General Motors Death Watch 2752: The Story So Far

Paul Niedermeyer
by Paul Niedermeyer

In 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.

Paul Niedermeyer
Paul Niedermeyer

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  • Scottahlquist Scottahlquist on Jan 08, 2011

    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?)

  • Scottahlquist Scottahlquist on Jan 08, 2011

    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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