Tuesday, June 2, 2009

R.I.P. General Motors: 1908- September 14, 1970

General Motors didn’t die on June 1, 2009 when it entered Chapter 11. yesterday was just the formal ceremony. GM’s death was ordained on September 14, 1970. 400,000 UAW workers struck GM in a 67 day national strike. 138 plants were shut in the United States and another 7 in Canada. The workers huddled around portable fires in the freezing cold November mornings as they maintained solidarity and Chrysler, Ford, and American Motors continued production.

GM lost. Instead of gaining relief from wages, benefits, and inefficient work rules, GM gave 13% pay raises, and never really fought the Union again. Gold-plated pension (full retirement benefits after 30 years on the job) and medical plans followed.

GM’s inexorable downward spiral ensued. By the time of the 2 day national strike against GM in 2007, the company only employed 73,000 UAW workers. Its market share was down to 23%, while the Japanese kept growing.

If not September 14, 1970, then what about October 15, 1973 when the Arab Oil Embargo cut off oil exports to the West, driving up oil prices. The embargo continued until March 1974. The Arab countries were protesting the Yom Kipper War and Israel’s occupation of Arab lands.

Americans turned to conservation and smaller cars. Toyota made its initial inroads into the American market with its small, well-built Toyota Corona. Honda and Datsun/Nissan followed.

GM spent four decades trying to design a good small car while quality and market share deteriorated. The Buick-Oldsmobile-Pontiac (BOP) cash cow, which dominated the mid-size market, lost its way. GM never recovered. A long series of poorly designed, poorly built, overpriced vehicles emerged from GM’s factories. Names like Chevelle, Chevette, Vega, Cimarron, Allante are prime examples. Oldsmobile and Pontiac are history, and Buick survives only because it is a large seller in China.

We could also choose May 26, 1971, the day Don MacLean recorded “American Pie.” He “drove his Chevy to the levee, but the levee was dry,” foretelling the future – the day the music actually died.

Another possibility is July 31, 1990, when Roger B. Smith retired as Chairman of the Board and CEO of GM. Smith, best known for being reviled by Michael Moore in “Roger and Me,” was the last visionary leader of GM. He recognized that GM could not survive in the long run without radical change. Poor quality and high prices were killing the company.

He invested extensively in robotics to cut labor costs and improve quality. He diversified the company by acquiring Hughes Aircraft and H. Ross Perot’s Electronic Data Systems (EDS). He reorganized and restructured GM. He also brought Saturn to the market.

Of course, almost all his efforts were unsuccessful due to poor execution. GM had become an inertial blob. (Robots became attracted to each other and started painting each other instead of cars coming of the line). With Smith’s retirement, the revolutionary Saturn, the last chance for a changed GM, lost its patron.

Let us note though that while GM owned Hughes, it brought us satellite TV, DirecTV.

Smith’s successors have essentially been clock watchers, watching time run out on the corporation.

Perhaps GM’s fate was ordained on an unknown date in 1950 when Professor Arie Haagen-Smit at Cal Tech identified auto exhausts (sunlight, unburnt hydrocarbons and nitrogen oxides) as the cause of LA’s smog.

Let us also note that the City of Detroit entered is death spiral on July 23, 1967, when a police raid set off five days of riots – riots that burnt and tore the heart out of the once great city. Gordon Lightfoot sang about “Black Days in Detroit” in which 43 died, 467 were injured, over 7,200 arrested, and over 2,000 buildings burnt down.

We could also point to March 22, 1966 when James Roche, President of General Motors, publicly apologized to the United States Senate and Ralph Nader for its campaign of harassment against Ralph Nader. GM’s private detectives were arrested for trailing Nader into the Senate, where he was scheduled to testify about unsafe cars.

The episode made Nader a folk hero, his book Unsafe At Any Speed a best seller, and dented any aura of goodwill GM had with legislators. From then on, Detroit was progressively on the losing side of pollution control, auto safety, and fuel economy legislation.

One final alternative is April 3, 2006 when GM sold 51% of GMAC to Cerberus, thereby losing control of its captive finance company which financed GM car sales.

Pick your date, but I’m sticking with 1970, in hindsight a Pyrrhic victory for the Union.

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