Magazine article The Spectator

General Motors Must Be Allowed to Crash

Magazine article The Spectator

General Motors Must Be Allowed to Crash

Article excerpt

There is probably no company in the world as iconic as General Motors. As the manufacturer of Cadillacs, Buicks and Chevrolets, as well as Opels in Europe and Vauxhalls in Britain, it would be no exaggeration to describe GM as the corporation that perfected 20th-century industrial capitalism.

Henry Ford created the first mass-production car 100 years ago but it was GM, under the leadership of Alfred Sloan in the 1920s, that completed the package. Easy credit, brand segmentation, mass advertising, conspicuous consumption, built-in obsolescence: the tools of the modern multinational were hammered into shape by Sloan, then deployed to crush all opposition as the first truly global manufacturer. GM became the standard-bearer for the industrial might of the United States, a view summed up in the classic, often misquoted, phrase of its president, Charlie Wilson, on being appointed Secretary for Defense by Dwight Eisenhower in 1953: 'What's good for GM is good for America.' GM thinks that's still true. 'It's about saving the US economy, ' declared chief executive Rick Wagoner as he pleaded with Congressional leaders for a bail-out. Not everyone is as convinced as they were a halfcentury ago, however. One of the first tough decisions Barack Obama will have to make as President is whether to take that piece of American folklore and tear it in two. The paths of GM and the US may be about to part for the final time.

It will be a big call. GM's demise might well prove the moment that future historians choose to mark the end of American economic dominance. But there is nothing to be gained by not facing the problem. In reality, GM is beyond saving. Better, as we discovered with British Leyland, to let it shrink beyond recognition, and to start restructuring your economy around the things you are good at.

When asked whether America can afford to let GM go bankrupt, Obama's answer should be simple and resonant: yes, we can.

The great investor Warren Buffett likes to remark that in business, it's 'only when the tide goes out that you discover who's swimming naked'. As the credit crunch tide has ebbed, plenty of people have been found without their togs on. But perhaps none more than the auto industry -- and at its centre, none more than GM.

GM has been a catastrophe on wheels for years. It has been 'widely recognised as having destroyed billions of dollars in economic value, and it has been unsuccessful in its halfhearted efforts at transformation since at least the 1970s, ' argued the Columbia Business School professor Rita McGrath in an analysis of its problems. Indeed so. Ever since Honda and Toyota started shipping small, cheap and ultra-reliable cars around the world in the 1960s, GM has been in retreat.

Where once Americans chose only between GM, Ford and Chrysler, now they can choose from dozens of manufacturers. Americans like cars, and always have done: they own 2.2 cars for every family. But the market has become so oversaturated that it is impossible to make money. Indeed, since 2005 GM has run up $73 billion in losses, even while auto sales reached fresh peaks.

The reasons aren't hard to find. GM, along with the other big Detroit auto manufacturers, pays its workers lavishly. A Detroit car worker makes an average of $73 per hour.

Toyota pays its workers $48, and the average factory worker makes only $32. Those kinds of numbers, allied with huge pension and healthcare bills, made GM the high-cost producer in a brutally crowded, price-competitive industry. …

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