General Motors (NYSE: GM) can't compete in the global automobile industry. In the 1960s it had 50% market share, now it has 20%. Yet the management culture at GM hasn't much changed in the last 50 years. This despite the emergence of powerful global competitors, like Toyota Motor Corp. (NYSE: TM), which is poised to take over the global market share lead this year. That's why it would be a bad bet to put taxpayer money into GM.
It seems popular to blame the UAW for GM's problems. But as I posted in January 2006, GM can't compete for a variety of reasons. GM used cars as a loss leader for selling the more profitable leases. For the first nine months of 2005, GM limited its $6 billion in vehicle operating losses due to the $2.2 billion it made financing those vehicles. It was trying to cut capacity by 19% -- since 20% of its factory capacity was idle -- as its stock lost 44% and ratings agencies cut its debt to junk status.
By contrast, Toyota beat GM on every measure that mattered. Its stock was up 30% for the year; its products led on initial quality surveys, and consumers paid 14% more for Toyotas than for GM cars. Toyota also built its cars 7% faster and enjoyed a per car cost advantage of between $300 and $500 over GM. Toyota's cars were so popular that its factories were operating at 100% of capacity -- yielding a $1,488 per vehicle profit compared to GM's $2,300 per vehicle loss.
This brings me back to whether taxpayers should invest in GM. It has been steadily bleeding market share and losing billions -- $73 billion in the last few years. Its management culture is frozen in the 1960s so it will keep trying to do the same thing it has always done. I believe there is nothing that anyone can do to change that culture.
Despite the claims that 2.5 million jobs will be put at risk, I think the U.S. would be better off not throwing away billions of dollars by giving it to the executives who have overseen a 95% drop in GM's value since 2000. Perhaps we can convince better run global competitors to purchase GM's factories and work with its suppliers. For those who do not get jobs with a new owner, we can provide funds to retrain them for other industries -- such as making wind turbines.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing, will be published by Portfolio on December 26, 2008. He has no financial interest in the securities mentioned.











Reader Comments (Page 1 of 5)
11-13-2008 @ 11:36AM
Mary Hoffman said...
I think we need to help GM anyway we can. Not for the executives, but for the employees. I do not believe we can stand any more job losses. There is not enough job openings to put these job losses into. Way too many job losses.
11-13-2008 @ 11:45AM
Retired GM employee said...
Just more half truths. When Toylet is paying it's workers Wal-Mart wages and basic no hosp. ins. with no retirees what do you expect. My son bought a Toylet and it's the most trouble prone car he ever owned ! By the way his money went to Japan it didn't stay in the US.
11-13-2008 @ 11:53AM
Greg said...
Mr Bias RETIRED GM EMPLOYEE!! I have TWO Toyotas. One Has 304,000 and still runs like a champ!! The best cars or trucks I have ever owned!! And most GM cars are made WHERE??? Canada & Mexico... GM needs to roll with the changes. And the UAW needs to relax or go away..
11-13-2008 @ 11:57AM
David said...
When the big 3 go look out because the country will be in a depression .
11-13-2008 @ 12:04PM
earl king said...
If they are to remain viable they have to have a business model that works....without it they will go bankrupt anyway and we will have wasted taxpayer money.
11-13-2008 @ 12:03PM
beachpaul said...
Shakeout not Bailout.
11-13-2008 @ 12:08PM
Pat Schultz said...
Get rid of the several hundred executivies and replace them with qualified people making 1/3 of what they make.
Get rid of the Union and the high salaries and benefits that the emplyee makes for turning a wrench or sweeping the floor.
I am a 75yr. old women. I work 45 to 50 hrs. a week. I am happy to do it because I can pay my mortage and medical bills.
I would bet I only make 1/8 of your adverage saleried employee
11-13-2008 @ 12:07PM
AndyB said...
I think Retired GM employee hit the nail on the head - the Big Three's cost structures are not competitive when the UAW demands outrageous wages. Somebody putting 3 rivets into each passing car shouldn't be making $30 an hour. A GM forklift operator can make ~$120,000 a year. Anybody else find that hard to swallow?
Let GM go bankrupt and cut these union contracts.
11-13-2008 @ 12:13PM
Don said...
I was reading the comment about requesting that foreign companies can buy closed American car factories when they go out of business and use American parts suppliers..Are you joking..Why don't they use American suppliers at the present with their two or three factories herein the U.S...They are trying to destroy the U.S. car makers so they can control our company which they couldn't do when they started a war with us in 1941 killing our service people..Also take a death march with them and when you fall out they can kill you...Good Luck
11-13-2008 @ 12:13PM
Mike said...
Screw General Motors, most of the manufacturing has moved to Canada or Mexico anyway. They can get the aid only if they return all assembly plants back to American soil!
11-13-2008 @ 12:18PM
jb said...
