GLG News by James "Jim" Rippy

Implications:   The article in the news today about the reduction of health care benefits planned for GM salaried retirees is very sad .We are talking about folks in their seventies and eighties who gave their lives to the company. People who were told almost annually that the size of their wage increases reflected the money that must be set aside to provide health care for them in retirement. I have always been a strong supporter of our free enterprize system. I find it very saddening to watch so many lives being destroyed because of greedy inept management and leaders. These leaders now asking for a huge government bail out are the same ones who have destroyed a once great icon of American industry.  . I say “Bail them Out”, but make sure that the entire top layer of management is gone and the board that supported their failed strategies with them. 

Analysis:                                
It would have been difficult to find a dissenting voice in 1998, with the exception of the afflicted executives, who wouldn't’t agree that General Motors is seriously afflicted with inept leadership  In fact the lack of leadership at the top may be so imbedded in GM’s corporate culture that only radical surgery or a huge external transfusion will allow it to compete long term.  Here is an article from 1998 “GM Sales Fall but Industry Hits Records”, reveals that the company pulled its market share down to 29.4% from 32.5% in March, 1998.  GM promised things would improve.  A Company spokesperson stated, “We are comfortable with where we are so far this year”.  This is the same company that once approached 50% market share.  How do we keep rewarding the millions and millions of bonus dollars, as well as huge compensation packages only to lose 40% of the business?  On May 4, 1999, General Motors reports decline in sales of 4.2% while competitors report robust gains; Ford up 6.8%, Daimler/Chrysler up 2.0%, and Japanese have record sales.   But, this huge company has no immediate threat to cause it to change.  Executives in charge today will continue to receive large salaries, and (please note that I said receive, not earn ;) and they will sail off into the sunset with huge pensions and retirement options while the damage continues.  The same scenario will play out at the United Autoworkers headquarters.  Union leaders were involved in all of the decisions that reduced the competitiveness of this once prosperous company.  They will be retired and not even be aware of the damage they inflicted.  The people who will pay for the decisions or lack of decisions by these top leaders are those in middle management as well as the people on the factory floor who actually do the work.   When do we start holding leaders accountable to make the best decisions for the investors and the troops? Does it take years and thousands of jobs lost?  Do we wait until the companies have shrunk to one-half or one-third of their previous size and employment has been reduced to one-half of previous levels?  A better solution is to try to recognize the lack of leadership as early as possible and avoid reaching the ravages described above.  Bringing in a new competent leader at this late  stage means that he or she must spend so much time and energy on damage control and restoring stability that growth and job preservation cannot always be the highest priority.  I think the best solution is early detection and prevention with quick decisive action, not 10 years later.
 

Implications: Leadership at the top will just double the problem with the merger.

Analysis:  

Recent news of talks between General Motors and Chrysler pertaining to a possible merger deserve comment. Combining two weak companies with falling market shares does have the potential to improve the performance of both companies by finding cost saving synergies. Combining these two without major changes in both the Board of Directors and GM management would do nothing but cost more people their jobs and buy a little more time for the terribly ineffective leaders at General Motors.

Every time I read a new article about GM, I ask myself how long the shareholders will continue to bless a decade of mismanagement and ineffective strategy and leadership. Will we allow Waggoner, Lutz and company to just keep cutting and closing plants until nothing is left?

Freddie Mac and Fanny Mae fill the daily news. The performance of the leaders at GM falls in the same category. We have observed a decade of new programs and strategies that have done nothing but protect and pay the top executives bonuses while the company continues in a death spiral.

It will not only be sad, but should be illegal for this type of leadership to exist this long and leave with huge severance packages (platinum parachutes). History has already measured their performance by their track record. The only question left is will there be enough to save when they are gone.

Implications: Two weak companies with same failed strategy equals a diaster unless changes at top are part of deal.

