondo, Nobody’s wishing the process was accelerated. If GM would do the right thing and sack Lutz, there wouldn’t even be much to laugh about.

  • avatar
    geeber

    Lutz has done good things with GM’s new-vehicle development process. The new vehicles ARE much improved over what GM produced before. The problems are that, for every winner, there are two or three placeholders or outright clunkers, and the new products have just caught up to the competition, not vaulted ahead. The Malibu, CTS and Lambda-based trio (soon to be quartet) don’t really offer anything that buyers can’t get at a Toyota, Honda, Nissan, BMW or Mercedes dealer.

    The only really “different” vehicle I’ve seen on the horizon is the upcoming Ford Flex. Love it or hate it, you can’t ignore it. (And it was getting lots of attention at the Washington, D.C., and Harrisburg auto shows.) For the record, I love it…

    GM needs to muzzle him with regards to other topics.

    I have the sneaking suspicion that his off-the-cuff comments on those topics reflect management thinking, which means that sacking him will not get to the root of the problem.

  • avatar
    Jason

    You put IBM in the same list as Zenith? :D IBM has quarterly revenue of, what, 29 billion dollars?

  • avatar
    Paul Niedermeyer

    geeber: Amen (again). A handful of (merely)competitive products isn’t going to put Humpty Dumpty together again. That’s why they’re making such a big deal of their only potential game changer, the Volt. But that’s fodder for another (ongoing) series here at TTAC.

    Jason: I used IBM’s PC business only as a convenient example of how a decision early in the game affects the outcome. I realize it has limitations.

  • avatar
    Potemkin

    Yes GM may not die in some spectacular Hollywood fashion but like the dinosaur it is doomed to fade away because of it’s failure to adapt to a changing enviroment. Like Paul says GM’s history is riddled with good ideas that they invested millions in only to have the bean counters cancel them. To succeed in todays car market you have to have a passion for your product. When was the last time you encountered a fired up accountant?
    Since the 70’s GM has become “all show and no go”.
    Yes GM owes the dealers but bad dealers can destroy your business. I wish I had a dollar for every time someone has complained to me about their shabby treatment at the hands of a GM dealer. On the other hand I hear good things about other manufacturers dealers.

  • avatar
    Gardiner Westbound

    If I sign a contract with Widgets R Us for a franchise and pay them say a 100,000 dollars and then invest another one or two hundred thousand dollars on property etc. You can bet they are obligated to supply me with product. – Sherman Lin

    There is no requirement for them to be really good widgets. Have you driven a Pontiac lately?

  • avatar
    fallout11

    It was the GM Deathwatch series that brought me to this website years ago, and it is the Big 2.8’s Deathwatchs that keep me coming back (for more).
    I suspect I am not alone in this regard….

  • avatar
    Dynamic88

    “…To succeed in todays car market you have to have a passion for your product. …”

    I’m not sure that’s true. (Or perhaps I simply don’t know what you mean by passion). You think Toyota and Honda execs are all passionate about cars? You figure they spend their weekends racing cars, working on cars, restoring cars, customizing cars, etc. ?

    My guess is Toyohon execs spend their weekends watching baseball, or sumo wrestling, take their wives to see the Kubuki theatre, and tend to their bonzai trees.

    What’s needed is good products, and those have been few and far between for Detroit.

    I think GS650G naild it – it’s Hubris.

    DW #13, 1950. W. Edwards Demming goes to Japan to be a consultant to Japanese industries. It will be 30 years before GM is ready to listen to Demming.

  • avatar
    geeber

    Dynamic88: If I recall correctly, the head of Honda is an engineer, and he was heavily involved in the company’s racing programs. Given these facts, I would wager a guess that he does bring a lot more enthusiasm to his job than, say, an accountant.

    I think that the head of Toyota is a member of the founding family, and I don’t know his background.

  • avatar
    quasimondo

    An accountant like Carlos Ghosn?

