After a 77 year run as the largest automobile manufacturer in the world, General Motors is now #2 – just like they were in 1932. Unlike the depression era GM though, the current GM has little prospect of becoming #1 anytime soon. Savvy competitors and a majorly flawed business model will see to that. So just what went wrong for GM? Here is the story in a nutshell.
By the mid 1990’s Americans were falling in love with the SUV. These behemoth vehicles were fresh, with a cool design, lots of space, and huge profit margins. In addition, SUV’s made many people feel powerful as they rumbled down the motorway. Coupled with the percolating SUV craze was a solid economy that was being fueled by the dot com boom. No one blinked at gas prices. By 1998 GM (and Ford and Chrysler) had designed blueprints for huge SUV manufacturing plants to be constructed in Mexico. These multi-billion dollar projects were scheduled to be completed in 2002. That’s right, 2002. In other words, the brainiacks in Detroit bet the farm that SUV’s would be wildly popular four years hence, and beyond. In fact, the big three manipulated the automobile market from 1998 – 2006 by maintaining an extreme focus on SUV production and sales – consumers had a limited variety of choices. The result was huge net profits for the auto industry.
Side bar: Did GM hedge their bets by simultaneously designing smaller, fuel-efficient cars? Did they design their factories in a fashion that allowed them to be retrofitted for other, smaller vehicle production? The apparent answer to these questions is a stupefying “no”!
Back on task: A funny thing happened around 2006 – gas prices began to escalate. In addition, real estate began to meltdown. As Americans grimaced every time they filled up their tanks, they began to fantasize about owning a Yugo, or a bicycle, or at least something smaller than the juggernaut they were driving. Of course GM and the big three were ready for the shift in demand, right? Nope. Caught with their pants down, or rather with an arcane business model, they looked like deer in headlights as consumer demand shifted away from their hulking inventory. GM leaders seemed dumbfounded that people would not continue to by their SUV’s. Shockingly, it took almost two years for GM execs to get the message. Kind of makes you wonder what is in the water in Detroit? So what does the future hold for GM? Answer: short-term pain and long-term humble pie. If GM hopes to remain a viable economic concern they will have to embrace the following: - A plan to get much smaller, quickly - A wage that pays people what they are worth, rather than what people negotiate - A focus on the foreign markets that have embraced their brand - A way to connect with people under 40 in a meaningful way Is GM up to the task? Strong injections of open-mindedness, enlightened strategic planning, regime change, and luck sure would help.
Posted by Doug Van Dyke on 2009-01-22 at 07:38 AM