The GM & Chrysler Bankruptcies

“The General Motors Corp. Chapter 11 bankruptcy marks the humbling of an American icon that once dominated the global car industry and sets up a high-stakes gamble for USA taxpayers.”

Reportedly both General Motors and Chrysler will exit from Chapter 11 Bankruptcy Court in 60 to 90 days. This sounds like wishful thinking and may involve some public relations imagery. To “correctly” restructure a significantly less complex and smaller manufacturing company, would require at least one year. The rush may produce more problems for all involved.

Regardless, one of GM’s and Chrysler’s most significant problems is that hourly labor costs are reportedly $20 to $30 per hour higher than their USA based Japanese competitors. It doesn’t appear that this most fundamental weakness has been addressed in a serious manner.

Most of the Japanese competitors have non-union hourly labor in their USA manufacturing operations. As such, their labor costs will not significantly increase over time. In addition, for the past few years, the Japanese Automakers have made higher capital investments to improve productivity. The cash strapped Big Three have not been able to match its competition.

Recent GM and Chrysler plant closings and operational restructurings have reduced their overall costs by billions of dollars, as well as their hourly headcounts by the thousands. However, the overall impact is misleading. The hourly cost for direct labor employees has not been reduced. And will continue to prove to be a vivid Achilles’ heel for the legendary USA manufacturers.

While the total of manufactured GM and Chrysler automobiles have declined significantly, the actual cost of each automobile continues to be higher than its Japanese competition. The Automakers will continue to prove unable to compete with this inherit weakness. Besides overt Labor commitments, another higher cost factor to consider is unabsorbed manufacturing overhead, since production is lower in existing plants. This is not a healthy sign.

However, the most important factor remains, has the UAW agreed to reduce the total cost for hourly direct labor employees?

Regretfully, there is no evidence of a reduction in hourly labor rates.

It is doubtful any labor cost concession will be meaningful if this is true:

“The fear at the UAW was that ownership in GM could eventually be worth very little.”

Thus, as it stands, GM and Chrysler will continue to lose money and will probably be forced to return to bankruptcy protection. We will have to wait to see what structure the FIAT buyout of Chrysler will produce. But, if there is a next time for GM in bankruptcy, it may have to execute liquidation under the Chapter 7 bankruptcy code. That is, if the US Government, which now owns 70% of the company, will allow it.

In addition, salaried headcounts appear too high. While this can be dealt with outside of the bankruptcy process, GM and Chrysler should analyze their salaried organizations and adopt Toyota’s performance target of 10% improvements in salaried productivity every year.

Regardless, neither company should exit from bankruptcy protection until the operations are restructured to allow a competitive, best cost manufacturing operation to emerge. We shall see, both GM and Chrysler face enormous challenges for survival.

Have two of the Big Three suffered such a loss in reputation over the years, their brands are too damaged beyond repair for today’s marketplace?

No, quality management can turn anything around with the right strategy, capital, cost structure, and culture. But it requires the tools needed to compete. Anything is possible.

 

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Reason I wrote my book “Learn to Whisper”

Click on this link for a more complete description of “Learn to Whisper”

The reason I wrote “Learn to Whisper”:

My conclusion after operating as a Turnaround Chief Executive Officer for more than twenty-five years is that the majority of this country’s top management is far from first-rate. In fact top management, particularly at the chief executive officer level, is at best average with a large number that can be rated mediocre. This lack of management competence has seen this country’s market leaders lose sizeable market share to foreign manufacturers able to export better quality and lower cost products to the USA. It has seen manufacturing and service operations unnecessarily moved to foreign countries. All of which has negatively affected the economy, severely damaged former blue-chip corporations and seen quality jobs lost.

It is quite common to discover that companies struggling with this inability to compete with foreign companies have been simply mismanaged. The once successful business deteriorated because of an incompetent chief executive officer and weak senior management

Why doesn’t this nation have first-rate management? Inadequate training. Chief executive officers and vice presidents learn “on the job”. A number get promoted based on personality, political connections and drive – not merit. They are not carefully screened for the potential to become successful at managing. For some all that is needed is a well-written resume, the right interviewing style and the inability of a new employer to accurately assess skills, performance and potential.

Compare this to the process doctors go through. From medical school to internship to residency to a senior role after years of education, experience and continuous training their progress and capabilities are constantly monitored even after they become senior in the profession. Generals and Admirals go through a similar protocol. They must prove themselves in low-level assignments before they are judged qualified for senior positions. Unqualified applicants in both professions are culled out. What can be done to improve management competence? Education, on-the-job training and job performance monitoring. My book will educate people on the subject of managing. Its 101 management lessons are separated into the 17 subjects managers need to know.