Car Guys vs. Bean Counters - Bob Lutz [78]
We can confidently expect more of the world’s auto producers to move to the Volt-type solution, as neither the optimized internal combustion engine nor a battery-only vehicle lineup will, over the next decade or two, adequately fulfill the conflicting requirements of “range” versus “no CO2 emissions.” The skeptics, the pundits, the GM haters, and those who detest lithium-ion as a chemistry will all be dragged, however unwillingly, to the same conclusion: Volt paved the way, Volt was the first with the extended-range EV concept,Volt demonstrated the will and technological capability of General Motors.
More than any of the other highly successful GM products of recent times, Volt is a shining testimonial to the company’s vision and willingness to accept large risk. It is indicative of the new attitude at General Motors. And to all the doubters, opponents, critics, and skeptics, from Doug Korthoff to Glenn Beck, I say, “Eat your hearts out.Volt is the future.”
10
Meltdown and Rebirth
JUST HOW AND WHY DID GM, ON JUNE 1, 2009, SLIP INTO CHAPTER 11 bankruptcy and, as a consequence, into temporary majority ownership by the U.S. federal government and, to a lesser extent, the Canadian government? The reader will be spared the arcane financial details and dates, as they will be of interest to only the most dedicated students of corporate financial history. Instead, I’ll touch on the real reasons for the meltdown, what it was like to live through it, and what was different about “federal ownership” and the new top leadership.
The previous year had started out well enough, with a middling economic performance in the United States and, as usual, strong growth in China. At GM, we were feeling optimistic about 2008: many great new products were on the road and in the pipeline, and the newly launched Chevrolet Malibu was enjoying great success after having been named North American Car of the Year, our second in a row after the Saturn Aura won in 2007.
Financially, despite a debt-heavy balance sheet, things looked promising. We had concluded a new contract with the UAW in the latter part of 2007 that would narrow the wage-cost gap to the Japanese transplants operating in the South and, most important, transfer ongoing responsibility for UAW health care from the company to a union-sponsored fund (which GM was to set up), thus freeing the company from a crushing burden amounting to six or seven billion dollars a year. (GM’s outlays for worker benefits, of a type not assumed by foreign competition, had amounted to a total of $107 billion over the past fifteen years.) At about 6 to 7 percent of revenue, it was like trying to run a marathon with ten-pound weights attached to your ankles while your international competitors wore lightweight running shoes.
Critically, though, the new union-responsible health care regime was not slated to become effective until 2010, too late to help in the 2008 meltdown, as we were soon to discover.
Things started to turn ugly during the first quarter of 2008. The collapse of the subprime mortgage market and the ensuing financial crisis, bank failure, and home foreclosures sucked hundreds of billions out of the economy almost instantly. Although few economists foresaw it, we had been living a life of false prosperity in a gigantic gossamer bubble, pumped up by fictional wealth in the form of more and more credit which, in turn, was collateralized by assets of an ever-more dubious nature.
We now know that the subprime disaster was as least partially incubated in the late 1990s with a series of congressional acts falling under the umbrella moniker of the “American Community Renewal Act,” which had the socially laudable (but economically oxymoronic) objective of putting millions of Americans into homes they could not afford. Banks were required to make a certain percentage of loans to persons not qualified by the accepted financial criteria, this