R.I.P. General Motors (1931-2006)

Actually, vultures have been circling over GM and Ford for the past 20
years. There are just more of them over GM at this point in time. About
twenty years ago, I read a book that I seem to recall was entitled,
"Wheels" and I believe the author was Alex Haley. He is the same author
that wrote "Hotel". If anyone knows the exact title of the book and
author--please post it. I read the book and learned that Accountants and
Business Manangers have been making all of the major decisions at Ford and
GM for the past 20 years. On the other hand, most of the foreign car
companies (including Toyota and Honda) allow automotive engineers to make
many of the decisions related to the design and constuction of new
vehicles. Foreign car companies are much more interested in quality than
money. The reason is because they know that as long as they build vehicles
that are well made (excellent quality)--the money will flow. On the other
hand, the people in management positions at GM and Ford care more about
money than quality. If you don't agree with me, read the above mentioned
book before you respond. Most used book stores probably have copies of the
book since it was on the best seller list.
Jason

 

Yes, the title of that book is "Wheels" by Arthur Hailey, not Alex Haley. I
thought it was Alex Haley also and I had to look it up. Check your local
library. They probably have a copy.

It was written in 1971, and was an excellent book. Quite interesting, and
well worth reading, even 30+ years later! I read it many years ago, and in
fact just ordered it from my library tonight so I can read it again.

Tom

 

Tom,
Thanks for your post. The info. in the book was one of the main reasons that
I stopped by any cars make by GM or Ford. One of the other reasons was
because of all of the problems that I had related to my Chevy Monza. My
last two cars were made my Honda--A 1993 Honda Accord EX and a 1999 Honda
Accord EX. I am still driving the 99 Accord EX and it is running great.
I believe that Arthur Hailey's best selling book "Wheels" was one of the
nails in the coffin of GM, Chrysler and Ford.
Do you agree?
Jason

 

(...)

Well, you can go all the ways back to 1897 or 1898 or so when one of the
companies that later became a GM brand, Oldsmobile, started operations.
There is even a neat Oldsmobile Museum in Lansing, MI. And there was a big
parade for the company's 100th anniversery.

Jeff

 

In 1963 a young engineer named Nobuhiko Kawamoto was hired by Soichiro
Honda, the company's founder, to design engines for their new auto
racing endeavor. Kawamoto worked in several programs including
Honda's first entry in Formula I Grand Prix racing. He later pushed
for the company's re-entry into F1 in the 1980s and ran the program
which produced unprecedented domination of Formula 1 by the Honda
engines of the late 80s and early 90s. In 1989 McLaren Honda won 15
of 16 races.

In 1990, Kawamoto became president of Honda. This makes it easy to
recruit the best engineers.

Bean counters are a necessary evil, but if you let them run the
company they will destroy it.

 

About 80%. Big business loves socialism, so long as it benefits them.

So noble is the marketing. Look, if it was just marketing, then
companies that develop real drugs, like Pfizer and Merck, would deserve
no more than sellers of quack "medicines" found in health food stores.
And for prescription drugs, what's the real benefit of marketing?
After all, doctors should select those drugs, not patients who see a
flashy commercial or who receive a coupon.

And the drug plan was designed by the drug companies, who benefit not
only from greater demand from Medicare patients but also from the
general public, who's ending up paying more for drugs that aren't
covered by the plan. Dubya simply didn't want to do the hard work of
implementing a realistic plan that won't explode in costs -- so much
for the business acumen of the MBA President (who went to business
school only because he was rejected for law school).

Most countries have ceilings on prices. Canada's prices, for example,
are based on median worldwide prices for the drugs. But your reasoning
still doesn't explain why the drug companies simply don't refuse to
sell in those countries, and it seems that virtually every drug
available here is also available there, at lower costs. IOW they make
plenty of money even in countries with cost controls and socialized
medicine, and they're not going to stop inventing so many drugs simply
if the US copies those countries' pricing policies.

 

As an engineer I knew used to tell bean counters who got out of line,
"I can do your job, but you can't do mine."

 

The bean counters have discovered that the beans are going away

GM's stock price decline is like a dagger right into the heart of the
U.S. financial system, and the dollar itself!

GM is nearly insolvent

GM gas $300 billion in debt and has a market cap, now, of $15 billion

The bondholders could buy the company 20 times over if they used their
money to buy stock instead of loan it to the company

GM is headed towards bankruptcy, and will default on the bondholders,
who will then own a company worth less than $16 billion dollars!

So, therefore, GM will soon be a $300 billion dollar blow-up!

It's bigger than Enron, Global Crossing, LTCM, K-Mart, and the IRAQ war
all put together!

$300 billion going belly up is a big enough event to topple the U.S.
government!

It will shake the confidence in the entire financial system

Companies as big as GM are not supposed to go bankrupt

They are too big to fail

The value of the "official" U.S. gold hoard of 261 million oz., at
$440/oz. is only a mere $115 billion.

See what this $300 billion blow-up will mean
Imagine the financial chaos as a pile of wealth almost three times
larger than the current value of the U.S. "official" gold hoard
evaporates!

The annual deficit is around $700 billion
How will the U.S. government sell bonds to finance the deficit if
bondholders are getting wiped out?

If the government can't sell bonds while running a deficit, then the
government must simply be printing money to fund the deficit--and they
are, as can be seen in the rate of growth of the money supply, M3!

The inflation is raging, and interest rates must keep pace, which is
why GM is doomed!

