Wednesday, March 11, 2009

GM: From Kings of the Road to Road Kill

JOSEPH B. WHITE is a senior editor in the Washington, D.C., bureau of The Wall Street Journal, gave a lecture at Hillsdale College in January which discussed the real reasons why General Motors is making like the Titanic at Pearl Harbor.

Money graf:
By the late 1980s, GM's chairman, Roger Smith, had figured out that his company had something to learn from the Japanese. He just didn't know what it was.... He entered a joint venture with Toyota to reopen an old GM factory in California, called New United Motor Manufacturing, Inc., or NUMMI. The idea was that GM managers could go to NUMMI to see up close what the "secret" of Toyota's assembly system was. ... But GM took too long to learn the lessons from these experiments—good or bad. The automation strategy fell on its face because the robots didn't work properly, and the cars they built struck many consumers as blandly styled and of poor quality. NUMMI did give GM managers valuable information about Toyota's manufacturing and management system, which a team of MIT researchers would later call "lean production." But too many of the GM managers who gained knowledge from NUMMI were unable to make an impact on GM's core North American business.

Why? I believe it was because the UAW and GM middle managers quite understandably focused on the fact that Toyota's production system required only about half the workers GM had at a typical factory at the time. That was an equation the union wouldn't accept. The UAW demanded that GM keep paying workers displaced by new technology or other shifts in production strategy, which led to the creation of what became known as the Jobs Bank. That program discouraged GM from closing factories and encouraged efforts to sustain high levels of production even when demand fell.
At least GM didn't use the cash it rolled up during the 1990s boom to buy
junkyards, as Ford did. But GM did see an opportunity in the money to be made from selling mortgages, and plunged its GMAC financing operation aggressively into that market. Of course, GM didn't see the crash in subprime mortgages coming, either, and now GMAC is effectively bankrupt.


Read the whole thing.

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