Running on empty

South China Morning Post  |  Dec 13, 2008

By Sin-ming Shaw

Byline: The US car industry can look to a string of management failures for its demise, writes Sin-ming Shaw

These idiots don't deserve a dime. That was director Michael Moore's comment, during a Larry King TV show recently, while discussing the Big Three Detroit carmakers' plea for a financial bailout. And the Oscar-winning documentary filmmaker is on solid ground when he talks about the industry. His grandfather and father both worked on the assembly lines at General Motors and his uncle was a co-founder of the United Auto Workers Labour Union, the largest manufacturing union in the US.

The "idiots" are, of course, the senior executives at General Motors, Ford and Chrysler who have taken the legendary companies to the brink of bankruptcy.

They are not solely responsible for the demise of Detroit; a number of their predecessors over the past 30-odd years share that infamous honour.

But those "idiots" have continued a failed policy to meet the challenge of a world that, since the first oil crisis in the early 1970s, has increasingly accepted the necessity of energy efficiency and green technology, as well as quality with near-zero maintenance.

Detroit has failed on each of the three counts, despite clear signals from global consumers about what they want.

General Motors was once the icon of the mighty American manufacturing prowess. Former chairman Charles Wilson was defence secretary under president Dwight Eisenhower. He famously proclaimed in the early 1950s that "what was good for GM was good for the country and vice versa".

GM was the largest supplier of military hardware to the allied armies during the second world war and emerged as the largest manufacturing concern in America, as well as the single-largest contributor to the country's gross domestic product in the 1950s. It not only stood for might, but quality, as well. One of its signature cars was the Cadillac that for years represented engineering excellence, money and elegance.

Fast forward to the 21st century. Cadillac, far from a status symbol for the rich, famous and powerful has now become a laughing stock, synonymous with poor quality and bad taste.

Even by the early 1980s, Japan and Germany were already making superbly engineered, reliable and fuel-efficient cars that GM was unable to match.

Today, GM's entire market value (as of December 9) was US$3 billion, a mere 3.3 per cent of Toyota's US$93.4 billion. And that after Toyota's factories had been reduced to rubble by allied bombing after the second world war. GM today is a failed company led for years by "idiots".

The executives from the Big Three even flew to Washington in separate company jets and then, after being reprimanded for their tasteless extravagance while seeking handouts from Congress, later returned - in a pathetic publicity stunt - driving hybrid cars all the way from Detroit.

They must have thought the rest of us were idiots, unable to see through their stupid little ploy. Flying economy class would have made a lot more sense.

Come to think of it, they would have been better off walking; their longer absences from their respective headquarters would have meant fewer stupid and destructive management decisions.

Unproductive American workers and their supposedly union-mandated higher benefits are usually cited as among the primary reasons for Detroit's failure. That is misleading. Non-US carmakers have proved that American workers can be just as good as their Japanese counterparts.

Indeed, going back at least 20 years, management at Toyota and Honda have insisted that their US-made cars were every bit as good as those made in Japan. The record speaks for itself. Nearly all Japanese cars sold in the US are made in America. And their reliability is, indeed, just as good.

Higher wages are a factor, but only because Detroit has never attempted to compete on quality and innovation. Lower wages per se do not automatically translate into competitiveness. Conversely, higher wages do not necessarily mean that your products are overpriced.

China didn't become the "factory of the world" on lower wages. If that were the case, low-wage countries anywhere in Africa, or Indonesia, the Philippines and Thailand would have long ago captured the bulk of the manufacturing done in China. Productivity is the key to any manufacturing success. Wages are high only in relation to the products.

Detroit management has, for too long, ignored its own considerable engineering talent and designers. The best engineers and designers do not look to Detroit for work; they go to the competitors, who now include Chinese and Korean companies.

Should GM be saved? Moore put it well: save the companies and the workers by all means, but get rid of the "idiots" who have always acted arrogantly and ignorantly.

Unless that happens, American taxpayers will be throwing good money after bad. The idiots will spend it so fast, they will be back asking Congress for more.

Sin-ming Shaw is a former stock analyst for a large Los Angeles-based fund management company

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