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The Quagmire Ahead
On Jan. 21, 1988, a General Motors executive named Elmer Johnson wrote a brave and prophetic memo. Its main point was contained in this sentence: “We have vastly underestimated how deeply ingrained are the organizational and cultural rigidities that hamper our ability to execute.”
On Jan. 26, 2009, Rob Kleinbaum, a former G.M. employee and consultant, wrote his own memo. Kleinbaum’s argument was eerily similar: “It is apparent that unless G.M.’s culture is fundamentally changed, especially in North America, its true heart, G.M. will likely be back at the public trough again and again.”
These two memos, written by men devoted to the company, get to the heart of G.M.’s problems. Bureaucratic restructuring won’t fix the company. Clever financing schemes won’t fix the company. G.M.’s core problem is its corporate and workplace culture — the unquantifiable but essential attitudes, mind-sets and relationship patterns that are passed down, year after year.
Over the last five decades, this company has progressively lost touch with car buyers, especially the educated car buyers who flock to European and Japanese brands. Over five decades, this company has tolerated labor practices that seem insane to outsiders. Over these decades, it has tolerated bureaucratic structures that repel top talent. It has evaded the relentless quality focus that has helped companies like Toyota prosper.
As a result, G.M. has steadily lost U.S. market share, from 54 to 19 percent. Consumer Reports now recommends 70 percent of Ford’s vehicles, but only 19 percent of G.M.’s.
The problems have not gone unrecognized and heroic measures have been undertaken, but technocratic reforms from within have not changed the culture. Technocratic reforms from Washington won’t either. For the elemental facts about the Obama restructuring plan are these: Bureaucratically, the plan is smart. Financially, it is tough-minded. But when it comes to the corporate culture that is at the core of G.M.’s woes, the Obama approach is strangely oblivious. The Obama plan won’t revolutionize G.M.’s corporate culture. It could make things worse.
First, the Obama plan will reduce the influence of commercial outsiders. The best place for fresh thinking could come from outside private investors. But the Obama plan rides roughshod over the current private investors and so discourages future investors. G.M. is now a pariah on Wall Street. Say farewell to a potentially powerful source of external commercial pressure.
Second, the Obama plan entrenches the ancien régime. The old C.E.O. is gone, but he’s been replaced by a veteran insider and similar executive coterie. Meanwhile, the U.A.W. has been given a bigger leadership role. This is the union that fought for job banks, where employees get paid for doing nothing. This is the organization that championed retirement with full benefits at around age 50. This is not an organization that represents fundamental cultural change.
Third, the Obama approach reduces the fear that impels change. The U.S. government will own most of G.M. It would be politically suicidal for the Democrats, or whoever is in power, to pull the plug on the company — now or ever. Therefore, the current managers can rest assured that they never need to fear liquidation again. There will always be federal subsidies for their own mediocrity.
Fourth, the Obama plan dilutes the company’s focus. Instead of thinking obsessively about profitability and quality, G.M. will also have to meet the administration’s environmental goals. There is no evidence G.M. is good at building the sort of small cars the administration demands. There is no evidence that there is a large American market for these cars. But G.M. now has to serve two masters, the market and the administration’s policy goals.
Fifth, G.M.’s executives and unions now have an incentive to see Washington as a prime revenue center. Already, the union has successfully lobbied to move production centers back from overseas. Already, the company has successfully sought to restrict the import of cars that might compete with G.M. brands. In the years ahead, G.M.’s management will have a strong incentive to spend time in Washington, urging the company’s owner, the federal government, to issue laws to help it against Ford and Honda.
Sixth, the new plan will create an ever-thickening set of relationships between G.M.’s new owners — in government, management and unions. These thickening bonds between public and private bureaucrats will fundamentally alter the corporate culture, and not for the better. Members of Congress are also getting more involved in the company they own, and will have their own quaint impact.
The end result is that G.M. will not become more like successful car companies. It will become less like them. The federal merger will not accelerate the company’s viability. It will impede it. We’ve seen this before, albeit in different context: An overconfident government throws itself into a dysfunctional culture it doesn’t really understand. The result is quagmire. The costs escalate. There is no exit strategy.
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