An industry insider’s account of the decline of General Motors and his struggle to revive its fortunes.
In the last quarter of the 20th Century, General Motors went from being one of the most highly respected and successful US corporations to the butt of stand-up comedians’ jokes. In his 2011 book, Car Guys vs Bean Counters, Robert A (Bob) Lutz charts the decline of the once great company and describes his decade-long struggle to rescue it. What follows is a digest of that book, supplemented with additional information where appropriate.
Bob Lutz would, I’m sure, proudly describe himself as a Car Guy to his core. In this, his second book, Lutz describes his efforts to wrest control of the once-mighty GM from the management school-trained senior executives, the so-called ‘bean counters’ who had, he alleges, brought the company and its products into serious disrepute before he re-joined* as Vice-Chairman in 2001.
The first third of the book is devoted to describing the history of GM and identifying the external events and internal strategic errors that, in the 1980’s and 1990’s, made the company increasingly uncompetitive and seriously damaged its reputation. The loss of focus on the product and customer culminated in the launch of the infamous Pontiac Aztek in 2000.
Lutz recalls the great post-WW2 days of GM, when it was dominated by the charismatic figures of Harley Earl and his successor as head of design, Bill Mitchell. Under Earl and Mitchell, styling (later renamed design) was pre-eminent and the company rode the wave of increasing affluence and confidence in the US, offering attractive and aspirational cars that perfectly represented the optimistic mood of the country. The only significant mis-step in this era was the rear-engined Chevrolet Corvair with its dangerous handling, exposed by Ralph Nader in his book ‘Unsafe at any Speed’.
Mitchell’s alleged imperiousness, however, made him few friends in the company outside his design kingdom and when he retired in 1977, the opportunity was taken to replace him with a much more collegiate and modest individual, Irv Rybicki. Some GM board members were of the view that a company the size and complexity of GM should be governed by ‘scientific’ principles of good management rather than the gut instincts of even the most talented of individuals. Professional managers with MBAs were in the ascendant at GM and they insisted that this was the best way to ensure that the company maximised profits in the short and long-term.
The first external shock to hit GM was the 1973 Oil Crisis precipitated by the Yom-Kippur war. The OPEC group of Arab oil-producing countries quadrupled the oil price in retaliation for the West’s support of Israel. Up to that time, gas was so cheap in the US (roughly a quarter the average of what it cost in other Western countries) that fuel economy was an irrelevance to most drivers.
Suddenly, GM found itself at a competitive disadvantage to small and economical foreign imports. Rather than leave market forces to dictate the motor industry’s response, the US Government legislated for Corporate Average Fuel Economy (CAFE) targets of 18mpg by 1978 and 27.5mpg by 1985.
Lutz contends that GM, panicked by the potential loss of market share to the importers and the urgent need to meet the CAFE targets, dictated a rapid switch of virtually all its car models to much smaller transverse-engined FWD platforms. This was disastrous for the company’s reputation: the (excessively, in Lutz’s view) downsized models were poorly received by the market and many were riddled with faults and reliability issues, a consequence of their rushed development. The mechanical issues were eventually ironed out and subsequent models grew to a more acceptable size, but much damage had been done.
One of the most notorious and cynical attempts to exploit GM’s luxury brand was the Cimarron by Cadillac, launched in 1981. This was a compact sedan based on the Opel Ascona/ Chevrolet Cavalier J-Platform, with Cadillac trimmings and fully loaded with options. The market immediately saw through it. Cadillac owners and enthusiasts were outraged by the debasement of the marque.
In the early 1980’s, GM looked enviously at the foreign auto companies that had established manufacturing plants in the US. They were not burdened with the very generous terms of employment, in particular healthcare and pension benefits, that the United Automobile Workers Union (UAW) had negotiated incrementally over many years for their workers. The company decided to emulate this by establishing a new brand, Saturn, as ‘a different kind of car company’ with a new assembly plant in Tennessee, a more favourable (for GM) contract of employment negotiated with the UAW, and none of the legacy costs borne by GM (or Ford and Chrysler). They would be sold through a new dealer network on a ‘fixed-price, no haggling or discounting’ principle.
Unfortunately, the company decided that the product also should be different. It chose a complex and expensive plastic body over steel skeleton construction for its first model, the S-Series, launched in 1990. The company boasted that the body was resistant to minor dings and scrapes, but potential buyers were unimpressed and noted the odd styling and wide panel gaps, apparently to allow for temperature changes.
A second model was added in 2000, the L-Series, based on the European Opel Vectra, but extensively and needlessly re-engineered to the same plastic body construction. In 2007, Saturn abandoned this form of construction and offered more competitive vehicles with conventional steel bodies, but the market wasn’t much interested. The company limped on unprofitably for two decades before being wound up, having consumed $10bn in capital that could more usefully have been spent elsewhere.
In Part Two, we’ll continue Lutz’s account of the failed initiatives and loss of product focus that contributed to the company’s decline.
* Lutz had previously worked for GM, mainly at its European subsidiary, Opel, from 1963 to 1971.