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How Can We Fix GM?

By JLP | March 30, 2009

Front page in today’s Wall Street Journal is the following headline:

Government Forces Out Wagoner at GM

One question:

Shouldn’t they also force out the union?

The union must except part of the blame too. Afterall, they were the ones building crappy products over the years while Toyota and Honda were building quality cars and taking away business from GM. And, while they were building these crappy products, they were striking at every opportunity to demand higher pay and better benefits. You can’t ignore the fact that GM’s retiree benefits costs are way out of line compared to the Toyota and Honda. Those imbedded costs make it very difficult for a company to make money over the long-run.

In my opinion, in order to fix GM, this is what needs to be done:

1. Get rid of the union.

2. Reduce retiree benefits. How? I don’t know. I just know that they need to be reduced.

3. Give employees ownership in the company. When the company does well, they do well. I’m not sure how it could be done but maybe even allow employees to elect their leaders or give employees board seats. Make employees owners.

4. Build cars that PEOPLE WANT to buy! The ONLY GM products that I would consider buying right now are the Buick Enclave, the new Buick LaCrosse, the Chevy Malibu and possibly the Cadillac brand.

5. Get management to think LONG-TERM instead of quarterly.

6. Pay management REASONABLE salaries and make pay transparent so that the owner-employees can see how much management is making and know WHY management is making what it is making. I think one of the biggest problems with corporate America is that the employees feel that they are simply being used in order to pay the managment big salaries.

Okay, keep in mind that the list you just read is MY OPINION. I’m sure your opinion will differ. I would like to know your opinion but please be respectful of mine. I promise to be respectful of your’s.

Topics: Miscellaneous | 16 Comments »


16 Responses to “How Can We Fix GM?”

  1. RA Says:
    March 30th, 2009 at 10:01 am

    The unions were making the crappy cars? Weren’t they just following what management wanted them to do which was make cheap crappy cars?

    I find it very interesting that managements that make millions cannot negotiate with hourly workers without getting their clocks cleaned and are terrified of having to do so. Maybe the unions should be running the show. They seem to have all the brains while management can only hope to cash their big paychecks.

    I think employees already have ownership in the companies. They own lots of stock.

    In order to have a long-term focus, they will need to become a private company. Having the union run the company would also lower management salaries.

    Maybe you are on to something. Wipe out the management and let the employees run the company. They couldn’t do any worse could they? We know they are the ones with the brains because nobody can compete against the unions. Corporate management basically admits that.

  2. My Life ROI Says:
    March 30th, 2009 at 10:13 am

    I agree 100% with #6. Management salaries need to be justifiable. Their bonuses should also be paid on trailing results. That would get rid of the short-term thinking. Would you make a decision that screws the company over in 3 years if your bonuses are based on how you performed 5 years ago?

    However, I take issue with you saying “Afterall, they were the ones building crappy products over the years while Toyota and Honda were building quality cars and taking away business from GM.”

    How do you blame that on the union? They build what the company tells them to. If they stopped working because they thought the product was bad we would blame them for striking… again.

  3. Baker @ Man Vs. Debt Says:
    March 30th, 2009 at 11:04 am

    Kudos to you for putting your honest opinion out there for everyone. I totally agree with your list, espcially the first couple.

    I just wish we had let the some of these guys fail. It feels like we are doing things now that will drag this out for years to come.

  4. Rich Says:
    March 30th, 2009 at 12:03 pm

    The unions make crappy cars? Talk about biased thinking. The elephant in the room that no one talks about is health insurance. Most companies pay about $1200 to $1500 per MONTH for an employee’s health insurance whereas companies overseas get free health care subsidized by their governments.

    Add to it the retiree benefits and its easy to see why GM can’t make a profit. Cutting workers salaries and benefits will simply result in people buying fewer cars as they won’t have the cash to afford them.

    I say let GM go bankrupt but the problem will eventually be transferred over to Toyota or Honda or any other car manufacturer and business if health care costs aren’t put under control somehow.

    I would love to see an analysis of GM’s profitability if you could remove all health related expenses the company has to deal with for an employee. I think that would be an excellent discussion.

  5. Ken Says:
    March 30th, 2009 at 12:04 pm

    In the 80′s, companies were able to reduce pensions by a third, simply by selling to another company. It allowed them to restructure the pension payout. Of course employees hated it, but my grandfather’s generation had to deal with it, so should the baby boomers.

  6. JLP Says:
    March 30th, 2009 at 12:10 pm

    Rich,

    You make a good point with regards to healthcare. But, healthcare, whether it’s paid by the company or by the government, is never free.

  7. ZT Says:
    March 30th, 2009 at 12:26 pm

    The union didn’t design the cars and the flaws in them weren’t the result of craftsmanship so much as engineering, operational decision-making, and management processes. To fault the hourly workers for the problems is silly. The problem is that the company didn’t produce cars that were of the type demanded in the US. They are profitable worldwide because they meet the demands of those markets with decent quality products. They made a huge unsustainable bet on SUVs and lost. Let’s not blame the workers for that.

    I am in favor of adding a ESOP to help workers do well with the company and would happily endorse government funded healthcare which would help US companies compete against products made elsewhere but let’s not blame workers who showed up on time every day, did what their managers told them to, and did solid work like their fathers and grandfather before them.

