Book Review: Why GM Matters by William J. Holstein

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Tag: Book Review-Why GM Matters by William J. Holstein

April, 15 2009

The preface of the book begins with the 1953 confirmation hearing of GM President Charles E. Wilson before the Senate Armed Services Committee.  Wilson was asked by President Eisenhower to become his Secretary of Defense.   It was at this hearing that Wilson said:

“For years, I though what was good for our country was good for General Motors and vice versa.  The difference did not exist.  Our company is too big.  It goes with the welfare of the country.”

GM was at the time the world’s largest company without qualification and controlled about half of the US auto industry and employed more people than the population of some US states.

Fast forward 50+ years and GM is in a much different position both financially and in the minds of the public.  No longer does GM control over 50% of the automobile market in the US as it once did in the 1960s.  No longer is GM the world largest industrial and automobile company.  If not for the US  government providing bridge loans to the company back in December 2008, the company may not be in business today.

This is not a book that details the downfall of GM but a story outlining the systemic changes the company has made in correcting many of the issues that have plagued the company over the past 30 years.  Those issues are well documented and the author assumes on a high level the reader is aware of the company’s past troubles. 

William Holstein makes a very compelling case that GM is not the same lumbering, out of touch giant it was years ago when the company just could not do anything right in the 1970s through the 1990s.   The author balances GM’s well document problems with the accomplishments the company has made under Chairman and CEO Rick Wagoner and validates many of the points I have been making for a while.  Wagoner and his team have made substantial progress in attempting to right the company and Holstein documents that history debunking the company’s critics either in the press or on Capital Hill.

Early in the book Holstein cites a 2005 Thomas Friedman editorial from the NY Times.  Friedman has been a sharp critic of the US auto industry and specifically GM for years now (See articles below).   The thesis of the book is to show people like Friedman they have it wrong in their opinion of GM compared to the rest of the industry.  

Friedman wrote:

“So I have a question: If I am rooting for General Motors to go bankrupt and be bought out by Toyota, does that make me a bad person?

It is not that I want any autoworker to lose his or her job, but I certainly would not put on a black tie if the entire management team at G.M. got sacked and was replaced by executives from Toyota. Indeed, I think the only hope for G.M.'s autoworkers, and maybe even our country, is with Toyota. Because let's face it, as Toyota goes, so goes America.”

A chapter of the book is devoted to humanize Toyota and documents recent problems in vehicle quality resulting in a record number of recalls – once unthinkable, its mis-steps with its fullsize truck program and its over expansion in the US market. Even though Toyota has become the "Green" environmentally sensitive auto company because of the Prius, the author points out it is great marketing than fact because of the fuel inefficient trucks and SUVs it does sell.

While reading this book, I came across this article from Fortune Magazine by Alex Taylor II, GM has more troubles than you think.

In the article the author stated:

“For another thing, GM has also been pursuing a disastrously wrong-headed development policy on hybrids. While the automaker was working on systems for low-volume trucks and buses with no consumer visibility, Toyota and Honda were building popular-priced hybrids that average people could actually buy.”

A few years ago I met with GM’s R&D chief Larry Burns and discussed the company’s hybrid strategy.  Basically it came down to data and where the largest improvements could be made to reduce oil consumption given the market conditions at the time.  Quantitatively GM’s strategy was sound as putting full hybrids first into buses and the company’s fullsize trucks and SUVs would mathematically save the most barrels of oil based upon vehicle usage.  Holstein  without much detail tries to explain that independent on the outcome, there are usually good reasons and rationale for the decisions of GM’s management.  Furthermore, Taylor ignores the fact, Honda up until recently has not had a high-profile hybrid program with the latest Insight and actually stopped production of the Accord hybrid.  Mr. Taylor did praise Holstein’s book on its jacket.

Moreover, the relevance of the story is that it reflects the current economic crisis that forever changed the fortunes of the company, sending Wagoner to Washington to ask for federal assistance early last winter.  Holstein even foreshadows his firing by the Obama administration a few weeks ago.

This is not a rich analysis of GM’s operations but a good overview of the significant progress the company has made, not only streamlining its operations but changing its corporate culture.  It briefly covers GM’s struggle to centralize its whole organization and commonize it global manufacturing operations and leverage its worldwide engineering resources.  More fun for the reader are the interviews with management, designers and engineers conducted during the development of the Cadillac CTS, Chevrolet Malibu, Chevy Camaro and the revolutionary electric Chevy Volt program. 

For anyone that routinely follows the company, many of the stories are not new.  For those in the industry, the author only scratches the surface as to how complex vehicle development is and more importantly how vast the level of resources are committed to get a vehicle into production once approved by the company’s strategy board.  Given that over the years I have met some of the players discussed in the book, I can attest to their level of commitment to developing world-class product.

Also highlighted is the fact that it takes time to change a generation of bad practices  - an organization as large as GM can not reshape itself in a short time period but is a long undertaking.

