New thread on GM and other large stagnant corporations

[Zeke]

I wanted to introduce some fresh philosophy to the general subject of the failing and flailing corps. Seems to me the bane of all large corps is the bottom line and dividends to stock holders. Now that most stocks are nearly worthless, is this focus going to change?

I would take a corporation towards cash profits and sink the shareholders, at least for the time being. I would not be conservative, betting the farm on each turn and each decision. I would implore the board to STFU and, as Iaccoca said, "Get out of the way."

I would change the way all large constipated corporations think and behave. I would hire both branny new biz whizzes and some old school for balance. But, I would look for old school that always moved against the grain to meld with the new kids.

I would change accounting firms and revamp any internal accounting depts to not count beans but count the butter and eggs.

[onewhippedpuppy]

Cut the fat. In the case of companies like GM, their sheer size weighs them down. Cut out the legacy employees and products, trim the company down to the essentials necessary to make money. Then aggressively pursue new products, improvements, greater efficiency, etc.

[Zef]

Originally Posted by onewhippedpuppy

Cut the fat. In the case of companies like GM, their sheer size weighs them down. Cut out the legacy employees and products, trim the company down to the essentials necessary to make money. Then aggressively pursue new products, improvements, greater efficiency, etc.

May be a good starting point will be just fabricate good cars...no crap.

[legion]

Let GM file for Chapter 11.

Let it be split up.

Same with Chrysler and Ford.

Let their obligations die with them.

I would much see a dozen, small, lean auto manufacturers in the U.S. than three, bloated behemoths.

Much like banking, we've got all of our eggs in a few, large baskets. When there are several smaller baskets, failure does not carry the risks to the economy.

[onewhippedpuppy]

Originally Posted by Zef

May be a good starting point will be just fabricate good cars...no crap.

Many of GM's current cars are pretty good. But the bad ones (and redundant models) weigh down their product lines. Not to mention their incredible legacy costs. GM has to make more on their cars to turn a profit, there's no way that is sustainable.

[t951]

My concern is that they get bailed out. Then it just extends more of the same.

What needs to happen is that both management and the union need to make MAJOR concessions. Truthfully, the union needs to go, but thats not going to happen. Upper management also needs to go, not to mention their ludicrous pay, but again, that's not going to happen.

The company needs to be taken to ground zero, retooled and leaned out. If this is done, there is a chance. If not, it will be finance companies that own the Big 3. They will slowly part out and slash the company until there is nothing left.

The US cannot afford for these awful behemoths to go away. Sadly, that is the situation we are in.

I wonder if this will be like Ma-Bell. Remember how they were split, and little by little they are going back to their original config.

Finally, even if the union and management concede where necessary, they still need to make a good product. It seems obvious that a company with the management and work force situation saddled with bad product will eventually fail....economy aside..

just my .02

[the]

Originally Posted by t951

My concern is that they get bailed out. Then it just extends more of the same.

Exactly. It would be one thing if giving them $50 billion would actually bail them out.

I.e., if the money would solve their problems.

But of course, it won't. It won't do a single thing to address any of the problems they have, which problems are causing them to lose millions of dollars each and every day, 24/7.

Even using the term "bail out" is very misleading. It really means to give someone $$ to get them out of the prison (problems) they are in. Giving GM $50 billion is like paying the bail, but keeping the prisoner in prison.

[Zef]

I would believe than you'll pay for that mess...like the wall street saving.....

[Willem Fick]

What's happening to these companies come as no surprise to me.

I am absolutely dumbfounded by the abundance of stupidity, and absolute lack in corporate governance that I see in most of the organisations I deal with. From what I have read so far, it seems to be no different for these organisations.

Bad corporate performance is most often brought about by dismal performance in the following aspects of business:

1. Failure to understand what the market actually wants. Corporates are built around cost and profit centers, where the key driver is to decide how best you can serve the client while still getting your bonus (and a big on eat that!). Guess what - the client always loses out. You can bluff them for only so long before they take their money elsewhere.
   
   
2. Financial- and risk officers running the business. I appreciate the importance of keeping a good eye on risk and the loot, but ultimately good business sense needs to prevail. Someone once told me that if you asked a cost accountant to cure a man that was 20% obese, they would simply cut his leg off. This is very true, and I have personally seen too many companies fold due to internal monetary restraints being put on their ability to deliver goods to the market.
   
   
3. The wrong people in control. I so often see organisations managed by "cults" as opposed to management teams. Management is serious business, and cannot be done in the best way possible if you have a management team that views itself as an empire. Most often this easy to judge by just looking at the difference between cars parked in management bays, as opposed to those owned by general staff. A mangement team out of touch with its staff is dead in the water.
   
   
4. Over-democratisation of the workplace. We accept mediocrity, purely because we don't have the b@lls to take action against non-delivery, for fear of upsetting the masses. Managers are stifled in their business decisions due to the scurge of "correctness", albeit political-, ethical-, sexual-, or whatever, coupled to that fact that when decisions are made, everyone needs to be given the opportunity to voice an opinion. Business is not a popularity contest. It is about making money as effectively and efficiently as possible. Its about making what clients want, for a price they are willing to pay for it. Period. That means that decisions need sometimes be hard, and taken by those best qualified to do so.
   
