Thursday, June 4, 2009

Capitalism without Capitalists, Part III

In 2006, when Kirk Kerkorian sold his GM shares, the value of a share of GM stock was at about $30. Last Friday GM closed at less than $1.00 per share and trading has been halted because of the bankruptcy. GM would listen to Kerkorian three years ago, but more surprisingly, GM wouldn’t even consider the steps necessary to save itself as recently as this winter—after it was already surviving on government handouts.

I think the problem was GM’s size. Not because it was too large to make the changes necessary, but because GM was so large that it spawned a culture that precluded seeing the necessity of change. As recently as last fall, GM employed almost 250,000 people, and that’s a substantial decline from its high in 1970 of 395,000. GM has been Michigan’s biggest company and biggest employer for many years. In 1949 GM already had more than 220,000 employees in Michigan.

Rick Wagoner, who is pictured here, was a GM lifer. He joined GM in 1977 after graduating from Harvard Business School and worked at GM for over thirty years until he was forced to retire as CEO and Board President this winter. As far as I can tell, Mr. Wagoner never held a job with anyone other than GM. You need to understand how dominate GM has been in Michigan and how large and successful GM was for decades to understand why it couldn’t change. There was a GM way of doing things; a company culture that was all pervasive and dominated the way the company and everyone in it thought. People worked their entire lives at GM. At one time it was the largest company in the world and it was all centered in Detroit, a company town.

For real insiders it was unthinkable that GM could ever fail—and I don’t mean this as a metaphor, GM executives had a worldview that didn’t allow them to see a world without GM. Look at the idealized view of the Fisher Body Plant in Flint, Michigan. Then compare it to a recent picture.

The world fell down around them and GM never noticed.

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