AFSCME 3357-HOF'S BLOG

Apple vs. GM two Case Studies in Planning for Change

The more I read about the turnaround plan announced by GM CEO Rick Wagoner last week, the less impressed I become. GM is famous for its corporate doublespeak, and when you sift through the announced "changes", there's not much new, and what is new is not nearly enough to get the job done.

To start with, let's talk about the 25,000 announced job cuts. These cuts are to be mostly accomplished through attrition and retirement over 3 1/2 years. At the current rate of loss, and increase in rate of loss, GM won't be here in its current form in 3 1/2 years. Did GM announce any radical new products? Nope. Any new lines of business or any new revenue sources? Nope. Any plan for increased government assistance? Nope. Any great changes in the healthcare situation? Nope.

Now, contrast Wagoner's appearance with Apple Computer honcho Steve Job's announcement last week that Apple was going to shift microprocessors from IBM to Intel. Steve J. did the job right. First, he showed that Apple had been preparing for contingencies for five years and had secretly kept up an intel operating system during that whole time. Secondly, he showed that the company has already ported its most popular software to the new processor. Thirdly, he trotted out a number of key suppliers who said that they were behind the move and that they easily made the transition. In other words, Apple showed that it anticipated the need for change, made contingency plans, implemented the plan with a demonstration of the new software, and showed that other stakeholders would both be behind the switch and be supported during the switch.

Have you ever been playing chess, and at some point in the middle of game, you know that even though you still have more than half your pieces, there's no way that you can win? You look ahead, and you see half a dozen ways the other player can beat you, and you can't do a damn thing about it. That's where General Motors is now.

The game isn't over, but the end game is but a formality. To change this outcome will take an external force. There are five external forces that might be relevant. (1) Kerkorian. If he took over, you could expect him to piece out GM. At least part of the company would survive in this alternative. Ironically, some of the better GM auto components may end up owned by Honda or Toyota. (2) The UAW. The UAW would have to agree to massive give backs to get GM solvent. Wage & benefit givebacks of 20% will likely not be good enough. Would you give back 20% of your wages to a company that just paid Fiat $2 billion for the privilege of not buying it? (3) The Government. The government would have to come through with some sort of subsidy or some sort of health care plan that gets GM out of its mess. Based on the Bush Administration's response to the airline crisis, I foresee any such help on the horizon. This is true even though the Bush administration owes GM big time. After President Bush's heavy handed, the-sky-is-falling, response to 9/11, public confidence and the U.S. economy threatened to tank. GM, probably smarter then than it is now, realized that it couldn't prosper in a downturn with production-cutbacks, and threw unpresidented incentives at the market. The market responded with enhanced consumption. The increased consumer spending in the auto market helped minimize the recessive effect of 9/11.

I saved the most probable outside force for last. Number 5 is bankruptcy. In bankruptcy court GM can shed its union contracts, perhaps even its pension obligations and can emerge as a vastly different company. In bankruptcy court, GM's creditors would rule. GM shareholders would hold the short end of the stick, and America's greatest industrial corporation could have a net worth of zero. What does that say about the strength of the U.S. economy? Bankruptcy of GM is not a happy thought, but it could be just 2-3 years away.


Almost 30 years ago Chrysler Corporation was hurting. Lee Iacocca flat out laid his cards on the table with this pitch: Chrysler needs help. We need people to buy our cars now. We'll make Omni & Horizon America models with airbags & airconditioning, all for a low price. We'll throw in leather on the Cordoba, just buy our cars. We need the government to guarantee our loans. It's not pure capitalism, but it saves jobs and saves communities. FINALLY, we have a new products coming around the bend. We'll have K-cars, and we'll have something called a minivan. All of these things Iacocca said. His plan included new products and outside help. The loans bought the company time. The new cars came, and Chrysler paid its loans ahead of schedule. GM is yet to formally admit that it needs outside help. GM has yet to convince the world that it has products in the pipeline that can make the losses go away. I know I'm not convinced.

Can cuts lift GM? - 06/08/05: "updated 12/19/2002). "