Analysis:  Recent news of talks between General Motors and Chrysler pertaining to a possible merger deserve comment. Combining two weak companies with falling market shares does have the potential to improve the performance of both companies by finding cost saving synergies. Combining these two without major changes in both the Board of Directors and GM management would do nothing but cost more people their jobs and buy a little more time for the terribly ineffective leaders at General Motors.   Every time I read a new article about GM, I ask myself how long the shareholders will continue to bless a decade of mismanagement and ineffective strategy and leadership. Will we allow Waggoner, Lutz and company to just keep cutting and closing plants until nothing is left?   Freddie Mac and Fanny Mae fill the daily news. The performance of the leaders at GM falls in the same category. We have observed a decade of new programs and strategies that have done nothing but protect and pay the top executives bonuses while the company continues in a death spiral.   It will not only be sad, but should be illegal for this type of leadership to exist this long and leave with huge severance packages (platinum parachutes). History has already measured their performance by their track record. The only question left is will there be enough to save when they are gone.      

Implications: A Sea Change has occurred in the Tire Industry. Major changes in production locations, pricing strategy,capital investment are happening today.

Analysis:  Over the past few years a sea change appears to be happening in the Tire Industry. Once, a truly competitive oligopoly, the industry has made significant changes. Let’s examine the major changes that have had the most impact. The industry has a lemming or sheep like attitude for many years where the smaller players always attempted to follow the leaders.
   First, you have to understand that tires are really just high-tech commodities. Fortunes are spent in promotion and advertising, but at the end of the day, all of the top ten tire companies make excellent tires. They are always attempting to differentiate their products without a lot of success. A large percentage of consumers do not know what type tires they have on their vehicles. We have three types of purchasers of tires. The sophisticated buyer with enough wealth that cost is not a concern who will buy the highest priced tires available. We have the young folks who buy tires to enhance the appearance of the vehicle. They buy tires with large white letters, fancy sidewalls etc. without regard to cost. Then we have the large majority of folks, probably 80-85% who buy strictly on price. They read the advertisements that are published once a week or call and shop around to find the lowest price. This is especially true if they have any plans to trade vehicles in the future.   Tires are a negative purchase or as we used to phrase it in the industry, (an   OH SH__, I need tires purchase). Folks do not get up in the morning excited about buying tire like they would cars, stereos, and televisions.
 Now, let’s discuss the major changes.   Let’s start with off/shore production. Every major tire company with has attempted to shift their production in North America to high performance, high value added sizes to bolster their profitability. A major attempt to locate their broad-line production in low wage countries has taken place. Huge increases in imports from China, Brazil, and Mexico for example. They also are attempting to run from their unionized facilities with contracts that are not affordable and restrictive practices that do not allow for improved efficiency.
   Pricing strategy has changed remarkably over the past several years. Companies used to announce a price increase on Friday and by Monday it would be discounted back to a level that was sometimes below the price announced. The industry was so competitive that prices just did not stick. Prices increases today are sticking as they never have before. It appears that a quarter does not go by without major price increases being announced by almost all the players. They finally realized that with raw material prices increasing by double-digits numbers that continuing practices of the past was a road to bankruptcy. Will this type of discipline hold true as the economy slows and shifts to smaller fuel efficient vehicles? What will happen when they have to start idling factories? Will the pricing habits of the past return as they attempt to keep the plants running? It will be interesting to see what happens.
 
  Another major change has been the drive for efficiency. A large portion of the capital being invested in the industry is being directed at efficiency improvements and automation. The only capacity expansions of significance domestically have been in the Giant Tire segment.   Let’s hope that just as the industry has converted their production domestically to larger and larger high-performance, high-value added products, that high fuel prices do not convert the market to smaller vehicles. Smaller vehicles do not require large tires that we see today on SUV’s, Large Sedans etc.   It would be disastrous to see the industry as far behind the curve as General Motors. The first half of the year, almost all of the tire companies experienced a loss in value. .        

Implications: Where are the leaders on a daily basis. This company needs some real "hands on" leadership to survive.

Analysis:  What does it take?   It does not seem to make any difference. They have missed all market changes, late with Hybrids, made poor acquisitions choices, and allowed cost to get out of control. The management blunders make you wonder who is watching the store on a daily basis. Historians will write books on the destruction of this once great company while the parties responsible will ride into the sunset with their golden parachutes. It is not a stretch to think that the long term survival of this company is at risk. Certainly the present leaders are reactive and appear to be way behind the curve on all most all major strategy decisions. This company based on their track record needs new leadership at the top and a board that realizes their responsibilities to the customers, shareholders, and folks who do the work.  

Implications: How long will the “do nothing” board at GM allow Waggoner and his team to continue their destruction of the company? How many restructuring scenarios will they be allowed before their board realizes that the plans presented are not working? When will the top folks be held accountable? Will they wait until the company is unsalvageable and all the top guys have ridden into the sunset with huge retirement packages? They have had so many “fix it” restructuring plans that they are probably to the state of recycling some of the old ones to buy more time.

Analysis:  The track record of the present leaders really dictates that something needs to be done and quickly. A huge ship like GM cannot be turned on a dime, but at least we should be seeing the start of turning. Declining sales, continued loss of market share, reduction of employees and unacceptable profitability all indicate a very sick company. Instead of restructuring the company continuously, it is time to restructure the management team. 

Implications: I am convinced that this company cannot prosper with the present leadership in place. A complete house cleaning is probably the only hope for this company. How do the top guys continue to not only keep their jobs, but continue to be paid bonuses for the abysmal performance. Some of these players have been in their current positions for several years with track records that would have eliminated their team from the tournament long ago.

Analysis:  The past and current performance of GM is a text book example of the damage that ineffective leaders can have on a once great company. Their Board of Directors and leadership of the UAW share the blame. Their ineptitude not only jeopardizes the jobs and livelihood of their employees, but does similar, if not greater damage, on their supply chain. The examples of their recent decisions to offer buy-outs to their hourly employees is like trying to use a band-aid for arterial bleeding. I would need a calculator to add the "reasons" that GM would give for why Toyota can continue to build plants in the US while GM is negotiating closures with the UAW. I am not trying to sell books, but I wrote a short book in 2000 describing the sickness that exists in failing companies such as GM. I only wish that a more competent author had tackled the subject. Companies sick with "Executivitis" cause tremendous human suffering.
http://www.leadership64.homestead.com/leadership64.html

Implications: GM will never change until the top leadership is gone. They still operate in the mode of Jack Smith and Ignatio Lopes. A look at their performance over the past decade would convince anyone that their failed strategies do not work and will never work without significant changes starting with top leadership. Any coach with the won-loss record of GM would have been fired and sent to the minors long ago. Think about it! Who should be held accountable for declining market share and abysmal profitability if not the very top guy and the top guy in purchasing?  The "tooth fairy" did not cause such poor performance. This company needs new leadership.

Analysis: The majority of GM suppliers know that this company is behind the times in management. They are paying dearly for thier relationship with such a poorly managed company. GM is the epitome of a company diseased with "Executivitis".

Implications: Good year has made significant progress sine the days of Gibara,but they are losing ground to both Michelin and Bridgestone. They do not have the efficiency levels of Bridgestone or the technology of Michelin. Their capital investment in new processes is approximately half that of the top two. They are sure to fall behind in plant efficiency. The move to remove retiree health care from their books and to the United Steelworkers is a small band-aid on their legacy cost. They will have to invest more in plant effeciency or be left in a distant third place.

Analysis: The present management team has made a lot of progress since the failed strategies of Gibara. The problem is that while they were digging out of a huge hole , their competitors were not sitting still. Michelin and Bridgestone were making progress from a more solid base also. This coupled with the gains of the Koreans has made their task much more difficult.