  • avatar
    Dynamic88

    Why the assumption that an accountant can’t be interested in cars ? (In addition to the assumption that being passionate about cars is necessary for success)

    I know several engineers (who work for the D3) and I know some accountants (who do not work in the auto industry) and the accountants are much more interesting well-rounded people, and they have passions (hockey and music).

  • avatar
    geeber

    quasimondo: An accountant like Carlos Ghosn?

    And he has taken the Big Three approach to cost-cutting, with the expected results on reliability. Note that Nissans regularly score lower than Hondas and Toyotas on reliability surveys.

    Dynamic88: Why the assumption that an accountant can’t be interested in cars ?

    Sure, accountants can be interested in cars. The problem is that the accounting mentality has ruled the roost at the Big Three for decades…compare the cars they produced from about, say, 1975, to those from firms that are run by more engineering-oriented management.

    For that matter, compare most GM cars (except for the Corvette) to most Hondas.

    After closely examining and then driving their respective products, one can be forgiven for assuming that accountants aren’t too terribly interested in cars.

    Accountants have their place. But if they get too powerful, they can end up ruining the product.

    Anyone can cut costs. Anyone can take content out of the product. It takes passion and commitment to design cost-effective, excellent products that excite buyers, and judging by long-term sales trends, the more accounting-oriented management of the Big Three is failing in this area.

    Dynamic88: (In addition to the assumption that being passionate about cars is necessary for success).

    At the Big Three, for years, having a passion, or even a real interest in cars, was often enough to keep someone out of the uppermost echelons of management. If there is no passion about the product, you get dull products that cut as many corners as possible, but are “cost competitive.”

    Which sounds pretty much like the lineup of GM right now, with few exceptions.

    Dynamic88: I know several engineers (who work for the D3) and I know some accountants (who do not work in the auto industry) and the accountants are much more interesting well-rounded people, and they have passions (hockey and music).

    The question is whether they know cars and understand car buyers, and how this impacts the final product, not whether they appreciate a night at the opera. The accountant’s question – “What will it cost?” – must be balanced against the enthusiast’s question – “Will it make the final product better?”.

    For too long, the Big Three have been out of balance, regardless of how well-rounded the individual members of their management teams have been in other areas.

    The Big Three have been dominated by the “accountant” mentality for decades. Look at the products those companies have produced since then. Case closed….

    Also note that it was the accounting mentality that led GM to reject the original Cadet. The car wouldn’t generate enough return on investment, so it was smothered in its crib…too bad GM hadn’t tried to open up a new market in the late 1940s.

    That was an entirely correct decision from the accounting standpoint. Which is why accountants need to be balanced by leaders with passion for the product, not to mention inspiration and vision.

    One wonders how the history of the American auto industry would have played out if GM had produced the Cadet (and Ford had built the postwar small car that Edsel Ford I and Bob Gregorie had developed and styled).

  • avatar
    Bunter1

    Dynamic88-sure accountants can love cars.

    But engineers know HOW to make a good car, accountants give me less confidense in this area.

    Frankly, the accountants at the Debt3 don’t inspire much confidense in the fiscal area either.

    Kix-Thanks, your reply on euthanizing “Auntie” hit the right spot. Heck, why would we want to bump of Auntie GeM? She has more debt than cash, even a bad nephew can see he won’t get any inheritance.

    As for crazy uncle Bob…I sometimes think Rick keeps him around to keep the heat off his back.

    Bunter

  • avatar
    Dynamic88

    > The Big Three have been dominated by the “accountant” mentality for decades. Look at the products those companies have produced since then. Case closed….

    Sorry, I’m reopening the case. I reject this idea that “passion” is needed. At least passion about cars. What’s needed is both the desire and the knowledge to do a good job. Caring about quality. Caring about ergonomics. Caring about durability. Caring about continually improving the product. Caring about the process. I see no evidence that the average engineer cares about these things. (At least I certainly don’t see evidence in Detroit). But caring isn’t enough. There has to be knowledge about how to do it.

