Wednesday, April 13, 2005
GM as Proxy for Entitlements
The kicker:
"GM's boss should be the media's darling, running his company to provide job security and health care for its workers first, second and third. Wonder why GM invests just enough in new product to keep the game going, not enough to make its cars really sought after? Because the extra capital that would have to be invested goes instead to doling out gold-plated health care -- no copays, no deductibles -- to workers and to plumping up their pension fund..."
Crowding out in other words. This is exactly what will occur to government services.
The kicker:
"GM's boss should be the media's darling, running his company to provide job security and health care for its workers first, second and third. Wonder why GM invests just enough in new product to keep the game going, not enough to make its cars really sought after? Because the extra capital that would have to be invested goes instead to doling out gold-plated health care -- no copays, no deductibles -- to workers and to plumping up their pension fund..."
Crowding out in other words. This is exactly what will occur to government services.
Comments:
GM Pulls Into the Slow Lane
April 13, 2005; Page A19
History is bunk, a Detroit executive once said. Rick Wagoner, GM's CEO, could echo the sentiment every time critics razz him about GM's declining market share in the U.S., down to 25% today from 41% in 1985. Or about a succession of labor agreements in the '80s and '90s that let UAW members receive full pay whether or not there's a job in a GM factory for them.
Mr. Wagoner's job is not to argue about this history but to live with it. Last week he got the wrong kind of media notice when GM yanked its ads from the Los Angeles Times for reasons unspecified but which everybody attributes to a scathing review of GM's latest models, especially the vaunted Pontiac G6. Let's empathize: Mr. Wagoner gets dumped on as a "bean counter," a "finance guy" instead of a "car guy." But then, why would anyone put a car guy in charge of Social Security and Medicare?
GM's boss should be the media's darling, running his company to provide job security and health care for its workers first, second and third. Wonder why GM invests just enough in new product to keep the game going, not enough to make its cars really sought after? Because the extra capital that would have to be invested goes instead to doling out gold-plated health care -- no copays, no deductibles -- to workers and to plumping up their pension fund, which two years ago required the largest corporate debt offering in history to top off.
Here by a roundabout means we come to the reason that Cadillac -- whose resurrection may be the greatest Detroit success story since Lee Iacocca turned Chrysler around -- is the exception to the rule. The rule is Zeta.
Zeta was GM-speak for a new architecture and associated tooling that was going to deliver a host of new rear-wheel drive cars in the next few years, breathing life back into tired lines at Pontiac, Buick and Chevy and helping GM catch up with the sales pace being set by Chrysler's hot new 300 and Ford's hot new Mustang. Rumors abounded that GM would even revive the sporty Camaro and Firebird, dropped three years ago because GM's aging solid-axle rear-wheel drive technology wasn't up to snuff by today's standards.
Zeta was dropped last month, a direct response to a precipitous decline in GM's sales, the fizzing out of expectations for several new models, a sharp drop in the company's share price and a downgrading of its bonds by rating agencies.
GM made an effort to imply that Zeta resources were being deployed to speed up redesigned pickup trucks and SUVs, which will begin to appear next year. This was smokescreen. Zeta was shelved to free up money in coming years to meet the pension and health-care obligations to workers -- money that manifestly won't be coming from sales of G6s, Cobalts and LaCrosses, the new models that GM had nursed high hopes for.
All these cars are decent or even better than decent by every standard except the best of what GM's competitors have on offer -- such as riskier styling, meatier engines and more advanced transmissions (five- and six-speed automatics are state of the art today, whereas GM has tried to make it through another cycle with stale four-speed automatics).
Deep-sixing Zeta was GM's way of saying it will devote the rest of the decade to non-wow products. Risk taking, after all, is what you do when you're working for diversified shareholders, none of whom will go hungry if you swing for the fences and miss. It's not what you do when the primary goal is to sustain workers, retirees and their dependents in the accustomed manner until nature finally relieves you of the burden.
Most people know a sexy, alluring car when they see it, and it doesn't take the public long to discover whether what's under the hood lives up to the promise. Designing winning vehicles is not a matter of magic and luck. Cadillac illustrates that GM is as capable as any car company of hitting home runs, but also illustrates what it takes to get GM in the mood for risk taking.
By the late 1990s, a century's worth of brand equity in the vehicle line that had come to represent the pinnacle of brassy American luxury was on the verge of going poof. The average age of a Cadillac buyer was 65. The cars themselves were little more than cosmetically enhanced versions of basic transportation being dished up by Chevy and Pontiac at a time when affluent boomers were turning to BMW, Lexus, Jaguar and Mercedes to signify their arrival.
Faced with an unthinkable flat-lining of its premier nameplate, GM's senior managers embraced daring design and high-end engineering and persevered despite a skeptical automotive press and internal doubters. Four billion dollars were invested to create an original new line -- money that didn't get allocated to a capital account to support pension and health benefits. The cars have been a hit -- Cadillac expects to sell 50,000 more this year than it did during the stock market boom in 1998.
You may recall that Chrysler and Ford have also taken turns on the critical list in the past few years. Many factors were involved, but a common symptom was the lack of any hot car with word-of-mouth appeal. Detroit has become the new Hollywood, largely unable to meet its costs with its workaday products, dependent entirely on a few big hits to supply investors with any profits.