That's why I left after 20+ years, they are very similar to the AIG wallstreet fellows. Executives get/got millions every year. we got 3%
Flipside I love the products. The Corvette, the Cadillacs, the Pontiacs. Supplier issues plague every automaker, then they get the blame for bad products. It's an ongoing issue. We have to support the big three.
11-13-2008 @ 12:22PM
rich said...
So it is OK to bail out financial institutions that gambled away our money and not save a company that actually employes people? Give me a break. We reward those who gamble and punish those who keep americans working. Those fat cats who sold all those bad mortgages are sitting back and laughing while all those associated with the auto industry watch our standard of living go down the tubes. GM, F, Chry all made mistakes but they did not steal from investors.
11-13-2008 @ 12:29PM
LOVE MY CHEVY said...
Would the public who continues to purchase foreign owned companines vehicles and then has the nerve to complain about our ecomony is nothing more than a person whom doesnt understand the economy or what would happen if GM goes out. 2.5 million workers out of a job if GM goes out, from the plants, to the dealerships, to the finance arm, to the parts manufacturer, importer and exporters, truck drivers moving the cars, dock workers, and so on. Hey people wake up, buy Amerian and save jobs. The union needs to get in line so they have a job and officers of the company need to held accountable. Come on do nothing congress, loan the money, save the job and stop doing nothing
11-13-2008 @ 12:31PM
Graz said...
Pour good money after bad? No way! Let them fail...Let the market sort it out. Allow the market to sort all of this out.
11-13-2008 @ 12:33PM
harvey riose said...
the writer of this report is an intellectual moron. if he believes so much in toyota he should move to the country that makes them not buys them.
as goes gm as goes america. where is your pride in your country. not everything is a bowl of cherries. support america support gm and get some support for yourself. sincerely, a concerned american
11-13-2008 @ 12:35PM
Lee said...
Lower the prices on new cars. Lower labor costs. When someone on the production line is making $60.00 per hour + that's why the auto makers are failing. When you spend over 2 million a day in payroll your not gonna survive in this economy. Here is a lesson in economics Higher price=less people buying. Lower price=more people buying. And we proved that with the high gas prices.
11-13-2008 @ 12:37PM
Driver G said...
The playing field has never been leveled for American manufacturers. I believe our own government is still offering incentives and rebates to persons who buy Japanese manufactured hybrid automobiles. ( The rebates are most likely from our own tax money of course) It has been said that these hybrid autos which are built in Japan with a subsidy from the Japanese Government are sold at no profit or even a loss to the manufacturer. While in our own country the manufacturers have been constantly forced into untimely and expensive retooling by government mandates. The Japanese people and their government realize how important the auto manufacturers are to their economy and support them intensely. If only that were true of our nation. Therefore The American manufacturers are not solely to blame for their own problems. Patriotism and loyalty come into play here but that's a full other story. God Bless America, God help America.
11-13-2008 @ 1:52PM
FRANK said...
I THINK IT WOULD BE A BIG MISTAKE TO LET GM FORD OR CHRYSLER GO UNDER. WHEN ALL THE WORKERS ARE LET GO THEY DRAW UNEMPLOYMENT INSURANCE. BY WORKING THEY PAY TAXES. IT WOULD BE CHEAPER TO KEEP THEM PRODUCTIVE. THE PROBLEM IS THE MANAGMENT. NEW CREATIVE EXECUTIVES AT SALARIES LOWER THAN WHAT IS BEING PAID TO THE EXECUTIVES THAT CREATED THE PROBLEMS SHOULD TAKE THE BUSINESS OF RUNNING THE COMPANY OVER.
11-15-2008 @ 12:46PM
Carlos said...
you absolutely HAVE to bail out the car industry. Banks....are going out and buying other banks, with the money that they are being given. Those banks have valuable assets. If you want to save the economy you do it two ways. Abolish NAFTA. Take a trillion dollars. Buy up as much as 600 billion dollars in consumer debt. Take 300 billion and pour it into the automotive industry with sitpulations. ( of course with NAFTA gone, you have to move factories, etc, etc. back to America ). Destory the union and give 5 year contracts to each employee, with Cost of living adjustments each year, and performance objectives. OR Give each taxpayer a $5000 gas card. Giving trucking business a significant tax credit for buying Gasoline. Ask/Make each taxpayer to put 500 dollars into wall street, to their benefit. The Gov't is covering Gas, while we as taxpayers are giving to the economy. Buy up consumer debt up to 700 billion or 70% of individual debt. Bankruptcies gone, econmoy is stimulated from the bottom up, gas is covered and you know exactly what you need to get off of foreign oil.
Jumpstart the economy...like jumpstarting a car...
11-13-2008 @ 12:41PM
Lee said...
Why should I pay for GM bailout. Its taxpayers money they are using so why not let the taxpayers decide who should or should not get it. I know lets let moms and kids starve because they can't afford Food or Shelter and lets bail out a Corporation. Humm seems like someone has their priorities out of whack.