What Will Fix GM Won't Fix Chrysler

The Obama Administration needs to understand that the problems facing GM and Chrysler aren't the same, and each will need its own solution

By William J. Holstein

Now that President Barack Obama and his task force on the automotive industry have engaged directly with General Motors (GM) and Chrysler to discuss whether they will receive further loans, the federal authorities need a much broader gauge than just "financial viability" to evaluate the health of the two companies. They need to understand where each company stands in terms of its long-term business strategy, not just its finances, and they also need to carefully consider the different ownership structures.

Seen in this broader context, GM has made dramatic strides in transforming its manufacturing process by borrowing lean production techniques from Toyota Motor (TM), starting in the mid-1980s. For all intents and purposes, the quality and productivity gaps between a Chevrolet Malibu made in Kansas City, Kan., and a Toyota Camry made in Georgetown, Ky., have disappeared. Thanks to sweeping agreements with the United Auto Workers, GM's cost structure also was approaching that of Toyota's Georgetown plant, even before the most recent round of cutbacks and givebacks. Because of tough agreements with the UAW starting in 2007, GM was on track to strip out $5,000 from the cost of each of its vehicles by 2010.

GM also has revitalized its design capability, first with the new Cadillac "art and science" look in the late 1990s and then with the Chevrolet Malibu, Camaro, and Volt, and other vehicles. The old saw that "GM does not know how to design cars that Americans want" is many years out of date.

GM Much Healthier Than Chrysler

While maintaining a full design effort, the company also has invested $1 billion in the new lithium-ion battery that will power the Volt when it appears late next year. That's critical if the U.S. is to earn a piece of a new "green" industry, which AllianceBernstein (AB) estimates could reach $150 billion a year in sales by 2030. GM's Chief Executive G. Richard Wagoner Jr. also has led the automaker into a much more global posture, building up an important stake in the Chinese market, for example, which is now rivaling the depressed U.S. market in size.