On the day that GM steps out of bankruptcy, I thought it would be a good time to reflect on the situation they face. With the help of the will of the federal government to have a speedy bankruptcy, GM is emerging after a short six weeks in bankruptcy court. The judge Robert Gerber approved the sale of GM’s good assets to the New GM being lead by the U.S. and Canadian governments and the UAW healthcare fund. Although other vested parties have four days to file objections I believe this period will go by mostly without hassle. As it sits the US government, after loaning GM $50 billion, will grab up a 60% stake in the company. The Canadian government will take an 11.7% slice of the pie after loaning the company $9 billion. The UAW after parting with no money will be awarded a 17.6% stake, while the old GM will keep a 10% stake in their company.
So what is at stake for the New GM? Well that would be a lot. They are going to need to make the company viable and profitable while being under the clout of the federal government and the UAW. They also have a problem with their customer base as a movement has arisen to boycott GM as long as the government has a majority stake in the company. The new CEO Fritz Henderson has been talking more and more about bringing cars to the market that “people want to drive” with a “sharper focus on customers”. The new slogan of GM is “it’s a whole new car company”, but is that true? Is it even what they need to focus on?
I was never really excited about many GM products, but they had their moments. If I had to put my finger on one thing that really brought GM down I just don’t think that would be the one. There are plenty of car companies that sell cars that people are not very excited about, and they still do well. Others say they were just too big of a company but when you look at VW and Toyota I just don’t see that as a credible argument either. VW has many brands under its belt and sells all over the world, but they keep the design departments and brands separate so that the brands have their own flair and purpose. GM on the other hand was like a sponge to their brands, and in the name of money savings had no uniqueness to many of their separate brands. But they did that in the name of saving money, so what was the real reason they were always in dire need of cash savings?
From research I have done and reading research of people way smarter and involved in the history of the auto industry than me, I would have to conclude that bad management and concessions to the UAW were the ultimate pitfall of GM. The auto industry went through a lot of reform in the 60’s and 70’s with the imports of Japanese and factory technology changing GM started to fall behind. When GM would announce that they would build or convert factories to compete with the new cheaper and more efficient Japanese factories the UAW cried. More efficient factories meant less factory jobs therefore it was more profitable for the UAW if GM stuck to the more expensive way of producing cars. The factories coupled with healthcare and pension consecutions grew GM’s operating cost through the roof. They were able to sustain those costs while the markets were well and GM was selling lots of cars but many inside GM new that it wouldn’t last too long. And they were right, as the markets fell and the auto industry took a hit GM had nowhere to turn.
So has GM made the right decisions to become a vibrant money making company? I think not! The government and the UAW controlling GM will likely decrease the chances that GM will make the real steps it needs to make to get competitive in the market. It is not about the cars they build as much as it is about the price at which it cost them to build the cars. Now it’s not just GM as a company on the line, it’s also the American taxpayers who will suffer. I won’t be one that will boycott GM because of the Government’s role in the company, but they need to get out from under the Government control and the UAW as quickly as possible. I do see some potential with some upcoming products inside GM, but if they cannot control cost on the back end they will never make money on the front end.
Let me know what you think! Comment below.