   
5. Floating wooden dollars. I so wish I could for once read a plain, simple and straight forward set of annual reports. Unfortunately as companies become bigger, trading of wooden dollars between areas and divisions becomes a tangled web of deceit, and it is becoming harder and harder to understand where the money is at. Buffet summs this up by saying that he does not invest in a company unless he can clearly understand their business model and sources of income. Isn't that supposed to be common sense?
   
   
6. Great strategies, poor implementation. Best one I recently heard was a CEO of a bank with a stated objective of becoming the #1 bank by profitability in 3 years. I challenged him on the lack of corporate governance in his organisation, and he countered by saying that profitability is proof of governance...

A bailout, without an attempt at fixing these (and other) problems is a waste of money.

My (long) 2 cents...

[Porsche_monkey]

Too many accountants. Too few 'car people'. It shows in the product.

[Arizona_928]

Write our senators?

[onewhippedpuppy]

Originally Posted by Porsche_monkey

Too many accountants. Too few 'car people'. It shows in the product.

Design by commitee was the problem at GM for years, along with "badge engineering".

Along with the business issues that obviously need sorted out, they simply have to make great cars. Not average cars, but really great ones. Then sell them for less. I see the "big 3" in a similar spot to the Koreans today and the Japanese 20 years ago, but with a slight home field advantage.

Korean and Japanese vehicles were met with skepticism and borderline hostility when they came to the American market. These makers won over Americans by offering better cars for less money. After the market became confident in the product, the makers were able to begin slowly raising their prices. It worked well for Japan, and it's working well for the Korean makers today. Hyundai especially is slowly making it's way upwards in the market and finding success.

Today the American makers find themselves in a similar spot, being forced to draw customers away from the imports. Further complicating matters are those who have a bad taste in their mouth from prior ownership of a POS American car. How to best convince these customers to again buy American? Sell more appealing cars for less money, and do it consistently.

The bottom line: if the quality and product isn't there, none of these companies have a chance in hell.

[Zeke]

Mr. Fick stated pretty much what I was thinking and did not get down in writing as eloquently as he. puppy gets some good thoughts in as well. So, most of the problems have been identified, what to do?

Chris and tk give some good solutions although I'd hate to see all the retirees get the shaft. It looks like a game of how to proceed with the least damage to individuals and the economy in general. Thoughts on that?

Maybe I'll make a Mike Moore type film about Rick. Except I'll tell him what you guys said and (look) for his rebuttal.

[boba]

The situation with the US auto industry goes back over 50 years of bad decisions by both management and the unions. There is no way this is going to be fixed by a cash bail out, it will only prolong the agony.

There is no way the big 3 can make money when every vehicle starts with a $2000 legacy cost. The products are as good as any other manufacturer, but cannot be sold profitably.

Ask yourself what is the biggest difference between the US big three and the foreign auto makers producing in the US.

Throwing money at this problem will not fix it, only a major restructuring which directly addresses the legacy costs and new relationship between labor and management.

I have little hope that these wills happen because of a lack of courage and will to take on the issues.

Big difference between the banks and auto. Banks can and are profitable, not willing to lend due to risk of collateral, US auto industry is fundamentally unsustainable without major structural changes.

[legion]

Milt, under my plan the pensions would be assumed by ERISA.

I honestly think that will happen one way or another, so might as well do it the honest way. (The dishonest way being to give GM money to keep the farce of its current structure going.)

My wife's grandfather retired from GM. He gets his pension from GM. I am not without sympathy. Then again, he lives well beneath his means in Mountain Home, Arkansas and has seven figures sitting in his bank account, so I'm not all that worried about him either.

Ford, GM, Chrysler, and all of the "mega-banks" have been operating in the diseconomies of scale for decades. They need to be split up. They need to be hungry, lean, and competitive.

[Zeke]

We all need to be hungry, lean and competitive.

Good stuff here.

Maybe the big 3 are a lot like me. I don't give a rat's ass anymore. I say that somewhat in jest, but I'm leaning that way more and more each day.

[widgeon13]

Well, I figure one out of three ain't too bad. We're all going to be hungry, very soon, if this shlt keeps up!

[daepp]

They need to fail. Let them be sold off to profitable companies or get out from under the burden of the unions. Painful, but necessary.

There's no way you can keep building Cavaliers and expect to survive.

It should be noted, however, that both Ford and Chevy have no problem making a profit in Europe. There, of all places, they are left alone to build what sells, and are not under the thumb of the UAW.

(On a side note - I remember sitting in a Ford in a turning lane near Heathrow in the 80's, and the five cars in front of me were all Fords.)"

[Porsche_monkey]

All three (or 2 and one-half) need to use re-structuring to get NET labour costs per vehicle down to competetive levels.

You can't fund pensions, drug plans, and high wages in the face of today's competition. A bail-out won't solve these issues, it will prolong the agony. Fail and re-organize. First one to do it, and do it right, could be the winner.

What should Chrysler do? Pare back on O/H, concentrate on design and quality, become a car design and distribution company. Trash the assembly plants to get rid of excess capacity. Dump any cars, old or new that do not sell.

Contract out plant logistics and assembly of all vehicles at a fixed price per vehicle.

[The Gaijin]

Originally Posted by legion

Milt, under my plan the pensions would be assumed by ERISA.

I honestly think that will happen one way or another, so might as well do it the honest way. (The dishonest way being to give GM money to keep the farce of its current structure going.)

What is ERISA?

Is this going to cost me as a private citizen?