Europeans and Japanese should applaud the democrat representatives favouring a GM bail-out, as it will largely benefit their auto companies with US tax payer money

General Motors (GM) is a disaster story. For more than two years now, I have been discussing with my Global Executive MBA classmates that this firm should go out of business. First they thought I am crazy. Then they asked me which part of GM. And I answered: “The whole Titanic ship, including all the parts which do not fall off early enough”.

This is what I call the Titanic syndrome and I have observed it many times with many companies. When times get tough, good people and businesses are the first to seek and exit from the mother ship. Good people are the ones who keep the ship running. They are the ones who generate the revenues and more important the profits!

Those who stay are usually the ones who can not get another job elsewhere, or who lack an understanding of the situation or are too lazy to search a better job. Everybody can already see the company sinking, but the captain still gives nice speeches, providing the comfort for useless employees. Don’t get me wrong, there are hardworking, employees, especially among the “lower ranks”. But any manager staying around, in these times and these situations, I call “useless” under the aspect of the company’s benefit.

Those who stay, have failed to address the issues in the past, they fail in the present and they will fail in the future. Those “useless” employees can especially found in marketing and other strategic functions. They continue spending money based on historic experience data points while the ship has holes and takes water at fast speed. Those guys still spend money on what to do when the boat arrives in New York!

Now, giving this short introduction, will tell you that as long as current executives are in charge, nothing will change. They just miss the scope and capability of innovation and extrapolating markets and demand. The consequence is that any money spent by the US government is already lost before it’s spent. That on the other hand is bad for the US tax payer and it is great for other countries with a significant auto industry. As I outlined in my thoughts on the auto industry, there are two things to consider:

First, the auto industry is a part assembling and licensing industry. It heavily relies on the experience of car suppliers who manufacture all the required components. The car manufacturer actually is more a type of strategy and (brand)-licensor, as well as responsible for project management, support, cost management a marketing analysis and product management. In reality, there is little real innovation and there is very little real manufacturing in the car manufacturer mother ship. Most of it is outsourced.

Now, with GM getting a bail out, this is good news for all the part suppliers. As the industry is highly interconnected and suppliers work for many different car manufacturers, this is great news. It is especially great news for those manufacturers which feared that their suppliers would come under financial stress with a GM default. The US tax payer money therefore is used for saving the industry and this is good news for “international” car part suppliers. And it is very practical for international auto makers, which can continue to rely on their current suppliers, saved with US tax payer money.

Second, there is a sad part of the story. GM has not been able to take the right steps in five consecutive quarters. They still manufactory goods “nobody” wants unless you throw money at them. They missed their strategic positioning, they missed innovation and they missed predicting the fallout of the crisis. So what else could they do, if this is their real core competence and when everything else is managed by the suppliers? It means that tax payer money will be used to support the Titanic while the holes are still there and the ship takes water! It means that US deficit might increase. It means distortion and protectionism in the economy. All of that we had in the years following 1929. By throwing money at GM, eventually a bankruptcy of the US auto industry can be avoided, but it plays into the hands of the rest of the world. The US deficit will even further increase and later on lead to an accelerated devaluation of the Dollar.

Let me summarize the consequences of the GM bailout: The rest of the world will be able to buy and utilize fuel efficient, smaller, Japanese and European cars while Americans will be unable to afford those. They will be forced to buy highly subsidized cars by one or more nationalized car makers, just like in the old Communist countries (e.g. DDR). Given the implications on the US currency foreign cars will become unaffordable to the average American, causing them to suffer from inflation. It further crowds out investments required in other places of the industry. It crowds out innovation and small businesses which could drive these. It is what it is, intervention in a free market to regulate itself.

BY CRISIS MANAGER

Source >  Berninger.de | nov 12

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