This is my response to Popular Mechanics story: GM in Crisis – 5 Reasons Why America’s Largest Car Company Teeters on the Edge

1) Demand Shifts and Uncertain Energy Policy. Demand always shifts, this time is energy, in the 60’s it was horsepower, in the 70’s it was gas economy, in the 80’s it was quality and the mini van revolution, in the 90’s it was styling and the SUV, in 2008 it is energy again: From $4.00 per gallon to $1.59 in Raytown Missouri yesterday.

2) The Financial Meltdown has been a deeper spike than we had starting in March 10, 2000 when the NASDAQ peaked at 5132.52 and had fallen to 4,580 on March 15 2000 and finally hit bottom in October 2002 when $5 trillion had been removed from the market. What about the crash of October 1987 when the DOW ended its run from 776 back in August of 1982 and peaked in August of 1987 at 2722 only to crash on October 19, 1987 when it lost 31% of its value between October 14th and Black Monday.

We speak of the global impact now, but look back to 1987 and look at the FTSE 100 Index which lost 10.8% on that Monday alone, and an additional 12.2% the next day. The market in Hong Kong dropped 45.8%, and out of the 23 major industrial nations, nineteen (19) had a drop greater than 20%.

Looking at the National Bureau of Economic Statistics (NBER) we can see that GM has had to deal not only with two major crashes (not counting 9/11) and 12 recessions since the 1930’s

May 1937-June 1938, 13 months
Feb. 1945-Oct. 1945, 8 months
Nov. 1948-Oct. 1949, 11 months
July 1953-May 1954, 10 months
Aug. 1957-April 1958, 8 months
April 1960-Feb. 1961, 10 months
Dec. 1969-Nov. 1970, 11 months
Nov. 1973-March 1975, 16 months
Jan. 1980-July 1980, 6 months
July 1981-Nov. 1982, 16 months
July 1990-March 1991, 8 months
March 2001-Nov. 2001, 8 months

I just don’t by the premise that this was a perfect storm of unequalled proportions. Look at the recessions, look at the crashes, and then look at the global competitive GM and the Auto Industry have faced, and this is not something unpredictable.

3) Legacy Costs have always been there, the problem is a real one but the effect has been around since Rick Wagoner has been around at GM, so failing to plan on how to deal with this issue is the true culprit, not the combining of the other factors at one point in time.

4) Sub-Par Quality and Lackluster cars, as the very entry by Popular Mechanics states, has been around since the 1980’s when Roger Smith, the then President of GM, fell in love with the automation craze. Toyota in that time was working on Single Minute Exchange of Dies (SMED) so they can reset production lines quickly. Toyota continued its focus on Process Control through tools like Statistical Process Control, Statistical Quality Assurance, the use of Designed Experiments elevated to new heights by Taguchi. Toyota and the other Asian producers in the 70’s and 80’s focused on the truth as presented by the Cost Loss formulas prepared by Taguchi.

The issue has been around too long and is not new. A perfect storm is the convergence of air masses and atmospheric events that were not previously present in that particular area. They converge at one single time, and then dissipate. The GM and Automotive Industry maladies have been around for a long, long time.

5) Global Slowdown is a regular event that is not predictable but can be planned for if you are in the industry and you are paying attention to capacity, to competition and to what is happening in the various regions. I do believe that this one could not be predicted exactly, but could be planned for in terms of how much cash you have in store and a plan to provide vehicles at a price that is affordable in those conditions.

The fundamental problem (the Root Cause if you will) of the impending doom of our automakers is that they repeated some of the mistakes of the 70’s and 80’s when Japan became the low cost producer of high quality vehicles [out of competitive necessity mind you] and the US automakers just looked at one another and just like three sinking ships, they thought they were just fine, as long as they looked only at each other.

Now all of these maladies that have been festering for more than 20 years have come home to bite them. The part that upsets me the most, is that they [the CEO’s of GM, Ford and Chrysler] go to Washington to ask for money without a plan to deal with all 5 of these and the myriad more of problems just beneath the surface.

My hat’s off to Larry Webster at Popular Mechanics for a well written article, but he missed the point. Competition is cruel but efficient. Those who fail to improve, in the end shall fail, so GM, Ford and Chrysler I wish you well and I wish you the ability to find within your companies the ability to put a plan together that works. Not for my sake, not for your sake, but for the 2 to 3 million jobs that will be affected one way or another by your going into bankruptcy or further going quietly into the night only to be a memory like American Motors, Packard, and so many others that preceded you into oblivion.

Respectfully submitted,
The Lee’s Summit Conservative

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