    Demming was interested in these things, and that’s what he taught the Japanese. But I’m not aware that Demming was any sort of car buff. The Demming methods can be employed building cars, or sewing machines. (Does one have to be passionate about making one’s own clothes to make good sewing machines?)

    Anyway the D3 have not always been led by accountants, and they’ve been “dying” for several decades. Blaming the accountants is just too easy and pat an answer. I don’t buy it.

    The engineers I know (except one) work for the D3 and none of them is much interested in cars, at least not judging from their personal life.

  • avatar
    Dynamic88

    Let me put it another way.

    In the late ’40s when Piaggio came out with the Vespa, it wasn’t because the company was passionate about scooters. Piaggio had been making aircraft during the war. The allies destroyed the factory.

    But the son of the founder saw a need for low cost transport. The engineer tasked with designing the Vespa hated motorcycles. Using aircraft design concepts, aircraft wheels, stub axles inspired by airplane landing struts, and the small motor which started up the large aircraft engine, Piaggio was able to cobble together a motor scooter.

    It was a good product for the time, and remains a pretty good product now – though I think if I wanted a scooter I’d prefer a Honda, Yamaha, or perhaps Kymco.

    But my point is, no one involved with designing, building, and marketing the Vespa was passionate about scooters. Not one of them was a “scooter guy”. They were passionate about survival, and making something people needed and would buy.

  • avatar
    geeber

    Dynamic88: Sorry, I’m reopening the case. I reject this idea that “passion” is needed. At least passion about cars. What’s needed is both the desire and the knowledge to do a good job.

    The desire to do a “good job” is what results in the Ford Five Hundred/Taurus, which is certainly a decent, competitive product.

    It is not, however, exactly flying off the dealer lots, and even Ford has basically admitted its failure by rushing a redesigned version into production within the next two years.

    Dynamic88: Demming was interested in these things, and that’s what he taught the Japanese. But I’m not aware that Demming was any sort of car buff.

    Which is why a smart executive team will let Deming lead quality initiatives and oversee the consumer feedback process, but not let him run the whole show.

    Just as a smart executive team will allow accountants to work with engineers and designers to keep costs in check, but not allow them the final say on product plans, or styling and engineering decisions.

    Dynamic 88: Anyway the D3 have not always been led by accountants, and they’ve been “dying” for several decades. Blaming the accountants is just too easy and pat an answer. I don’t buy it.

    It’s not just accountants…it’s the accounting mentality, which is symbolized by the rejection of the Cadet in 1947 because it wouldn’t generate sufficient profits.

    A more comprehensive shift occurred in the late 1950s (the process was gradual), when Robert McNamara and Ed Lundy solidified their power within Ford, and the GM Board promoted Fred Donner, an accountant, to the position of chairman and CEO. It was Fred Donner who remarked that GM had to be worried about the stock price, which was an alarm bell for car enthusiast Bunkie Knudsen, who believed that if the corporation built great cars, the stock price would take care of itself.

    There remained sparks of inspiration within Detroit – Lee Iacocca at Ford, Ed Cole, John DeLorean, John Beltz and Pete Estes at GM – but the bottom line is that the corporations became less willing to try new ideas or incorporate new technology into their vehicles. They became followers instead of leaders.

    They were lucky in that, during most of the 1960s, the foreign competition wasn’t yet ready for prime time in the U.S. Which is why you didn’t see major declines in their profits, despite stagnant engineering.

    But when the Oil Embargo hit in the 1970s, and the imports were there with more efficient, quality products on the high end (the Germans and Swedes) and the low end (the Japanese), the decline became obvious.

    Increasingly shoddy quality in the early 1970s certainly didn’t help Detroit.

    Dynamic88: The engineers I know (except one) work for the D3 and none of them is much interested in cars, at least not judging from their personal life.

    Well, if the engineers don’t even care, then that further explains why we have a GM Deathwatch series…

    Dynamic88: But my point is, no one involved with designing, building, and marketing the Vespa was passionate about scooters. Not one of them was a “scooter guy”. They were passionate about survival, and making something people needed and would buy.

