Wednesday, May 27, 2009

Government Motors

Once upon a time, in a galaxy far, far away, General Motors stood for, and advertised itself as, the "mark of excellence."   (See old GM logo above).

Then the tribute it had to pay to the UAW began to take its toll.  Eventually GM was paying employees not to work, through the union's infamous "Jobs Bank," an arrangement whereby the company couldn't reduce its workforce without continuing to pay the laid-off employees.   As the cost of each car carried more and more of the expense to the company of lavish, monopolistic union contracts, it had to come out of somewhere.

It came out of quality.  The cars looked cheaper, first the interiors, then the outsides, too.  Then performance suffered.   As Click and Clack, the Car Guys on Public Radio, once observed about another American car brand, GM owners have experiences -- repair costs and downtime in the shop -- that Toyota buyers know nothing about.

A lazy and complacent management became the UAW's enablers, acquiescing without too much bother even to the most outrageous union demands, as long as they kept their own high pay, bonuses and perks.  "Hey," they reasoned, "we have a captive market, the people who can't afford better.   They have to take what we give them."  Through the ages, the classic mentality of the monopolist.

Eventually, GM gave up even the pretense, dropping the words "mark of excellence" -- first from its thinking, then even from its logo.

GM had found its market niche, with the other American car companies, as the maker of cars of last resort -- cars for people who couldn't afford a quality (i.e., Japanese or European) car.  You could look at the ratings summaries in Consumer Reports, where for each aspect of performance -- styling, performance, safety, reliability, exhaust and electrical systems, handling, overall quality -- a little red circle stood for "best" and a little black circle stood for "worst."   Except for Cadillac, priced to include the full labor costs with no compensating reduction in quality, each GM car stood in a field of black circles, alongside the Hondas and Toyotas with all red.

The cars were crappy, but the marketing strategy worked for GM and the other American car makers for about 20 years, with a captive market of people who couldn't afford better.   Then along came the Koreans, who started selling quality cars that even people of very modest means could afford.  And the bottom fell out for GM.

The company should have been allowed to die.   When the host dies, so does the parasite that killed it.   In this case, by making GM uncompetitive, the UAW.  But instead of allowing the parasite to die, the government takeover of General Motors doesn't eliminate the problem, but preserves it.  And, most astonishingly of all, at one point proposed to make the parasite majority shareholder in control of the host.

Just when you thought a GM car couldn't get any worse, brace yourself for the new era of America's answer to the East German Trabant.

And if you think this is bad, wait until we get Trabanticized health care.

We acknowledge the contribution of Lucy's Uncle Frank, for the historical perspective that helped inform this post.

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