# What Is Wrong With GM? **URL:** \ **Category:** Great Debates\ **Created:** [August 22, 2008, 5:05pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938 "2008-08-22T17:05:55Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [August 22, 2008, 5:05pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/1 "2008-08-22T17:05:55Z")
As the world’s largest corporation faces bankruptcy, the question is: how did such a huge enterprise fail so badly? It employs very bright people, and had access to huge amounts of capital. So, why? take its efforts to compete withthe Japanese-it launched 3 ventures (in the last 30 years) in an effort to compete-and all failed: 1. the CAVALIER: supposed to be the import fighter-the car was decent-but 2 generations behind its competition-heavier, thirstier, and not as reliable 2. SATURN: a whole new division-with some good technical innovation (plastic body panels); decent cars, but not a sales success 3. the MALIBU (ca, 1997): another huge effort-yet GM wound up with a car that was not as good as a Camry. While a good design, early models had problems with the engines, and severe problesm with suspensions (control arms wearing out). The car was sold before all the bugs were worked out. So how come GM can’t get it right? ---
**Author:** ![Cornelius\_Tuggerson](https://avatars.discourse-cdn.com/v4/letter/c/13edae/32.png) [@Cornelius\_Tuggerson](https://boards.straightdope.com/u/Cornelius_Tuggerson)\ **Post date:** [August 22, 2008, 5:12pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/2 "2008-08-22T17:12:38Z")
I drove a cavalier between 04 and 08. At least $600 bucks a year of unscheduled maintenance, constantly makes weird noises at speeds above 45, shakes at above 70. Why yes, my new car is a Toyota. ---
**Author:** ![Merijeek](https://avatars.discourse-cdn.com/v4/letter/m/f05b48/32.png) [@Merijeek](https://boards.straightdope.com/u/Merijeek)\ **Post date:** [August 22, 2008, 5:34pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/3 "2008-08-22T17:34:43Z")
Because they spent decades focusing on telling people that “Real Americans drive real American cars” instead of actually improving their cars. IMO, of course. -Joe ---
**Author:** ![pkbites](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pkbites/32/204_2.png) [@pkbites](https://boards.straightdope.com/u/pkbites)\ **Post date:** [August 22, 2008, 6:05pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/4 "2008-08-22T18:05:30Z")
I had a 2004 Olds Alero I bought new. By the time the warranty expired it had over a ton of work done on it. I figured if it did that while under warranty, WTF was it going to do when I was paying for it? I dumped it and bought a Ford. I have over $3200 credit towards a new car on my GM Mastercard. But it will be a long, long time before I buy another GM car. If this is a common experience among GM owners, I can see why they’re going belly up! ---
**Author:** ![Huerta88](https://avatars.discourse-cdn.com/v4/letter/h/82dd89/32.png) [@Huerta88](https://boards.straightdope.com/u/Huerta88)\ **Post date:** [August 22, 2008, 6:15pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/5 "2008-08-22T18:15:17Z")
The three biggest factors: (1) Undertaking massive and unfunded healthcare and retirement benefits under its union contracts. I won’t bother Googling how much of the cost of each GM car goes toward paying these benefits, but it’s in the thousands, I think. This has also led to huge debt levels. (2) Poor design, poor quality control, lack of exciting cars, during many portions of the last 30 years. It also didn’t help that they had multiple versions of the same basic design “competing” with each other through duplicative lookalike brands (Buick, Olds, Pontiac, Chevy). (3) Deciding that if they could not make money on cars, they’d go into the finance business and get their profits there (GMAC). How’s that credit market working out for you right about now, guys? A financial newsletter I read sent out a satirical (but pretty spot-on) mock letter from the Chairman of GM. I’ve reproduced what I hope is a fair-use-level portion of it below: > [@](#): > > My Last Letter > By the “Chairman” of General Motors > > Apparently $50 billion was the magic number… > > As the CEO and chairman of General Motors, I’m now responsible for more than $50 billion in losses – in only the last three years. I thought they’d fire me after the first $10 billion – when Kerkorian was trying to force me out. But I survived. Considering what has happened since, it’s hardly a victory I can celebrate. Off the top of my head, I can’t think of any American executive in history who has lost as much money as I have – ever. > > My legacy will be the bankruptcy of one of America’s greatest corporations – at one time the wealthiest and most powerful in the world. Until the 1970s, GM sold roughly half of the cars built in the world. How could GM have been destroyed so quickly, while its sales volumes are still so large? I’ll explain one more