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 5 of 5)
12-08-2008 @ 3:57PM
Jasen said...
Hello all, some very interesting statements have been made on here for both sides, however, may I take a moment and point out some truths. These "Big 3" each sent their exec's on PRIVATE JETS to Wash.,DC last time asking for us lil ole taxpayers to bail them out, the UAW has an amazing contract for its employees, failure to make designs that are good and environ. friendly, much less a golden parachute for its almighty execs. Now, as a laid-off American, I do not wish to see an economic disaster get worse, but in order to get rid of the execs, whos fault all of this is, and in order for a more financially resonible UAW contract, the "Big 3" need to go bankrupt, THEN we the taxpayers will come in and bail them out, removing the execs and get our demands: NO golden parachutes, no $60an hr payrate, NO PRIVATE JETS..Thats the way I see it..The end of the "Big 3" EMPIRE