What the auto industry bailout says about US industry

2009

The incredible sight of America's Big Three car bosses going to Congress cap-in-hand for the auto industry bailout reflects the harsh reality of the US and its industrial strength.

Be in no doubt: the humiliation of General Motors, Ford and Chrysler is not simply another event in the long-running Credit Crunch saga. It represents the dead end of a long road down which the Big Three auto leaders have been driving, without much pause, for quite a few decades.

The term 'Big Three' actually offers a vivid illustration of how the mighty are fallen. They are not so big any more. The trio ruled the domestic market after World War II, and faced no competition whatsoever until Volkswagen's Beetle achieved big success in the US.

However, despite sales of 400,000 or so a year, Detroit's moguls dismissed the Beetle as a fad. They signalled no intention of adapting and sacrificing the profit margins made by the so-called 'gas-guzzlers'.

It's a familiar syndrome. The most rational way to react to new and unwelcome threat would be to analyse the competition's strengths, reappraise the entire market, and form a plan that to safeguard existing sales while extending coverage in order to exploit new trends. Too often, though, companies act irrationally in such situations and instinctively favour denial.

The driving force that is supposed to animate capitalism is the profit motive. Competing bosses are meant to push their people towards stretching targets, while outside investors push along lagging CEOs – or sit back and reward the successes with bags of cash. However, it could be that there is a flaw in this method that's taken for granted across the Western world: it simply might not work.

CEOs have shown a disregard towards the future and instead put all their faith in an old approach that has proved to be a conspicuous failure.

That's an incredible and frankly misguided strategy when you consider that Toyota's market capitalisation is over 50 times the relatively meagre GM figure of $1.8 billion. The ability to combine flexibility with strict control is the key strength of the Japanese firm. It moves to meet the market and stays in tune with the customer. Meanwhile, GM remains psychologically locked in the formula from its heyday.

The absurdity of the situation was demonstrated by the Congressional hearings on the Big Three auto giants and their pleas for bail-outs. Turning up in separate corporate jets, with no documents or plans (giving the committee a field day), the three CEOs were asked whether they would accept a cut in pay to $1 a year? No, a massive $22 million was just about right, reckoned the Ford man.

Colossally overpaid, professionally incompetent, hugely conceited; it simply isn't the way to run a car company – or the world's economy.

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About The Author

Robert Heller
Robert Heller

Robert Heller, who died aged 80 in August 2012, was Britain's most renowned and best-selling author on business management. Author of more than 50 books, he was the founding editor of Management Today and the Global Future Forum. About his latest title, The Fusion Manager, Sir John Harvey-Jones wrote: "The future lies with the thinking manager, and the thinking manager must read this book".

Older Comments

Greetings Robert

HEAR!! HEAR!!

I would tend to think that when people are remunerated by 'contingency pay' they are only concerned by the short term gains and kudos and less interested in building for a long term commitment for the 'good for all'.

We suffer from the same malaise in Australia (NSW in particular) where what were once social and sporting clubs where food and refreshment could be purchased for a moderate cost, has now turned into a money making process where executives push for more turnover and profits thus increasing their pay packets and egos.

In Australia we 'appear' to be suffering where governments give the people what they demand regardless if this is the best outcome for long term goals in advancing the educational and informational (in what is yet unknown) objectives.

Take for example' As you would more than likely know we usually suffer from bushfires in the summer season. The best method of fighting bushfires are two fold; firstly to carry out hazard reductions in the winter and spring times when flame height is low and not causing great harm to the flora and fauna. (n.b. the aborigines have been burning the bush for thousands of years and in fact, some plants will not re-generate without this phenomenon) secondly the way to fight a fire is to backburn toward the approaching fire. But the people demand that firefighting helicopters be bought in at great expense rather to fight fires rather than conventional means that have held in good service for several decades. It looks as though something is being done and this is the best option.

Appearance is everything.

We once had a Prime Minister (Hawke) who came out of the Union movement who fully understood that for Australia to become successful in future generations, there was only one 'rule' -- 'EDUCATE ! EDUCATE! EDUCATE!'

Then (to cut a long story short) we got lumbered with Howard* who methodically quickly dismantled the Hawke architecture and wanted to align himself with 'big business' (and the richard cranium Bush) with the result that Australia is fast falling behind. The number of people doing PhD’s actually fell during the Howard years with the result that these people are in short supply for industry and to go into universities to encourage the future generations to even greater heights.

* Howard came out of what I call parasite professions, either law or accountancy, and had no idea that for a country/business to prosper was to have a satisfied and productive workforce. He held the belief that workers could be forced into situations where they would do as they were told regardless.

When our bellies are full ..... this article came from out local newspaper;

To quote:-

.... (In reply) .... (Now we are flogging off the farm and the dams that feed it) he asks; 'How dod this treacherous practice get started?'

Perhaps he can find an answer that was given by an Argentinean diplomat whom was asked:

What happened to your beautiful country, a country with such healthy, happy, prosperous people and an economy that was the envy of the South American countries?' He replied; 'When our bellies were full out heads were empty.'

May I suggest ...... that you look around you and read . . . . You will find you are living in a divided community. Whether it be phone towers, power poles, water licensing, or of late further mining proposals, the community shows little interest unless it it effects them personally. Our leaders knowing this, can decide what they think is good for us with little opposition. Unfortunately, I hold the view that this obnoxious treacherous practice will continue 'til out bellies become empty and out heads are filled. Alas, then it will be too late, just like Argentina. I hope and pray I am wrong,

End of quote.

Our Governments appear to be more concerned with maintaining a AAA credit rating with some (apparently real organisation) rather than looking forward to borrowing to create methods to surpass this current financial situation.

'I'm in power which suits my ego (so what)' and get my superannuation in the end and get my name in the history books. Why is this so different from those executives of the Big three?

Which begs the question, what is your belief about 'The Money Masters'? (the moneymasters.com)

Since the introduction of the Euro is there a central Bank who can control (?) such as the Bank of England or as in Australia the Reserve Bank?

Do the NWO now control the Euro by remote control?

When it all boils down it is about community, how well we get on with our friend and neighbours that dictates our quality of life.

Have a great '09.

John Sheeran

John Sheeran Australia