time. But this will be my last letter to the subscribers of Stansberry Research. > > Privately, the board told me the gig is up. The announcement of my “retirement” won’t be made for a few more weeks. Publicly, of course, I keep spouting off the same nonsense I always have – useless comments about how pleased I am with the way our ‘turnaround’ is going. > > “Our actions over the past several years, and today, position us not only to survive this tough period, but to come out of it as a lean, strong and successful company…” > > It’s pretty amazing what you can get away with saying as the chairman of a public company. The press actually takes that crap seriously. Not a single newspaper reporter in America can read a financial statement… luckily for me. > > Here’s what I should have said: > > “We don’t have a prayer of saving this company and, really, we never did. It is impossible to repair the fatal damage done to our great company by the enormous pension and health care liabilities promised to our workers decades ago. The best we can do now – by suspending our dividend, cutting health care benefits for all white-collar retirees, and ‘postponing’ our required union health care funding – is keep the lights on another two or three quarters.” > > * * * > > GM suffers from two insurmountable and interconnected problems: rising debts and declining market share. > > Even now, in the last innings of this horrible game, GM’s overall debt load increased by $1.5 billion last quarter. And our global market share declined by another percentage point, to 12.3%. This is the terrible trap I’ve been describing to you, quarter after quarter. There is no escape. Our debts make it impossible to invest enough capital to upgrade our manufacturing capabilities. And our inability to upgrade the styling and performance of our cars causes us to lose market share, little by little. Since 1992, our share of global car sales has fallen from 30% to about 12%. Meanwhile, our debt load quadrupled. > > Why did this happen? How could GM’s executives ignore the noose being laid around our necks? Are we really as stupid, lazy, or greedy as certain newsletter writers have claimed? Why didn’t we think to pay down our debts as our market share fell and our pricing power evaporated? > > We had no choice. > > In the last 15 years, GM has spent $55 billion on pension plans – compared to only $13 billion in dividends. Cutting our dividend to zero 15 years ago wouldn’t have made much of a difference in terms of our solvency today. It would have bought us another year of operations, at most. What bankrupted America’s leading manufacturing company wasn’t inept or greedy management. What bankrupted GM (and what will soon bankrupt the United States government) are unlimited pension and health care promises whose costs cannot be contained and could not have been estimated at the time they were granted. > > As I told you in my last letter, GM is now in a death spiral. In the most recent quarter, we lost more than $15 billion. Our sales volume fell 20% from last year. We even lost $2.4 billion on leases – which indicates bigger problems to come. We’re no longer offering leases on most of our cars, a move that will decrease revenues further. About 10% of our sales volume comes from leases. > > We are now down to $21 billion in cash. As I’ve told you, we must have between $10 billion and $14 billion to keep operating. Given the rapid decline of our operations and revenue, I think we’ll be very lucky to survive 2008. There’s no way we can last through the end of 2009 without filing for bankruptcy. We’re doing everything we can to conserve cash, but it won’t make much difference. > > We’ve been steadily losing around $3 billion in cash reserves per quarter since the third quarter of 2007. All of our efforts to staunch the bleeding have ended up being overwhelmed by our deteriorating credit quality, rapidly declining market share, and the losses from our 49% owned financial subsidiary GMAC (which was a major originator of subprime mortgages). > > If you remember from my first letter, I warned that as our debt matured it could only be refinanced at much higher rates. This has always been the supreme risk to our shareholders – our Sword of Damocles. It was only a matter of time before it fell on our head. > > In mid-2007, our company was downgraded from an investment-grade credit all the way to “junk” status. Currently, our near-maturity bonds (the 7.2% 2011s) are trading at $0.60 on the dollar, yielding 32%. This implies the credit market expects us to default on these bonds – to file for bankruptcy. This makes it impossible for us to roll over our existing debts – we cannot afford to pay 32% a year on our obligations. In 2008 and 2009, we have around $5 billion in debt coming due. We have no way to refinance these obligations and no way to repay them. We will file for bankruptcy. And quite honestly, the sooner we file, the better. ---
