What’s Wrong With GM’s Culture?

by Dave Schuler on April 4, 2014

The reason that GM didn’t live up to its legal responsibilities and recall millions of vehicles years ago isn’t because of the CAFE standards, as suggested by its new CEO, Mary Barra:

Federal regulations essentially prevented Detroit from building the small cars more cheaply offshore. That’s because the auto makers still had to meet stringent fuel-efficiency averages for all the cars they produced domestically. So in order to keep building the big vehicles they could make profitably, they had to churn out lots of fuel-efficient vehicles and somehow make them cheap enough to compete with cars produced by non-union workers.

Is this why GM didn’t make much earlier what seems like a relatively inexpensive fix? Ms. Barra suggested as much this week. “In the past,” she said, “we had more of a cost culture, and now we have a customer culture that focuses on safety and quality.”

I find that excuse, as the WSJ concurs, to be pretty threadbare. There are all sorts of ways that GM could cut costs. For example, they could cut executive pay. CEO pay now stands at roughly $14 million. It is obvious, except possibly to GM executives, that there’s room for cost-cutting there. The pay of top management pulls up the pay of the next layer of managers which pulls up the next layer and so on. And there are so many layers. You’d think that GM’s near-death experience would have impelled cultural change but, sadly, not enough:

Keep in mind that GM’s culture would have been turned upside down and might no longer exist if the government hadn’t preserved it. In the throes of the financial panic and recession, Chrysler and GM could no longer be sustained without help from Washington. In December 2008 they began receiving money from the Troubled Asset Relief Program. More aid came in 2009 when the feds engineered bankruptcies.

There’s plenty of room for flattening GM’s organizational structure. Why haven’t they done it?

GM’s cover-up of its defective switches persisted during the federal government’s oversight of GM. Either that oversight was quite superficial with the single-minded objective of preserving the labor unions or the federal government was complicit in the cover-up.

The 12-step programs say that the first step on the road to recovery is acknowledging that you have a problem. GM doesn’t seem to have taken that first step yet and the federal government has abetted the company’s failure to adapt.

Last month GM sold about 1,500 Volts. I guess that makes it worth it.

{ 20 comments… read them below or add one }

PD Shaw April 4, 2014 at 9:24 am

I’m not sure I buy concern that a recall would undermine consumer confidence. Recalls seem pretty common these days. A partner recently mentioned he had a recall due to a risk that his floor mats would discolor; I had a recent recall to adjust an oil change sensor, that I don’t entirely rely upon. Also, in most (all?) states, precautionary measures to correct a potential problem are not admissible in court, at least for purposes of proving the problem exists.

steve April 4, 2014 at 9:34 am

Why has management at the auto companies been so bad for so long? I know that I am supposed to blame the unions for everything, but it seems pretty obvious that management has been a real shortcoming at these places. Is there something in the Detroit water that messes them up?

Steve

Dave Schuler April 4, 2014 at 11:22 am

Why has management at the auto companies been so bad for so long?

I think it goes back to the hothouse environment that prevailed in the industry in the late 1940s-early 1950s. They had no real competition. They could get fat and lazy.

As I’ve mentioned before occasionally, I don’t really blame the unions for the situation. They’ve just been seeking the best possible deal for their members which is what they’re for.

michael reynolds April 4, 2014 at 11:43 am

So the Volt is substantially outselling the Corvette, and performing about as well as the Audi A6.

Dave Schuler April 4, 2014 at 11:50 am

Neither of which will have a great deal of impact on the total fleet for the foreseeable future.

jan April 4, 2014 at 2:32 pm

The 12-step programs say that the first step on the road to recovery is acknowledging that you have a problem. GM doesn’t seem to have taken that first step yet and the federal government has abetted the company’s failure to adapt.

When you have an enabling entity, like the government, taking charge of saving a business by any means possible, oftentimes the struggling business never has any need to address that first step. Like with people, most of the props holding up excuses have to fall first, before a business becomes receptive and cooperative to acknowledge let alone honestly redress circumstances causing the problems.

jan April 4, 2014 at 3:58 pm

“Last month GM sold about 1,500 Volts. I guess that makes it worth it.”

Is it, especially considering the per car generous government subsidy being offered as purchasing incentives? Most of these electric vehicles are bought by high-income people in the top 7% of households too — all at tax-payer expense.

A post on the Free Republic blog has these interesting, less well known side bars of Volt information, as well.

The price for the 2014 Volt will start at around $35,000. Some sources, including GM, deceptively tout the reduced cost of the Volt as being $27,500, reflecting the $7,500 federal tax credit for the car. It is important to realize that the cost of the Volt remains $35,000; taxpayers are paying for the extra $7,500 subsidy. So let’s be clear, the cost of the 2014 Chevy Volt will start at $35,000 with mostly affluent consumers paying $27,500 and taxpayers paying $7,500.

While buyers of the Volt will now save $5,000 compared to the 2013 model, the savings also come at a cost to others; particularly GM shareholders. You see, GM loses an undisclosed amount of money on every Volt sold. That amount has just increased by $5,000. It appears that GM has no limits to how much money it will lose to spur sales of a politically-motivated car that can not succeed on its own merits in the free market. Not only are government subsidies needed to sell the car, which are close to $10,000 per vehicle when state credits are factored in, but GM and its shareholders must bear an additional loss to make the car saleable.

The costs to GM shareholders for the Volt go beyond the money lost on each vehicle sold. There is also the cost for GM to keep an emergency hazmat team on call in the event of accidents where airbags deploy in the Volt. The volatile lithium-ion based power source is so dangerous that GM specialists will be deployed to the scene of accidents to ensure that proper procedures are taken to avoid further injuries to those involved. Explosions, super-heated fires and electrocution are some of the specific risks.

GM also has a special group of customer service reps employed to specifically deal with Volt concerns. The car is evidently so politically important to GM as to warrant special care to avoid any customer dissatisfaction with glitches that may occur. There seems to be no end to the amount of money GM is willing to lose to keep the Chevy Volt boondoggle alive.

Considering that all plug-in vehicles have a mere market share of .62% of new car sales, with 170,000 such cars being sold since 2008, various industry observers have said Obama’s goal of having 1 million plug-ins on the road by 2015 is unattainable. In the meantime, GM is being grilled on it’s cost-cutting measures, resulting in some 13 deaths. Could it be that producing green energy cars like the Volt may have contributed to the more deleterious expense-cutting in other cars manufactured by GM?

Ben Wolf April 4, 2014 at 6:36 pm

Same thing as the Pinto: paying out death benefits was determined to be less expensive than fixing the problem. Also, the people driving the defective vehicles were low income, so who cares?

Guarneri April 4, 2014 at 9:42 pm

“I think it goes back to the hothouse environment that prevailed in the industry in the late 1940s-early 1950s. They had no real competition. They could get fat and lazy.”

I think that’s largely correct. It was the US economy of scale industries that got creamed when Europe and Japan rebuilt, and shipping over oceans became more feasible. The proverbial shit finally hit the fan in the 70′s in steel, cars, machine tools, heavy equipment…….

But no need to single out management either (nor Detroits water, steve). Its never that simple. In steel, which I observed first hand, you had schlerotic and arrogant management, union “leadership” that was intransigent beyond description, and a government that jawboned the US industry (due to capacity and price concerns) into a disastrous wave of open hearth investment just as the basic oxygen furnace became the standard. Some product categories were simply doomed to alternative competitors – I’m sure Dave’s consulting experience in shape products demonstrated that – but the complete route of the industry was not necessary. Lots of good people just trying to make their way got ground up in it. Given that the steelmaking shop and galvanizing facility I worked in supplied auto and appliance I saw many parallels during my stay in the industry. Can’t imagine GM etc isn’t just being propped up at taxpayer expense until it finally falls.

Dave Schuler April 4, 2014 at 9:47 pm

Can’t imagine GM etc isn’t just being propped up at taxpayer expense until it finally falls.

As I’ve said before, I don’t think there’s a viable niche for a large, ungainly auto company that makes mediocre products which it sells for middle-ish prices.

Guarneri April 5, 2014 at 7:06 am

Me neither. But its a nice little real world experiment to watch how long the government can keep it up and the electorate allows it. I did something I haven’t done in a long time last night – walked through 3 threads over at OTB. Ugly. Point is, I saw in two different threads the claim that “Obama saved the auto industry” etc. And commenters who dared argue differently got piled up on as baby killers and the like. It appears that GDP growth would be 10% and unemployment zero, angels would sing and trumpets blare, if Republicans would just get out of Obama’s way, expand government hiring without bound and support all favored industries with government subsidy.

Who knew?

TastyBits April 5, 2014 at 8:18 am

Guarneri

I assume this is @Drew without the golf references.

“Obama saved the auto industry”

This is a Democratic slogan that few, if any, of them can explain. They are never challenged on what the concept “saved” means in the context of the auto industry. A more correct slogan would be “Obama propped up the auto industry. It was saved until government support was removed, and it collapsed.”

The reason that Democrats must blame Republicans, conservatives, libertarians, gold fish, big foot, and anything with a pulse is because their economic ideas have been exposed as totally wrong. The stimulus package did not work because the theory is completely wrong – not a little wrong, not somewhat wrong, wrong, period. They must coverup this inconvenient truth.

They have tried everything in the playbook, and nothing is working. What they fail to grasp is that the playbook is making things worse, and the playbook is why the income inequality gap is growing. What they are doing is increasing the wealth of the rich, and this is being paid for by the middle and lower income. They blame all this on the Republicans.

The Republicans/conservatives allow this to go unchallenged, and I am not sure why. I have my suspicions. I expect to be challenged, but I am tired. I expect no conservatives to respond to the challenges. My favorite is that the Bush tax cuts caused the financial crisis and subsequent Great Recession.

Fighting over GM or Obamacare is like fighting over Civil War battles. It is an entertaining pastime, but it is useless. The past cannot be changed. The real war is over ideas, and the Republicans/conservatives have no idea they are about to lose a decisive battle.

Dave Schuler April 5, 2014 at 8:29 am

The stimulus package did not work because the theory is completely wrong

To the contrary I think the theory is correct. It’s just impossible to apply in practice just as Newton’s laws of motion have to be adapted under conditions in which friction applies. Just as there’s no such thing as a perfect gas there’s no such thing as perfect economic policy.

That doesn’t make the theory incorrect. It just means that real world conditions don’t satisfy the prerequisites for the theory to function.

They blame all this on the Republicans.

A good example of this was in a comment thread at OTB. One of the commenters could not pull back from the implicit claim that the snowbirds who are registered to vote both in New York and Florida are probably not Republicans. In his world view people with the money to do that just have to be Republicans. A case of “who you gonna believe, me or your lyin’ eyes?”

TastyBits April 5, 2014 at 8:52 am

@Dave Schuler

Newton’s Laws account for friction. The only problem with Newton’s Laws is Einstein’s Theories have superseded them, but they still work for engineering applications.

The economic theories never worked. They only seemed to work because of the size of the US economy. Any anomalies could be explained away with epicycles or blamed on Republicans.

If they actually worked, the economy would have been roaring by now. Furthermore, these policies should be implemented in Venezuela. With their oil resources, they should have the income to jump start their economy.

Dave Schuler April 5, 2014 at 9:25 am

I’m talking about the basic laws, Tastybits. The kind you learned in high school physics. F=ma. That only works in a vacuum, etc. If matter responded to political pressure, it would be impossible to predict the motions of objects. The theory would still be fine.

The problem we have is that the level of economics knowledge possessed by our policymakers isn’t even at the high school physics level and they respond to political pressure. That’s the real world and it’s the reason that a theory that’s perfectly fine as theory can’t work in practice. The theory itself is practically tautological.

TastyBits April 5, 2014 at 9:57 am

@Dave Schuler

I have hinted at it, but the real problem is fractional reserve lending. I have stayed away from the topic because I am not interested in a long drawn out debate.

You got me interested in Skyrim again, and I learned how to make Serena a permanent follower. We have more important things to do than debate economics.

Dave Schuler April 5, 2014 at 10:19 am

Serana makes a handy follower.

I’ve found that picking the right followers at the right time makes the game significantly more playable (I always play at the highest difficulty level). In my most recent game I picked up Faendal in Riverwoods and kept him until I was around level 25 or so, then replaced him with Lydia. Somewhere around Level 40 I replaced Lydia with J’Zargo. In the official game J’Zargo is bugged so that he has no maximum level so he can be a handy companion at higher levels.

Serana is a fun follower, not just because she’s powerful but because of her AI. I found it really effective.

TastyBits April 5, 2014 at 12:17 pm

Most followers are more of a pain than they are worth. If I am not careful, I wind up killing them, or they mess up my sneaking. Because Serana is immortal, I can accidentally slice her up, and she will live. I usually end up with a few ice spikes from her, but between my level and armor, I let her get away with it.

The dialog is the only reason I take anybody along. I actually would prefer some of the cheekier characters, but because they can die, I spend all my time protecting them. If you do it correctly, you will still have a follower slot in addition to Serana.

michael reynolds April 5, 2014 at 3:37 pm

4 of the top 20, 7 of the top 30 vehicles sold in the US are GM. The government’s been paid back, the company is not Government Motors, and millions of GM and related workers still have jobs, so, yeah, you guys were Totally Right: it’s a fiasco!

In terms of quality, JD Power singles out GM products as winners for best large car, best large CUV and best large upscale CUV, three different pick-up trucks, best large premium CUV, best mid-size sporty car, and best subcompact CUV. Out of 26 categories, GM won 8 categories.

But of course you’re all Totally Right. It’s all shit cars that don’t sell. And life would be way, way better if we no longer had a domestic car industry. Because. . . Um. . . Oh, yeah: gubmint bad.

michael reynolds April 5, 2014 at 3:41 pm

Oh, and in todays news: http://www.freep.com/article/20140405/BUSINESS0101/304050048/GM-to-add-1-400-Michigan-jobs-with-new-Chevrolet-Volt-on-the-way

General Motors is expected to announce Tuesday that it is investing $450 million and adding 1,400 jobs to two Michigan operations — including a facility located partially in Detroit, where the automaker plans to build a redesigned Chevrolet Volt.

The company’s plans include a second shift at its Detroit-Hamtramck plant, where the automaker currently makes the Chevrolet Malibu, Chevy Impala, Cadillac ELR, Chevy Volt and foreign versions of these cars.

GM also plans to invest in its smaller Brownstown Township manufacturing plant, where the company currently produces batteries for the Volt.

It’s the nightmare scenario you all envisioned.

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