« Reducing Deforestation Using Economic Incentives | Main | Have Skills, Will Travel »

Wednesday, November 30, 2005

Robert Samuelson: Ghosts That Still Haunt GM

Robert Samuelson acknowledges that labor costs at GM have been high. But he believes the source of GM's troubles is poor management:

Ghosts That Still Haunt GM, by Robert J. Samuelson, Washington Post: ...General Motors ... recently announced it would close 12 facilities and cut 30,000 jobs by 2008. Granted, GM is burdened with costly labor contracts and huge numbers of retirees... But GM also inherits a self-defeating management style formed during its glory days. It presumed that superior managers could always anticipate and control change. By contrast, many top managers in younger companies accept that they will face disruptive surprises that could, unless successfully countered, destroy them. The difference has consistently disadvantaged GM. Its latest downsizing is the company's third since the early 1980s. With each, GM has struggled to catch up with changes that it badly misjudged -- the demand for smaller cars in the late 1970s; the superior quality and production techniques of Japanese manufacturers in the 1980s; and now the demand for snazzier cars and ... better fuel efficiency. ...

Alfred P. Sloan Jr.... was GM's chief executive from 1923 to 1946 ... In 1921 Ford had 60 percent of U.S. car sales. GM overtook Ford because "the old master [Henry Ford] had failed to master change," Sloan wrote. Ford stuck too long with the Model T ... even as the car market shifted. ... Aside from fighting Ford, Sloan had to fashion a huge industrial enterprise that would not collapse under the weight of its own complexity. ... Sloan solved this problem by decentralizing operations ... among separate divisions while centralizing policy matters ... at the top. ... Unfortunately at GM, it ... fostered overconfidence and inertia. "Management" became an exercise in ensuring stability. GM's market power made it less sensitive to cost increases, especially labor costs, because these could usually be recovered in higher prices. ... But that is only half the problem. The other half is that GM does not have the vehicles that command good prices. To move in volume, they require steep discounts. This is a management failing that can't be blamed on unions or retirees, and it's now compounded by the impact of high gasoline prices on SUV sales. Within GM, there are pockets of vitality. ... But too often, GM's deliberate management style has produced mediocre vehicles that fare poorly in today's hyper-competitive market. Since its peak, GM's market share has fallen by half. ...

Sloan shrewdly foresaw that too much success could be fatal. It might dull "the urge for competitive survival," which is "the strongest of all economic incentives." Companies might fail "to recognize advancing technology or altered consumer needs." Avoiding these traps, he said, was GM's challenge. There is now talk that GM could go bankrupt. Although that isn't inevitable, even the talk measures how poorly GM met the challenge.

    Posted by on Wednesday, November 30, 2005 at 12:24 AM in Economics | Permalink  TrackBack (2)  Comments (11)

    TrackBack

    TrackBack URL for this entry:
    http://www.typepad.com/services/trackback/6a00d83451b33869e200d8345b0a8e69e2

    Listed below are links to weblogs that reference Robert Samuelson: Ghosts That Still Haunt GM:

    » Ghosts That Haunt General Motors from Brad DeLong's Website

    Mark Thoma finds Robert Samuelson thinking about General Motors: Economist's View: Robert Samuelson: Ghosts That Still Haunt GM : Robert Samuelson acknowledges that labor costs at GM have been high. But he believes the source of GM's troubles is poor m... [Read More]

    Tracked on Friday, December 09, 2005 at 09:47 AM

    » Claiming Brand Hybrid from A Sustainable Train of Thought

    In my earlier posts about branding (1, 2), I mentioned how Toyota and Honda have an edge over their American competitors because the word hybrid is now associated with their cars and not their competitors cars. In contrast, the be... [Read More]

    Tracked on Saturday, December 10, 2005 at 11:31 AM


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.