Short-term thinking costs General Motors, US taxpayers

Just after Thanksgiving, General Motors made the jarring announcement that it was closing five factories in Ohio, Michigan, and Ontario, killing the production of several models including the Cadillac CT6, the Chevrolet Cruze compact, the Buick LaCrosse, the Volt plug-in hybrid, and cutting about 14,700 jobs. This is the firm’s largest cost-saving plan since the taxpayer-funded bankruptcy bailout in 2009.

GM received more than $50 billion of taxpayer assistance through the Troubled Asset Relief Program during the financial crisis. While the feds recovered $39 billion, the firm’s management failures cost taxpayers $10.5 billion. General Motors had racked up more than $40 billion in losses since 2005 alone, losses that had little to do with the financial crisis.

Many of the jobs to be eliminated are populated by those who are perpetually in debt, no matter how hard they work. And if you believe senior GM executives will not receive their annual bonuses, then you believe pigs can fly.

The automaker, the leading automobile manufacturer of the 20th century, expects to free up $6 billion in cash flow by the end of 2020, which will enable it to double down on its investment in electric and autonomous vehicles to stay competitive in a fast-changing market and sluggish sales.

The automobile industry is simultaneously facing multiple disruptions. For example, young, environmentally conscious, technology-oriented urban residents increasingly shun car ownership in favor of more convenient, less expensive mobility options. Owning a car and getting a driver’s license aren’t the life milestones they once were.

For years, General Motors has not been building the vehicles American consumers want. As a result, their car lineup has had more misses than hits. It has been slow to respond to competitive pressures and to align firm resources with changing market demands. For example, the rapid rise of Tesla Motors in the electric vehicle market, Toyota gaining market share with its eco-friendly Prius and the subsequent GM bankruptcy suggest that the firm made the wrong decision when it aborted its electric vehicle program in 2002.

In the ultimate irony, General Motors had a head start with electric vehicles. The firm introduced the “Impact,” a concept electric car, at the Los Angeles Auto Show in January 1990. The Impact was met with immediate praise and GM announced that it would become a production vehicle. Based on the proof of concept electric vehicle, the California Air Resources Board passed a zero-emissions vehicle mandate that required all major automobile suppliers to develop them if they wanted to continue to sell in California.

General Motors became the world’s first mass-produced electric vehicle retailer when, in a blaze of glory, it released the EV1 in 1996. The vehicle could only be leased, despite requests by many customers to purchase it.

But in 2002, the firm cancelled the model that might have been its best hope for the future, citing high costs, a limited market for electric vehicles, and the lack of technology to make high-performance cars. GM recalled all the EV1 and, in one of its worst public relations moves, recycled them, meaning the recalled vehicles were taken to Arizona and crushed. The electric powertrain that powered Tesla vehicles was based on the prototype developed for the EV1.

Once again, GM management demonstrated that short-term thinking is extremely costly in the long term. It is a reflection of the firm’s slow adjustment to changing consumer tastes and the failure to tailor the firm’s resources and business strategy to rapidly changing market forces.

General Motors may have been a 20th-century giant with a large past but today its future may be getting smaller. The sands of time may well be running out for the firm to prepare for the automobile industry’s still-uncertain future.

Originally Posted: December 22, 2018

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