General Motors is running out of gas both literally and figuratively. After posting a ghastly $15.5 billion loss for the previous quarter (you read correctly - $15.5 billion over just three months) and losing a combined $51 billion since 2005, its stock price, $10.37 per share, and future is a step beyond dismal.
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Despite selling more than 9 million vehicles worldwide annually, compounding overhead costs and distinct failures to read and meet the needs of its customers has placed the largest corporation in the US in dire straits.
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Founded in 1908, GM surpassed the great Henry Ford and his motor company as the market leader by the mid-1920s under the direction of its President and subsequent Chairman of the Board Alfred P. Sloan. It was his perspicacious idea to alter the style of each model on an annual basis to attract new and 'repeat' customers. Why buy the exact same black Ford Model A year after year? Sloan took both the varied tastes and income-levels of his customers into account, and one of his famous quotes, 'A car for every purse and purpose' summed up the inherent common sense in the founding GM business philosophy.
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The '57 Chevy and the 1959 Cadillac Eldorado represented the apex of GM design. In short, their cars were beautiful. Heavy steel frames and large tail fins were replaced a generation later to address the higher gas prices from the OPEC oil shocks of the 1970s and the deteriorating US economy in the early 1980s. The 1982 Cadillac Cimmaron, a thinly-veiled mid-line Pontiac, symbolized its dramatic fall from grace. Innovation and quality hit rock bottom, and GM buyers routinely complained of poor interior construction, engine breakdown and rust-prone exteriors. As a result, Japanese automakers, Toyota, Honda and Nissan, which had premised their operations on superior engineering capability and organizational efficiency, began to acquire a significant share of the American market.
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GM refocused in the late 1980s, its divisions (i.e. Buick, Cadillac etc.) generally improved throughout the next decade, but the Japanese continued to stay one step ahead with regard to designs and available features. Most significantly, American car companies (Ford, Chrysler and GM) simply could not match Japanese durability. It is not uncommon for a Toyota Camry, for example, to be driven more than 100,000 miles over a period of years with little required maintenance. GM is still trying to reach the same record of reliability with its fleet today.
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The year 1996 was a semi-watershed year for the company. Corporate executives decided to pour $1.5 billion into the largest emerging market in the world - China. It was a calculated gamble that has paid off over the last dozen years. Its brands, Buick and Chevy, have made GM the top automaker in the 'Celestial Kingdom', and China is now its the second best customer after the US (Canada is third). While the financial condition of GM is cause for despair in the US, its robust international presence in China, Eastern Europe and Brazil has been a unqualified success story.
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Also in 1996, GM launched the EV-1 electric car. Although quite expensive and available on a limited basis to customers in Arizona, California and Georgia through a lease-only program, the car gained a core following. In 2003, GM cited a lack of marketability and insufficient battery technology as the reasons for its discontinuation. Protests erupted from owners and environmentally-conscious citizens to no avail. Increasing demand for SUVs and relatively inexpensive gas (a mere $1.72 per gallon) prompted executives to concentrate on production of larger vehicles. Hence, 1996 was a 'semi-watershed' year. While progressive thinking opened China to its long-term benefit, GM sacrificed a revolutionary moment of innovation to short-term expediency. Further development of battery technology at that point could have re-made the industry and returned GM to dominance along carbon-friendly lines. Now, GM is struggling to keep pace with Japanese automakers in bringing a new electric car into production by late 2010. If the CV-1 had remained in the engineering process, the Chevy Volt (the GM electric car planned for 2010) might have entered showrooms a year ago. To address climate change and $4.00 per gallon fuel, GM truly needs to 'run out of gas' to stay competitive.
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Aside from development, a radical restructuring plan for the company is being implemented. In the spirit of the most popular Alfred P. Sloan quote, 'The business of business is business', GM has bought out 25% of its UAW contracts to replace its union-scale workers at $28 per hour with a younger batch of non-union employees at $14 per hour. The company also spent $4 billion to retire a portion of its UAW contracted health care and pension commitments. Similar to other companies (i.e. Starbucks), employee health care is a larger expense ($6 billion per year) than many other production-related costs. Every dollar absorbed by health care is a dollar less for research and development and marketing, and the costs are ultimately passed on to the consumer at the dealership. Why buy an product of lesser quality from GM rather than a more reputable vehicle from Toyota and save $2000 at the same time? GM cannot seem to win.
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As a company committed to the welfare of 284,000 workers, thousands of pensioners and millions of customers, the fall of General Motors would be catastrophic.
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Ironically, the China market and the electric Chevy Volt, both inconceivable phenomena only a short time ago, might be the twin engines needed to power GM into a new era of prosperity.
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J Roquen
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For the latest news on the state of GM, see the following MSNBC link: