GM's CEO, Rick Wagoner, writes WSJ Editorial
 

Wall Street Journal excerpt

By Rick Wagoner (Commentary)
> Dec. 6, 2005

DETROIT – "Since mid-October, General Motors has announced plans to cease production at 12 North American manufacturing facilities and eliminate 30,000 jobs by 2008; trim $1 billion in net material costs in 2006; and, in cooperation with the United Automobile Workers, reduce GM's retiree health-care liabilities by $15 billion, or about 25 percent, for an annualized expense reduction of $3 billion.

The reason for these dramatic actions is no secret: GM has lost a lot of money in 2005, due to rapidly increasing health-care and raw-material costs, lower sales volumes and a weaker sales mix --essentially, we've sold fewer high-profit SUVs and more lower-profit cars. What is less clear is why things turned sour so fast for GM, as well as for other American automakers and suppliers. To put it another way, why are so many foreign automakers and suppliers doing well in the United States, while so many U.S.-based auto companies are not?

Despite public perception, the answer is not that foreign automakers are more productive or offer better-quality or more fuel-efficient vehicles. In this year's Harbour Report, which measures manufacturing productivity, GM plants took three of the top five spots in North America, including first and second place. In the latest J.D. Power Initial Quality Study, GM's Buick and Cadillac ranked among the top five vehicle brands sold in America, ahead of nameplates like Toyota, Honda, Acura, Nissan, Infiniti and Mercedes-Benz. And GM offers more models that get over 30 miles per gallon (highway) than any other automaker.

In fact, this kind of operating performance makes GM's recent financial performance all the more frustrating. The fact is, we're building the best cars and trucks we've ever built at GM, our products are receiving excellent reviews, and we're running the business in a globally competitive manner. Outside of North America, we're setting sales records. In fact, for the first time in our history, we will sell more cars and trucks this year outside the United States than inside, aided in no small part by our market-leading performance in China.

So why, fundamentally, are GM and the U.S. auto industry struggling right now?

Intense competition, for one. The global auto business grows tougher every year, and we accept that. Our ability to compete has made us the world's No. 1 automaker for 74 consecutive years, and we're fighting hard to stay on top.

Beyond that, our performance in the marketplace has not been what we've wanted it to be. While we've been strong in truck sales, we've been weaker in cars, and, yes, the recent surge in gas prices hurt sales. While we've led in technologies like OnStar, we've lagged in others like hybrid vehicles. Rest assured, we're working hard to address the areas where we lag. Simply put, we are committed to doing a better job of designing, building and selling high-quality, high-value cars and trucks that consumers can't wait to buy. No excuses. We will step up our performance in this regard.

But competition and marketplace performance are not the whole story. To fully understand why GM and the U.S. auto industry are struggling right now, we have to understand some of the fundamental challenges facing American manufacturing in general -- challenges well beyond the control of any single company.

There are those who ask if manufacturing is still relevant for America. My view: You bet it is! Manufacturing generates two-thirds of America's R&D investment, accounts for three-fourths of our exports, and creates about 15 million American jobs. And the auto industry is a big part of that, accounting for 11 percent of American manufacturing, and nearly 4 percent of U.S. GDP. Together, GM, Ford and DaimlerChrysler invest more than $16 billion in research and development every year -- more than any other U.S. industry. And GM, alone, supports more than one million American jobs.

So what are the fundamental challenges facing American manufacturing? One is the spiraling cost of health care in the United States. Last year, GM spent $5.2 billion on health care for its U.S. employees, retirees and dependents – a staggering $1,525 for every car and truck we produced. And the figure is going up again this year. Foreign automakers have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries their governments fund a much greater portion of employee and retiree health-care costs.

Some argue that we have no one but ourselves to blame for our disproportionately high health-care "legacy costs." That kind of observation reminds me of the saying that no good deed going unpunished. That argument, while appealing to some, ignores the fact that American automakers and other traditional manufacturing companies created a social contract with government and labor that raised America's standard of living and provided much of the economic growth of the 20th century. American manufacturers were once held up as good corporate citizens for providing these benefits. Today, we are maligned for our poor judgment in "giving away" such benefits 40 years ago.

Another factor beyond our control is lawsuit abuse. Litigation now costs the U.S. economy more than $245 billion a year, or more than $845 per person. That's more than 2 percent of our GDP. No other country has costs anywhere near this level. And the perverse thing is that, in many cases, the majority of courtroom settlements go to the lawyers and other litigation costs, not to the injured parties.

Another major concern is unfair trading practices, especially Japan's long-term initiatives to artificially weaken the yen. A leading Japanese automaker reports that for each movement of one yen against the dollar, it gains 20 billion yen in additional profitability -- or nearly $170 million at today's exchange rate. No wonder Japanese automakers have noted their recent record profits were aided by exchange rates. And no wonder the U.S. trade-balance deficit continues to grow by leaps and bounds.

There are other issues, of course, but my point is this: We at GM have a number of tough challenges that we must and will address on our own -- but we also carry some huge costs that our foreign competitors do not share.

Some say we're looking for a bailout. Baloney -- we at GM do not want a bailout. What we want -- after we take the actions we are taking, in product, technology, cost and every area we're working in our business today -- is the chance to compete on a level playing field. It's critical that government leaders, supported by business, unions and all our citizens, forge policy solutions to the issues undercutting American manufacturing competitiveness. We can do this. And we need to do it now."


Okay, what do you all think?

E

Interesting.

This impresses me as someone speaking their mind. I noticed that he didn't place any blame on the UAW. The healthcare thing is a huge difference between U.S. and ROW car companies. The only thing I hadn't heard before was about the Japanese exchange rates.

To the inevitable GM bashing that always follows this kind of post:

Go to a dealership today. Test drive a Cobalt and a Z06 (or any two GM cars for that matter). Then you can post--but not until then.

Well, I will not bash GM, though I have to confess that overall I do not like their cars.

The man does make some excellent points - especially in the healthcare department.

AFJ

Why should I drive a Corvette or Cobalt--two cars that couldn't be further from my needs.

I'll test drive a GM car when they make one for me:

- All wheel drive (and it better be a lightweight design, fully integrated into the basic design of the car, not some tacked-on afterthought)

- strong resale value, which comes from the sort of cult following where people consider a several year old car as desireable as a new one (see Porsche, BMW, Subaru, Mazda for reference).

- Modern, up to date, ergonomic interiors. I don't mean modern for Detroit, I mean something that's at least as good as an 18 year old 944.

- Handling. Not massive racetrack grip from overstiff suspension and oversize tires. Dexterous real world handling from quick, properly weighted steering, firm damping matched to springs and sway bars and high quality tires on lightweight wheels.

- Looks. Please don't try to be cutting edge. You're not and when you try you end up with Azteks and Cadillacs. Hire some guys who worked for BMW in the '90s. Clean lines, well-integrated front and back ends, no bumpers that wrap up into taillights or arrays of tiny headlights covered by huge sheets of glass.

That's a start. I could go on for pages. GM doesn't make cars for me and probably never will.

Have you looked at a Pontiac Solstice or Vibe?

That's straightforward talk from Wagoner. I give him kudos and good luck.

Toyotas don't count. The Solstice looks great and the road tests seems approving. But the Solstice is a low volume, niche car designed and built in a very non-GM way. Great start, but why not take that same commitment and apply it to an Accord/Camry competitor?

I've always thought of him as a straight shooter. He's a 'car guy' and not a bean counter. Two great traits, but maybe not enough to keep him from being the fall guy.

E

Any car that has the ingredients you proposed (above post) are bound to be 'niche cars', Jon. The Solstice and Sky are meant to be halo cars, a harbinger of things to come from GM. I think you may be impressed with cars like the upcoming Saturn Aura... applying that way of thinking to an Camcord competitor.

But it sounds like you are in the mood for a Mazda 6 Speed (based on your formula).

E

This statement made me think...what car does GM manufacture to compete with these 2 mid-size sedans? I admit that I don't know the answer because I haven't paid any attention to their offerings...so can anyone tell me what they are? And are they comparable?

When my wife finally gets fed up with her S4, we'll probably look first at other Audis and Subaru's Legacy Turbo.

Audi has, IMO, gone a bit too far with overweight and overcomplex cars but the basic formula is excellent.

Subaru is where Audi was in the late 90s--great direction but still needs a bit more refinement all around.

Perhaps the Mazda 6-speed will convince Subaru to put the amazing STI 6-speed AWD system in the Legacy?

Sorry to go off topic...

safety
reliability
excellent warranty/service
comfort
up to date styling that evokes more upscale cars but is very understated
enough power and handling so Dad doesn't feel totally emasculated

But most of all, the image of the above. People can say to their friends, "I got the new Accord" and their friends will think,
"hmm, a sound, sensible, choice". That took years to develop and would take GM at least two generations of a car to achieve. But that's OK, since GM hasn't released anything that's even close yet.

Pontiac G6
Chevy Malibu

Re: GM's CEO, Rick Wagoner, writes WSJ Editorial
 

I think this one statement is important. "Public perception" is everything - whether it is well-founded or not. GM has screwed people for decades with sub-standard cars. IMHO, they are now paying the price. Many people could care less whether the new Cobalt is as good as a Civic - they've still got the bad taste in their mouth from the 1981 Buick Century that ruined their life and have sworn to never get burned again.

Mike

I'm impressed, suprisingly short of BS from someone in his position. I think they have a long road ahead, but are on the right track in some areas. As somebody said, they need to take the development that goes into their halo cars, and apply some of it to the cars that sell in volume. Simply making ok sedans won't cut it anymore. This summer's fire sales didn't help either, they served only to further dillute their brand image. Right now I see Chevy as a Kia competitor. Also, they need to make a distinction between Chevy and Pontiac, and simply telling me that Pontiacs are exciting won't cut it. It just seems like they have a lot of cars and trucks that are simply re-badged versions of each other, competing with each other, and none of them are all that good. What's the point? Why have a GMC and Chevy truck that are the same underneath, and the same price?

They just need to spend a ton of money on developing not just good, but superior vehicles, and I wonder if they can make that commitment with their current situation.

I am not sure I am buying his arguments. In a nutshell, he is say that people arn't buying the models that make money for them, and that he has to deal with a cost base that is not competitive with his foreign rivals. I'll spot him the argument about costs. I am not impressed with the quality of GM vehicles. I rent a fair number of cars and the fit and finish of the US cars still doesn't impress me. I prefer Hondas (not to mention BMWs) over almost anything GM puts out any day. Last I checked though, Honda is building a lot of these cars in the US.

I know that there are some excellent GM vehicles. None of them fit my needs. GM may be putting a lot of money in to technology development, but little of that is making its way into fuel efficency.

Was this supposed to be supporting GM? Both have been reviewed as better than the cars they replace, not as good as the competitors. "Better" at GM doesn't mean good. They may not be bad cars, but a Mazda 3 or Jetta can be had for about the same.

Legion,

Have you driven either? If so, what did you think? I would like for Wagoner to be correct that his cars are of equal quality to the imports...but here's a piece of real world evidence.

My attorney is a long time Porsche guy, 27 year PCA member, has 2 911's and a 951. This summer he bought a new Vette for a "different kind of toy". I ran into him last week and asked how he liked it. He said, it's a blast to drive, great performance for the money BUT at 4,000 miles it has more squeaks and rattles than my 240,000 mile '82 911SC.

Now it's still a great car, but to me, that's a damn shame.

My last rental car was a brand-spanking new G6. It had 7 miles on it when I drove it off the lot. Decent car, nothing fancy. Drove it around Albuquerque a little. Get back in it to get the airport one morning (already running late) and the damn thing won't start. It finally fires, but runs so rough it barely makes it out of the hotel parking lot. I make it to the airport, but it ain't pretty. The thing has about 26 miles on it at this point.

Yeah...nice car. Sheesh.

Mike

I owned a Pontiac Grand Am for 4 years. I sold it to buy my F150 and 944S (RIP). It was a great car. My only complaint was that it was FWD, but I couldn't afford any new RWD car when I bought it, so that was a non-issue.

I looked at Honda's, Mitsubishi's, Dodge's, Saturns, and VW's too. What turned me off to the "foreign" cars was the attitudes of their salespeople. I found no real differences between the quality of the cars, but the salespeople at the foreign places wouldn't budge from sticker.

This was five years ago. I haven't been new car shopping since. I'm told that U.S. cars have gotten better since then.

EXACTLY! CEO drives an Accord and Camry into the product planning department and says, "beat this!"

A couple of years later, they deliver the Malibu.

That is the very definition of a broken car company. Is it the designers who can't design? The engineers who kick back the good design and say they can't build it? The parts suppliers who say, "we have no nice vinyl, how about this batch from 1987?" or the union floor workers who say, "Meh, close enough, give me that hammer"?

IROC, a lot of "program cars" (cars with known defects) end up in rental fleets. Unfortunately, it has the effect on potential buyers you just expressed.

Jon, one thing that I feel keeps American cars boring is that the UAW has significant input into the design process. They want all cars to be easy to assemble. Sometimes, "easy to assemble" directly contradicts "stylish", "innovative", and "ergonomic".

Re: GM's CEO, Rick Wagoner, writes WSJ Editorial
 

--essentially, we've sold fewer high-profit SUVs and more lower-profit cars
You weren't b!tching a couple years ago when you were pulling it in hand-over-fist selling pimped-out bodies on low-budget truck chassis, were you? You put all your eggs in one basket, which turns out to have a hole in it labelled 'gas prices'. The market is fickle. If you haven't yet figured that out, maybe you should have gone to truck driving school instead of MBA school.

In this year's Harbour Report, which measures manufacturing productivity, GM plants took three of the top five spots in North America, including first and second place.
That, and $3.50, will get you a latte, but it won't sell more cars.

In the latest J.D. Power Initial Quality Study, GM's Buick and Cadillac ranked among the top five vehicle brands sold in America,
I haven't been able to figure out what this "JD Power and Associates" thing is. What is "Initial Quality?" Sounds like a MotorMeister engine build - if you're able to start it after the rebuild, it's a good rebuild. Since I only seem to ever hear the term on GM commercials, it sounds like a shill.

And GM offers more models that get over 30 miles per gallon (highway) than any other automaker.
I'll bet this is part of the problem...

The fact is, we're building the best cars and trucks we've ever built at GM,
That's great, but it's apparent that people don't want to buy them.

In fact, for the first time in our history, we will sell more cars and trucks this year outside the United States than inside
...but does that really mean anything, when domestic sales are in decline?

Our ability to compete has made us the world's No. 1 automaker for 74 consecutive years, and we're fighting hard to stay on top.
At this point you're fighting to stay alive.

While we've led in technologies like OnStar
GPS + cell phone + minimum wage call center lacky soon to be outsourced to Bangalore. Be still my heart.

We will step up our performance in this regard.
We'll believe it when they find the bodies of your design team floating face-down in the Detroit river.

Manufacturing (...) creates about 15 million American jobs.
In a country of almost 300 million...

One is the spiraling cost of health care in the United States.
And in this respect, we're hosed. The health care industry is like the oil industry: they've got us where they want us. There's no real competition, and any effort to break the monopoly is met with brutal resistance. Just ask Hillary.

Last year, GM spent $5.2 billion on health care for its U.S. employees (...) Foreign automakers have just a fraction of these costs, because they have few, if any, U.S. retirees, and in their home countries their governments fund a much greater portion of employee and retiree health-care costs.
According to the Mul-and-Fint crowd, goverment paying for health care = socialism, and socialism is evil. So evil socialist governments have allowed their companies to kick GM's ass.

Some argue that we have no one but ourselves to blame for our disproportionately high health-care "legacy costs." (...) Today, we are maligned for our poor judgment in "giving away" such benefits 40 years ago.
I don't think they (or anyone) could have forseen the dramatic rise in health care costs. At the same time, I don't recall reading anything that blamed GM for this; everyone seems to want to blame the unions.

Another factor beyond our control is lawsuit abuse.
Yup. While there are legitimate cases, I'll bet a lot of the cases are people wanting $200k for slipping in a puddle at WalMart. The tort system has become a lottery.

Another major concern is unfair trading practices, especially Japan's long-term initiatives to artificially weaken the yen. A leading Japanese automaker reports that for each movement of one yen against the dollar, it gains 20 billion yen in additional profitability -- or nearly $170 million at today's exchange rate.
I hadn't heard this, either.

There are other issues, of course,
Like making cars that look like freeze-dried ass? Ergonmics on par with Legos? Producing ***** for the past 30 years, and suddenly expecting people to suddenly forget?

Some say we're looking for a bailout.
You are. You want the unions neutered/eliminated and and airline-style reprieve from your long-term financial obligations, which you'll convert into healthy executive bonuses just like they did.

While I'll agree there are external "challenges" that are beyond GM's control, it seems like they still don't want to acknowledge their own screwups and short-sightedness. This editorial feels more like it was written by the marketing department.

Whaaaa? So the crap GM is designing is the UAW's fault now, too?

Take one of their surveys some time. It's the most biased, poorly designed sack-of-**** market research you'll ever see. They surveys are heavily biased to favor low expectations. You can't ask a Hyundai buyer and a Mercedes buyer to rate their respective cars, then use the results to compare Hyundais and Mercedes. Yet that's exactly what they do.

Put the owner of a BMW in a Buick and see how well the Buick ranks. :D

It's a contributing factor, not the sole cause. GM's bureaucracy is much more to blame.

Let me ask this:

Do you think GM will recover?

I do.

One thing Americans hate more than anything else is to lose. GM will restructure, make some great cars, and kick butt for 20-30 years when it finally gets its act together.