**Author:** ![Chimera](https://avatars.discourse-cdn.com/v4/letter/c/8e8cbc/32.png) [@Chimera](https://boards.straightdope.com/u/Chimera)\ **Post date:** [August 22, 2008, 6:28pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/6 "2008-08-22T18:28:11Z")
Out of control labor costs and demands, especially pensions and health care. Unwillingness to change. I remember back in the late 70’s when the Japanese were first making large inroads into American car sales. Out of one side of their mouths, they were asking for protection from Japanese imports. Out of the other sides of their mouths, they were responding to criticism by repeatedly declaring that their (overbloated, outdated) marketing departments were telling them that they were making the kinds of cars Americans wanted to buy. Well sir, it’s like the whole New Coke fiasco. If your marketing department tells you something that is directly contradicted by the sales numbers, it’s time to make wholesale changes in your marketing department, starting with the top management. And so on for the last 30 years. Beaten on quality to the point of driving customers into the arms of their foreign competitors, beaten on price, beaten on milage, beaten in every category. But not at any time were they willing to make the kinds of changes necessary to regain their market, regain their reputations, regain their solvency. Combine that with a very strong “GM is too big to be allowed to fail, the government will step in and save us if we get in trouble” mindset. ---
**Author:** ![Bosda\_Di\_Chi\_of\_Tricor](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bosda_di_chi_of_tricor/32/16845_2.png) [@Bosda\_Di\_Chi\_of\_Tricor](https://boards.straightdope.com/u/Bosda_Di_Chi_of_Tricor)\ **Post date:** [August 22, 2008, 6:43pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/7 "2008-08-22T18:43:01Z")
They made the kind of cars some Americans dream of, not the kind most Americans need. That’s it in a nutshell. ---
**Author:** ![CalMeacham](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/calmeacham/32/35_2.png) [@CalMeacham](https://boards.straightdope.com/u/CalMeacham)\ **Post date:** [August 22, 2008, 6:43pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/8 "2008-08-22T18:43:48Z")
> [@](#): > > What Is Wrong With GM? > > * * * > > As the world’s largest corporation faces bankruptcy, the question is: how did such a huge enterprise fail so badly? It employs very bright people, and had access to huge amounts of capital. So, why? You could have made the same arguments about Polaroid ten years ago. Even though the handwriting was on the wall, Polaroid virtually ignored the digital camera market, even though they had their own R&D divisions working on digital cameras and laser printing. They marketed only high-end expensive digital cameras and ignored the inexpensive market – something they never did with their analog cameras. They invested a huge amount of time and effort on a digital printing scheme for medical imaging that never got to market. You can’t say that healthcare and benefits cost them too much – they didn’t pay a lot of employee benefits at the end, and a lot of ex-employees found themselves with nothing to show for the time they put into the company. ---
**Author:** ![pkbites](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pkbites/32/204_2.png) [@pkbites](https://boards.straightdope.com/u/pkbites)\ **Post date:** [August 22, 2008, 7:01pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/9 "2008-08-22T19:01:46Z")
[QUOTE=Bosda Di’Chi of Tricor] They made the kind of cars some Americans dream of, not the kind most Americans need. That’s it in a nutshell. [/QUOTE] I’m sorry but I disagree. Not everyone needs a high mileage car like a Prius. Though GM should come up with something like that, many of us are still looking for performance and something that pushes our buttons. I find GM’s current line up boring. They have nothing that excites the emotional response one craves when buying a new car. Not the thing dreams are made of. And if they do come out with something exciting, like the Camaro, I’ll bet it will be so over priced that only a handful will buy it. I recently bought another Ford Mustang, brand new, loaded to the gills. Though it’s not a GT like my other one, I only paid $14.9 after negotiating and rebates. Let’s see GM come out with something as fun for the same price. ---
**Author:** ![E-Sabbath](https://avatars.discourse-cdn.com/v4/letter/e/e19adc/32.png) [@E-Sabbath](https://boards.straightdope.com/u/E-Sabbath)\ **Post date:** [August 22, 2008, 7:01pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/10 "2008-08-22T19:01:59Z")
Mostly, in the 70s-80s, they hired most of their executives from Proctor and Gamble. It didn’t matter if they knew anything about cars, it mattered that they knew how to run business. Knowing what you’re doing _matters_. Ford, on the other hand, is surviving _despite_ being owned by the Ford family. ---