Interest rates must head up, as confidence in the U.S. dollar bond
market will be shaken like a tree in a hurricane!

Foreign nations are all sounding the alarm already that they will be
selling U.S. bonds to diversify the holdings of their central banks:
Russia, India, China, South Korea, Japan...

A Tsunami of dollar selling is about to begin, and will make the recent
dollar decline seem like a small bump in the road

It may take a few months for this to play out
a few more weeks or months

But after GM declares bankruptcy, which may take between 3 months to a
year, get ready for the dollar to crash by more than 90% in the
following 6-12 months

Germany's hyperinflation in the 1930's took about a year and a half
Who knows which way the dollar will die, whether a quick death, or a
more slow and painful one?

Either way, the dollar is dead
Long live gold and silver!

 

Gordon,
Great post--I agree with you. At Ford and GM--the bean counters are in
charge of the development of new vehicles. Bean counters worry about
money. Kawamoto and his fellow automotive engineers focus on quality. They
know that the money will continue to flow in their direction as long as
they continue to make excellent vehicles that will last many, many
years---aka quality. My 1999 Accord EX is
is now 7 years old and the only problem that I have with it is a defective
oxygen sensor. i did not even have to pay for the new oxygen sensor since
it was covered by
the warranty.
Jason

 

I thought the book was VERY interesting, but I have purchased American
cars/trucks ever since. Ford, Chevy, Pontiac, and Jeep.

Of course, what IS an American car now? Jeep is owned by Damlier Chrysler.
Ford, Chevy & Pontiac use a LOT of imported parts.

Tom

 

Indeed, accountants and lawyers should be part of the internal service
structure of a company (or any economy, for that matter). However, it
is the engineers, scientists and stylists who are the creative well from
which any great manufactured product company draws it's vitality.
Likewise it is the manufacturing people who create value on a daily basis.

Accountants and lawyers are overhead and need to serve the main purposes
of the business, but they in general should not be in charge.

John

 

A GM failure would not torpedo the economy. The most productive people
would be picked up by other companies. Even if GM sold no cars starting
tomorrow, within a year the other competitors would divide up the market
share and life would go on.

John

 

To put it in perspective, $300B is what we have spent on Iraq so far.
Granted, there is the $300B here, $300B there, pretty soon you're
talkin' real money" syndrome, but by itself GM is not going to kill
the dollar or the economy.

 

It may not kill the dollar but it will certainly rock the boat and
possible point to other weaknesses which will make the dollar very very
weak and sick

 

John,
I agree with you. One of the main reasons that GM may go bankrupt is
because they allowed the bean counters (accountants, lawyers, MBAs) to run
the company.
They should have allowed automotive engineers to run the company or at
least make all decisions related to quality issues. They failed to do
that. If anyone does not believe me, read "Wheels" by Alex Haley.
Jason

 

You need to consider the cost of resolving quality issues, too. Resolving
quality issues is not free. I am not suggesting that engineers should not
have had more input, only that so called bean counters are important too.

Jeff

 

Jeff,
You made a good point. Here's an example:

Let's say that a decision has to be made at Honda and GM related to the
type of alternator that will be used in a new model.
They each consider 5 separate alternators. One of the alternators will
cost less to produce than all of the other alternators. One of the
alternators is far superior (in terms of quality) than all of the other
alternators.

It's my opinion that the bean counters at GM would choose the alternator
that would cost less to produce than any of the other alternators. On the
other hand, the managers at Honda Inc. would choose the alternator that
was far superior (in terms of quality) than all of the other alternators.

Do you agree or disagree?
Jason

 

I don't pretend to know what the managers at Honda or GM will choose to do.

What I would do is choose the best one.

If I were in the position of choosing which alternator to put into the car,
I would understand the differences between the different alternators,
understand how the alternators fail in cars, and concentrate on the parts
that fail. In addition, I would look at materials that the alternator is
made of, the weight of the alternator, how easy it is to get out, when the
maker can deliver it, etc. I would essentially end up making my own specs
for the alternator in terms of quality (an alternator that will last
300,000,000 km - all the way to the sun is no better than an alternator that
will lat 1,000,000 km if the car will last only 500,000 km), materials,
etc., and choose one based on costs, how long it will last, weight, how much
power it uses (I would think that all alternators use about the same amount
of power to generate say 18 amps of current, but I could be wrong), etc.

So the best one might not be the one that was far superior in quality.

Jeff

 

Jeff,
That's the same way I would do it. However, my point is that the bean
counters at GM would NOT do it that way. Their focus is on MONEY--not
quality. That's the reason they would choose the alternator that cost the
least to produce and not worry about the quality of the alternator. On the
other hand, the people at Honda and Toyota would examime the test results
and specifications of each of the alternators and would choose the one
that was far superior to the others in terms of quality. That's the reason
GM may go bankrupt. Believe it or not, Alex Haley in "Wheels" wrote about
this same issue over 15 years ago. I read the book and that's how I found
out that GM and Ford were allowing the bean counters to run those
companies. I also found out from the book that Honda and Toyota allowed
the automotive engineers to make most of the decisions related to quality
issues. They knew that as long as they built vehicles that had "quality"
-the money would continue to flow in their direction.
Jason

 

How do you know? Evidence please.

And Honda is a non-profit corporation trying to give away cars.

No. They worry about the costs, as well. Why do you think they build
efficent factories?

You found out about Haley's opinion.

Gee, they are worried about money, after all.

Honda and Toyota are both worried about costs, too.

Jeff