Sixty To Zero

Alex Taylor III, “Sixty to Zero: An Inside Look at the Collapse of General Motors—and the Detroit Auto Industry”, Yale Univ. Press, 2010, 241 Pages

The author, who writes for Fortune magazine, states in this book that: “To some, GM looked more like a health care and pension provider than it did a car company.” He chronicles the mismanagement episodes GM, Chrysler, and Ford experienced beginning at their high points in the mid 60s and ending in the 2009 bankruptcy of GM, the buyout of Chrysler, and the miraculous story of Ford just barely staying out of the same tank. I read a book, Overhaul, describing the GM bankruptcy just some weeks ago (see 11/4/10 blog posting). I spent twenty years working for a tier one supplier to the auto industry, so this book had a particular interest for me. This week GM became a public company again with a spectacular IPO exceeding the most optimistic expectations.

My notes:
Pg. 33: In 1962 GM commanded 55.7% of the U.S.-made auto market. Not since Fords model Ts got 60% in 1921 had anyone got more. Chevy alone had 33%. However, this was the peak and the slide began (in the first half of 2009 GM had 19% of the U.S. market).

The Corvair fiasco: Nader, in his 1965 book, made three main complaints: the Corvair was unsafe on turns; the cooling system leaked carbon monoxide fumes; and in a front-end crash, a driver could be speared by the steering wheel. GM reacted by hiring private investigators to tail Nader and dig up compromising information about him.

Pg. 111: The 1990 contract with the UAW guaranteed pay to three hundred thousand laid-off workers up to 95 percent of their salary for as long as three years. The contract destroyed GM’s ability to control the cost of its workforce. It had made labor a fixed cost and put GM on the hook for more than three billion dollars. The UAW was tremendously helped by GMs structure which enabled the union to shut the corporation down by striking only a handful of plants. So GM decided that it was less expensive to make cars than to close plants, so it dumped cars into rental fleets for little or no profit rather than try to shutter a plat and pay union workers not to work. When those rental cars made their way onto the used car market in four or six months, they competed with GM’s new cars for customers.

Pg. 214: In many ways, GM was not being run just for its shareholders—and it hadn’t been for forty years. Stakeholders such as workers and retirees had as big an impact on corporate strategy as those who owned its stock. To some, GM looked more like a health care and pension provider than it did a car company. Just in 2004, health care for GM’s 1.1 million employees and retirees and their dependents had added $1,525 to the cost of every car and truck GM produced in North America. (Note: In 2007 GM paid a lump sum to the UAW to take over the health plan and negotiated a two-tier pay system for the plants).

Pg. 234: On June 1, 2009, GM followed Chrysler into bankruptcy. It would emerge forty-four days later as a new company with four fewer brands, as well as fewer executives, employees, dealers, and debt. Under its new, post bankruptcy structure, it is designed to break even with industry sales at ten million cars and trucks a year. That’s a huge improvement over the old GM, which required industry sales of sixteen million units before it turned a profit. But if U.S. sales remain below ten million, as they did in 2009, GM’s prospects are significantly dimmed