Many recall the old adage, “As GM goes, so goes the nation” and General Motors is going, going, and some fear it may soon be gone! General Motors has a habit of cutting costs, jobs, and benefits. Throughout their history this strategy has proven to be ineffective and yet, only weeks ago, they announced that they would continue to do as they have done.
As GM cuts, so too do other American industries and institutions. While investors temporarily profit from this ploy, little else does. Let us look at the legend of this corporate giant, its philosophy, and practices. Then compare and contrast these with those of Toyota. Let us hope that one day, General Motors will do the same.
The decline of General Motors began long ago. During the energy crisis of the 1970s, America changed. GM did not lead the cultural shift, nor did it swing with it, though they may have lead what followed.
The public and foreign industries alike, realized that the Earth could not and would not provide an endless supply of petroleum. Adjustments must be made; dependency on fossil fuels had to stop. Citizens concluded that they could no longer drive gas-guzzling engines; they would prefer economical automobiles. Consciously, people chose smaller cars. Yet, General Motors did not make these. They delayed. Customers went elsewhere.
General Motors acted as though there was ample oil; availability was merely a political ploy. They believed or hoped that consumers would come around. Then, GM would be ready to deliver. GM would ride-out the energy storm, and they did, or so it seemed. Slowly, they realized that times had changed and they needed to change with the times. However, it took this corporate giant time to turn left, right, or even to move straight ahead. Once they did move, they were lumbering. General Motors did not deliver as quickly as other automobile makers did; nor did they deliver as well. [The same could be said of many American industries and institutions.]
Automotive competition came, and stays solid; it was and is mostly from Japan. [In other industries quality competition came from China, Guam, India, Indonesia, Malaysia, anywhere, but from the good ol’ US of A.] The Honda, Nissan, and Toyota combination quickly increased their North American market share. Their products were and are well made and efficient. Their working force was and is dedicated as is evident in the quality of the workmanship. Foreign factories worked well. Sales from these increased; the companies expanded, and so too did their business. Gradually, GM sales declined. General Motors was caught in a downward spiral, the slide continues, even today. The future of GM is uncertain.
We see it and feel it. If we look in our garages and on our streets, we discover that the majority of the automobiles are not “Made in the USA,” or, at least not produced by American companies. [If we peer into our closets, glance into our kitchens, or gaze into any room of our homes, we see the same.] This fact effects economic stability in all of the United States; General Motors, being among the largest, has been hit harder. [American businesses as a whole are experiencing a possible economic depression.]
In April 2005, Americans purchased more than 1.5 million light vehicles. This represents an annual increase of 1.8%. While other automakers were bettering their numbers, GM was crashing. General Motors announced a 7.7% drop in sales. Ford experienced a 5% loss. The two American automotive industry giants were [and are] struggling. In the first quarter, this once powerful mega-manufacturer reported a $1.1 billion loss, a larger shortfall than they have had in the last 13 years. Ford was able to return a net profit of $1.2 billion; however, this too, was a decline. In the previous year, Ford did much better.
Meanwhile, in this same period, the foreign industry fared quite well. While General Motors’ market share fell from 28% to 25.4%, sales for Honda, Nissan, and Toyota combined increased from 24.8% to 29.1%. The contrast was striking. A double-digit deficit from a stalwart, blue chip such as GM raised great doubt among investors. Those banking on General Motors were devastated and those investing in America were equally torn.
The news affected the market as a whole. When the details were released, shareholders sold. The stock market took a dive. More recently, General Motors’ stock was deemed “junk.” This rating served to exasperate a sad situation. An already struggling company began floundering further. They received little support, analysts turned away, buy recommendations were rescinded, and fewer shares of GM stock were purchased. GM was selling fewer cars, less trucks, and now the sale of their stock is stilled.
Now, in June 2005, General Motors is feeling the full effects of their earlier, and ever present single-minded stance. [As are all if not most of our American industries and institutions.] Chief Executive Officer Rick Wagoner said, “If we had a chance to rerun the last five years. We probably would have done a little more thinking about making sure that each product was distinctive and had a chance to be successful.”
Distinctive designs are easy to come by, yet history proves they are not enough; had they been General Motors would not have experienced the decline they did in the 1970s when designs were strong. Those glorious gas-guzzlers of the past were gorgeous; yet, they did not sell well. The recent calamity would have had no effect on General Motors. Some of the petroleum-puffing Sports Utility Vehicles that GM makes today are quite distinctive; nonetheless, they too do not sell. They do not fly off the lots in the way that those of other manufacturers do.
General Motors blames their loss of sales on the cost of their vehicles. The company states that due to the weight of wages, the cost of health care, and expense of pensions they must add an additional cost of $1500 per unit to the price of each product. General Motors wishes to believe that people purchase other products, more specifically Japanese vehicles, because the foreign fares are less. Those that own Toyotas, Hondas, and Nissans may differ with this opinion and many do. Nonetheless, this is the GM credo.
