Another One Bites The Dust

As of Monday the 1st it's official - Ford is the only surviving member of the big 3 automakers. Oh how the mighty have fallen. GM's fate was likely unavoidable; this recession just accelerated the inevitable. GM has not been consistently profitable for years and has not really seen any sustainable growth in decades. GM and Chrysler never really learned how to compete with global competition in the key US market. Ford was a slow learner too, but is proof that an old dog can learn new tricks.





I don't lament the loss of GM. The firm failed because it did not adapt to changing customer tastes, competitive landscapes, and economic realities. There are lots responsible parties but the failure was primarily the result of poor management and the burden of the UAW. Management did a poor job of responding to the rise of Toyota, Honda, and others. Quality suffered and so did customer appeal because GM simply could not adapt fast enough. GM has long been criticized for having a very hierarchical structure that made it difficult for decisions to be made and change to happen swiftly. The fact is that in today's global world you simply have to be faster than that.


The UAW made it difficult for GM to cut costs and revamp organization and design to improve response times. The work rules and benefits awarded to union workers were incredible. It is amazing that everyone didn't want to work on GM's production line. While the UAW was trying to extract every extra cent out of GM, they lost sight of the fact that the welfare of the employees was inexorably tied to the health of the company, or at least it was until the UAW was brought under the graces of President Obama and his fiscal largess.



The sad truth is that the decisions made surrounding the fate of GM were made for political reasons not economic reasons. As if that wasn't bad enough, the people making these decisions don't exactly have years of experience selling cars. The result will be another gutted firm on taxpayer life support. You know, when I think about all the companies that Obama has bought in part or whole the U.S. is starting to look more like Russia or China in subtle little ways.

General Motors (A Division of the U.S. Treasury)

Ok, seriously I don't even know where to begin to explain what went wrong here. The major U.S. car makers have been getting their butts kicked by foreign manufacturers for years. Basically everybody involved with these companies was to blame. Until recently these problems were left to GM to solve since they are, after all, GM's problems. This is one of the hallmarks of the American economic system, and one of our greatest strengths. The creativity and rapid advancement that stems from such individual economic freedoms is what made America great. The flip side of this is that every once in a while our economy will stumble, and the current deleveraging was a long time coming. What really makes this recession unique is the willingness on the part of Americans to tolerate such huge changes in the scope of government involvement in our lives and economy.

A case in point is that the government went from basically making loans to GM and Chrysler to forcing the resignation of GM's CEO in very short order. It is shocking that such a thing could happen in the U.S. without huge public debate or outrage, but it did and with barely a whisper of protest. Don't worry, it gets even worse - the article linked to in this post's title details the horrors of government intrusion. Barely had 24 hours passed on Obama forcing Waggoner out and now there is talk of dictating who can serve on the board of directors. It's now official folks: General Motors is a de facto state owned and operated company! The really incredible part of all this is that by replacing Waggoner Obama is implying that he believes that his administration is better suited to pick leaders to run companies than shareholders. I doubt very much that Obama has the industry knowledge possessed by, oh I don't know, Waggoner! Not to mention the fact that the President's track record of nominating leaders is not very good - just look at his nominations for cabinet positions. This is just one more brick in what is turning out to be a fairly short road to socialism and this administration is barely 60 days old.



The precedents set with GM and the current economic stimulus and bailout plans will have long reaching and I fear disastrous consequences for the long-term vitality of our economy.