The Fate of Empires and Search For Survival (Part One)

An industry insider’s account of the decline of General Motors and his struggle to revive its fortunes.

(c) iveho.com

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.

2001 Pontiac Aztek: wikipedia

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.

Cimmaron by Cadillac (c) : autopolis

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.

1991 Saturn SL: blog.hemmings.com

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.

Author: Daniel O'Callaghan

Shut-line obsessive...Hates rudeness, loves biscuits.

14 thoughts on “The Fate of Empires and Search For Survival (Part One)”

  1. GM is an object lesson in the flaws of Anglo-Saxon corporate models. It also highlights the risks of an excessive faith in simplistic scientific managerialism. I remember reading how at one point GM had a quota system for more unconventional models, as if you could manage spontaneity. That led to freaks like the Aztek. GM at this point seems to be captured by managers who put there interests first and the firm second. You could view at a small country with a self-interested class whose main priority is themselves and not the greater good of the whole.

  2. considering they have abandoned Saab, Opel, and Lotus. In Europe they had a scandalous performance.
    Renault managed to impose itself with Dacia while GM failed both with Daewoo and Chevrolet.
    A boring brand, Toyota is also boring but it´s the first in reliability and has some globally known products such as Corolla and Land Cruiser.

    1. There´s a good contrast: Toyota and GM. Toyota is in my view a really interesting brand with room for some loopy cars alongside the butter-and-bread models. Toyota makes the Century and GM has nothing like it. Toyota made the Will cars and GM made the Aztek and other wretched objects.

    2. Also a good comparison is VAG, which copied GM’s multiple brand and platform sharing approach, but has executed it so much better.

  3. This piece makes an interesting contrast with yesterday’s on the decline of BMC. One could argue that if GM has suffered from a lack of “car guys” since the 1970s, then perhaps BMC in the 1960s suffered from an excess of them. Is this a fair assessment, though?

    1. For any automotive company to be successful, you need a constructive tension to exist between designers, engineers, finance and marketing so that the product is always optimised to the customers’ wants and needs. Managing that tension is the job of senior management. In the case of BMC and its successor companies, they simply weren’t up to the job. Even Michael Edwards made a fatal mistake in assuming that if he fixed everything else, the product would be fine. The Maestro and Montego proved otherwise.

  4. There is a line of thought in political science and business theory that entities can become ‘too big to manage’. If this does indeed have validity, then GM would superficially appear to be an excellent exemplar. (Of course, the effective counterargument to this is Toyota and VAG.)

    But in truth, I tend towards the view that while GM has to some extent been handicapped by size, it is much more managerial failures – failing to effectively co-ordinate and manage its scope, divisions and staff being just three of many – that have brought it to the point of being a glorified regional manufacturer, not a global one.

    Some years back, Automotive News did a retrospective on the X-cars, which were a milestone because, inter alia, they represented the first big cross-divisional development program at GM. This quote sticks in my memory: 

    “When there were disputes between divisions, the arbitrator was the project center, then run by Bob Eaton, who would go on to be chairman of Chrysler Corp.

    “‘Buick would walk in and say, ‘We want your shock valving,’ and we’d say, ‘Screw you,’ ‘ says de Kruyff, laughing at the memory. Loyalty ran strong. ‘I still have a bow tie on my forehead,’ he says more than three decades later.”

    It’s one thing to have this attitude at the time (albeit that is bad enough). But for it to remain embedded thirty years after the fact? That says to me that GM never got a handle on effectively co-ordinating its employees in a way that seems integral to, say, Toyota. In fact, it all sounds very BL-like.

    Richard wrote above: 

    “GM at this point seems to be captured by managers who put there interests first and the firm second. You could view at a small country with a self-interested class whose main priority is themselves and not the greater good of the whole.”

