GM, Gone as We Knew It

Reading Michael Moore's account of the GM bankruptcy announcement from "GM town," Flint, Michigan (with over 40% of its workers employed by GM), I'm reminded of what it was like to work for R.R. Donnelley &; Sons in Crawfordsville, Indiana, when they announced a 70% reduction in force. Donnelley was the major employer and when it shed over 3.300 jobs in a town of 13,000 it landed with the force of a tsunami. Moore writes:

It is with sad irony that the company which invented "planned obsolescence" -- the decision to build cars that would fall apart after a few years so that the customer would then have to buy a new one -- has now made itself obsolete. It refused to build automobiles that the public wanted, cars that got great gas mileage, were as safe as they could be, and were exceedingly comfortable to drive. Oh -- and that wouldn't start falling apart after two years. GM stubbornly fought environmental and safety regulations. Its executives arrogantly ignored the "inferior" Japanese and German cars, cars which would become the gold standard for automobile buyers. And it was hell-bent on punishing its unionized workforce, lopping off thousands of workers for no good reason other than to "improve" the short-term bottom line of the corporation. Beginning in the 1980s, when GM was posting record profits, it moved countless jobs to Mexico and elsewhere, thus destroying the lives of tens of thousands of hard-working Americans. The glaring stupidity of this policy was that, when they eliminated the income of so many middle class families, who did they think was going to be able to afford to buy their cars? History will record this blunder in the same way it now writes about the French building the Maginot Line or how the Romans cluelessly poisoned their own water system with lethal lead in its pipes.

Moore insists, like others, that GM refused to build fuel efficient cars American drivers wanted to buy. I don't agree. Following Moore's train of thought, the roads would have been filled with SmartCars and Priuses (Prii?). Instead, we kept buying cars with gas mileage ratings that were nothing to boast about even in the 1980's. Like that chestnut from Richard Pryor (scrubbed for sensitive readers): we ordered poo, so we had no choice but to eat poo (not the same punch as Pryor).

The UAW, management and shareholders were locked in a zero-sum game of Money-Money-Money, with the workers wanting higher wages even when the company, feeling the strain of competing with foreign-based manufacturers making cars in the US making for a fraction of the comp/benefits costs; top management demanding enormous compensation packages despite company results; and shareholders, in the age of Googlized (inflated like Octo-Mom's lips) profits, revolt-ready if profits fell.


There are several things I'd love to see GM take with it to the dustbin as it regroups. GM had one of the most byzantine HR systems to be found anywhere. Now, sweeping and immediate changes are in the offing, regardless of the direction their Chapter 11 filing:

Some retiree benefit obligations to be reduced by roughly two-thirds; hourly staff will hit 38,000 by 2011; salaried workforce to be trimmed to 23,000; and the number of dealers will drop to 3,600.  

Um, wow!

Human Resources at GM seemed skilled at figuring out how to line up employees in a orderly dance, even when profits fell below their historic highs. Called "Generous Motors," GM was known for high wages and lucrative comp deals for execs. However, in promising the moon in terms of retiree health and pensions in order to help keep salaries lower (yipes!), even when moving jobs offshore, it set itself a Sisyphean task. This from the Washing Post (H/T FiveThirtyEight.com):

GM began its slide down the slippery slope in 1950, when it began picking up costs for medical insurance, pensions and retiree benefits. There was huge risk to GM in taking on these obligations -- but that didn't show up as a cost or balance-sheet liability. By 1973, the UAW says, GM was paying the entire health insurance bill for its employees, survivors and retirees, and had agreed to "30 and out" early retirement that granted workers full pensions after 30 years on the job, regardless of age.

These problems began to surface about 15 years ago because regulators changed the accounting rules. In 1992, GM says, it took a $20 billion non-cash charge to recognize pension obligations. Evolving rules then put OPEB on the balance sheet. Now, these obligations -- call it a combined $170 billion for U.S. operations -- are fully visible. And out-of-pocket costs for health care are eating GM alive.

Retirement plans have historically been based on an actuarial formula that "works" for employers when retirees die within 2-5 years of retirement. Having retirees leave the company at as young as 48 (in their "30 and out" system), they stood to pay retirees and their mates for decades beyond the usually and customary (and grisly) benefits and comp formula. This report from Boeing shows a bit of what I mean:

Early retirement, as Boeing found, proved to be too costly, though there is some suggestion in the literature that early retirements have a greater illness and injury relationship. If that is actually the case, the new GM should focus more on wellness care and job design that takes a dramatic swipe at the possibility of injury.


We'll see.