Who's to Blame for GM's Bankruptcy?

Just about everyone—from management and the UAW to government, consumers, the competition, and the media, writes William J. Holstein

By William J. Holstein

Who is to blame for General Motors' bankruptcy?

First of all, management. For most of its existence, GM was not really a centrally unified company in the modern sense. Founder Billy Durant smashed together different companies—Chevrolet, Pontiac, Buick, Cadillac—and allowed them to compete with each other with only the thinnest level of oversight. Alfred P. Sloan, who took over the company in the 1920s, imposed a measure of discipline on these rival fiefdoms by creating more financial controls and a more rational positioning of each brand, with Chevrolet being the car for the masses and Cadillac being the car of the elite. But the company was still very decentralized.

Following World War II, this lumbering GM dominated the American automotive landscape, reaching 50.7% of the market in 1962. It didn't matter if GM was late to market with a feature or a design because "we had such enormous power that we could always steamroller everybody else," recalls Bob Lutz, the just retired product development chief who first joined GM in 1963.

Not Ready for Toyota

Then there was labor, and management's decision over the decades to grant the United Auto Workers higher wages, medical benefits, and pensions with each contract negotiation. This helped to elevate the standard of living for many blue-collar Americans, but health-care costs would emerge as a major burden on GM, as would a confrontational standoff between management and labor.

Then there was overseas competition. GM simply was not ready to respond to Toyota Motor (TM) and other Japanese manufacturers when they began to gain serious ground in the early 1980s. Toyota, in particular, had developed a lean manufacturing system that was completely different from the mass-assembly-line techniques GM was still using, many decades after Henry Ford perfected them. GM's fractured structure meant that each division had its own manufacturing processes, its own parts, its own engineering, and its own stamping plants.

Hungry for jobs, U.S. states began to encourage Japanese manufacturers to locate plants, or so-called transplants, in their states. The Big Three figured that would saddle the Japanese with the same labor costs and the same labor problems they had. But they were wrong. The Japanese located in mostly southern and border states that were solidly anti-union. They hired younger, less expensive workers, and they created an entirely new relationship between management and labor. This led to an entirely new auto industry. The net effect was to rachet up the competitive pressures on Detroit, not ease them.

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