Implications: GM continues their attempts to restore profitability from the "hides" of their suppliers. Their purchasing department over the years has been a true deterrent to their success. Their recent statements are reminders of the Jack Smith and Ignatio Lopez era. Some of the supplier executives will remember the teams that GM would send to their factories supposedly to assist in improving the suppliers efficiency and reducing the price to GM. What a farce! They should have been visiting their top suppliers to learn how to be more efficient at GM. These programs only covered up the lack of leadership and management capability at GM. They have never learned how to partner with their suppliers to reduce cost for mutual success. They continue to use fear in their supplier relationships. Statements that commodity prices are scary and material substitutions are being considered by GM purchasing only re-inforces that their methods are stuck in a time-warp just like their performance of the past

Analysis: GM must learn how to look internally at their purchasing methods. It shuold be obvious that this is just another area where they are not effecient or competitive based on the past decade's performance. They could learn a lot from their Japanese competitors in this area as well as manufacturing.

Implications: Any agreement on health care funding is only a short term fix. We are the only developed nation in the world that does not supply universal health care to their citizens. Health care cost's have doubled in the past decade with relatively tame overall inflation. We need universal care with a single payer system. There is no justifiable reason for the increases in health care cost to such astromomical levels. This factor affects the ability of the auto maker's to compete with contries that provide health care as a birthright, ratheer than a service. Not only does our system continue to drive manufacturing off-shore, it is morally wrong to have 50 million people without health care access. We have thousands of people who die each year for lack of access to quality health care. Rather than negotitiation to fund a broken system, we need to jointly ask our politicians why we cannot have a system like France, Germany, Canada, United Kingdom, Sweden etc. We are ranked 37th in health care.

Analysis:  The percentage of health care cost in the product has reached a level that severely affects the competitive ability of our major manufacturers. Attempting to tweak the system by shifting more and more cost to the employees will never work long term. The system is broken and must be fixed at a national level. We need politicians with the courage to face down the lobbyist in the health care industry and pharmaceutical industry to fix this system.

Implications: GM has missed the boat, the dock and the road to the lake. This company is suffering from a serious disease called "Executivitis".

Analysis:     In 2000 I wrote a short book on a disease that is infecting our major corporations. For lack of a better term, "Executivitis" was used to describe this disease. General Motors was used as an example of how serious this disease has become. It is now reaching epidemic levels in our country. I only wished that a skilled writer had tackled this subject rather than a manufacturing executive who spent decades as a supplier to the car companies.

    One example of a company riddled with Executivitis is General Motors.  The downward spiral of this company is the result of this disease.  Once a great company, GM has missed almost every significant paradigm shift over the last three decades.

    GM spent billions on factory automation only to learn that people are the most significant part of the manufacturing equation.  The Japanese taught them a lesson when a shut down General Motor's assembly plant in California was reopened as a joint venture with the Japanese.  This was a wonderful opportunity to learn, but Executivitis kept company management from understanding what was really going on.

    Can you visualize a more glaring example of Executivitis than the tenure of Roger Smith and his executive team?  Try reading the biography "They Call Me Roger".  It will probably give you even more insight to this disease that is causing so much pain today.

    GM has lost market share dramatically over the years because of unexciting products, quality problems, design problems, labor problems, and just about every management blunder that leaders with this disease can commit.

    Do people still believe that famous quote by Charlie Wilson, "What's good for General Motors is good for the country"?

    Remember the GM X-Car?  The Citation was one ugly car with safety and quality problems to match its appearance.  Let's get real.  Could any leaders without the disease we are talking about actually approve anything like the X-Car for the market?

    Over the years this company has reduced their people by thousands, yet they still are not competitive.  They are still too vertically integrated and have difficulty in almost every sector of their business from basic design to procurement of raw materials and even selling the finished product.  A basic flaw in our system exists when we pay top executives millions of dollars in compensation and bonuses to eliminate hundreds of thousands of jobs, lose market share, and decrease profitability.  

