GM

Something I wrote for my brother
General Motors is in the news because it bas taken government money to survive and is now owned by the government and the union but OM is in sotne ways typical of other large corporations in that they all have large legacy cost. Legacy costs are the commitment made to employees in the fonn of retirement benefits which include among other things pensions and health insurance. Today GM has unfunded legacy costs of about 200 billion and the 600 million shares of outstanding stock can be purchased for

1.5 billion dollars. This is the culmination of 50 years of mismanagement. Many years ago the company president had a long term plan usually 10 to 20 years and his strategy was developed on that basis but in the early 60's things begin to change. The president's horizon shortened and over the next ten years it dwindled to planning for the next quarterly dividend. The pressure on CEO's mounted and they had to show a good dividend to keep investors happy. If the value of the dividend fell then investors looked for other vehicles in which to place their capital and the CEO's job was in jeopardy. This was highlighted when it came time to negotiate a new contract with the union and the result was to pacify the union members with increased benefits instead of increased salaries. This allowed the CEO's to avoid a strike and pushed off payment into the future and thus preserving the current dividend. By the time payments came due this CEO was on his way to either a higher paying position or to retirement. So here we are today with a company that has committed payments to its retirees that are worth 130 times more than the entire company is worth. What idiot would ever purchase a company in that position? Only the federal government could be that stupid.



James Roche CEO 1967 to 1971



During Roche's tenure, public opinion about automobile companies was changinfiI ftom

praise for producing cars which allowed freedom and mobility to dissatisfaction.

He ignored early warning signals that customers were not happy with the quality. As an anecdotal example in the early 60' s I lived in Hamilton, Ohio where there is a large Fisher Body plant, the company that made doors for OM cars and I had a friend who was a production supervisor there and he told me that the quality of the doors they were shipping to assembly plants was so poor that he could not believe that they could fit the cars together.

Thomas Murphy CEO 1974 to 1980

He is credited with saying "General Motors is not in the business of making cars. It is in the business of making money."

So while he was making money and paying dividends to the investors, Japan was making cars.



Roger Smith CEO 1981 to 1990

By 1989, the year before the last of the OMIOs were launched, OM was losing $2000 on every one of the cars it produced. When asked by Fortune why OMIO was such a

c~tastrophe, Smith replied, "I don't know. It's a mysterious thi':§.. I've said I'll take my

share of the blame on all those things. I was part of the team. "