It ain't easy being Fritz

June 4, 2009
By: Eric Lundin

GM filed for bankruptcy, and now it"s time to stand around and criticize. And criticize. And criticize some more. Enter GM bankruptcy into a search engine and you"ll see a flood of articles, editorials, and blogs that provide no shortage of criticism for the company. The supposed mistakes and missteps on the part of GM management number in the dozens, if not the hundreds.

It goes without saying that this is too many articles to read and too many issues to tackle. Thankfully, I found one article that summed up a few of the main issues. Written by David Greising, titled Near-death GM has no room to relapse, and published by The Chicago Tribune, it mentions grave mistakes and miscalculations and compares the company to a morbidly obese neighbor who ignored all the health warnings.

Greising doesn"t target GM only. He heaps it on the other two of the Big (But Shrinking) Three as well. He drew his information from a white paper titled From tail fins to hybrids: How Detroit lost its dominance of the U.S. auto market, one of the Economic Perspectives series published by the Chicago Federal Reserve Bank.

The first issue he mentions is automobile size and market share: . . . after the first import wave hit, Detroit swore off size and extravagance, seemingly for good. Small, efficient cars were the answer & The market share of imports dropped back. However, Detroit reversed course. By the middle of the 1960s, U.S. carmakers were adding length by the inch and pounds by the hundreds. The second round of Detroit downsizing, after the 1974 oil crisis, didn"t successfully stem the tide of small imports.

Second, he mentions automobile size and efficiency standards: After the U.S. government enacted fuel efficiency standards after the 1979 oil shock, domestic automakers exploited the lighter restrictions on light trucks and focused on this market segment. In the process, Detroit allowed foreign automakers to make further progress in competing against domestic cars.

Third, he cites management"s dealings with the UAW: Labor and management proved co-dependent in decline.

OK, let"s go one by one. First, U.S. automakers allowed their small cars to grow in size and weight in the 1960s. I"ll agree that this decision was a mistake, but it wasn"t completely misguided; the paper states that in the U.S., small cars were about as expensive to make as large cars, so they were less profitable than large cars. Second, regarding the resources thrown at developing light trucks: Forgive me for stating the obvious, but weren"t these the most profitable vehicles for the Big Three? Third, regarding the codependency between management and labor: What? Co-dependent? I wasn"t invited to observe any union contract negotiations, but I would hazard a wild guess that at each others" throats would be a more accurate description than co-dependent. I can"t imagine they were co-anything.

Another article in the same paper mentions that GM had been one of the largest businesses in the world. And indeed it was. Not just one business, but several, including Pontiac, Buick, Cadillac, Chevrolet, and so on. In its heyday it had more than half of the U.S. market, and as recently as, well, Monday, it was the largest auto manufacturer in the world. I suspect that thisits sheer sizewas its main problem, and led to most or all of the others.

Outsiders can only wonder about the depth and complexity of the bureaucracy inside a corporation of that size. Imagine trying to manage the bureaucracy if you were Fritz Henderson (current CEO) or one of the executives; working within its restrictions if you were in middle management; or working around it if you were further down the ladder. Then picture the external factors. No doubt the company was hemmed in on all sidesUAW burdens, dealer obligations, competitors" relentless encroachments, and government regulations.

Sure, the company had become obese, but to say that it ignored the health warnings is going too far. Certainly the executives were savvy about the automotive industry, and there"s little doubt that they wanted a smaller, more nimble company.

Could any of us have done a better job steering GM away from bankruptcy?
Eric Lundin

Eric Lundin

FMA Communications Inc.
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