PART #3 ... GM's Future Is At Best Cloudy ... Therefore, So Is Michigan's

Quick History of GM

Here's a famous quote by a former GM CEO, "What's good for General Motors is good for the country, and vice versa." Well, things ain't so good for either GM or the country right now.

But let's stick with the GM story.

General Motors was once the biggest and best performing private sector company in America and perhaps the world. More recently it has been called "Government Motors" or even "UAW Motors."

Telling it like it is, GM fell from the top of the competitive hill to the bottom of the barrel. From what once was the dominant automobile participant in the world market, in 2009 it had become a staggering company facing bankruptcy.

Today's GM

But that's all in the past, of course. What about GM's future prospects? Will the real GM please stand up?

In my opinion, the future of General Motors is not one laced with optimism. For example, it has gone from selling one out of every two vehicles in the U.S. to selling less than one in five today. A market share drop from 50% to 18% is not only huge but unprecedented. And the problem is now perhaps insoluble, too. And that's just what happened in the U.S.

Meanwhile, since 1999 it's managed to lose $14 billion in Europe and the losses are still piling up.

The Bailout and the Bureaucracy 

After the government bailout of $50 billion in 2009, the taxpayers now own 26.5% of the company's shares. And its share price has fallen by more than 30% since it became a public company again at a price of $33 per share in 2010.  See GM Chief Optimistic on German Labor Talks.

But the real and potentially insoluble obstacle to a sustainable recovery is the GM bureaucracy and hidebound culture. At least that's my opinion.

The principle of subsidiarity and MOM behavior haven't been visible at GM during my adulthood.

In that regard, GM's Chief Labors to Get Rebuilt Car Maker Into Gear says this about the difficulty associated with changing GM's culture:

"As much as the company has toned up, Mr. Akerson (CEO) and his lieutenants at the "new" GM say they keep running into ghosts of the old GM—the plodding, unwieldy blob that tumbled into bankruptcy in 2009.

The global giant still operates like a collection of small, regional companies, they say, and not in a good way. Its fragmented manufacturing operation fails to capitalize on its global reach, and an antiquated system of financial accounting and internal scorekeeping reinforces divisions that rivals have successfully bridged.

The famously slow GM bureaucracy—that 1980s-era CEO Roger B. Smith dubbed the "frozen middle"—lives on. Executives in Detroit say they face pushback from middle managers on decisions about everything from engines to pensions to office furniture. GM, they say, still has too many employees, models and overlapping operations.

"The good thing about our bankruptcy is that it took only 39 days," said Mr. Akerson. "The bad news is that bankruptcy took only 39 days. If we had been there longer, people would have asked these questions and looked at these things." . . .

The success of the effort is critical to GM's efforts to sustain its recovery, which is showing signs of slowing. If GM can't engineer change inside the company quickly, executives and outsiders say, it runs the risk of being lapped by competitors.

Jeremy Anwyl, CEO of auto research firm Edmunds.com, says he wonders whether the executives' message is getting through. Today's fiercely competitive market "puts a spotlight on how the company functions, how well-understood the decisions are and how cohesively the team operates," he said. "I'm not picking up a sense that this is a vital part of GM's transformation or that there is a sense of urgency."...

But many people inside and outside the company had expected GM to be farther along, given the boost it got from the federal bailout: freedom from debt, protection from labor actions and a cash cushion from taxpayers."

Discussion

GM's future, as is the case with all private sector companies, will depend on whose products and services customers decide to purchase with their MOM. The company lost its focus on customers many years ago, and there is no indication that things have improved "between the company's ears."

GM represents a classic "internally" focused rather than "externally" oriented company. And when that is the case, any company will have an extremely difficult task making its customers #1 again in the eyes of its employees.

To repeat the obvious, customers will buy from whomever they perceive offers the best value --- with value being defined as the relationship of price to quality --- relative to the company's marketplace competition, of course.

Customers don't care at all not about how GM is organized internally, where it manufactures its products, who its CEO may be or anything else about its "innards." They only care about the product offering's value.

Summing Up

The element of competition is what makes the "staying power" of private sector market based companies and public sector government monopolies so different.

It's all about the customer in the private sector, and the simple fact is that the customer is always in charge. He's the one with the money.

My bet about GM's future prospects is that there has been no fundamental change which leads me to believe that all will be well with them and customers anytime soon, if ever.

And that in turn will impact Michigan and related parties, for sure. The GM money tree is faltering, to say the least.

Michigan's prosperity over the years resulted in large part from the prosperity of GM, its suppliers and the income earned by its employees. Along with others, car dealers, home builders, restaurants, retailers, hotels, schools, churches, YMCAs, federal tax receipts, state tax receipts, charitable donations and city and state workers all benefited greatly from GM's success. As a result, they all shared in the prosperity.

Sadly, too many of us, including politicians and employees as well, take economic growth for granted. At least until it's gone. And then we tend to assume that growth will resume sometime soon. It's only much later that we realize the old normal isn't coming back.

And here's what the lesson should be for all of us, including America's politicians, employees and citizens as a whole.

Private sector success is an essential prerequisite for our national security and prosperity.

We need companies that play to win in the global marketplace.

And we need to support our companies in every possible way to help them do just that.

Now that GM has faltered, perhaps permanently, some other company or companies will take its place, of course.

Let's all hope it's a U.S. based company and if you're from Michigan, you'll probably want to bet on Ford.

As for the rest of us, let's just place our bets on America and American companies.

Thanks. Bob.