The facts tell a different tale. Buyers are looking for quality; cost is only one of many considerations. When one purchases an automobile, they ask of service, reliability, fuel efficiency, and customer care. They also reflect upon personal past experiences, the reputation of the vehicle, and of its maker. There are those that research corporate policies and practices. Cost and design are only surface concerns. A car is a substantial purchase. The price of the vehicle is influential; however, it is not the only consideration. Customers may buy once; however, if not satisfied, will they want to buy again.
General Motors is not the finest; nor has it been for quite some time. Its motor vehicles are not the best made or maintained. Customer service and customer care are not as they once were. Much of this is a reflection of company policies and practices. GM workers are not happiest while working at their craft. For decades, they have been the subjects of reductions. This does not create a sense of security or trust. The threat of losing one’s livelihood or benefits is the doom that hangs over the heads of GM workers. This affects attitudes and attitudes affect the quality of production.
General Motors' automakers are not the best paid; they are not the most secure in their positions, and they know this. They feel it. GM executives continually close plants, reduce benefits, and ask labor to accept further reductions. The workers that General Motors employs are not treated as the treasure that they are.
In contrast, laborers at Toyota are. “Japan’s industrial wages are now among the worlds highest.” A Japanese worker earns 20 to 30 percent more than his, or her, American counterpart does! Though employee wages are high, higher than those of Americans, companies in Japan are thriving. The Japanese workforce is doing quite well. Industry and individuals flourish, more so than those in the United States.
Covering the cost of labor is not the problem, the payments made to Chief Executive officers are. At GM, employees’ pay is nominal in contrast to that of Chief Executive Officer, Rick Wagoner [and those of his ilk.] According to Forbes.com, G. Richard Wagoner Jr. receives a compensation of $8.5 million. General Motors' argues ‘profits are lost because wages are high.’ Whose wages are high?
In America, Chief Executive Officers received a median compensation of $14 million in 2004, 25 percent more than they received in the previous year. CEO’s have salaries, bonuses, incentives, stock awards, stock option gains, and potential returns from fresh option grants. Each brings in a hefty sum. In contrast, employees have few resources beyond their salaries. In 2004, laborers wages increased by 2.5 percent. Considering that typically inflation is calculated at a rate of 3 percent per year, this leaves the rank-and-file further in the hole.
The salary system invoked by the powers that be at General Motors is flawed; it favors the executives and punishes the employees. GM is a microcosm of a structure that dictates separate and unequal. American entrepreneurs’ salaries and gains are expanding while laborers lose wages, benefits, and ultimately, their jobs. Some American workers do thrive, some survive; however, many, if not most struggle.
General Motors is correct; the expense of pay can be problem. It can drain profits; however, workers wages need not be the cause of shareholders concern. The compensation that CEOs receive gives investors reason to grieve.
General Motors also claims health care costs have placed an enormous burden on the company, and they have. In December 2004, President of GM North America, Gary Cower stated, “We spend more for health care than we do on steel. It’s probably the biggest competitive issue we face.” According to the last annual report, $5.2 billion was spent on health insurance costs. GM calls this a “crisis” and it is.
Health care costs are exorbitant; they are draining industries, institutions, and individuals. Larry Johnston, Chief Executive of the supermarket chain Albertsons spoke of the nation’s health care crisis, and how it affects all American businesses. Johnston said, “It’s frightening what this [health care cost crisis] could do to our country,” Johnston portends that “spiraling health care costs, if unchecked, would bankrupt the nation.”
Currently, health care costs in the United States are equal to almost 15% of our Gross Domestic Product. With the advent of the Medicare prescription drug program, increases will be greater. By 2012, according to the Centers for Medicare and Medicaid Services health care is expected to take up nearly 20 percent of the GDP. In the last five years, inflation has increased by 2.5 percent; yet, health costs are 11.5 percent higher. This discrepancy is noteworthy. Nevertheless, this is not the real reason for the current GM crisis; it is only part of a much larger problem; the problem of philosophy, policy, and practices.
GM continues to document costs as their reason for concern. Next, they turn to the cost of supporting the General Motors legacy. Granted, it is an enormous expense. However, one that a forward thinking company could have easily anticipated. Pension plans, and the disbursement of these are not unique to General Motors. Toyota incurs similar expenses. It is the cost of doing business, at least in the automotive industry.
Maintaining earlier retirees, paying on pension promises, consumed 2.3% of GM revenues in 1999. In 2005, this expense will grow; it is expected to reach a whooping 5% of company’s proceeds. General Motors recognizes this has “a tremendous impact” on profitability. Yet, in fact it does not, at least not more than a forward thinking company has prepared itself to endure. General Motors has a history of not thinking beyond the moment. They may plan for the months to come, but not further. This practice is true in many, if not most American industries and institutions.
A shortsighted company only sees expenses and ignores its assets; that is General Motors. GM claims a need to cut jobs. They plan to further eliminate their greatest asset, their laborers! They assert that they can no longer compete in the marketplace. However, I wonder whether cutting labor will truly make General Motors more competitive or merely temporarily stabilize their stock prices.