But a car with 7 miles on it? It was brand new!!

Mike

Like making cars that look like freeze-dried ass? Ergonmics on par with Legos? Producing ***** for the past 30 years, and suddenly expecting people to suddenly forget?

Now that's funny!:)

Legion, I have no doubt that you got your Gran Prix heavily discounted, but did you wonder why? Most of the imports don't have to discount their cars, because they sell without them. Better cars = no discounts = higher profits. My wife had a '99 Monte Carlo when we met. She had very few problems with it, but it got crappy gas mileage, had a thrashy engine (3400 who's lineage dates back to wooden wheels), many large exposed seams in the interior, tacky fake wood, carpet made of mouse hair and seats designed by someone into S&M. It torque steered like crazy, and had the numbest steering this side of a forklift. Oh yeah, and it was worth basically nothing when we got rid of it, even though it only had 60k or so on it.

There's more to making good cars than just making one that won't break down.

Unless they're able to turn this into a xenophobic "'us versus them" battle, I don't see how that's going to help.

Maybe GM will start running hit pieces like "Toyota - #1 car of choice of suicide bombers worldwide!" or "Do you like molesting young boys? Then you'll love the new Prius!"

Wow...you have no sense of competition.

Outside of the commune, people have to compete for resources...invisible hand...nevermind.

My 944 did the same exact same thing when I screwed up the plug wire order on the distributor. Sometimes it isn't the car...

So you're saying he took this rental car - with 7 miles - and re-arranged the plug wires?

So, you're saying that the lot lizards at National Rental car sabotaged this brand new Pontiac G6 just to piss me off? Just kidding.

My point was that GM touts their cars as "just as good or better" than the competition and then I get into a *brand-new* car and it barely functions. That does not inspire confidence. In fact, it makes me think that GM is merely spewing the same rhetoric they have spewing for years and nothing has actually changed.

Maybe I'm wrong, but it's irrelevant. My *perception* is that GM is still building crap. They can't keep doing this and expect my perception of them to change. That is GM's problem.

Mike

I'm plenty competitive; you have no sense of scope or motivation.

Outside of the Party, people only compete for things that are important to them. GM's fortunes are not important to me, therefore I feel need to 'compete' on their behalf. You apparently feel the need to go to bat for them, but you're swinging for the fence with what appears to be a wet sock of an argument.

If GM wants people to 'compete' on their behalf, there has to be some motivation for them to do so. Just like Ihr Führer has whipped the Red States into an anti-muslim frenzy, GM must do something similar to win back customers. It's obvious that their fisher price styling and legendary reliability isn't doing the trick, and whining in the financial rags isn't going to get them far, either. There's already a good start in the anti-union movement, but that in and of itself isn't enough to make people buy GM cars; they'll just hate unions while driving their Toyotas.

The Cayenne put Porsche at the bottom of the list (third from worst) in initial quality. There's a double-standard. We expect crap from GM, and when they deliver in instances, we are gratified. If we get crap from Porsche, we might dismiss it as "just a few bad days on the assembly line." Maybe water floweth from the water fountains on these days instead of the normal stout bier??? :)

Yeah, just like the Prius ads where they're "outrunning the photographers in an expensive American convertible." Putting ads for their cars in fake "Smart Consumer" inserts in car mags. How stupid do they think readers are? Do Toyota afficionados like being taken for sheep?

Let's be serious: the Corvette convertible, in terms of strict performance, indisputably $hits all over the Prius. And if they meant the Viper, same for that. Don't bother bringing up long-term reliability-I'm sure the Prius will need an expensive battery pack replacement, bringing up cost of ownership.

I'm saying stuff happens that isn't an inherent flaw with the car.

Very good point, but Porsche hasn't spent the last few decades screwing people with bad quality, so people tend to cut them slack whether it is warranted or not. Conversely, just because GM may crank out a great model here and there, people are reluctant to cut them that same slack because of the poor past performance.

It's not fair, really, but it's reality. Burn people too many times and they will not come back - no matter how good you tell them your product is. GM needs to wait until everyone who owned a GM product in the '70s and '80s dies.

Mike

I hate the Prius, even though we own a 4Runner. But you can't possibly be serious, comparing a Corvette or Viper to a PRIUS!? They have better performance, ya think?! The least you guys can do is compare similar cars, compared to a G6 the Prius is more expensive, slower, better fit and finish, and gets better gas mileage. Of course Prius is for the greenies who think that they're saving the world by paying too much for one, so I'm not sure if that's a legit comparison either.