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GM is still in denial

Posted by Hootan Mahallati | June 01, 2009 | In founder's thoughts gm news

You do not need me to tell you about the historic bankruptcy of GM today. Furthermore, you probably do not need yet ANOTHER opinion on what it all means. But this is rightpedal and therefore, I am bound to share my opinion with you.

Reading comments on the bankruptcy across the internet, I can best sum up the overall public sentiment as a sense of anger at the government for not having gone through these motions several months ago. Why, people are saying, did the government give GM $20B then, only to let them waste it on their way to an expected bankruptcy a few months later?

This is a good question. Playing devil's advocate, one could say that it was all about psychology. Consumer confidence was so low a few months ago that perhaps the government thought the nation could not withstand the psychological and symbolic impact of its flagship car maker throwing its hands up in defeat.

But the predicted has happened and people are now mad that the President is resolute to save what I have read being referred to as 'government motors', likening GM to former Communist-block companies like East Germany's Trabant and Yugoslavia's Yugo. I think this is far too short-sighted a view and a little bit on the side of ridiculous, to say the least. As Todd Lassa, Detroit Editor for MotorTrend said in this video interview I had with him at the 2009 NY Auto Show, not letting the Detroit 2.5 (there is no way Chrysler can be considered the 3 in 'The Big 3' anymore) is not just about those specific companies; rather, it is about the entire ecosystem of automotive manufacturing in the United States, including that by companies such as Toyota, Honda and Nissan. The web of parts manufacturers and after-market suppliers is interlinked, and, if as some say the government should have let happen, GM filed for Chapter 7, the health of automotive manufacturing in the US as a whole would be affected. Is such a large a chain reaction something people really want? I doubt so, if they take a minute and think about the ramifications. Like it or not, unlike Chrysler, GM is just too large a lynchpin in the grand scheme of things, and saving it is about more than just saving GM.

Having said all the above, I must say that listening to GM CEO Fritz Henderson and CFO Ray Young on CNBC and CNN earlier today, I could not help but think that the reason GM finds itself where it is today is evident: finance guys being in charge. I know I am not the first to say so, and as a graduate of Columbia Business School, I might even offend some of my classmates and fellow alumni by making this statement. However, when all I hear from the leadership of a company on the day of its historic and even tragic downfall is things like 'GM's survival depends on a leaner cost-structure' or 'we should be able to return to positive EBITDA if volume stays at 10M', I feel like screaming at Fritz Henderson and saying, ' for God's sake, why can't you just say 'GM's survival depends on us making products that people crave and desire' or 'we will rebound when we are a natural first choice every time the consumer goes shopping for a car in each category'). In my opinion, great financial oversight is necessary in order to makes sure the corporation is operating properly and allocating its financial resources efficiently, but this should be complimentary to a strong product portfolio. All this focus on finance misses the point that you need a person like Bob Lutz, whose imminent retirement will be felt intensely, in the CEO role of a company like GM, not in role below that, no matter how grand it may sound (Vice Chairman of Global Product Development). After all, companies typically sell products, not annual review booklets. Do you think Apple is where it is today because they have a great CFO, or because they have a quasi-dictator at the helm pushing for great products that people line up to buy?

I am not here to attack Fritz Henderson and Ray Young, but I am saying that the Obama administration's key mistake after ousting former CEO Rick Wagoner was not appointing a real product genius to lead GM. I do not care how you sift through the balance sheets and income statements, feeling good about how much 'less bad' the closure of 11 plants makes the numbers look. Having been an engineering supplier to GM, I know how great its engineering might still is and therefore, GM has no excuse but to build amazing cars going forward. GM brought Cadillac back from the brink of irrelevancy over the past decade, and the new Camaro proves just how much quality and value it can offer consumers. But this is not enough; GM needs to have a home run in every category in order to take the fight to its ever-more-powerful rivals, including a newly focused Ford Motor Company. To pull it off, GM needs layers of engineering and product-heavy management with finance superstars like Ray Young in a supporting role.

I pride myself in being an optimist, hence my desire to predict a glorious resurrection for GM. I am, however, a realist who trusts his gut as well, and my gut says that GM needs to talk and act differently and simply promise Americans that it will blow their minds with amazing cars in the coming years. Anything short of that, I am afraid, may not be enough.

5 Comment(s)

Big E | posted 1 year, 1 month ago

Hear, Hear! You're mostly right - the US government should have given me the bilions, not GM...

Basically GM has a few OK products - I mean, who doesn't like his Vettes or Camaros? - but the rest of their products are frankly quite shit. All of the GM products that are any good are dinosaurs, be it Vettes, Camaros or pick-up trucks / SUVs. Muscle cars are grat fun, but impractical and very thirsty. A pick-up is no fun and very thirsty, but may be uselful if you work on a farm, wear a cowboy hat & boots and regularly carry several tonnes of horse manure in your car. Otherwise it's just plainly shit, so to speak. What they need are advanced, economic, high quality etc. "normal" cars - otherwise potential customers will end up buying something japanese (good) or european (better). And yes, it does help having a "car guy" like Bob Lutz putting a bit of soul into the cars, not jus a bunch of bean counters telling the engineers what (not) to do. Amen.

Big E

Hootan Mahallati | posted 1 year, 1 month ago

You know Big E, we should just start a car company together!

Ethan | posted 1 year, 1 month ago

Hey Hootan. As a finance guy myself and former classmate, I can say...you're absolutely right! You've got to make things people want and make them well. But you're not wholly right. If Apple spent $500 to make every iphone or ipod it sold for $200, it would actually be better off selling less, not more. This isn't finance, this is 1st grade arithmetic. And unfortunately, for all the talk of brands, restructured debt and scaled back dealerships, I don't see any real changes to the labor structure. You can't make similar products to your competitor and pay twice as much to do it. That's a losing recipe but GM appears hellbent on not learning its lesson. There seems to be a lot of that going around nowadays...

Hootan Mahallati | posted 1 year, 1 month ago

You are right on that point, Ethan. They had a worse cost-structure to deal with for years. But it seemed to be the only excuse they stuck with. It was true, but it was overused. I think everyone got tired to hearing how unfair it was that the Japanese had no unions to deal with, and that Japan made it tough for Americans to import cars there. You lived there, so you know that Japanese would not have rushed to buy American even if there marker was filled with it.

Fridge | posted 1 year, 1 month ago

Hey Big E whaddaya mean, a pickup truck is shit? Would that include diesel powered trucks as well? Hootan for GM CEO. Truckin' on Fridge