    That works when there isn’t much competition. I wonder how Vespa is faring TODAY, and how much government aid or protection it has received.

    Detroit got by in the 1960s because there really weren’t any decent alternatives available in the heart of the market. Toyota, Mercedes, VW, Datsun, Austin and Renault were not making vehicles that could really serve as a subsitute for the American family sedan, or even “sporty” cars (i.e., Mustang, Javelin, Camaro, etc.).

    Note, however, that when Detroit went head-to-head with the imports on THEIR turf (say, subcompacts), Detroit’s products were absymal compared to the competition. And we all know the history of the American auto industry once the foreign team began invading segments dominated by Detroit…

  • avatar
    Redbarchetta

    Dynamic88 you might be looking for the word visionary rather than passionate.

    Great Death Watch seeing the truth behind whats been drowning Detriot for decades is really interesting. It relates to so many other things, I would love to see the rest of Mr. Niedermeyer’s Death watch diary. Someone seriously needs to write an in depth book about this, maybe an unofficial before and then one after the vaults have been opened.

    Someone wrote about Pontiac being dead and eventually killed and under the current management I wholey agree, but as a brand under new leadership with real vision, maybe purchased by an independent I think it could be a thriving American brand. Great history, some decent platforms to work with even though the final execution sucked, and a presence in the marketplace even if its not that great right now(Hyundai’s sucked also). I was going to write an arm chair CEO editorial for Robert about what I would do if I bought Pontiac(like billions of dollars would ever drop from the sky into my yard) but I’m thinking someone so removed from the auto industry shouldn’t be writing that. I think most of GM’s brands have a life left in them, just not under the current management and over blated brand stucture. Too much competing with eachother with the same products and lack of resources.

  • avatar
    folkdancer

    Thank you for the wonderful history. I would like to add a little. Back in the 1950’s there was some talk in the U.S. of having socialized medicine or national health care like several other countries were starting. There was an immediate outcry from the American Medical Association screaming “Communism” and the talk disappeard. The doctors wanted their independence but later as medical costs esculated lawyers and MBAs started HMOs which companies joined in an effort to cut costs and the doctors lost their freedom anyway.

    The part of this story that concerns GM is that GM management in the late 50’s ignored this opportunity to remove this cost from themselves and place it on the government. GM management was arrogant at the time and thought that they could easily handle and control medical costs.

    After 50 more years we now know we can not trust doctors, lawyers, MBAs, HMOs, and insurance companies around money.

  • avatar
    Dinu

    Brilliant editorial and commentary!!! Clearly worthy of a respectful “Tip Of The Hat”, unlike management that gets a “Wag Of The Finger”.

  • avatar
    NickR

    Cadet RIP

    Fascinating. I had never heard of the Cadet before. I always pegged the start of GM’s decline as the Corvair (GMs ill-advised penny pinching combined with Ralph Nader’s book). Small, lightweight, aluminum engine, turbocharging…it had it all. When it died, so died GM’s hopes of leading the pack.

  • avatar
    Potemkin

    To Dynamics88
    By passion I mean that you are interested in your product as something more than a way to get rich. Toyohon execs have lost their passion for the business as evidenced by their boring designs and flagging quality.
    I attended both the LA and Toronto Autoshow and was struck by the fact that if it wasn’t for the emblems on the cars you couldn’t tell one manufacturer from another (exotics excepted).
    Are they listening to Demming now?

  • avatar
    Potemkin

    To geeber, right on!
    A plant manager I had years ago defined passion for the business. He turned down his company supplied Caddy and instead drove a different car directly off the line everyday. He said that he wanted to experience what his customers did.

    To Dynamic88, yes caring is what’s really needed, but no amount of caring on the part of the engineers and designers will overcome a board of bystanders without any vision or concern for the future. The problem with the bean counters is they care about the money not the product. Demming showed them how to improve their production/quality not what they should sell. That job fell to the people who had a feel for the business and what customers wanted.

