Who's to Blame for GM's Bankruptcy?
Just about everyone—from management and the UAW to government,
consumers, the competition and the media, writes Wiliam J. Holstein
By William J. Holstein
Who is to blame for General Motors' bankruptcy?
First of all, management. For most of its existence, GM was not really a
centrally unified company in the modern sense. Founder Billy Durant
smashed together different companies—Chevrolet, Pontiac, Buick,
Cadillac—and allowed them to compete with each other with only the
thinnest level of oversight. Alfred P. Sloan, who took over the company
in the 1920s, imposed a measure of discipline on these rival fiefdoms by
creating more financial controls and a more rational positioning of each
brand, with Chevrolet being the car for the masses and Cadillac being
the car of the elite. But the company was still very decentralized.
Following World War II, this lumbering GM dominated the American
automotive landscape, reaching 50.7% of the market in 1962. It didn't
matter if GM was late to market with a feature or a design because "we
had such enormous power that we could always steamroller everybody
else," recalls Bob Lutz, the just retired product development chief who
first joined GM in 1963.
Not Ready for Toyota
Then there was labor, and management's decision over the decades to
grant the United Auto Workers higher wages, medical benefits, and
pensions with each contract negotiation. This helped to elevate the
standard of living for many blue-collar Americans, but health-care costs
would emerge as a major burden on GM, as would a confrontational
standoff between management and labor.
Then there was overseas competition. GM simply was not ready to respond
to Toyota Motor (TM) and other Japanese manufacturers when they began to
gain serious ground in the early 1980s. Toyota, in particular, had
developed a lean manufacturing system that was completely different from
the mass-assembly-line techniques GM was still using, many decades after
Henry Ford perfected them. GM's fractured structure meant that each
division had its own manufacturing processes, its own parts, its own
engineering, and its own stamping plants.
Hungry for jobs, U.S. states began to encourage Japanese manufacturers
to locate plants, or so-called transplants, in their states. The Big
Three figured that would saddle the Japanese with the same labor costs
and the same labor problems they had. But they were wrong. The Japanese
located in mostly southern and border states that were solidly
anti-union. They hired younger, less expensive workers, and they created
an entirely new relationship between management and labor. This led to
an entirely new auto industry. The net effect was to rachet up the
competitive pressures on Detroit, not ease them.
Government Wasn't an Issue
But GM had to respond to the Japanese challenge without the help of the
federal government. The Clinton Administration, as many before it,
simply could not figure out how to force the Japanese to open their auto
market, so in 1995 after a bout of highly publicized negotiations, it
declared victory, even in the obvious face of failure. And the Clinton
Administration was also unable to address the absence of a national
health-care system. These two failures were huge, seen in retrospect.
In the ethos of the time, however, government did not matter. Rick
Wagoner; as my book chronicled, encouraged the company to absorb
Toyota's methods, which it did almost entirely. Wagoner's decision to
hire Lutz in 2001 resulted in dramatically improved styling and design.
Wagoner invested in innovation once again—again with Lutz egging on the
whole organization—as GM decided to attempt to leapfrog Toyota's Prius
hybrid with a brand new lithium-ion battery-powered Chevrolet Volt.
Wagoner integrated the far-flung global operations. He centralized
management into one Automotive Strategy Board and he persuaded the UAW
to assume responsibility for its own medical costs. By early 2008, it
was credible to argue that GM was on the way to a successful
transformation, one of the most impressive in U.S. economic history.
But then there was the one-two punch of high gas prices and the global
economic downturn. Detroit was caught off guard when gasoline prices
reached $4 a gallon in the second quarter of 2008. The U.S. consumer,
after years of inattention and disbelief, flocked to more
fuel-efficient, largely nondomestic vehicles. But at least people were
still buying cars. When the economy collapsed, so did car sales.
A White House Band-Aid
That was followed by yet another rude awakening last November when the
then-CEOs of GM, Ford (F), and Chrysler came to testify in Washington,
D.C., and found out that the government wouldn't be bailing them out.
Southern Republicans, many of whom represented states with nonunion auto
factories, chewed the CEOs up before the cameras. Newly powerful
California environmentalists assaulted them. The center of the national
consensus regarding the importance of the domestically owned auto
industry had shifted, and American media coverage was also thoroughly
The Bush Administration gave a Band-Aid to GM and Chrysler in the form
of a bridge loan to get them through to the early days of the Obama
Administration. But then came the final surprise. Industry observers
widely assumed that Obama, a Democrat from Chicago, understood the
manufacturing base of the Midwest and would help it. The fact that the
UAW had helped deliver five states in the Midwest to Obama deepened that
But Obama turned to other members of his political alliance for answers.
From New York, he brought in investment banker Steve Rattner, a major
fundraiser, to head the government's automotive task force. Rattner
arrived on the job with the assumption that Chapter 11 bankruptcy was
the right course for GM, and promptly sacked Wagoner when he
demonstrated signs of resistance. Wagoner's heir apparent, Fritz
Henderson, was elevated into the CEO position. Meanwhile, Obama tilted
toward the California environmentalists by pushing through new
fuel-efficiency standards, which would add another layer of cost to
And so the mighty General Motors, now nicknamed Government Motors, was
pushed into bankruptcy. Rattner and his allies in the investment banking
and bankruptcy-law industries insisted it could unfold in 60 days and
that a new GM would rise from the ashes, phoenix-style. But the odds
were against it working. U.S. bankruptcy law had never applied to a
global corporation, one with thousands of suppliers and dealers.
Yet it wasn't Rattner's fault, nor that of the Obama Adminstration, high
oil prices, Toyota, fickle consumers, the recession, or high labor
costs. Whose fault was it? The answer: everyone's.
Return to the table of contents for our special report, General Motors'
New Landscape [http://tinyurl.com/l8akwh ].