    I certainly can’t really disagree with this assessment, and indeed it does have striking parallels to recent failures in politics more generally. But I would just note that this is hardly a new development – GM has always struck me as a company that, for at least as long as I’ve been alive, has somehow managed to make money in spite of itself, or at least in spite of the best efforts of its American management. It is also a tendency that has not gone unnoticed – Brock Yates was talking about exactly this as far back as the sixties in the Grosse Point Myopians, and there are even similar themes that crop up in Unsafe At Any Speed. However, there is a lesser-known article that really reinforces how pervasive these attitudes were and how insular GM management was (and presumably still is).

    Back in 1990, Wheels magazine ran a profile on Roger Smith, who was then finishing up his tenure at the head of the company. The full article is full of jaw-dropping quotes, but for our purposes this one will suffice. It references the reporter’s first meeting with Smith in 1985: 

    “After 48 minutes and 35 questions, the audience with Roger B. Smith is over. The most powerful industrialist in the world pauses for photographs with the press, exchanging banter like any regular, unassuming mid-western finance man. The Australian party is then led from the hushed reverence of the 14th floor to the GM street-level showroom. Here we are left to ponder such delights as the 1985 Buick Park Avenue. Later that day we are told by GM vice-president Alex Mair, that this, truly, is the best car in the world. The gulf between Roger Smith’s vision and entrenched GM attitudes is vast…”

    Into the middle of all this was inserted Lutz – someone I am previously on record here as managing to keep my enthusiasm well in check for, not least because he is not nearly as astute an observer of the political economy of global car production as he thinks he is. Exhibit A would be his repeated decrying of the Prius, which really should have disqualified him from a) having any influence at GM and b) being quoted as any kind of authority on anything by motoring scribes/stenographers. According to The Washington Post, writing in 2009: 

    “In early 2006 – ‘much too late,’ he acknowledges now – a troubled Lutz saw that driving a Prius constituted nothing less than a values statement for many of its owners, a means to bask in the perception of their own enlightenment. Even more alarming, thought Lutz, was that some consumers not enamored of the Prius itself nonetheless saw its existence as proof of Toyota’s wisdom. The Prius’s presence alone was drawing people to Toyota lots, where the curious bought everything from bigger sedans to sport-utility vehicles and trucks with about the same gas mileage as their GM counterparts, groused Lutz. Part of what he called the ‘halo effect.'”

    Frankly, I thought at the time this evaluation was breathtaking; the only reason I am not similarly shocked now is because my expectations of leaders’ performance have declined dramatically over the past decade. But that someone in his position should have thought in 2006 – let alone in 2009 – that the Prius’ success was due to virtue-signalling rather than the fundamental quality of the car is all the evidence anyone would ever need that the man really has no business being in any position of responsibility in the industry. The second-generation Prius sold well because it was an enormously efficient vehicle – not just in terms of fuel economy, but space as well, nearly comparable to the contemporary Camry. The flat rear footwell was a particularly nifty touch. The hatchback made it more practical than a Camry. It was devastatingly reliable and keenly priced. If there were any sales on top of this as a result of virtue signalling, that is by and large a moot point, because the fact is that the Prius succeeded entirely on its own merits. It is just about the easiest automotive success story to explain this century and Lutz’s analysis is completely, utterly wrong.

    All of which brings us rather neatly to the question of his employment at GM. There are two intersecting dynamics at work here. Lutz is in some respects a divisive figure because there are some who will argue that no individual, even one with as much freedom to promote ‘enthusiast-focused’ initiatives as Lutz, was able to breach the insular GM mentality. To some extent I do not doubt this is true – DeLorean, a much more highly-credentialed executive than Lutz ever was, was eased out at a time when the ossification of GM was nowhere near as advanced as it was when Lutz joined. But I would contend that Lutz was completely the wrong choice to give that much influence to, because while he might have clashed with other GM management on the subject of interior quality or vehicle dynamics, he didn’t clash on any of the stuff that really mattered at an underlying level – like why their market share that remained outside trucks or the ‘buy American’ midwest had cratered and was never going to return. Insofar as he understood that GM’s vehicle quality was inadequate, he wasted resources on pointless niches that did nothing to prove to the vast majority of buyers that GM was serious about becoming competitive in mainstream market segments. His view of the Prius as ‘virtue signalling machine’, I suspect, proves this. If GM could come up with similarly ‘virtue signalling’ (read enthusiast-sexy) cars – purely coincidentally, the kind of cars Lutz is interested in and cared about – then buyers would surely flock to their showrooms, too. I think the respective trajectories of GM and Toyota over the past decade and a half evidence the success of their respective strategies.

    On that point, I believe the following quote can be supplied without comment – it really does speak to Lutz sharing a ‘customers don’t know what’s good for them’ combination of arrogance and incomprehension that defines GM: 

    “In February (2009), [Lutz] said he didn’t know why GM’s Saturn brand had flopped: ‘We spent a huge bundle of money in giving Saturn an absolutely no-excuses product lineup, top to bottom. They had a better and fresher lineup than any GM division, and the sales just never materialized …[snip] we don’t have the time or the resources to take 10 years to figure it out and possibly turn it around.'”

    It is ironic, because Marchionne is another person whose talents I am generally able to rein in my enthusiasm for. But looking back, all that ‘flat hierarchy’ and rapid decision-making stuff he liked to enthuse about might have made it interesting to see what he could have done with the General.

    1. A very well observed commentary, Stradale. I’ll reserve comment until all five instalments of this series are published, except to say that Lutz had worked out why Saturn failed by the time he wrote the book in 2011.

  5. A couple of points spring out from Stradale´s substantial contribution:

    One, to big to manage. That means it´s a problem of information flow. It is as much a problem for huge entities like Facebook as for the Holy Roman Empire (800-1806). How did the emperor in the year 1200 get to impose his will on an officer in another country 400 km away? How did he know what the official did? How did he regulate the translation of an edict down to a margrave in, say, Sigmaringen? And did the emperor know what was being done at an oprational level in his army or his diplomats around Europe? The same sort of things go for Mr Z. at his charmless social media enterprise. He does not know how all the code works. He can´t see or know all that is happening inside his corporation and nor does he show any sign of how the world is in which it does its business. GM is somewhere between the two. Information and values do not flow readily. Loyalty becomes partisanship, worsening the problems of information flow. It reminds me of the internecine hatreds of the UK navy, army and airforce.

    Two, turning to values, if I hazard a guess, VAG and Toyota are pretty apolitical and, as far as I can see, driven by science not political views. GM is a creature of the US and it is pervaded with politics; Lutz is so very evidently a classic specimen of the dead white, straight male, though not dead. The very fact he talks of virtue-signalling show how out to lunch he was (you can never know if anyone is virtue-signalling; it´s unfalsifiable) and GM imagined that enthusiast cars were the answer. No, the answer was the *right* cars. Lutz was still stuck in 1967 when the right cars were V8s and about performance. GM was populated and still is by men and women who could not question their world view. It is essentially a politically conservative organisation when it ought to be have been apolitical (but not amoral). Lutz probably considered the Prius not macho enough. Stupid him for sneering at customers. Find out what they want and sell it to them. Keep your prejudices to yourself in work. Any good designer want to know what the customer is like; Lutz had a fixed idea of what a car was. Within that framework he was safe and outside it, clueless. (I think I read this book! I can only remember reading it outside a B&B near Loughborough but can´t recall when).

    It is interesting to parallel the decline of GM and Ford with the decline of US soft power. It´s true the US economy is doing fine right now (don´t look in the dark corners though) but it is part of a multi-polar world now. Its current political culture is inward looking and it seems so is GM which was always a bit more USican than Ford. Ford seems to have been better at accepting local culture which is why Ford is still in the running more than GM. Ford is also a company anchored by a residual family association meaning it can look to bigger things than the next financial statement. GM´s decline to a regional firm is of a piece with the narrowness of US foreign policy (on Pennsylvania Avenue anyway).

    Talking of corporate capture: huge remuneration is supposed to attract the best. No, it attracts sociopaths and makes sociopaths of normal people. As people rise in GM they see treasure to be won and lose sight of the company and its staff. If you cut the salary levels to 8 times the base pay you´d get really good people who would be willing to work hard but not willing to take stupid risks nor be paralysed by the risk of failure. I don´t have the figures but I am guessing the heads of VAG and Toyota are not paid as much as the bozos slithering around the top of GM.

    If Opel had been independent it could have been even better than it was; it always made better cars than most of the rest of GM, with a possible challenger in Buick before it was smothered).

    1. “Two, turning to values, if I hazard a guess, VAG and Toyota are pretty apolitical and, as far as I can see, driven by science not political views.”

      I understand what you are getting at here, but I would phrase it slightly differently. I take the view that everything is necessarily political, in the sense that politics is indivisible from anything sociological, but there are more benign and more malignant forms. No-one would say (not suggesting you are) that VAG or Toyota do not have their particular forms of internal politics, nor that they are not political entities in their dealings with domestic or foreign governments. But I think the point you are making – which I agree with – is that they read the tea leaves, prevailing winds, whatever you call it, better than GM does. In so doing, they tend to accede more to prevailing public opinion – globally, not just in the US – and come across as less overtly politicised organisations. For at least two decades, GM has been happy to let executives like Lutz shoot their trap off over issues which are politically divisive or contentious at best and on which they are simply ignorant, sometimes offensively so, at worst. This is yet another thing that points to an inward-looking, incompetent organisation – even if this is the prevailing attitude in the C-suites, you should have the discipline to keep it in-house if for no other reason that you should have the awareness that not the entirety of the rest of the world – not customers, not politicians – necessarily agrees with you. Jackie Stewart used to say that the secret to success in motor racing was eliminating or mitigating as many factors as possible that could stop you. GM’s practices in this regard are the exact opposite of that.

      It probably also helps that Japan and Germany have not historically had the ability to project economic soft power in the way the US has had. I think GM is probably handicapped not merely by its inbuilt institutional arrogance but the long-standing soft power effectiveness of the US (it can be argued the two things are related, obviously). The whole notion of ‘what is good for GM is good for America’ is not just a pithy soundbite – it is well-documented that the US government has deployed its soft power for the benefit of American multinationals on innumerable occasions in ways significant and inconsequential. And as you allude to, GM, as the traditional domestic #1, has been the primary beneficiary of that, which to some extent probably also helped insulate it from the real world more so than Ford.

    2. The biggest difference is in the definition of terms like ‘long term’ and ‘strategy’.

      GM is very much dependent on analysts’ opinions on their quarterly results.

      Akio Toyoda does now what he thinks lays the foundation to generate business for Toyota in a hundred years.

      “Mister Piech, how much are your business decisions driven by considerations about shareholder value.” “Not at all. I care about products. If we have good products we will sell them and the shareholder value will reflect this”.

    3. ‘Verwalten oder Gestalten’ is an uncharacteristically neat German idiom about the difference between timid administration and creative management/leadership. For decades, GM was overwhelmingly administered, rather than led. People like Rick Wagoner were no imbeciles, but they most certainly lacked the drive and inspiration, maybe even the dedication to strive for anything other than at best maintaining the status quo.

      Autocratic rule à la Piech/Marchionne/Ghosn wasn’t and isn’t the only alternative when it comes to running a huge international enterprise though – Louis Schweitzer, who was described by somebody else around here as ‘the world’s most underrated car executive’, coming to mind, or Wolfgang Reitzle, who was aloof and demanding, but not intimidating.

      What sets the successful decision makers apart from the weak ones is that they make decisions in the first place. Which sounds paradoxical, but is the sad truth – most executives avoid making decisions under almost any circumstances, for fear that these might be the wrong ones.

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