  • avatar
    yankinwaoz

    I know this is not GM, but Ford. A poster above mentioned Robert McNamara. I think that his appointment to CEO of Ford in 1960 should be another Death Watch milestone.

    He appointment is when the beancounters took over and killed Detroit’s passion for cars. McNamara was a numbers guy. He ran Ford by numbers. He ran the DoD and Vietnam war by numbers. Cars were just widgets. Dead GI’s and dead Vietcong were also just widgets.

    GM followed Ford’s lead and learned how to allow the beancounters to run things. It was his stewardship of Ford and the examples they set that kept true talent from rising into the top echelons of the big 2.8. They firmly established Detroit’s “That’s Good Enough For You” way of doing business.

    There is a place for McNamara and his likes in corporate America. They are needed. But CEO was not it.

  • avatar
    Threader

    IBM is a mere shawdow? Really. Well this mere shawdow of a company approved a $15 billion stock buyback. I wish more public companies were mere shawdows like IBM.

  • avatar
    jurisb

    You can call those non-SUV GM platforms as you want. but actually most of them are German engineered opel platforms. tigra, Astra, vectra, and Omega platforms. This , in case you live in falsehood of delusion of grandeur that it has mighty GM brainiac engineering mojo underneath. And what do you call opel?? An American brand? Based in germany. Profits-stay in Germany. Engineers-from Germany. Blueprint origin- Germany. registered stock portfolio- German DAX index. Quality standards- german, supervized by germans. The idea was, that by shutting down factories, you shut down knowledge and expertize, and people lose skills whether assembly, engineering or testing. Gm has shuttered so many factories, they have lost precision stamping expertize – forever.

  • avatar

    Ten years ago, I shared a San Francisco-Tokyo flight with a management consultant who had done work for both GM and Toyota, as well as a host of other automotive-sector clients. I finally asked him how he might characterize the difference between GM and Toyota. He thought for a moment and then said, “I think it is actually pretty simple. If you walk around a Toyota plant and ask people what they do, virtually every one of them, from the guy sweeping the floors, to the executive will tell you he builds cars. At GM there is no such sense of a common mission. They have people who work to “brand” the “product”, people who work to reduce “product” cost, people who simply sweep floors. There are those who see their work as a contribution to a great auto manufacturer, but they are in the minority.”

    Peter DeLorenzo has called GM “the canary in our coal mine” for good reason. It isn’t just GM executives who have continually made decisions based upon expedience and maximizing short term gains, but a system in which the primary strategy is to look good over the short term. Union leaders, stockholders, and even we the public are guilty of this, and it may be endangering our way of life. Tax law is written to encourage short term investment. Investment funds show off their ability to manipulate money over the short term. And we are willing to consume ever poorer quality products in the name of “saving money”.

  • avatar
    KatiePuckrik

    With regards to Carlos Ghosn, may I also add that under his continued leadership, in addition to reliability falling, Nissan has dropped from Japan’s number 2 to number 3 and who took them over? Honda, with their quality, reliability and healthy profits.

    Now back to GM, in effect it is a “death” because GM, as we know it, is dying. How it’ll be “reborn” is another story and possibly another series entitled “GM birth watch”?

    But in my humble opinion, GM’s death started pretty much at its inception. It’s amazing how GM (and Ford and Chrysler) flourished when there was no REAL competition. Then Toyota, Honda and Hyundai (as we know them now) came and their market share gradually got eroded. Alfred P Sloan’s model never worked to start with……

  • avatar
    geeber

    KatiePuckrik: But in my humble opinion, GM’s death started pretty much at its inception. It’s amazing how GM (and Ford and Chrysler) flourished when there was no REAL competition. Then Toyota, Honda and Hyundai (as we know them now) came and their market share gradually got eroded. Alfred P Sloan’s model never worked to start with……

    I can’t agree. Until the Hawley-Smoot tariff of 1930 decimated U.S. new vehicle exports, American cars were sold throughout the world, and very much desired. Many European companies copied the American marques.

    Beginning in the mid-1920s, and throughout the pre-World War II era, Cadillac – along with Packard – was the best car in the world, having displaced Rolls-Royce. Mercedes had more advanced engineering features, but it wasn’t as durable and was not as easy to drive.

    Cadillac was widely admired for its comfort, styling, engineering and durability. (Again, so was Packard, Cadillac’s chief competitor in those years.)

    After World War II Cadillac was still among the top marques in the world…if it was no longer definitely the “best” by the early 1960s, it still ranked among the best.

    There are two aspects of Sloan’s model – his management principles and the stairstep divisional structure. (“A car for every purse and purpose.”)

    Both worked beautifully for a time.

    The first problem was that, as Mr. Niedermeyer noted in his article, successive leaders did not adhere to his management principles. It is not his fault that the leaders who followed him did not follow the path that he had blazed for them. Many of his management principles are still valid today.

    The second problem was that the fracturing of the American market that began with the success of the 1958 Ford Thunderbird and 1958 American Motors Rambler spelled the death knell for his divisional structure.

  • avatar
    Honda_Lover

    Maybe GM should take a cue from Toyota/Honda, their models occupy a distinct market segment. They don’t have models directly competing against each other. Although some might argue that a fully loaded Camry XLE competes with the Avalon. But that’s just about the extent of it for Toyota. If GM just killed the overlapping models, they’d be profitable.

  • avatar
    Potemkin

    The beancounters try to deflect their responsibility for the failure of their policies by blaming the designers and engineers. They say that North Americans have failed so they have moved their design work and engineering to Europe and Australia. It’s much like the owners blaming a team’s losses on the coach and manager who have done their best but haven’t been allowed to sign good players because of the cost. It’s the CEO’s and their staff of beancounters who determine what designs are built and where R&D money goes. The failure to remain current and the subsequent stagnation of the North American auto industry was caused in large part by the accountants squeezing every last penny out of each model. The Autoshows over the last 25 years have showcased concept cars that could have saved the business. Instead of these cars we got the Pontiac 6000 for 10 years and the Lumina for 11 years, to name a few.

  • avatar

    I believe there were hundreds of thousands of stakeholders over the decades who played a roll in this fall from greatness. Those who took their JOB and livelihood for granted…and were more focused on their profit sharing check.

    – C-level executives who made decisions to look good over the SHORT term…whether they were schooled as an engineer or an accountant…
    – Middle management and the engineers that designed and launched faulty product with planned obsolescence…
    – Unions that fought for it ALL….high wages AND job security AND the best health care AND the fat pensions…and rendered their manufacturers less able to respond to changes in the marketplace…
    – Franchisees who were more interested in making a quick buck today by screwing a customer than in retaining that customer for the long term…

    “A people who values its privileges above its priorities soon loses both.” Well said, Mr. Eisenhower. A bit ironic that he said that at his inaugural address in January 1953.

  • avatar
    allen5h

    In the case of Pontiac, GM may very well have figured out how to eliminate this brand without any lawsuits from dealerships. Simply build terrible products that do not do anything very well. AC that does not cool down anybody during hot summer days, engines that overheat in stop n go traffic, brake rotors that warp every 10k miles, suspension bushings that squeak after 30k miles, rack and pinion steering that goes klunk-klunk after 20k miles, intermittent check engine lights at 10k miles, seats that get to be uncomfortable after 30 mnutes, and the list goes on… Their Pontiac customers will migrate over to other brands and the dealers will be more than happy to voluntarily end their never ending nightmare.

    In this sense Pontiac dealers are not in the car business; they are in the real estate business. They are hanging on until some bigger fool comes along and offers them a profit on their real estate foot print.

    I know of a local Pontiac dealership where there is a revolving door of personnel. Nobody wants to be a service writer / adviser, nobody wants to sell these cars, nobody wants to service these cars, nobody wants to be an administrative assistant, nobody wants to work there plain and simple.

    Good bye and good riddance.

  • avatar
    Busbodger

    NickR : I always pegged the start of GM’s decline as the Corvair (GMs ill-advised penny pinching combined with Ralph Nader’s book).

