Experts Weigh In on GM

Auto industry insiders and critics respond to the latest phase of GM's struggle for survival

By David Bogoslaw

General Motors' filing for a pre-packaged bankruptcy on June 1 marks the end of an era. The significance of the event isn't lost on those with intimate knowledge of the auto industry, from former executives to business and labor historians to political activists and local politicians.

• Richard Tedlow, the MBA Class of 1949 Professor of Business Administration at Harvard Business School, looks far back into history to explain who's responsible for GM's collapse. He blames Alfred P. Sloan, GM's former president and chairman, who's widely recognized for turning GM into the industry leader by the 1930s. "He was a great executive with a great failing, and that failing was labor relations," Tedlow says. He credits GM's abusive treatment of its workers in the 1930s, despite the considerably higher wages it paid, for the spectacular growth of the United Auto Workers union, starting in 1936 with a sit-down strike at the Flint plant that lasted 44 days.

"The institutionalized adversarial relationship between workers and management…worked O.K. in the 1950s because every time workers wanted a wage increase, GM could pass it on to consumers because there was no global competition," says Tedlow. But with the encroachment of foreign competitors that could pay their workers less because they listened to and empowered them, the cracks in GM's strategy became clear, he adds.

Ultimately, whether GM can succeed and return to profitability after restructuring will depend on the extent to which it can maintain, or regain, consumers' loyalty. "GM became great by offering this ladder of cars that was a status ladder—Chevrolet to Oldsmobile to Cadillac," says Tedlow. "It can't make the owner of that car [that's been discontinued] feel really great. That has implications for loyalty to the brand and the self-esteem of the person who bought it."

• Ralph Nader, consumer activist and former Presidential candidate, says a GM bankruptcy will just accelerate the company's relocation of its manufacturing operations to low-wage countries such as China and Mexico, and re-exporting cars back to the U.S. "That's been their plan all along," Nader says. "This creates a clean [slate], a new GM corporation shorn of obligations, liabilities, and responsibilities, and makes it even easier to move to China."

Nader, whose book Unsafe at Any Speed spurred Congress to pass the Traffic & Motor Vehicle Safety Act of 1966, which mandated safety features such as seat belts, is especially critical of President Obama's Auto Task Force, led by investment banker Steven Rattner, staffed by other Wall Street alums, and charged with oversight of the Chrysler and GM bailouts. "Wall Street looks at this thing as a financial restructuring. They don't care where the [the carmakers] make their money, in China or Cucamonga," he says. "Human consequences, national sovereignty, integrity of communities, the existence of a domestic auto industry don't mean anything to these guys."

• Michigan Governor Jennifer Granholm has much at stake in the successful reorganization of GM. "Bankruptcy restructuring, which will have a vast ripple effect on families, is heartbreaking, but liquidation would be life-ending," Granholm said in a statement to BusinessWeek. "General Motors will emerge leaner but stronger. This is the next chapter in the story of the new American auto industry—building green cars that lead our nation to energy independence." David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., speculated last December that bankruptcies of the automakers "would basically just kill Michigan," wiping out as many as 3 million industry jobs plus 500,000 other jobs.

By some estimates, GM will end up cutting its workforce by about 25,000, but that doesn't begin to approximate the devastating impact the bankruptcy will have on the broader industry, including suppliers, parts makers, and dealers.

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