Tuesday, March 31, 2009

Why I quit General Motors

This may come off sounding rather self-indulgent, but now that the CEO of General Motors, Rick Wagoner, has been fired by the President of the United States and GM is facing the real prospect of bankruptcy, what better time to say “I told you so”?

The very thing that made Rick Wagoner successful at becoming CEO of General Motors was the very thing that brought General Motors down as a company that designs, manufactures and markets cars and trucks. Look at where Rick Wagoner began his career. Upon graduation from Harvard with an MBA, Rick Wagoner begin working at GM in New York in their treasury department. This for a company that designs and builds cars in Detroit? Rick Wagoner was a finance guy and not what was termed in that day, as a ”car guy”. This is the very thing that brought GM to the state it is in today. GM has been run by a succession of bean counters and not a single “car guy” in the bunch, except for lately GM’s Vice Chairman Bob Lutz, who out of frustration has resigned.

I joined General Motors at about the same time as Rick Wagoner, with, in my case, an MBA degree from Queens. Graduating at the top of my class I had no end of groovy job offers to work at IBM (in finance) or McKinsey (in consulting) or with the numerous banks and brokerage firms that sought to employ the top graduates of the day, however I had no interest in these job offers and sought to work in an industry that I was passionate about, namely the car industry, in the hopes that some day I could influence automotive design based on my sense for what would inspire consumers to purchase GM products. The best place I thought to enter General Motors to learn the car business from the ground up wasn’t the treasury department in New York ( assuming it was even available to me), but rather the car assembly plant in Oshawa, and learn the realities of automotive assembly from the factory floor as a production supervisor and production co-ordinator and later as a process engineer.

I was so eager to pursue my new career with General Motors that I skipped my final exam in a Finance course because it meant starting a week earlier and the exam only counted for 40% of the mark, and I had already passed. Before joining GM, I however did take the time to read Alfred P. Sloan’s autobiography entitled “My years with General Motors” which described how he had built General Motors into the powerhouse it had become based on his strategy of different brands that would align themselves with the growing affluence of its customers and allow GM to capture their product loyalty from the humble beginnings of consumers of Chevrolet cars through to Pontiac, Oldsmobile, Buick and some day Cadillac.

From the very day that I began working at General Motors in April of 1979 I began to question what GM’s present day strategy was? I think I was the only one working at the company who was asking this question. I also realized that I would probably have had a better chance at communicating with the management of GM, if I had taken that job at McKinsey in consulting rather than working at the company itself. The barriers to upper management were impenetrable and only served to make the company more insulated from reality and inquiries from the ranks.

By 1979, Sloan’s separate car lines as a strategy no longer made sense in the marketplace as it once had and the accountants who were running General Motors had allowed the various distinct car lines to take on androgynous dimensions, as Buicks became indistinguishable from Chevrolets and vice versa, rendering the strategy even more meaningless, a point that I was making 30 years ago. Meanwhile GM’s car design itself and product quality was clearly inferior to the products coming out of Europe and Japan. I was strongly of the belief that GM was completely coasting and its management was completely out of touch with the marketplace. Worse, was that GM had no sense whatsoever about what their modern day strategy was, and failed to recognize that Sloan’s strategy and execution thereof, had long since run its course. General Motors was run by a bunch of cost accountants who were more intent on cutting the last dollar out of a car’s cost, without realizing that doing so would probably mean selling 20% fewer of that particular design. Not a very wise trade off when one considers the enormous fixed costs (as opposed to variable costs) associated with any new model launch/design.

I soon realized that it would be unwise of me to stick around General Motors for much longer and stake my future on a company that looked so bad from the inside. My concerns about GM’s strategy, or lack thereof were later confirmed shortly thereafter when GM started redirecting billions of discretionary investment dollars into acquiring non automotive business like EDS and Hughes Aerospace. After two years with the company and despite being the middle of a major recession, I quit General Motors at the end of 1981 to go work at Dome Petroleum in Calgary in the Corporate Planning and Economics department, comforted by the knowledge that at least I was close to where the decisions were being made. Little did I know that Dome Petroleum’s bankruptcy would precede that of General Motors by about 25 years, brought down by a tanking commodity price they couldn’t control and excessive levels of debt to acquire Hudson’s’ Bay Oil and Gas.

Strangely it was with Dome’s bankruptcy that I began thinking even worse of General Motors, since General Motors actually has more control over the variables of that industry that affect its future than those that affected Dome’s future, which in part was the justification cited by Barrack Obama for firing Rick Wagoner......a lack of leadership and a lack of vision. To that I would add, totally lacking as a “car guy” and no regard for what consumers want and what motivates them to purchase your products, namely product value and inspired designs.

How difficult of a challenge could that really have been for GM when it was at the top of the heap.....back in 1981? Except for the fact that it was run by bean counters at the time and their protégés in the fatal years to come and its self inflicted demise through neglect.

1 comment:

Dr Mike said...

This is indeed a sad case of executive neglect & lack of foresight & bailing these guys out will not cure what ails them.

We are to a point where the taxpayer is funding this week`s payroll--that is what this has come down to , not even enough cash to meet this week`s pay.

The massive debt has finished this company & the lack of foresight gives it no room for recovery.

Time to cut our losses & run like hell before we are picking up the tab for the health benefits & the pension plans--that will be next.

As the banks in the US are moving to be reborn for the better , so too must the car industry , & GM will not be part of that new plan.

Dr Mike Popovich