**Author:** ![Huerta88](https://avatars.discourse-cdn.com/v4/letter/h/82dd89/32.png) [@Huerta88](https://boards.straightdope.com/u/Huerta88)\ **Post date:** [August 22, 2008, 7:05pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/11 "2008-08-22T19:05:33Z")
[QUOTE=E-Sabbath] Mostly, in the 70s-80s, they hired most of their executives from Proctor and Gamble. It didn’t matter if they knew anything about cars, it mattered that they knew how to run business. Knowing what you’re doing _matters_. Ford, on the other hand, is surviving _despite_ being owned by the Ford family. [/QUOTE] Ford will be touch-and-go as far as bankruptcy, too, though. There have been in recent years a couple of GM cars (special edition Corvette, Z28) that might turn your head, or might represent muscle-car value for money. Beyond that – eh. They also got a little whipsawed by investing so heavily in the lineup of SUVs and trucks, then seeing rising gas prices leave them with little to offer on the compact/efficient car side. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [August 22, 2008, 7:08pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/12 "2008-08-22T19:08:25Z")
**Companies can’t afford to pay workers who suck.** We have a local plant in my area that was a spin-off. They had a 25% no-show rate for work. Do the math. Anyone wanna bet it will be here 10 years from now? We just had another plant close that was once a huge parts supplier. It dwindled down to nothing and went away. **Workers can’t expect long term stability when management sucks.** It’s not rocket science that 2 things drive every automotive purchase: reliability and cost. Engineers have no problem designing something for a specific duty cycle. There are thousands of parts in a car and each part has a pricing decision associated with it. It doesn’t help when the labor/health costs mentioned in the above posts have to be considered in this equation. In order to sell a car for X dollars they need to build it for X \* (1- Profit Margin). Beyond the reliability issue is cost. There isn’t a person on the planet that doesn’t realize fuel prices are going to continue to rise. The type of car people will purchase when fuel is $3/gallon is not the same car when fuel is $4/gallon. If GM was able to make a profit selling large cars that’s fine but the smart thing to do was have a contingency in place to switch over to more efficient cars. I’ve never been a fan of SUV’s because the idea of a high performance engine in a utility vehicle. Few people drive them as a sports car. What they want is to be able to pull onto the highway with some degree of confidence. That doesn’t require 350+ hp or the poor gas mileage that comes with it. The performance that people ACTUALLY use in a daily driven SUV can be handled with a 4 cylinder turbo diesel that gets 3 times the mileage as a high performance V8. To that end, GM should have developed a fast track program that would allow them to transition the engines they sell in Europe into production models in the US. If that means working with Congress to relax diesel EPA mandates for particulate matter than that is what they should do. ---
**Author:** ![pkbites](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/pkbites/32/204_2.png) [@pkbites](https://boards.straightdope.com/u/pkbites)\ **Post date:** [August 22, 2008, 7:13pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/13 "2008-08-22T19:13:33Z")
[QUOTE=Magiver] If GM was able to make a profit selling large cars that’s fine but the smart thing to do was have a contingency in place to switch over to more efficient cars. [/QUOTE] There’s no reason a company can’t offer a little of both. Both even GM’s smaller cars don’t get very good mileage, and their bigger cars have crappy quality and are boring. IMHO This company has done little right in the last decade. ---
**Author:** ![ASAKMOTSD](https://avatars.discourse-cdn.com/v4/letter/a/919ad9/32.png) [@ASAKMOTSD](https://boards.straightdope.com/u/ASAKMOTSD)\ **Post date:** [August 22, 2008, 7:31pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/14 "2008-08-22T19:31:51Z")
My opinion has long been that changing the direction of General Motors is like trying to change the course of an aircraft carrier by nudging the bow with your shoulder. That said, if anyone can do it, I believe that Fritz Henderson can. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [August 22, 2008, 8:05pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/15 "2008-08-22T20:05:21Z")
