The lesson from the biggest industrial bankruptcy ever:
PIM of SPAIN | June 10, 2009 at 08:53 amby
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Once bitten twice shy. Is a credo that never ever should be forgotten. In other words if someone has been hurt or had a bad experience that person will be far more careful the next time.
“It was terrible. Since then it's been Hondas and Toyotas for me. You can tell me that the Fords, GMs or Chryslers are better now, but as long as the Japanese continue giving me great and reliable cars, why would I give them another chance?” It takes a very long time to win back a customer and his trust when your product does not meet the quality expectations and is expensive like a car.
GM employed so many people and dominated so large in American culture that government felt they had to protect them; but in doing so, they made GM vulnerable to the less-protected competitors from abroad. By trying to keep their car industry big, government and GM’s managers ended up preventing the company from becoming good.
The divisional management structure created in the 1920s, with professional managers reporting to a head office through strict financial monitoring, and the decision-making by consensus, was kept for too long in place.
When the market changed, this organization model proved disastrously inflexible. The problem in the 1970s was not really the arrival of better, smaller, lighter Japanese cars; it was GM’s failure to respond adequately. Rather than hitting back with superior products, and reorganizing the corporate structure, as -amongst others- GE and IBM did, GM management went to the government for help, which was provided. If GM had spent less time lobbying for government protection and more on improving its products and corporate structure it would have done a much better job. The US Government should have taxed fuel as high as in Europe, which would have hurt for a while, but unlike market-distortion more and better fuel-efficient cars would have been the result.
Yet although the long-term prospects for sales growth look good there still is a 30 - 40% overcapacity in the industry that has creatively to be destructed. Even when the big global manufacturers built new factories in emerging markets, governments in slow-growing rich-world markets have been bribing them to keep their national factories employed.
Mr Obama’s $50 billion rescue package for GM was implemented, on the consensus that the industry employs so many people and is important for its technological know-how. Governments are easily convinced into the belief that car firms must be supported when times are tough.
Nonetheless under-developed GM deserved extinction and not a bailout.
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