- Auto Industry
"Death of a Car Salesman - GM and the New Administration"
In 2009, the Government took control of yet another failing corporate giant – that giant being General Motors. Due to the current economic situation, GM was struggling to stay alive but the way the government proceeded to “help” the company in essence did far more damage to General Motors, the GM employees and the country. 3400 privately owned automotive dealerships were being forced to shut their doors not because of a lack of business, but rather because the U.S. government had stepped in and decided that it was in the best interest of the American automotive industry to do so. This was unfair business practice and offered no feasible financial benefit to the automotive industry or the U.S. While it had been headline news that Unionized GM auto manufacturers (approximately 20,000) were the ones being laid off, the deeper print revealed that the unemployment figures were going to be well into the millions. More importantly was the fact that the government was taking away private enterprises from business people who still owed money out of pocket for inventory they were told they could no longer sell. This was gross abuse of power in its highest form and it ruined lives and destroyed the credit of otherwise good business-people.
For decades, the American automotive industry had been digging its own grave simply for the fact that it ignored its market. People who had bought GM cars were unhappy with the quality of the automobiles and Japan took full advantage of this by offering affordable cars that would run well over the 100,000 mile mark without a hiccup. Meanwhile Chevrolets, GMC’s, Dodge/Chrysler/Jeep’s and even Cadillac’s were falling apart after only a few years. The strange thing was that the shoddy American cars cost the same as the well-built Japanese imports. Those same people who had been so patriotically buying American products since the 1950’s were now driving Honda Accords instead of Chevy Cavaliers. If that wasn’t enough reason for the American to buy foreign, gas prices were quickly rising as a result of conflict in the Middle East, and the “Big Three (Ford, GM, Chrysler)” were focusing on producing gas-guzzling sports utility vehicles and completely ignoring the American need for a fuel efficient vehicle. Cars like the Lincoln Navigator, Ford Excursion, Chevy Suburban and Cadillac Escalade had a mean average of 12 mpg and 18 mpg freeway while the Nissan Pathfinder, Honda Odyssey and Toyota Land Cruiser achieved 18 mpg city and over 24 mpg freeway. Not only that, but these Japanese built “SUV’s” cost less than their American counterparts. Now jump forward about ten years and the price of oil had spiked even higher due to the Iraq conflict. Gasoline rose to $4.00 per gallon and Americans were having a hard time filling their tanks due in part to the cost of fuel, but also in part to the floundering economy. A new technology emerged that until recent times had only been talked about in the scientific community – hybrid powered cars. American automakers have had the technology at their fingertips for years but because of the last interests that the previous Executive cabinet held in the oil industry, the Big Three were discouraged from implementing alternative fuel sources that would have decreased the profits of certain American oil companies - in the best interest of the country. Japan, however, saw the needs of the American consumer and their frustration at transportation costs, and introduced hybrid technology into the common market. Today, reliable and well-built cars can be bought that have the added benefit of getting up to 50 mpg! In its first year of production, there was a waiting list on the Toyota Prius, while GM sales continued to drop. Up until only three years ago, the American consumer had to buy Japanese if they wanted to drive a hybrid and by that time, brand loyalty had been established. Americans wanted imports! GM meanwhile was starting to see that the only way to survive was to jump into the hybrid market, and quick. They started introducing a few better built cars that had good gas mileage, but the damage was already done. Besides that, the GM hybrids cost more to buy than their Japanese counterparts. No matter what amount of marketing GM did, they were losing ground fast.
The entire American economy was in a recession and people could no longer afford to spend money they didn’t have. Everyone, from the un-employed American on disability to the top CEO of a Fortune 500 company, had to start evaluating and eliminating. Certain luxuries had to be abandoned, and while that meant that the average worker had to start taking sack lunches to work, the CEO’s of the top companies had to start laying off entire departments just to stay in business. Some companies had to receive federal bail-outs, and GM was one of those companies. GM sales were at an all time low and the executives of the company were doing whatever they could to protect what was left of the company. Unfortunately, what the government offered them ended up doing far more damage than anyone could have foreseen.
