Strategy Insight

After a recent session that I presented on success measures, I was asked by one of the participants about the fiscal crisis plaguing our three major United States automakers, Ford, General Motors and Chrysler. The person was wondered why these three manufacturers, with all of the many intelligent and professional leaders in their employ, continued to build cars that the American public did not want to buy.

I responded by explaining that the automakers knew what they were doing and how their cars were being received.  In fact, the problems plaguing the car manufacturers were not one of knowledge but rather of courage.

Paul Ingrassia, Wall Street Journal writer and bureau chief, articulated this issue as it relates to GM beautifully in his Journal opinion column on February 19^th.

According to Ingrassia, there are several issues that have created this predicament. Here are two.

(1)   The car manufacturers agreed to let auto workers retire with full pension and benefits after 30 years, This means that it is very conceivable for an employee to be paid for thirty plus years and not contribute to the end product. Couple this scenario with greater life spans and rising costs in health care and the cost structure take a painful hit. Add in the nation’s desire to have smaller cars with smaller price tags and competitive margins and the problem is exacerbated. One can only surmise that new and fresh ideas and the investment in R&D was limited because of these cost factors.

(2)   GM continued to keep two losing brands alive – Saab and Saturn – even though it was costing them money to do so. This was done because the company had spent $1.3 billion dollars to shut down its Oldsmobile brand in a way that allowed them to comply with state-dealer franchise laws.

Could this crisis have been averted? Very possibly but it would have required courageous leadership to take on the unions early on and absorb the short-term losses inherent with shutting down a failing brand early on.

Some weeks ago, we spoke about the concept of false kindness and the consequences of putting off uncomfortable decision s regarding staff. The car crisis today is yet another example of the need of leaders to be willing to do unpopular things, when they need to be done.