GM made a whole litany of decisions that were right in the short-term but disastrous in the long-term. For decades they kept labor peace by paying bigger and better benefits. Then workers started retiring. Beginning in the 1960s they rationalized assembly by consolidating parts for each of their brands. Eventually Chevrolet, Pontiac, Olds, Buick and Cadillac lost their differences but kept their owndealers and overhead. GM believed its customers would always prefer larger, more powerful vehicles. They were right – when gas prices dropped in the 90s, their customers did go running back to big cars, trucks and SUV’s. However, everyone has their breaking point. In a related decision, the company never gave much thought to small, fuel efficient vehicles. As a result, those designs and technologies always lagged behind the better Japanese and European manufacturers. I drive a 3-year old Pontiac Sunfire (it’s the Cavalier with a Pontiac nose.) Mechanically it’s perfect. In three years it hasn’t needed any repairs, it feels solid, rides well, etc. But in a dozen tiny little ways it’s nowhere near the equal of my wife’s old Nissans and my son’s Honda. ---
**Author:** ![enipla](https://avatars.discourse-cdn.com/v4/letter/e/54ee81/32.png) [@enipla](https://boards.straightdope.com/u/enipla)\ **Post date:** [August 22, 2008, 8:18pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/16 "2008-08-22T20:18:57Z")
hi-jack [QUOTE=Magiver] I’ve never been a fan of SUV’s because the idea of a high performance engine in a utility vehicle. [/QUOTE] It’s more about power to weight ratio and towing. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [August 22, 2008, 9:07pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/17 "2008-08-22T21:07:28Z")
[QUOTE=enipla] hi-jack It’s more about power to weight ratio and towing. [/QUOTE] Towing is always better handled by a diesel and I’m usually reluctant to use the word ALWAYS in a sentence. There are certainly people who tow with their SUV but a substantial number don’t and for those vehicles a turbo 4 cylinder diesel will give them the performance they want with the gas economy of a hybrid. I’m not a huge fan of hybrids because they add expense, use up space, and can’t tow anything. For continuous towing I would want a diesel 6 cylinder. It doesn’t have to be as big as the current current crop found in heavy duty trucks unless you’re pulling a motor home. There is no reason why an SUV can’t knock down 30 mpg around town. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [August 22, 2008, 9:13pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/18 "2008-08-22T21:13:48Z")
[QUOTE=pkbites] There’s no reason a company can’t offer a little of both. Both even GM’s smaller cars don’t get very good mileage, and their bigger cars have crappy quality and are boring. IMHO This company has done little right in the last decade. [/QUOTE] I agree for the most part. However, my 2000 Saturn has held up very well and gets 38 mpg on the highway (37 with the air conditioner on). That’s not too shabby for an automatic. I get 32 around town. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [August 22, 2008, 9:33pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/19 "2008-08-22T21:33:43Z")
[QUOTE=Magiver] I agree for the most part. However, my 2000 Saturn has held up very well and gets 38 mpg on the highway (37 with the air conditioner on). That’s not too shabby for an automatic. I get 32 around town. [/QUOTE] Saturns are great examples. I own a '98, with 127K miles which is running great. My son-in-law has a '92 with well over 200K miles, which is running fine despite the fact that he didn’t have money for maintenance for about 8 years. I first bought a '93 (it died in a crash protecting my wife) and when I brought it home the teenage boy next door thought it was cool. But even between '93 and '98 the cars became more boring and the experience became worse, and when I looked at Saturns with my daughter they were not even remotely appealing. GM shortchanged them, didn’t encourage them to keep innovating, and basically made them like any other car. I doubt my next car will be a Saturn. ---
**Author:** ![begbert2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/begbert2/32/3357_2.png) [@begbert2](https://boards.straightdope.com/u/begbert2)\ **Post date:** [August 22, 2008, 9:43pm UTC](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938/20 "2008-08-22T21:43:28Z")
[QUOTE=Magiver] Towing is always better handled by a diesel and I’m usually reluctant to use the word ALWAYS in a sentence. There are certainly people who tow with their SUV but a substantial number don’t and for those vehicles a turbo 4 cylinder diesel will give them the performance they want with the gas economy of a hybrid. I’m not a huge fan of hybrids because they add expense, use up space, and can’t tow anything. For continuous towing I would want a diesel 6 cylinder. It doesn’t have to be as big as the current current crop found in heavy duty trucks unless you’re pulling a motor home. There is no reason why an SUV can’t knock down 30 mpg around town. [/QUOTE] I dunno about you, but I don’t think most people want to change the engines out of their cars every time they want to use them for something different. And some people don’t want to buy a different vehicle for every task, either. Not to say that soccer-mom-targeted SUVs _had_ to be such big-engine’d gas-guzzlers, but good greif, man. [Next page](https://boards.straightdope.com/t/what-is-wrong-with-gm/460938.md?page=2)