    Over the last few years GM has tried to catch up by using their supply base to overcome the problems associated with this disease that is slowly eroding their competitive capability.  This really started during the days of Ignatio Lopez.  He was the purchasing wizard brought over from Europe to help the Chairman Jack Smith save the Company.  He is also the executive that left GM for Volkswagen and later resigned from Volkswagen during allegations of stealing product secrets from General Motors for Volkswagen.

    Lopez's theory and practices were really pretty crude.  Tear up all the contracts, destroy all the partnerships, and force price reductions on all major suppliers.  He even had a scam to camouflage this--the so-called "Picos" teams that he would volunteer to visit suppliers and help them in their cost reduction efforts.  The suppliers thought "Picos" was an acronym for something like Purchase Involvement Concept Optimization.  In reality it was just a scam to force price reductions and put fear into the supply base.  General Motors would send a team to your factory to show you how to be more efficient.  Remember this is the same company that in the past suffered a major strike that cost billions.  The strike took place at an internal supply plant where the standards were allegedly so low that the factory workers could make their production quotas in four to six hours, be paid for eight hours, and then leave the factory to work some place else.  This is the same company which offered help to their suppliers in the areas of efficiency and productivity.

    General Motors should have had some of their more efficient suppliers visit their facilities and give them assistance in reducing their cost and improving their quality.  This would have been a much better approach than the forced price reduction scam.  The "Picos" way only reinforced what every one should be able to see; Executivitis permeates deep into this organization.

    GM built "the factory of the future" at Buick City in Michigan.  One of the most highly automated factories in the world, hundreds of robotic functions replaced people at almost every stage.  In contrast, GM's joint venture with Toyota in California did not have this level of automation or as many robots plus a staff of rehired workers GM had given up on.  Guess which assembly plant performed the best?  If you picked California instead of Michigan then you are starting to understand this disease.  The reopened California assembly plant performance is better than most of the other General Motor's assembly plants.

    This disease exists in other countries, societies, and cultures, including Japanese companies and leaders.  But the percentage in other countries afflicted is fractional compared to the United States.    

    General Motors presents a realistic but sad view of a giant afflicted with the disease Executivitis.  This story also reveals what can happen to a giant corporation when the leaders are afflicted with Executivitis.

    As I wrote this in 1999. GM had two strikes which idled over 160,000 hourly workers in the United States, Canada, and Mexico plus another 500,000 people who work for their suppliers.  These strikes were not about economic conditions or even legitimate concerns about working conditions.  These strikes are about loss of jobs to other countries with lower wages and no restrictive work practices.  Allegedly employees in certain jobs in the striking stamping plant can produce their quota in four to six hours and go home.  I will wager you that this practice does not exist in the companies and countries they compete with.  It is difficult to understand how this could have happened today.  The top leaders of General Motors and the top leaders of the United Autoworkers are consumed with Executivitis.  They continue to operate as if the world stood still over the past twenty years.  None of these leaders on either side will feel the pain of their disease.  The thousands of people who work for the company will take the bullets while the top leaders in the company and the union will continue to cash their paychecks, including huge bonuses for the company guys and reelection for the union guys for lackluster performance.

    A past study by Harbour & Associates, a consulting form that tracks the automotive industry, revealed that productivity is improving at U.S. automakers, but they remain well behind their Japanese competitors.  This older scorecard shows that General Motors productivity gap compared with Toyota, cost the number 1 U.S. automaker about $4.8 billion the l998.  The cost to assemble a GM vehicle was nearly double Toyota's and 30 percent higher than Ford's.  This difference is the result of paying more per person and using more people to assemble the cars and trucks.  Restrictive work practices that cause additional assembly hours are one of the major reasons for the difference in "Labor hours per vehicle".  In a later chapter, "Where Companies and Unions have missed the Boat", we will explore some common examples of restrictive work practices and noncompetitive contract clauses.

                       LABOR HOURS PER VEHICLE          

                    General Motors                    45.60
                    Daimler Chrysler                 44.25
                    Ford                                   34.79
                    Honda                                30.84
                    Nissan                                30.76
                    Toyota                                30.38