I wonder if Mikey or 80 wrote GM's Magical Recovery Plan?
Even Under a Cloud, G.M. Is Predicting Sunshine
General Motors has been hemorrhaging customers for decades. For the
last 30 years, it has been losing almost one percentage point of market
share every year. It sold 45 percent of the new vehicles in this country
in 1980, 35 percent in 1990, 28 percent in 2000 and 19 percent so far
Imagine, then, that someone asked you to make a conservative forecast of
G.M.’s market share five years from now. What would you say? G.M.
executives were asked to do precisely this, while putting together a
restructuring plan to persuade the White House to save the company from
Their answer was 19 percent.
That’s right: with their company headed toward bankruptcy court, their
work force being cut by 21,000 jobs and their decisions now subject to
Washington’s approval, G.M. executives predicted that the company would
suddenly become better at holding on to its customers.
This small triumph of hope over experience — and the fact that the Obama
administration still approved the restructuring plan — gets right to the
biggest reason to worry about the G.M. bailout. The White House had no
good option other than to rescue G.M. But if the bailout is going to
succeed at creating a smaller, healthy G.M., its executives and their
new government overseers need to be realistic about the company’s problems.
They can’t just insist that it has turned a corner — the Cadillac CTS
was the 2008 Motor Trend Car of the Year! — and that the American public
will eventually be smart enough to realize this.
The bailout will, in fact, solve several of G.M.’s biggest problems.
Workers have accepted painful cuts to their retirement benefits.
Bondholders have forgiven debts. Orwellian work rules that sapped
productivity and creativity have been removed. The Obama administration
is preparing to remake the board.
All these steps should help the company focus on building cars that
enough people want to buy. But G.M. still hasn’t explained how, at long
last, it will manage to do so. And optimism doesn’t qualify as a strategy.
It would be easier to believe that G.M. had reached a turning point if
we hadn’t heard the same claim so many times before.
“Detroit Fights Back,” Forbes reported in 1977. “G.M. Moves Into a New
Era,” Business Week announced in 1984. “G.M.’s $11 Billion Turnaround,”
Fortune said in 1994. Just last year, the magazine printed a photograph
of Rick Wagoner, then G.M.’s chief executive, next to the headline
“Gentlemen, Start Your Turnaround.”
The business press has at least injected notes of skepticism at times,
but G.M. executives generally have not. They’ve been an irony-free
version of those old Brooklyn Dodger fans, constantly saying, “wait till
But next year has never arrived, because G.M. cars haven’t been as good
as their rivals. If you’ve ever experienced the joy of being told that
your rental car is a Toyota Corolla rather than a Chevrolet Impala, you
know this. The data bears this out, too. Surveys of customers by
Consumer Reports show that G.M. cars break down more often than Japanese
The ultimate judgment, of course, comes from the market. As Susan
Helper, an economist at Case Western Reserve University, points out,
Detroit’s cars are consistently priced $2,000 to $3,000 below their
Japanese equivalents, yet have continued to lose market share.
Most worrisome, many car buyers in their 20s and 30s don’t even consider
buying an American car. These younger buyers are effectively replacing
loyal Chevrolet, Ford and Chrysler customers in their 60s and 70s, the
auto analyst John Wolkonowicz notes. Which is why Detroit’s market share
just keeps falling.
Mr. Wolkonowicz and his colleagues at IHS Global Insight, a research
firm, dug into the bankruptcy filing this week and came up with their
own projections. They forecast G.M.’s market share would drop to 17
percent in 2014. (Going out one decimal place, G.M. did forecast a small
drop, to 18.5 percent in 2014, from more than 19 percent now.) Global
Insight also thinks that total industry sales will recover more slowly
than G.M. does.
The resulting difference is significant. Global Insight expects G.M. to
sell 20 percent fewer cars than the company expects, both this year and
Yet here, surprisingly enough, is where we get to some real reasons for
optimism. Even under this less rosy forecast, G.M. may still make a
small profit next year. By 2014, it is likely to be quite profitable,
according to Global Insight. The Obama administration’s internal
forecast is even more conservative, and the company would still start
making money within a couple of years.
Why? The cuts that the administration forced on the company are big
enough to give it some wiggle room. One in three workers will be gone.
So will the Hummer, Pontiac, Saab and Saturn brands.
And these cuts have the potential to do more than just reduce costs.
They will make it easier for the company to focus on its remaining
brands. It will become a little more like Honda and little less like its
Its executives refer to this as the “fewer, better” approach, and the
shining example is the Chevrolet Malibu. Back in 1980, the Malibu was
the king of sedans. By 2007, though, G.M. sold only 33 Malibus for every
100 Accords that Honda sold, according to Autodata. Then came a redesign
that made the Malibu sleeker and more comfortable. This year, for every
100 Accords sold, 59 Malibus have sold.
Some skeptics doubt that these green shoots will amount to much. They
say that G.M. is a fundamentally broken company, one that will continue
its drift toward irrelevance. And they may be right.
But now that the government owns most of the company, it may as well try
to make it viable.
Clearly, that does not mean micromanagement — like, to take one relevant
example, directing G.M. to make fuel-efficient cars even if customers
don’t want to buy them. It also doesn’t mean letting G.M.’s executives
operate with a free hand.
To judge from their latest rose-colored predictions, those executives
still don’t quite get it. Most of their cars are not yet reliable nor
appealing enough. That — not car buyers who are too slow to know a good
thing when they see one — remains the biggest problem.
On Monday, after G.M. filed for bankruptcy, Fritz Henderson, its chief
executive, held a news conference in New York. “Today,” he said, “marks
the beginning of what will be a new company, a new G.M., dedicated to
building the very best cars and trucks.”
It sounded like the kind of thing you might have read in one of those
upbeat magazine articles from 1979 or 1989 or 1999. Yet those of us who
make up G.M.’s brand new group of majority owners — taxpayers — have to
hope that Mr. Henderson is right.
We also have to hope the Obama administration will force him and his
colleagues to be realistic.