For some readers the timing of this book may raise concerns.  Holstein, to a layman may come off as an apologist for the company especially Wagoner given more recent events.  He covers GM’s successes in China and also in Korea with the purchase of Daewoo, however, he fails to discuss the company’s ongoing problems in Europe with its Opel division. There is also not even a mention of the alliances with FIAT, Subaru or Suzuki that have been desolved since the 2005 restructuring or the bankruptcy at former parts supplier Delphi.  Understandably, there is no possible way in a 250 page book anyone could capture the sheer magnitude and enormity of GM much less the audacity of the company’s leadership’s to attempt the impossible and fix the company.  And I will add that was prior to the serious position the company and industry as a whole was put in as the banking crisis unfolded. 

There is not doubt the book is aimed at the critics of GM such a Friedman.

In a February 2009 piece Friedman stated:

“Reading the news that General Motors and Chrysler are now lining up for another $20 billion or so in government aid — on top of the billions they’ve already received or requested — leaves me with the sick feeling that we are subsidizing the losers and for only one reason: because they claim that their funerals would cost more than keeping them on life support. Sorry, friends, but this is not the American way. Bailing out the losers is not how we got rich as a country, and it is not how we’ll get out of this crisis.”

Friedman like much of the press coverage of the automotive shakeout have missed many of the larger issues the industry has been grappling with for years which Holstein takes on passively.  Being it personal prejudice to just plain lack of knowledge of the subject matter, I have found the coverage of the auto industry lacking for a very long time even more so now that the Detroit 3 companies are constantly front page news.  Over the last few months I have made it a point to cover many of the overseas manufacturers to illustrate how tough the current economic conditions are for the global industry.  For those reasons I appreciated the honest approach Holstein took in his review of the company.

Friedman’s statements are troubling because of the fact he ignores the state of his own industry.  In recent years, made worse today because of the recession, the newspaper business in the US has fallen on very hard times including gold standard publications such as the NY Times, Washington Post and Chicago Tribune.

As a brief summary, the NY Times sold its home office for $225 million to raise cash, suspended its dividend and has sought a cash infusion from a large investor.  The Washington Post has taken steps to consolidate sections and downsize the paper.  Finally the Chicago Tribune Company filed for bankruptcy protection in December 2007.  Much like the automobile industry, the newspaper business model is in trouble with many local and regional papers on the brink of failure (See articles below).

The speak of the US House of Representatives House Speaker Nancy Pelosi concerned about her hometown paper and other financially struggling newspapers has requested the US Justice Department to reconsider antitrust regulations to allow the industry to consolidation.  Furthermore, Congress is also being urged to bailout the struggling newspaper industry as ad revenue decline and companies may not be able service their outstanding debt. 

Are the newspapers losers just like the auto companies?  

In light of the double standard the US automotive industry is often held too, Holstein’s book outlines that GM’s management including at the time Rick Wagoner understood the company’s problems and have made a good faith effort to correct them – independent of what has been reported.  Specifically the current economic conditions derailed GM’s restructuring effort and put the company into tailspin it just could not get out of without Federal assistance. 

Much of this points to the most important chapter in the book, The Battle of Perception.  The US auto companies have lost a generation of car buyers over the past 20-30 years.  For that reason, no matter how much GM has improved the product there is a large segment of the population that will not consider them.  That same negative perception exists in the media and only perpetuates the problems at these companies - i.e. GM only builds low quality gas guzzlers and Toyota builds green cars.  The data shows that not to be true but that is the perceived reality of the market for right or wrong.

Finally, in the last chapter the author sums up GM's situation just prior to the economic crisis:

So even in mid-2008, it was clear to Wagoner that “If we get it right, we get a hundred years of success in front of us.  And if we don’t, we’re not gonna make it.  I’m sure every generation of leaders at GM felt similarly challenged.  But this is as big a set of changes as I’ve seen in my history with GM.”

Why GM Matters – Inside the Race to Transform an American Icon is a fair and refreshing account of the systemic changes that have been made at the company.  The book just lacked addressing some of the big picture issues the company faced such as the reasons why the company has the balance sheet it does.  What Holstein needed to say was GM cannot and should not be absolved of past sins, however, it should be recognized for the situation it was/is in and the progressive action taken to correct it. Furthermore, the company made as many structural changes as they could without going into bankruptcy.  In the end it may come to that anyway.  Now, with less than 60 days left until the Obama administration's "viability" deadline, Wagoner's words above hold truer today than ever before. 

 

 

NY Times Thomas Friedman Archives

Start Up the Risk-Takers, Thomas Friedman, NY Times, February 2009

A Line for General Motors, Thomas Friedman, NY Times, February 2009

Time to Reboot America, Thomas Friedman, NY Times, December 2008

While Detroit Slept, Thomas Friedman, NY Times, December 2008

How to Fix a Flat, Thomas Friedman, NY Times, November 2008

As Toyota Goes ..., Thomas Friedman, NY Times, June 2005

 

State of the Newspaper Industry

Washington Post to trim its business coverage to overcome financial crisis, ANI March 2009

Ten U.S. Newspapers Most Likely to Fail, Seeking Alpha, March 2009

New York Times raises another 5M in office sale, Associated Press, March 2009

The 10 Most Endangered Newspapers in America, Time, March 2009

As Cities Go From Two Papers to One, Talk of Zero, NY Times, March 2009

Detroit newspapers to end daily home delivery, CNN, December 2008

Tribune Co. files for bankruptcy protection, Chicago Tribune, December 2008

 

  Entire contents © 2007 - 2009 The Automotive Lyceum All Rights Reserved

 



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