Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Slow Death of General Motors

Companies / US Auto's Mar 31, 2009 - 09:16 AM GMT

By: Money_Morning

Companies Best Financial Markets Analysis ArticleMartin Hutchinson writes: U.S. President Barack Obama's firing of General Motors Corp. ( GM ) Chief Executive Officer G. Richard Wagoner Jr. may be the beginning of the final act of a long and sad drama - the slow death of GM. The company nameplate may soldier on in some form, but it seems increasingly likely that unless Ford Motor Co. ( F ) can forever avoid government intervention, the once-unique capabilities of the U.S. automotive industry will be forever lost.


In 1970, GM had nearly 60% of the U.S. automobile market, and imports' share was below 10%. Today GM's market share is little more than 20%, and imports and domestically produced automobiles of foreign brands) dominate the market.

There are three reasons for GM's decline, none of them easily reversible:

The first is notorious - GM has a major cost disadvantage : When foreign automakers had no automobile factories on U.S. soil, GM could - and did - allow the United Auto Workers (UAW) union to ramp up costs ad infinitum. Any cost disadvantage that GM thereby acquired compared to foreign brands produced in cheaper-labor economies could be overcome through careful lobbying to provide barriers against excessive imports.

However, the arrival and establishment of foreign-owned manufacturers in America's less-unionized states - combined with the inexorable aging of GM's former and current work force, which greatly increased the U.S. automaker's health and pension costs - shackled GM with an impossible cost disadvantage against its competitors. Some of that disadvantage is now being slowly negotiated away, but without a GM bankruptcy it seems most unlikely that the company's costs can be brought down to competitive levels.

Second, GM has been bedeviled by government regulation : One great example is the Corporate Average Fuel Economy (CAFÉ) standards introduced in 1975. As a specialist in the traditional large cars that the U.S.-consuming public favored, GM was badly affected by the CAFÉ standards that, by mandating average fuel economy ratings for the entire fleet, enormously benefited Japanese and other makers that specialized in small cars. Eventually, GM and the other U.S. manufacturers found a loophole, and developed the sports utility vehicle (SUV) that, being based on a truck chassis, was not subject to the CAFÉ restrictions. By the time Chrysler, Ford and GM made that discovery, however, the damage - in terms of market share - had been done.

A further round of tighter CAFE restrictions introduced in 2007, this time including SUVs, has once again imposed gigantic development costs on GM, making its entire product range obsolete. A moderate gasoline tax, particularly one introduced over a lengthy period, would have been far less disruptive to the market, and to GM's operations. It would also probably have achieved rather more in terms of fuel economy and combating global warming. “ Cap-and-trade ” regulations, as proposed by the Obama administration, will further increase GM's costs, providing the biggest relative benefits to manufacturers in such low-wage countries as China and India that are not subject to such impositions.

However, the principal threat to GM's competitive position, one which Wagoner's departure will intensify, is the “culture war” between the upscale bi-coastal opinion formers and the general U.S. public : In 1970, the standard upscale car for all but the very rich was a Cadillac, a Lincoln, or a Chrysler Imperial . This was as true in New York as it was in Detroit or Dallas; only a small minority of consumers bought top-of-the-line foreign cars, generally with academic pretensions. Equally, for the upper-middle bracket, Buick or Mercury was the choice of the vast majority.

Today on the East and West coasts, consumer tastes are very different. Saloon Cadillacs and Lincolns are rare; the upscale driver generally chooses a Mercedes, BMW or Lexus. Only among those with families (such as the Obamas) is a large SUV sometimes chosen, although generally an imported one. Buick now sells far more cars in China than in the United States; the traditional Buick or Mercury driver on the East or West coast has migrated almost entirely to import models. Before his presidency, then-Sen. Obama himself drove a Chrysler 300C followed by a Ford Escape hybrid , but one has to guess that his choice of U.S. vehicles was strongly influenced by his political ambitions.

This preference for foreign automobiles is reflected in the media commentary (media bigwigs being almost entirely upscale and bi-coastal). GM and other U.S. manufacturers are persistently accused of “poor management,” although there is little or no evidence given, or discussion of what they might have done better.

Objectively, GM and Ford products perform extremely well in quality surveys, and represent much better value for money than most imported brands, yet without support from opinion-formers they are terminally unfashionable, with the upscale models destined to sell relatively poorly except between Pittsburgh and Boise. Even technological breakthroughs like the Chevy Volt electric car seem unlikely to change this.

President Obama's decision to get rid of Wagoner reflects this attitude. His announcement was full of denunciations of poor management, with no acknowledgement that overblown union contracts are GM's No. 1 problem (at least, the No. 1 problem that there is any possibility of solving in the short term). There appears to be little recognition in the Obama administration as a whole that recalcitrant unions and media-induced disdain for GM's product range were far more important causes of GM's decline than any shortcomings in Wagoner's management moves.

Over his eight years as GM's CEO, Wagoner has done about as well as he could have. He has overseen a considerable and successful restructuring of GM's operations, together with an extraordinary success story in the Chinese market, where GM has emerged as one of the leading competitors in the world's fastest-growing car market .

With the Obama administration overseeing GM's operations, the company will move towards producing the cars that opinion formers want it to produce: cramped, dangerous and uncomfortable, but fuel-efficient or powered by subsidized energy sources. However, the “New GM” will reap little reward for its docility; unless it files for Chapter 11 bankruptcy, it still will have excessive costs, and it will find itself competing in a market crowded with foreign producers, but containing only a minority of the U.S. consuming public.

This is bad news for consumers between Pittsburgh and Boise, and for those on the coasts seeking low-cost, high-comfort transportation, but possibly very good news for Ford, if it can somehow avoid being caught in the government maw. If GM is emasculated by the government and Chrysler is downsized and sold to the small-car-oriented Fiat, Ford will have a huge market to itself, that of U.S. consumers wanting traditional U.S. automotive qualities.

Wagoner doubtless now wishes that in December he had chosen a GM bankruptcy over government aid. In the long run, the U.S. car-consuming public, its automobile industry and the U.S. economy (let alone U.S. taxpayers) may come to share that view.

In closing, let me offer a personal note of disclosure - and a final thought: Being “bi-coastal” but determinedly not “upscale” I drive an ancient Buick.

It's a wonderful car …

[ Editor's Note : When it comes to banking, there's literally no one better than Money Morning Contributing Editor Martin Hutchinson , who brings to the table the kind of high-level expertise that our readers have come to expect. Fans and followers of Hutchinson's work will soon be able to subscribe to a new product that focuses on income investing that will feature more of his - insights and essays. Watch for that to debut in the next two weeks.

For a news/analysis story on General Motor's failure to land federal bailout aid that appears elsewhere in today's issue of Money Morning , please click here . ]

Money Morning/The Money Map Report

©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules