Spannerhead Dot

A Teetering Juggernaut

July 5, 2011 by Matt

GM Building

Like nobody saw this coming. Throw a whole bunch of money at the problem, make no fundamental changes in the way you structure your company, and expect a different result. By the same token, maybe if I just load my kids up with ice cream every time they misbehave, they’ll grow up to be something more than little entitled barbarians. Yep. Same logic.

Bloomberg is reporting that GM truck inventories have been on the rise, and fears are increasing that the bailed-out company is again sinking into the mire we taxpayers so recently pulled it from:

After GM’s truck inventory swelled to 122 days worth of average sales, the company said 100 to 110 will be normal going forward for such a large and complex line of vehicles, compared with 60 to 70 days for most models. Peter Nesvold, a Jefferies & Co. analyst, isn’t convinced. Ford Motor Co. (F), which makes similar trucks, is running at 79 days, and Nesvold says GM averaged 78 days on hand at year end from 2002 to 2010.

“It’s unbelievable that after this huge taxpayer bailout and the bankruptcy that we’re right back to where we were,” Nesvold, who has a “hold” rating on the stock, said in a telephone interview. “There’s no credibility.” In a research note he asked: “Is GM falling into old, bad habits?”

Answer: They never kicked the “old, bad habits” in the first place. The problem is systemic—the UAW. Any union that entrenched, with that kind of sway over a company’s way of doing business is necessarily going to put them at a competitive disadvantage compared to their rivals at Ford and Chrysler, to say nothing of the foreign competition. It’s a given. Their bloated salaries increase the price of every vehicle, and shield under-performing employees from being let go and replaced by more competent workers, the upshot being that the quality (design and build) of each model suffers. Oh sure, they can create a world-beater when they put their minds to it (e.g. the CTS-V, or the ‘Vette), but the average quality of a GM vehicle still lags far behind those from other companies. For example, VW just seems to care about the quality of their Golf in a way that GM doesn’t about their Cruze, and it shows. There’s attention to detail evident in most of the foreign competition, whereas the GM car seems thrown into the market niche as nothing more than a placeholder.

Compounding the problem, for ages now, GM’s business model could be summed up in one word: Reactionary. That is, instead of looking the big picture, keeping their ear to the ground about world events and trends that affect consumer attitudes and buying habits, they’ve been stuck playing catch-up. This was evident in the ’70s and ’80s when they fell from a position of dominance to being completely marginalized in the luxury market in favor of German and Japanese brands, and has been happening since the beginning of the last decade when Toyota and Honda anticipated the shift to smaller, more fuel-efficient vehicles while GM was still pumping out SUVs by the boatload. The American giant finds itself, time and again, in a sort of deer-in-the-headlights crisis mode where they’re scrambling to slap together the automotive equivalent of a plug in a leaky dike, rather than looking forward, anticipating trends and building a seawall, metaphorically-speaking. But sadly, they’re just done in by their own inertia, not to mention leftover arrogance from the heady days of the ’60s, when the company told Joe Consumer what he wanted in a car. Sorry GM, it doesn’t work like that anymore. We’re not lucky just to have you.

Filed under: Car Industry, GM


  1. Eric says:

    GM will continue to teeter on the brink as long as the UAW is there to suck it dry financially.

    • Matt says:

      Absolutely. In addition to the ways listed in the post, the union’s presence hinders the company’s ability to plan ahead, if they even wanted to. In other words, it’s harder to look forward when you have to look back over your shoulder at the UAW…

  2. John D says:

    I was talking with a guy who’s son is a union plumber. His base pay rate is $17/hr, except on union scale jobs he is paid $50-60/hr. I was dumbfounded. Completely ridiculous that someone otherwise worth $17/hr on the free market would get more than three times that much simply because of politics. And people wonder why there is so little faith in the system… Flies in the face of common sense and borders on the indecent.

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