Problems in Detroit

Growing up in Detroit, it shouldn't be a surprise that I have a good knowledge and family ties to the auto industry. Unlike most, these ties were mostly on the sales and consulting side, not with one of the specific manufacturers. My father has worked in dealerships for over 30 years in about every position and now is primarily a consultant. All this has rubbed off on me somewhat so I felt like writing about an interesting story I read in Businessweek. The link to that story is here, and I highly recommend anyone interested in the auto industry or business read it.

It seems that GM is about to fall apart. This is the company that has been #1 for over 70 years, which is practically unheard of in any industry. They used to be based in Flint, Michigan the location of the famous sit-down strike where the UAW was born. They left Flint, pretty much wrecked the town, but that's another story that Michael Moore made a movie on (which was pretty good, by the way).

GMs problems stem from mismanagement. Working class American's love to blame foreign competition (in the 80s many Toyota dealerships were vandalized and a Chinese man was murdered because a group of auto workers believed he was Japanese). I looked for links to these stories and was unable to find any, but it happened about 20 years ago and shows how protective people can be about American cars. People blame the Japanese because they succeeded where they Americans failed to. They just ran their business a lot better, producing higher quality cars at equal or lower cost and were quicker to introduce newer technologies.

GM seems to have an identity crisis; the company doesn't have a clear image as to what they produce. While Toyota stresses quality and fuel economy, Honda both of those plus great engines, BMW brings style and performance (though mediocre quality), GM's lineup is variable in quality (Cadillacs being great with the others average at best), cheaply made in some respects, poorly designed in others, with a mid-range price. With the exception of the new Cadillacs (which are pretty stylish and perform well while maintaining high quality), none of GMs lineup really appeals to me. I guess the original Hummer does, but its cheaper siblings seem to have too much plastic for the price. Their models overlap too with trucks produced by Chevy and GMC, midrange cars made by Saturn, Chevrolet, Saab, Pontiac, and Buick. Redundancies reduce the amount of research money that can be spent per vehicle, something that Honda and Toyota figured out early on that GM really needs to do.

These main factors hamper GMs ability to outsell their competitors, even with pickup trucks, since Ford is generally recognized as having the most rugged. Nissan and Honda also pose a threat in this area and I believe that their market share will soon increase, especially with Honda's Ridgeline which looks really cool even though I don't really care for pickups.

GM also has some problems with labor it seems. I personally don't like unions too much since they go against a free market. When you are paying people wages above the market average and bound by contracts stipulating how many of them must be employed at any given time, your options are greatly limited. The UAW was useful at first because workers were treated a lot differently 50 years ago. These days it just takes a cut of workers paychecks and makes life harder for GM. If the UAW's contacts help GM go bankrupt, will the workers benefit? I think not.

This is just my take on the situation with what I know from various news sources. I advise anyone who wants some details to read the article mentioned above.

Lastly, if the CEO from GM ever reads this, here's a vaccine that still might help GM: Kill Saab, Buick, and Pontiac. Pontiac has some new models that if improved might be able to integrate with Chevy or Saturn. See how the other brands fare for 3 years and combine more if necessary. Give the UAW hell. When the contract comes up for renewal, consider starting some nonunion plants. Toyota does it here in the USA. Work is work whether it is union or not. It will take time for some people to learn this, but those in the labor business will eventually shut up, and in the meantime you might just save the company.

If the CEO doesn't do things like I mentioned above, I have a feeling GM will either go bankrupt or get split up into a lot of small pieces. Neither is very attractive.

And today there was another update, Kirk Kerkorian, the rich guy who owns casinos, was once Chrysler's largest shareholder, and is currently suing Daimler Chrysler is considering doubling his stake in GM whereby he would own over 8% of the company. Richard Steinberg was quoted by Reuters as saying, "The vultures are now flying over the carcass."