GM formula:

1) make homely cars that are not durable

2) provide short warranties and lousy service

3) be arrogant

4) sign union contracts that allow featherbedding, tolerate high absenteeism, constant grievances, etc.

GM needed a new business models in the 80s, and needed to take a big strike to change the basic contract model. Neither happened.

The finance geeks running the company have built a great bank (GMAC) with an auto albatross tied to it.

GM still doesn't "get it," and it may require bankruptcy before the do.

In the mean time the toll of workers, families, suppliers, etc., is going to be gruesome.

The foreign carmakers *do* have older workers and retirees. But they're generally back at the home country, and the company doesn't carry the healthcare costs like they do here.

Paul Graham has some interesting comments on why American-corporation-designed cars are so unappealing here. IMHO, the key quote is:

"Instead of relying on their own internal design compass (like Henry Ford did), American car companies try to make what marketing people think consumers want. But it isn't working. American cars continue to lose market share. And the reason is that the customer doesn't want what he thinks he wants.

"Letting focus groups design your cars for you only wins in the short term. In the long term, it pays to bet on good design. The focus group may say they want the meretricious feature du jour, but what they want even more is to imitate sophisticated buyers, and they, though a small minority, really do care about good design. Eventually the pimps and drug dealers notice that the doctors and lawyers have switched from Cadillac to Lexus, and do the same."

And 3 mores points to your GM formula save_the rustbelt:

- Abuse your suppliers so much that they compromise quality and cooperation
- Disconect R&D from marketing and operations so that you waste one of the largest R&D budgets of the world
- Invest billions of dollars in automation in the 80s, aiming for productivities that
could have been achieved with lean manufacturing

One of the interesting by-products of a stagnant industry or company is what happens to the age of your labor force. From the 1970s to the 1990 employment by the big 3 essentially stagnated as for all pratical purposes they did not hire new employees. Consequently, the average age of their work force grew sharply so that by the 1990s you needed your 20 year pin to get on the factory floor in Detroit. But compensation is very much a function of years of service, so average wage costs rose sharply. In contrast, the Japanese firms were opening new plants and hiring new emploess that had little experience.
So even ignoring the impact of unions, other legacy costs, etc., just the fact that production by the big 3 stagnated for 20 years generated a more expensive labor force.

In the short run, a company can prosper by betting on inertia. In the long run, it can prosper only by betting on change.

GM and Ford were doing very well a few years ago, when fuel costs were low, the economy was booming, and customers were willing to spend their money on high-margin vehicles like trucks and SUVs. The fact was, though, that most of the people who bought SUVs did not need all the space they had and hardly ever took them off-road; the economy was not always going to be booming, and fuel costs were bound to go up. Faced with the choice of maximizing profit (hence share price) in the short term and preparing for change, GM and Ford barely even blinked. Now they are behind the eight ball as far as their customers are concerned, with cars less appealing than those made by Honda and Toyota and large vehicles less attractive to newly mileage-conscious consumers -- and also much more expensive than very similar used vehicles now flooding the market.

High wage and non-wage compensation and burdensome legacy costs would handicap American car manufacturers even if they had prepared for a future different from the mid-1990s, but if they had done this we wouldn't be talking about bankruptcy for either GM or Ford.

> Disconect R&D from marketing and
> oeprations so that you waste one
> of the largest R&D budgets of the
> world

While I doubt that the mythical 100 mpg carb ever existed, a good friend of mine spent 20 years in the Tech Center doing absolutely mind-boggling fundamental research resulting in numerous breakthroughs in auto technology that never made it into sellable products. Marketing always had a reason it wouldn't work, it seems.

Cranky

Well, Cranky, would not a GM bankruptcy be a positive good thing, releasing all that research for use by whomever succeeds GM in the US market?

I've managed to save up roughly $11703 in my bank account, but I'm not sure if I should buy a house or not. Do you think the market is stable or do you think that home prices will decrease by a lot?