Mr. Wagoner spoke of creating “a chance to be successful.” General Motors believes success comes when expenses are reduced. To this end, on June 7, 2005 they announced, they “would cut more than 22 percent of its blue-collar work force in the United States, about 25,000 jobs, by the end of 2008.” They say this is “the most sweeping single job cut announced since 1992, though GM has already eliminated nearly 30,000 hourly and salaried workers over the last five years.”
Chief Executive Officer Rick Wagoner believes his new cost-cutting plan would produce annual savings of $2.5 billion once it is fully put into effect. He does not seem to recognize that the idea of reducing the labor force has long been in effect and has long been ineffective!
The history of General Motors vividly illustrates that success is not found in a “distinctive product.” Reductions do not ensure success. GM has tried these techniques. They cut the workforce, lessened employee benefits, and eliminated expenses; yet, sales decline. If these earlier measures were meaningful, if they had reaped rewards, we would not have the announcement of June 7, 2005.
Clearly, the system is broken! American businesses as a whole are struggling to survive. As General Motors goes so too goes the nation, unfortunately. Industries and institutions are also feeling the pinch. Sadly, their business philosophies often parallel those of General Motors. Solutions are not simple; nor can they be shortsighted. Business continue to do as they have done; they cut costs, continually, and never realize this is not the cure for what ails them.
As Einstein mused, “You cannot solve a problem with the same mind that created it.”
The GM market view and by extension the perspective of many American firms is a narrow one. It has created what is. The cycle continues. What was once only an energy crisis is now a calamity, a catastrophe that is all consuming.
Unlike General Motors, Toyota [and a few other firms] has adopted a different model, one that is not singular in focus, or dependant on creating a [false] market. The model that Toyota uses is commendable and well documented. One would hope that rather than continue to make excuses, General Motors, and thus the nation, might choose to consider the extraordinary success of Japanese manufacturers such as Toyota. Possibly, Americans might think to embrace this model.
First and foremost, the foundation for Japanese manufacturers is a belief in long-term thinking. They plan for the future rather than choosing to go-with-the-flow.
Toyota produces vehicles of quality, they last longer, require less service, and are as the consumers crave. Unlike American industries, the Japanese make what the people want. In America, industry dictates the market. The thought is “build it and they will come.” Here, the manufacturer produces and then sells the product through persuasive advertising. They do not listen to the people or ask of their desires. In contrast, Japanese industry focuses on the customers’ desires.
For Toyota, satisfying the customer will gratify all else. Toyota believes as American industries once professed to, “a satisfied customer comes back.” More and more business is generated through referrals. A company that values its customer, society, and a shared economic welfare, is one that will not reduce labor and costs while enhancing Executive salaries and stock prices.
In Japan, it is accepted that all want wealth and quality; it is necessary that all reap the rewards of hard work, not solely the executives. Affluence is not available for the few; Japan as a whole is a very prosperous country. The distribution of wealth is more evenly balanced. The rich do not get richer while the poor become poorer. The Japanese value the principles of equity.
According to author, Jacoby, who writes of Japanese corporate governance, “Those in the bottom two-thirds of the income distribution enjoy a higher quality of life than their U.S. counterparts. As for the upper one-third, they, too, benefit from Japan’s high level of public services, as well as the security that comes from a stable, cohesive society.”
This is reflected in the principle that governs Toyota. Toyota practices a principle called kaizen, the notion that engineers, managers, and line workers collaborate continually to systematize production tasks and identify incremental changes to make work go more smoothly. All work together. Management and labor share a vision and power.
In a book title, The Toyota Way, author Jeffrey Liker articulates the guiding philosophy behind the success of Toyota is documented. Toyota believes that its’ principle philosophy must be one that honors long term thinking in deference to short term financial gains. Stock prices are not the strength of Toyota, nor do they influence business decisions!
“The Toyota message is consistent: Do the right thing for the company, its employees, the customer, and the society as a whole.” This strongly held belief is practiced consistently and continuously. The words are not merely rhetoric; they are the reality of Toyota. It is this basic principle that breeds success!
Those at Toyota realize that what brings the best to one, will provide excellence for all if everyone chooses to work together. In order to achieve success, the interest of one must be the shared interest of all. In its quest to offer the best in quality and service to its customers, employees and stockholders, Toyota considers all equally. CEOs are not more important than laborers; nor are investors.
Toyota, as a corporation acknowledges it is vital to “Develop, work, grow and align the company towards a common goal that is bigger than making money. Your philosophical mission is and should be the foundation of all your other principles.” Yet, this is not the path at General Motors. For GM, making money is their first, and possibly only true concern.
As General Motors goes, so goes the nation? I hope not. My hope is that awareness will prosper and that American businesses will see that success does not come with shortsightedness. I hope that soon they will realize that what may seem an expense, the cost of creating a unified workforce, is actually, the greatest asset. The importance of healthy and happy employees is equal in importance to that of entrepreneurial gains.