General Motors: Asleep At The Wheel Or Not?
They used to say, that "so goes GM, so goes the nation". But as financial problems build at General Motors, CEO Richard "Rick" Wagner is preparing the company for not only a scaleback of 30,000 jobs and for plant closings but also an ambitious plan to develop hydrogen fuel cell vehicles. But will this work? Can General Motors avoid going the way of American Motors, Studebaker, Packard, Essex, Hudson, Checker, and numerous other American car brands and corporations that have failed?
Many early American automobile companies grew up into major corporations from humble roots. In 1850, two blacksmiths set up Studebaker, that grew into a covered wagon manufacturer in the later 1800's. But as the horseless carriage became popular in the early 1900's, Studebaker entered this business as well. Rambler grew from a small bicycle company into the brands such as Rambler, Essex, Nash and others. In the 1950's when Hudson and Nash merged, it was at that time the world's largest corporate merger ever. Two other firms, Studebaker and Packard hoped to join this merger, but both suffered from high debts or financial weakness and were denied a place in this mega corporate merger. Packard and Studebaker merged together, but faced a slow financial bleeding death by the Mid 60's. AMC, the new name of the Hudson and Nash alliance also faced a financial bleeding after tight company finances were squandered into the AMC Pacer in 1975 which only sold well for about one year, but then sales quickly plummeted and started to sink the entire company. Rather than being the salvation of AMC, the controversial wide and glassy Pacer was met with buyer resistance only year after hot sales, but at the expense of all other AMC car lines which never recovered very well ever again. Slightly modernized Hornet and Gremlin replacements, the Concord and Spirit only sold well for a while as these aging models lacked the fuel economy of more modern models by other manifacturers. A later desperate alliance with French carmaker, Renault quickly failed, where little AMC lost more than $300 million in one 14 month period. Chrysler in a bid for the only lucrative AMC line, the Jeep models purchased what was left of the AMC assets, and some Renault designed models were marketed by Chrysler for a short time before being dropped. For many American automobile manufacturers, business is a very high risk game with far more stories of failure rather than success.
For many years, the more successful Ford and General Motors could buck the failure trend of the smaller American manufacturers by having more development money to spend. More money could be spent on top CEOs as well.When Richard Wagner took over the helm at General Motors in 2002, he had a salary raised to $8.5 million with all benefits included added compared to the previous salary of outgoing GM CEO, Charles E. Wilson. Yet today is asking 30,000 workers at General Motors to accept sacrifice that Wagner calls "tough medicine" to rescue the company from economic disaster like so many other American automobiles manufacturers have suffered in the last century. Indeed General Motors is locked into many expensive pension responsibilities for workers that may total about $7 billion dollars that Japanese automobile makers don't have, but like all American automobile manufacturers, GM has made it's own share of wrong marketing and product decisions.
In the 1970's Chrysler betted against the small car trend and continued to market larger cars, but when the Mid 70's fuel crisis hit, Chrysler had no small cars to market to compete with the foresight of other manufacturers and eventually faced bankruptcy and required a bailout from the federal government to stay in business. With this badly needed influx of cash, Chrysler finally offered small cars like the Omni, Horizon , and K Car vehicles and turned around the company financially. However today, the German company, Daimler is now the owner of Chrysler. But in 1970, both Ford and AMC marketed smaller cheaper cars with the Ford Maverick at $1,995 and the AMC Hornet at $1,994. Later in April 1970 came the subcompact AMC Gremlin at just $1,879. In September of 1970, as 1971 models came the Ford Pinto at $1,919 and the Chevrolet Vega at around $2,300. But Chrysler had no answer to these small cars for several years, betting against this trend, and it proved nearly fatal to the company as when the fuel crisis and gas lines hit. previously attractive models from Chrysler had little appeal because of poor mileage and large size.
The recent problems with high fuel prices have hurt the General Motors development and marketing of so many large and not very fuel efficient SUVs. Just like the fateful decision of Chrysler to offer too many too big, and not very fuel efficient vehicles, General Motors put themselves in a similar bad product marketing spot when gas soared close to $3.00 a gallon recently. While prices have backed down a little, buyers are tending to stick with more fuel efficient models where fewer large trucks or SUVs are likely to be sold than before. This put makers of smaller more fuel efficient vehicles like Toyota or Honda in far better product marketing position than GM. American manufacturers attempted to offer deep discount "employee prices" on vehicles rather than the type of vehicles that American car buyers really wanted. This cannot go on forever. You have to build the type of cars and trucks that people want, not simply lure them with a big price discounts on vehicles that people don't exactly desire.
In a similar questonable strategy, General Motors is betting against the heavy development of hybrid vehicles, of which Toyota strongly believes will be majoroty all of the vehicles on the road within 30 years, and attempting to develop hydrogen fuel cell vehicles. Hybrid vehicles are becoming increasingly reliable, pollute somewhat less than standard vehicles, but only offer about a 25% improved mileage over existing highly efficient gasoline vehicles. But compared to hybrid vehicles, hydrogen fuel cell vehicles have many technological hurdles that have not yet been solved so far in their development. Yet, GM will invest billions in this hydrogen fuel cell development question.
So far hydrogen vehicles use technology that would currently make the cost of each vehicle about $70,000 each. Some of the technology is fragile, where cold weather can damage some of the sensitive components. There is storage problems with the hydrogen that could present high cost or even safety problems. And numerous other technological and hydrogen fuel form problems in development remain. On one hand, there is a nearly unlimited sources of hydrogen available that can be converted from water or other sources, and the only exhaust product of hydrogen automobiles is harmless water vapor. Yet the track record at Toyota has been good so far and the caution that Toyota exhibits that hybrid and not hydrogen automobiles will be the cars of the future is worth pondering. Toyota has consistently had good business and marketing instincts, and whether General Motors is attempting the nearly impossible by development of a technology that is not viable is a very good question. Is GM going to commit billion towards a new type of vehicle that is not technologically viable?
Is Richard Wagner at GM a genius, betting against all odds that he is right and has the best good business instincts? Or is Wagner only following the fatal corporate mistakes that have collapsed many other American automobile manufacturers in the last century. Only time will tell. But any failure at GM would not be a good omen for the American economy. The future of the American economy as well clean automobiles with zero pollution are at stake. If GM succeeds, they will prosper, and the air and environment will become cleaner. But if GM fails, then .....well, you know how things went wrong for other American carmakers. Many American jobs depend on this.