It was obvious in everyone’s eyes that there would be job losses, but what had transpired shocked even the most pessimistic GM employee. When the government stepped in and took control, one of the first things they decided to do was close the Chrysler division. Chyrsler/Jeep/Dodge had been a rotting tomato on the vine for over a decade and it only made sense to eliminate that division. However, people lost jobs. Next, Uncle Sam decided to close more than half of the GM dealerships in the U.S. Keep in mind that all of these dealerships were privately owned and on top of more employees losing jobs, the dealership owners were robbed of their business and then stuck with the unsold inventory. Yes, you heard me right. Because GM had been doing so poorly through the last few years, dealers had been forced to purchase their own inventory (with co-op dollars, mind you), and they were responsible to license each and every automobile on their lot. We’re talking about millions of dollars out of their pockets. Then, the government came in and shut down 2600 out of the 3400 privately owned dealerships in the U.S. That’s 2600 business owners who were left with millions of dollars worth of debt because the President thought that it was in the best interest of the country.
They weren’t completely blind-sided though. In 2008, all GM dealers were forced to sign a wind-down agreement stating that they would they would start reducing inventory and relinquish their State Franchise Law rights to the government. While many agreed to purchase fewer inventories, many were furious at having to give up their rights as protected business owners, but they had no choice. They literally had a smoking gun put to their head, and they knew if they didn’t comply their dealership would be among the first to be closed. What happened to those privately owned business people is unfair and illegal. The State Franchise Laws are protected under the Bill of Rights. What happened is the government went in and punished business owners for the mistakes of a company the government now owns.
Because of the closure of those dealerships, 170,000 more employees lost their jobs but that’s not all. GM utilized several other supply houses such as tire dealers, glass manufacturers, stereo companies, textile and fabric manufacturers among others. The estimated supplier job loss quickly rose to 1.6 million employees. That makes a total of 1,770,000 un-employed Americans because of the closure of just 2,600 dealerships. Not just that, but once GM emerged from bankruptcy, every privately-owned dealership gained the legal right to sue the U.S. government for the losses incurred on each and every dealership. Each dealership on average sustained $4,000,000 worth of losses (cars, accessories, maintenance and repairs) and if you multiply that times 2,600 dealerships, you get $10,400,000,000 that the U.S. could possibly be forced to pay back. Guess who really pays in the long run though? That’s Right – Joe Tax-payer!. Since GM is now a government owned company, the government is now responsible for the debts held against it. Those debts includes the possibility that the Supreme Court will rule in favor of the private business owners who have been stripped of their rights and punished unfairly.
Even though the future of GM looked grim enough for the government to step in and take control, the changing of hands could not have happened at a worse time.GM had developed a reputation of making overpriced poorly built automobiles, but things began to change in 1999 when Rick Wagnor was promoted to CEO. Wagnor had been with the
company for over 30 years and had seen the need to change both the quality of the product as well as the image. He decided to work on the quality issue first. One of the first things he did was to re-introduce some of the classic muscle cars (in response to Ford bringing back the Thunderbird and redesigning the Mustang). His first project was the Chevy Impala and it turned out to be a good value, even though the resale value was not that great. The car was well built and had decent gas mileage but it lacked the promotion and marketing to maximize its sales. Wagnor didn’t want to market GM until it was fully back on track. When the next millennium came around, GM started to focus on safety features, and building quality automobiles with the intent of receiving awards. Their efforts paid off as they started to rack up the J.D. Powers awards for safety and excellence, and started to receive high ratings from the automotive trade publications. Suddenly, people were paying attention to the changes at GM yet sales still remained inconsistent. Wagnor still was reluctant to invest in a good marketing campaign. Things were getting closer for the company though, and once GM embraced the hybrid market, things were about ready to explode in regards to marketing and perception. Finally in 2007, GM started building cars that got better gas mileage than their Japanese counterparts. They were being built to withstand hundreds of thousands of miles without any major problems and they were starting to become more affordable. It was the American consumers dream car but they weren’t selling because people still trusted the imports more. Yet, Wagnor hesitated on a solid marketing campaign of the new GM. He hesitated just a bit too long because in 2009, GM went bankrupt and had to turn control over to the government.
In summation, millions of lives have been impacted because of not only how the CEO’s have mismanaged GM, but because of the way that our current administration has stepped in under the guise of doing the right thing for the American worker. How misleading they’ve been. The current administration is simply trying to serve its own best interests without considering the exponential damage that they are doing to the future financial security and morale of those who have worked so hard to make America what it is. We voted for change – and boy did we get it!