GM Bankrupt

GM's barkruptcy Monday came as a surprise to no one. But the writing has been on the wall for a long-time. Yet GM continued with increased dividend payments to shareholders and continued buying back billions of dollars of their now worthless stock.

Rick took home over $70 million and one dollar.

GM's employees and the taxpayers were left with the worthless enterprise he left behind.

Thank you Rick

OUT

GM Introduces Total Confidence for Car Buyers

GM just introduced the "Total Confidence" program. Generally it is a direct ripoff of Hyundai's successful Assurance program. The program is really quite funny because GM is saying they have total confidence in their buyers while we don't have total confidence in GM.

I wonder if GM will allow their own employees to buy cars under the program. Umm ... Bob ... we checked and you aren't going to qualify for "Total Confidence" you probably won't be working for GM for much longer.

What happens if GM goes bankrupt? Will the buyers of total confidence cars be SOL?

Rick Gets $20 million Retirement Package

Ironically, Rick is actually going to get a substantial pay raise in his retirement. Considering he was making $1 per year retirement makes financial sense for Rick. I wonder if his retirement package is as unsecure as the union employees that he has left behind.

Rick Wagoner Gone

Rick Wagoner is finally out as CEO as GM. He left at the urging of the Obama administration. Finally there has been some accountability Should there be rejoicing or dancing in the streets? Will Wagoner's successor be able to sprinkle magic dust on a system that is headed toward failure?

Rick Wagoner has been in a position to save GM since 1992 when he was the CFO. That's 17 years to turn the company around. Yet since 1992, GM's market share has dropped from 33% to 17%. I believe that GM's performance would have been the same regardless of who was in charge.

Why did I single out Wagoner if the system he was running was destined for failure? Because he was the poster child for the systemic failure of American manufacturing businesses. He also representative of a system of leaders that put themselves first. While he knew his company was failing, he along with thousands of GM executives were happy to take massive salaries from a dying company.

What Rick and other business leaders have failed to realize is that the environment has changed. What worked in American business, what is still taught at our greatest MBA factories, no longer works.

In his article for Forbes entitled "Why Rick Wagoner Had To Go", Jerry Flint agrees that Rick had to go but rightfully wonders is there anyone who can do better?

"it might be a mistake to cheer Wagoner's leaving, because we don't know if his replacement will be any better. The second in command, the president and chief operating officer, is Fritz Henderson, and he is expected to succeed Wagoner, at least for now. Frankly, it is difficult to see what he did to become president of the once largest automaker in the world. "

There will always someone who will step in to take the large salary and say they can do it better (will Fritz now take a $1 per year salary?). The data says that GM will continue on it's sad path to nothingness.

Updated Chart

I wanted to update GM's scorecard. GM released their 2008 earnings. The good news is that Rick's performance improved by $7 Billion from 2007. The bad news is that GM still lost over $30 Billion in 2008. That's a whopping (negative) $327,000 per employee!

Now during Rick's tenure, GM has lost a cumulative $67 Billion. I hate to break the news to GM shareholders but this guy is not a winner. He looks like a winner but he is NOT a winner.

GM has asked for a total of $25 Billion to save the company. That comes out to over $250,000 for every single employee at GM (most of whom will be laid off over the next few years). I wonder if we wouldn't all be better off giving this money to the employees to start their own businesses or maybe just to give them a 4 year vacation.

I have one simple question, why does Rick still have a job?

Greed is Good?

Is it greed that truly makes American Industry successful? I was watching an interview discussing how Barack Obama could cause long-term harm on Wall Street by limiting the salaries of firms that take Federal aid to $500,000. The pundit said you won't get the best people by limiting salaries. That's socialism!

Somehow it's just good capitalism when the government bails out inept firms run by greedy (greed is good remember?) executives. Maybe its possible that the greed caused the problems in the first place. Is any individual worth $14 million a year or $200 million a year in the case of Wall Street executives? If you only offered $500,000 would you be excluding the best people to run the company?

Does it truly take millions of dollars to attract the best leaders? If we follow that logic then we have to believe that our President ($400,000 per year) and General Patraeus ($216,000 per year) are flawed as leaders. We know this isn't the case. Perhaps lower salaries will attract the right kind of leaders for our nation's companies.

GM's Prescription for Profitability

GM and many other U.S. Companies have followed a prescription that is taught at all major business schools that are supposed to lead to long term profitability. The formula looks like this:

• Outsource work
• Reduce workforce
• Sell off business units

This formula always works: In the short term. When labor accounts for 30-40% of the business costs, a 25% cut in employment results in an immediate 10% gain to the bottom line.

Outsourcing work also has an immediate positive impact. Often, by outsourcing, companies like GM can get an immediate 20% cost cut. Again when 60% of your costs are in-sourced this is a powerful lever. But each time you pull the outsourcing lever, it is less and less effective.

There is a delayed cost increase with the outsourcing. Often, overhead costs do not keep pace with the outsourcing so the remaining business becomes even more expensive leading to more outsourcing. Additionally, as more work is outsourced, both knowledge and power shifts to the suppliers and supplier costs actually begin to creep up.

Finally companies sell off entire parts of the business for a one time gain. In the past decade, GM sold off Delphi and Alison Transmission. Each time the company justifies this by saying "this isn't our core business".

The results speak for themselves. The prescription works in the short-term but destroys the company over the long-term.