  8. Mike Says:
    March 30th, 2009 at 12:38 pm

    I work at a GM facility as a supplier representative for a steel company so I have some inside knowledge…

    They DO make crappy cars!

    Personally, I like a lot of the union employees. Professionally, they are worthless!

    Nobody cares; they all complain, cry and whine.

    I also regularly visit the Japanese transplants. The comparison is night and day baby!

  9. Mike Says:
    March 30th, 2009 at 12:47 pm

    Also, they guys that are taking the buyouts are their best people.

    And GM is cutting R&D spending which is the lifeblood of a company.

    Add these two facts together….and future GM vehicles will be like a large turd with wheels. CAVEAT EMPTOR!

  10. sam Says:
    March 30th, 2009 at 1:24 pm

    JLP,
    You stuck your neck out criticizing the UAW, and several people have called you on it. But the UAW does deserve a lot of the blame for the situation. So does the management over the years because they were unable to stand up to the UAW demands for ever sweeter pay and bennies, and more work restrictions that stifle productivity. Now it is time to pay the piper. But now that the Feds pretty much own GM, their first priority will be shielding the UAW from the consequences of their greed, so I have little faith that the hourly employees will pay much of a price. I also have little faith in the long-term health and viability of GM under government control. I think GM will enter a period of long term decline (or I should say continue it’s long-term decline). GM will become a welfare program for auto workers and retirees, partly funded by selling a decreasing number of autos, but mostly funded by taxpayers.

  11. ZT Says:
    March 30th, 2009 at 1:39 pm

    You guys seem to mostly be missing the point. It is the poor design and marketing (not just advertising) that have doomed GM. Does anyone really think the line workers had anything to do with the poor design or missing the boat on energy efficiency over the last 30 years?

    The R&D issue is a big one. The main way to come back in an industry like this is with capital R&D investment with the goal of executing a technological leap-frog.

  12. Jon @capitalistmaven.com Says:
    March 31st, 2009 at 9:16 am

    I can’t understand how so many commenters defend the unions. I think their comments highlight one of the largest problems with unions: they “do what their told to do” and _nothing more_. While doing exactly what your told works great for the military, when it comes to product development and innovation that kind of attitude will get you nowhere. Union members always make a point to emphasize the “quality” of union work. I don’t care if you made 10,000 parts exactly according to spec, if they all had a obvious flaw, you are still to blame. When crappy welds and seals caused my Michigan assembled Mazda to start rusting in 5 years, sure I was upset at the designer but I was equally upset at the idiot Union laborer who could not see (or most likely didn’t care about) an obvious flaw.

  13. sam Says:
    March 31st, 2009 at 10:54 am

    ZT,
    I think it is you that is missing the point. Why didn’t GM and Chrysler spend money on R&D over the last few years? Because they had to spend the money on pensions and health care for retirees instead. Why did GM and Chrysler scrimp on content in their cars, making them seem cheap and causing them to break down sooner? Because they were paying above market wages while being held back by work rules. You can only bleed someone for so long before their performance suffers.

  14. Adam - Natural, Personal Finance Says:
    March 31st, 2009 at 11:12 am

    #5 and #6 should be an interesting mix. I can see the job description now:

    Government owned company seeking new management on all levels. Experience with long hours, being hated by the public and your own workers a plus. Must be willing to work for low pay with a bonus paid five years after-the-fact. Equity shares may become worthless depending on political opinion. Bonuses also subject to forfeiture along with death threats against you and your family. Please apply now.

  15. Russ Says:
    April 2nd, 2009 at 4:56 pm

    GM’s problem is that the cars are designed by the accountants. Everytime I have ever rented a car, it just solidified in my mind why I will never buy big three cars.

    The big three could increase their marketshare simply by sourcing better plastic for their interiors. I have never seen such chintzy knobs and buttons in a car. Can you say Fisher Price?

    Even if German or Japanese are of lesser quality (not), they FEEL so much more pleasing. The big three have absolutely diluted their brand equity too by putting so many of their cars on rental car lots. Everytime you rent a car it is a like a long term test drive. I have never rented a GM or Ford and thought “Gee, I would love to own one of these…”

  16. kitty Says:
    April 3rd, 2009 at 9:55 pm

    Interesting thread. I agree with some of the points.

    I don’t believe it’s just design issues. When I buy a car – and I normally buy new – I intend to drive it for a very long time. The reason I buy new is to have no problems for many years, so I want a car which will have no problems for many years. I don’t want a car which will start cost me a lot in repairs in as little as 5 years. Japanese cars are on the average a lot more reliable. I don’t care as much how it looks, I care about reliability and fuel efficiency.

    Incidentally, Japanese cars don’t lose value nearly as fast as GM cars. Is it because of how is design or because a 3-year Japanese car still has a whole lot more years ahead of it than a 3-year old American car? I’d bet it is the latter.

    Reliability comes from good quality parts. Yes, good engineering is important, but so is good job by guys who assemble the car together. Can GM fire someone who doesn’t do a good job or do unions make it difficult?

    Yes health care is an expense, but many Japanese cars are assembled in the US as well, and they also provide health insurance.

    @Adam – LOL. I actually do agree with you on 6.

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