    Nick, I have known the Corvair guys for several years now and they have explained to me that the Corvair was seriously dinged by GMs cost cutting on several details like the leaf spring they finally added after 5 years (1964 model) to cure the rear suspension droop which qould cause a rollover under the right circumstances. Then there was the 20 psi front tires with nearly 30 psi required in the rear tires which were often all filled to 30 psi by ignorant owners or gas station jockeys leading to wandering steering or poor front tire traction. That might have been the result of design cost cutting but I’m not sure. My VWs (also rear engined) had the same pressures all around I think.

    Then there were the muscle cars. The Corvair wasn’t going to be in the same class as the biggest and baddest of the V-8s but I don’t know if that would have killed the Corvair.

    The early seventies would have likely raised the fortunes of the Corvair when the Arab oil embargo started but it was gone after 1969.

    GM might have had to update the engine to catalytic converters and fuel injection to maintain compliance with the air pollution regs of the 1970s. At least that is what VW and Porsche had to do to their aircooled engines. VW gave up on the air cooled engines in 1983 with the last of the aircooled Vanagons. The Beetle “died” in the USA in 1979 I think – the last versions were Super Beetle convertibles only.

    I frankly don’t think that GM would have done what was necessary to keep the Corvair up to date through the 1970s despite the fun handling, sporty performance, and generally good looks of the Corvair.

    I often wonder if the American consumers just generally come in two breeds like sexual preferences. There are those who generally want a domestic and there are those that generally want what an import has to offer and then there is that much smaller group that go either way… I leave it to you guys and gals to figure who is who.

  • avatar
    Robert.Walter

    geeber: great comments. I do often wonder how the D3 got their eyes off the quality ball … every bean counter knows, or with a simple explanation can get his head around, that it is more expensive to fix than build right … so how did this happen? Was this the intersection of shorter development cycles with increased regulation and more performance (i.e. safety, emissions, econ.) for which design tools were not available to enable increased quality, or was it stagflation scenario (i.e. inflation, increased cost of capital and smaller market) crossing paths with market demand for fuel-efficiency across all segments (straining both personal and budget resources)? (somewhat like today’s situation economically and mpg wise.)

    allen5h: That plan only works if a)you sell the cars “as is where is”, without any representation that they will be covered by warranty, and b)no chance that the POS reputation such vehicles will earn, before this hypothetical PMD dies, will in any way transfer to your other divisions… else it is a totally self-defeating strategy.

    busbodger: another thing that would have killed Corvair besides emissions would have been compliance with upcoming FMVSS regs.

    And finally, could it be, that the market just didn’t fractionate as much as GM hoped it did, or would, and that they mistakenly believed that they could keep their representative market share by building more and more nameplates within such an evolving market? Did they focus more on this, and less on producing just 1 or 2 great cars per segment, rather than however many they ultimately did??

  • avatar
    scottahlquist

    First post.  Sorry to reopen this.  Excellent comments and a great debate.  Very important in my opinion.  In a country slightly less than half the size of the US Japan has 8 car companies.  They compete viciously to provide the consumer with an excellent product.  This is the main reason for their success INHO.  No Japanese car company concerns themselves terribly with market share or this silly American obsession with the game (we’re number one!).  Make good cars.  Satisfy the customer.  Respect the bottom line.  All will work out in the end.  (competition works).  You’ll find all this in Drucker.  They read his books.  GM didn’t. (ironic, eh?)

  • avatar
    scottahlquist

    Sorry, not to overwork this but, the only real problem with GM is that it exists.  Set the brands free.  Let them compete on their own (bring back Oldsmobile!!! (my personal fav)).  Lots of smart women and men in Detroit, they’ll figure it out.  No need for a huge conglomerate with a big pretty building full of people spending their days composing Excel worksheets.    I know that there are issues with the dealers and consolidation but there are ways to work around this (somehow Japan and its 8 car companies find a way)
     
    by the way, in previous post, change INHO to IMHO.  Like I said, first post.


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