General Motors Cannonball
Veteran Car and Driver Magazine editor, Brock Yates, used to lead the notorious Cannonball race across the U.S. non-stop wildly violating every speed limit with his competing buddies. In the Sixties, he would take out after my championing safer, more fuel-efficient and less polluting cars as undermining the auto industry through federal regulatory standards.
Mind you, in 1968, General Motors had nearly 60% of all vehicle sales in the U.S. One GM executive said the company was pushing for 75%. GMís decline coincided with the advent of more fuel efficient, more reliable Japanese and German cars at a time of rising gasoline prices in the late Seventies. Now the company is down to 25% of all vehicle sales in the U.S., its bonds have been downgraded to junk status, and its very profitable truck SUV sales are dropping as a gallon of gasoline heads toward $3.
GM, however, has been a successful lobbyist in Washington against stronger fuel efficiency and safety standards, for which the Japanese auto companies could give GM a medal. By making sure that GMís stagnating technology is protected in do-nothing Washington, market opportunities opened for the Japanese, Korean and German auto companies to take GM to the cleaners.
But the U.S. domestic auto bosses are not exactly sweating the steady takeover of their business by foreign car manufacturers opening plants here while GM closes factories. This month Automotive News reported the “31 chief executives of U.S. automakers, suppliers and publicly traded dealership groups” made sure their full compensation for 2004 rose 72 percent from 2003. This corporate narcissism is in an industry, which is declining or moving to China more of its facilities.
Now Brock Yates, long time defender of General Motors, emerges in the editorial pages of the Wall Street Journal to complain of GMís “bloated management.” But interestingly enough, he does not assign GMís woes to its being “strapped with crushing retirement and health plans, whopping worker benefits and wage scales,” to use his derisively typical language whenever labor receives its fair share of Big Autoís profits.
He accuses the United Auto Workers (UAW) of extorting these benefits from GM while he ignores the GM-UAW alliance on Capitol Hill regularly blocking fuel efficiency standards that could have made GM more competitive with Toyota, Nissan and Honda and less pressed to lay off tens of thousands of UAW workers in the last twenty five years.
To Yates it is all about fit, form and finish, not safety, efficiency and cleaner emissions. GM is declining, he says, due to its production of “legions of automobiles that are outdated, poorly constructed and wrapped in dull-cookie-cutter styling.” Hmmm. Brock, youíre sounding a little like a consumer advocate in the Sixties who today sees the same type of oblivious, frozen management as its predecessors 40 years ago, when it ruled the landscape coast to coast.
Now, GM makes far more profit from its financing arm, GMAC, than from selling motor vehicles. And the auto giant sees its salvation in China where it is about to overtake #1 Volkswagen in the fastest growing auto market in the world.
Back in the U.S. GM remains faithful to the moniker of “going backwards into the future.” So Brock, you know lots of rich investors, why not initiate with them a leveraged buyout of General Motors whose stock is near a historic low? Imagine cannonball Brock Yates finally putting his horsepower where his mouth is for a change.