Yet Mr. Wagoner has decided that GM will go the final laps in its race with the mortality tables without the possibility of any hits that Zeta might have spawned. This may be entirely rational, but the grim reaper had better hold up his end of the bargain. In the meantime, GM shareholders can expect the thrill ride to get only more, er, thrilling.
Write to Mr. Jenkins at holman.jenkins@wsj.com.
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April 13, 2005; Page A19
History is bunk, a Detroit executive once said. Rick Wagoner, GM's CEO, could echo the sentiment every time critics razz him about GM's declining market share in the U.S., down to 25% today from 41% in 1985. Or about a succession of labor agreements in the '80s and '90s that let UAW members receive full pay whether or not there's a job in a GM factory for them.
Mr. Wagoner's job is not to argue about this history but to live with it. Last week he got the wrong kind of media notice when GM yanked its ads from the Los Angeles Times for reasons unspecified but which everybody attributes to a scathing review of GM's latest models, especially the vaunted Pontiac G6. Let's empathize: Mr. Wagoner gets dumped on as a "bean counter," a "finance guy" instead of a "car guy." But then, why would anyone put a car guy in charge of Social Security and Medicare?
GM's boss should be the media's darling, running his company to provide job security and health care for its workers first, second and third. Wonder why GM invests just enough in new product to keep the game going, not enough to make its cars really sought after? Because the extra capital that would have to be invested goes instead to doling out gold-plated health care -- no copays, no deductibles -- to workers and to plumping up their pension fund, which two years ago required the largest corporate debt offering in history to top off.
Here by a roundabout means we come to the reason that Cadillac -- whose resurrection may be the greatest Detroit success story since Lee Iacocca turned Chrysler around -- is the exception to the rule. The rule is Zeta.
Zeta was GM-speak for a new architecture and associated tooling that was going to deliver a host of new rear-wheel drive cars in the next few years, breathing life back into tired lines at Pontiac, Buick and Chevy and helping GM catch up with the sales pace being set by Chrysler's hot new 300 and Ford's hot new Mustang. Rumors abounded that GM would even revive the sporty Camaro and Firebird, dropped three years ago because GM's aging solid-axle rear-wheel drive technology wasn't up to snuff by today's standards.
Zeta was dropped last month, a direct response to a precipitous decline in GM's sales, the fizzing out of expectations for several new models, a sharp drop in the company's share price and a downgrading of its bonds by rating agencies.
GM made an effort to imply that Zeta resources were being deployed to speed up redesigned pickup trucks and SUVs, which will begin to appear next year. This was smokescreen. Zeta was shelved to free up money in coming years to meet the pension and health-care obligations to workers -- money that manifestly won't be coming from sales of G6s, Cobalts and LaCrosses, the new models that GM had nursed high hopes for.
All these cars are decent or even better than decent by every standard except the best of what GM's competitors have on offer -- such as riskier styling, meatier engines and more advanced transmissions (five- and six-speed automatics are state of the art today, whereas GM has tried to make it through another cycle with stale four-speed automatics).
Deep-sixing Zeta was GM's way of saying it will devote the rest of the decade to non-wow products. Risk taking, after all, is what you do when you're working for diversified shareholders, none of whom will go hungry if you swing for the fences and miss. It's not what you do when the primary goal is to sustain workers, retirees and their dependents in the accustomed manner until nature finally relieves you of the burden.
Most people know a sexy, alluring car when they see it, and it doesn't take the public long to discover whether what's under the hood lives up to the promise. Designing winning vehicles is not a matter of magic and luck. Cadillac illustrates that GM is as capable as any car company of hitting home runs, but also illustrates what it takes to get GM in the mood for risk taking.
By the late 1990s, a century's worth of brand equity in the vehicle line that had come to represent the pinnacle of brassy American luxury was on the verge of going poof. The average age of a Cadillac buyer was 65. The cars themselves were little more than cosmetically enhanced versions of basic transportation being dished up by Chevy and Pontiac at a time when affluent boomers were turning to BMW, Lexus, Jaguar and Mercedes to signify their arrival.
Faced with an unthinkable flat-lining of its premier nameplate, GM's senior managers embraced daring design and high-end engineering and persevered despite a skeptical automotive press and internal doubters. Four billion dollars were invested to create an original new line -- money that didn't get allocated to a capital account to support pension and health benefits. The cars have been a hit -- Cadillac expects to sell 50,000 more this year than it did during the stock market boom in 1998.
You may recall that Chrysler and Ford have also taken turns on the critical list in the past few years. Many factors were involved, but a common symptom was the lack of any hot car with word-of-mouth appeal. Detroit has become the new Hollywood, largely unable to meet its costs with its workaday products, dependent entirely on a few big hits to supply investors with any profits.
Yet Mr. Wagoner has decided that GM will go the final laps in its race with the mortality tables without the possibility of any hits that Zeta might have spawned. This may be entirely rational, but the grim reaper had better hold up his end of the bargain. In the meantime, GM shareholders can expect the thrill ride to get only more, er, thrilling.
Write to Mr. Jenkins at holman.jenkins@wsj.com.
