The General Motors Poverty Myth

Most of the mainstream newsmedia as well as the public is caught up in the myth of the sudden poverty of General Motors. On paper this corporation claims a loss of nearly $2,400 per automobile sold while other competitors such as Toyota and even Hyundai, who increasingly also manufacture automobiles in the United States, are showing profits of $1,300 to over $1,400 per automobile sold. In the case of Hyundai, the climb to solid profits as well as greatly improved product quality came after a new chief executive prevented other executives from using Hyundai as their personal "piggybank" and limited top salaries as well as a new company commitment to product quality.

But General Motors continues to operate similar to the old Hyundai. In 2002, former GM CEO, Charles E. Wilson earned $652,156 a year, but was later replaced with Richard Wagner, who made a major priority, huge pay increases for executives at GM. His salary was boosted to $8.5 million a year with all compensation figured in according to the reputable Forbes magazine. And many other executives also receive extremely high executive pay and compensation packages. And as bad as this is, Wagner is only the 141st highest paid executive in America, 140 other CEO's actually earn far more than the $8.5 million a year, limiting stockholder profits, dividends and company product development funds.

On paper, investors will see their GM stock as nearly dead in the water. The value will stay flat with little upward growth, or likely either drop somewhat with bad corporate profit news. Yet the value of the stock really goes nowhere. It is still in the hands of GM. And as executives increase their salaries, the investors stock value can well flow right into the backpockets of executives as they increase their salaries into the stratosphere.

Executives at Toyota, Hyundai and other highly profitable companies have salaries far closer to the workers who build the automobiles, than American executives whose main goal of running the corporation appears to be for salary increase potential rather than the development and marketing of new products or the health of the corporation. This hurts both the stockholders as well as limits new product development . While Toyota and Honda develop and market hot selling hybrid models, the huge salaries at GM limit the amount of development money, so less advanced, older technology American models are instead marketed, and are experiencing some failure in the marketplace as more American buyers purchase the more technologically advanced and higher mileage import models. Many American executives are far too concerned with the short term goals of the highest possible salary than the competitive place of their corporation in the marketplace. And sometimes marketing the same tired design year after year, may save the corporation development money, but sales wane as buyers tire of yesterday's designs being marketed year after year.

The Chevrolet division does have a few new interesting designs, but they are largely sales failures in the marketplace currently for several reasons. A sports car pickup truck design based on a showcar project was only intended to be sold to a very limited high end group of buyers. So with no pricing or intent for mass market sales, this model simply swallowed up company cash and brings in little revenues to cover development costs or offers the company any profits to work with. And a new subcompact has mileage far lower than comparable models from virtually all import makers, as well as the built-in buyer fear of previous small GM models like the Vega, Monza and Chevette, which had many product quality problems, although this new model looks far better assembled than these previous quality control limited models. So one part of the GM problems are a previous bad experience on some smaller cheaper models, although the larger GM models have a decent reputation for product quality. Yet with high fuel prices, it is exactly the smaller high mileage models that buyers want at this point, and with a head to head comparison, the small GM offerings come up short in the minds of many buyers compared to Toyota, Honda or even Hyundai.

Another problem is GM put too much production capability into the production of larger SUV models with little production capability to switch to other models as market conditions change. And as gasoline prices recently increased, sales suffered on larger GM models such as SUVs . Instead the ability to switch to models that the public wants should have been built into a more flexible production planning.

And since labor is a supply and demand commodity to the coporate mindset, the executives at GM will attempt to trim American high paying $27 an hour jobs with full health and retirement benefits and replace these with jobs in China at 24 to 40 cents an hour labor, or labor in mexico at $1.50 an hour, with lower labor costs and little or no company benefits. And this may result in cheaper materials as well, so quality could suffer unless strict quality control is carefully monitored. In addition American GM workers may be asked to give up benefits, such as retirement or health benefits. Yet it is doubtful any top executive at GM will cut their compensation or salary. The corporate view is the corporation runs for the enrichment of the executives first and building cars second is the philosophy that rots a big corporation like GM from the inside.

GM can survive their problems. But a better philosophy of executive commitment to the corporation's health and more concern for the worker's role as a vital link in the American economy, instead of merely a supply and demand commodity that can be easily be replaced with cheap foreign labor to enhance profits, as well a commitment to more reasonable executive salaries and more flexible and modern product development are all vital links. But unlike many successful foreign competitors, the American corporate vision is often short-sightedly based on the short term goal of extreme executive salaries. This has to change for the health of GM, which is equal to 1% of America's economy. And it should serve as a warning to other corporations of how to fail in a marketplace with far better managed foreign competitors.