Today, The New York Times printed an article on General Motors that I believe was one of the most true things that I have seen written about the auto industry of late.
“G.M.’s biggest failing, reflected in a clear pattern over recent decades, has been its inability to strike a balance between those inside the company who pushed for innovation ahead of the curve, and the finance executives who worried more about returns on investment.”
While I believe a company must strike a balance between the future and that of today, GM did not do that.
Consumers became blinded by low oil prices and peer pressure. It because the ‘cache of the times’ to have a big SUV or truck. The bigger the better. Consumers borrowed money from their home equity to purchase $80,000 Hummers with fuel economy of 5 miles to the gallon.
The pervasiveness of this was overwhelming. These vehicles had very high profit margins, consumers and company executives became drunk on the euphoria of the situation. Consumers borrowed more and more from their home equity to get a bigger and bigger vehicles to keep up with their neighbors. A big house with a big SUV or truck became the status symbol of success in America.
The auto industry financial executives believed that GM, Chrysler and Ford had to put everything behind the success they were having. They believed the company needed to ‘fish where the fish were’. They ignored the emerging trend of hybrids, the turmoil in the Middle East, global warming and the potential for the housing bubble to burst.
The auto companies actively chose to ignored the impending macro geopolitical and economic trends. Their actions make it appear that they believed there would forever be cheap oil and gas. That they would be able, through shear political will, prevent more stringent restrictions on auto emissions and green house gasses.
The finance professional were able to convince the company that it would be a waste of money to invest in smaller vehicles and better fuel economy when consumers didn’t want that. As a result, the auto industry continues to produce cars and trucks that no one is buying. To make matters worse, it is going to takes years for them to retool their factories, develop high fuel economy cars and trucks and fully roll-out electric and other alternative fuel vehicles.
To make matters worse, they now want a bailout. They want a do-over in the form of a blank check from the federal government.
This is not the first time a company has or industry has fallen into this trap. For over 12 years, I worked in the wireless telecommunications industry. I was at AT&T Wireless prior to it being acquired by Cingular Wireless (Cingular later was acquired and become AT&T).
Under its last CEO, it was a finance driven company. They were reluctant to do anything to degrade the revenue of their base of customers. As a result, the competition was stealing its customers and it feel behind. They became paralyzed and by the time they started to invest in the latest technology, it was too late. The only solution was to be acquired. I lost my job as a result, as did thousands.
Companies must continue to invest in the future, while they are reaping the benefits of today. GM, Ford and Chrysler did not do that and are now suffering the consequences. Unfortunately all of America is being hurt by their ignorance and stupidity.
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Tags: alternative energy cars, alternative fuels, AT&T, AT&T Wireless, auto industry, banking crises, Chrysler, finance executives, Ford, General Motors, US automakers
