General Motors: Metaphor of American Business

In 1979 GM employed 600,000. Now it will employ 125,000 after the recent reductions in the workforce that take place in the next 3 years. On June 7, 2005 GM's CEO Rick Wagoner anounced plant closings and employee reductions that would save the company $2.5 billion per year. He was describing the devolution of an American icon. Simply there was too much capacity and too many workers for the realities of sales at GM. What happened?

In the 60's, Volkswagon introduced the Beetle. It seated 4 (compact people) and got 50 miles per gallon. At that time GM was producing cars that seated 6 ( full-sized people) and getting 8-10 m.p.g. The "Bug" did very well and started a new age in autos. In 1974 the Arab oil embargo hit and long gas lines reinforced the idea of consevative consumer automobile choices. GM followed the trend towards more economical cars and did OK through the late 70's. But then it regressed back to high-cost, high fuel consumption cars but that had high profit margins. It then started to lose it's 50% market share which recently totaled about 22%. Why did they abandon the economical car strategy? Maybe the tail of demands by the United Auto Workers of wages, health benefits and unrealistic pension agreements wagged the GM dog of a policy to high-profit unit sales versus a mass market blitz into low-cost hybrids and efficient compacts? The Hummer,trucks and other SUVS became the folly that may sink this company in it's present form. The paradigm of workers interests policy over good business strategy never works. It is the same philosophical problem of America's social policy through it's runaway legal system and entitlements that are making manufacturers in America less than competitive worldwide.

Non-competitive legal paradigms and unsustainably expensive social programs will end up following GM's car business.