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.

What's Wrong With GM? It must be their workers!

We have heard it over and over again. GM is failing because of the unions. No unionized company can compete. Do GM's problems really lie with the UAW? The answer is no ... and yes.

Let's look at the high costs of labor. According to GM's annual report they are paying the unions $73 per hour in wages and benefits. This has been picked up by newspapers and news outlets. If this were true it would be outrageous. My company has a pension plan and full medical benefits. They are kind enough to let me know the cost of each. My medical benefits run around $13,000 per year for my family. That comes to around $6.50 per hour. My retirement plan costs the company around $10,000 per year or approximately $5 per hour. Vacation costs around $1.50 per hour. The average union wage is between $25 and $32 per hour. At $32 per hour this comes to $45 per hour.

So how does GM come up with $73 per hour? Well the $73 per hour includes costs of retiree pensions and retiree health care. All this is borne by the current workers in the $73 rate. Those costs should have already been charged to previous years. What it means is that GM did not set the money aside over the past 30 years. They sacrificed long-term viability for short term profitability and now GM is bearing the burden of their short term thinking.

Even when you evaluate GM's labor costs that include post retiree benefits, it accounts for a meager 8% of GM's total costs. GM must have bigger problems than just labor costs.

The problem that GM does have with the unions is that neither trusts the other. Seventy-five years of animosity has bred a relationship that prevents the trust needed to work together to solve GM's problems. Labor is the answer to developing the long-term productivity but the productivity gains have to come with more job stability. These gains are worth billions per year but the real fear of job loss from productivity gains prevents the steps needed to realize this potential. Can trust truly be the answer?

Four Charts - GM's Scorecard

These four charts tell the story of GM over the past decade. While Rick Wagoner has pulled in a total of $67 million, GM has continued on its downward trend.

Rick's Red Herring - Health Care Costs

I have been watching Rick do interviews for several years. It seems that he never fails to talk about the health care cost disadvantage at GM. The number that he uses is $1,600 in health care costs in each car that GM sells. This number has been repeated by business reporters and pundits. I decided to check the facts. In 2007, GM's health care costs were $4.6 Billion. That is a huge number but when you look at health care costs as a percentage of total costs it come to 2.1% of total costs. Additionally 2/3 of the health care costs are for retirees.

Lets do the math.

GM built over 9,000,000 cars in 2007 when you divide the $4.6 billion in health care costs you get $511 per car. If you only include US manufactured cars the cost per vehicle is increased to $1022 per vehicle. It is still far less than the $1600 that Rick has used consistently over the past several years.

So we've done the math and we are doing exactly what Rick wants us to do. Focus on health care. GM's 2007 annual report mentions health care 91 different times. The annual report doesn't mention poor management even once. If GM's health care costs were zero in 2007 GM would still have lost over $34 Billion dollars. Simple analysis show there are much greater problems at GM than health care.

Rick's Destruction of an American Icon

In an November 19 Wall Street Journal Op Ed article, Rick Wagoner bemoaned the state of his auto industry and stressed the importance of maintaining a strong manufacturing base in America. He talked about how the automotive industry is a vital engine of economic growth and a foundation for economic stability. He discussed the how critical the auto industry was for America to compete in the global marketplace of the 21st century.

I don't think that anyone in America disagrees with Ricks statements. Except perhaps Rick himself. For all of Rick's wonderful words in 2008, his actions from 2000 to 2008 have systematically destroyed the auto industry and the American Dream for hundreds of thousands of Americans.

In his article Rick states at General Motors, we have been responding to fierce competition here and abroad by transforming our business. Over the past decade, we have taken tough actions to cut costs. He even goes so far to equate transforming the business with eliminating the very American Manufacturing base he says is so important. Since 2000, we have reduced our U.S. hourly workforce by 52%, from 133,000 to 64,000, through buyouts and other programs. During the same period, we have cut our U.S. salaried employment from 44,000 to fewer than 30,000, and reduced our U.S. executive ranks by 45%.

Rick's goal is to reduce the total work force from 94,000 to 65,000 by 2012. So I want to make sure that I get this right Rick is asking for $20 Billion from the taxpayers to cut an additional 30,000 jobs. That's $666,000 for each employee that he eliminates. That is a raw deal for the employees of GM and the American people. We all deserve better.

Introduction

I am starting this blog to explore the management "skills" of Rick Wagoner. Perhaps no CEO has presided over a greater devaluation of a blue chip company. I would like to explore whether this is a good manager who is a victim of bad timing or if there is more to the story. ..