Reality Check at Generous Motors

by John G. Agno

Published on this site: May 1st, 2005 - See more articles from this month...

Here in the Detroit Area, everyone has an opinion on how GM management needs to get their act together before bad turns to a fast and furious worse.

Things have been going downhill at Generous Motors since the late 1970s; ever since the accountants were put in charge of operations, hired economists to run marketing and merged the styling department into the design department. Even today it is difficult to distinguish a Buick from a Pontiac from an Oldsmobile.

If there weren't business cycles, GM management may have gotten away with running plants at 80% capacity to cover the extremely high overhead of legacy costs (mostly retiree health care and other pension benefits) while avoiding the consequences of poorly negotiated union contracts (where GM continues to pay employees even when production ceases). But the days of milk and honey, when consumers willingly bought gas- guzzling SUVs at deeply discounted prices with 0% interest, are over and the consumer is now being squeezed between inflationary gasoline prices, increasing interest rates and stagnant wages.

So, what does GM do when it has a $2,000 per vehicle handicap versus its competitors?

The first thing is for GM leadership to get real or get out of the way. Getting real means knowing and acknowledging that today's business model is unworkable, that radical changes in the company's cost structure are required and that all social contracts can be renegotiated at any time.

As a former early-stage turnaround specialist, I understand the importance of a leader cutting deeply and quickly to stabilize negative cash flow while building corporate confidence in a realistic recovery plan. Confrontation is unavoidable when jobs, plant closings, health-care obligations and vehicle models must be reduced.

For GM to stay in the automotive game, factories must close, employee count reduced, health care programs restructured to contain costs and reduce demand, the supply chain consolidated/stabilized and all stakeholders agree to embrace a strategy of GM becoming a smaller, more agile, original equipment manufacturer (OEM). This corporate vision has to emerge holistically with a sense of urgency in order to build a foundation for long-term survival. Starting such a conversation with stakeholders now matters.

Whoever leads this turnaround needs to notify retirees today that their health care benefits are not guaranteed and tell factory workers that they must cost share their health care benefits. When ending health care obligations to retirees alone could save $4 to $5 billion a year, such a subject needs to be discussed sooner rather than later.

This turnaround is not just about the survival of an automobile company and its 324,000 worldwide employees. This is about a region of our country working through a structural shift to a global economy---experienced by all of us who supply, buy, use or invest in General Motors' products. Fifty years ago, the CEO of General Motors said, "What's good for General Motors is good for the USA." The same is true today.

John G. Agno, certified executive & business coach Signature, Inc., PO Box 2086, Ann Arbor, MI 48106 Telephone: 734.426.2000 (US Eastern Time Zone) Email: mailto:[email protected] The most critical knowledge is self-knowledge. http://www.MentoringandCoaching.com