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U.S. Automotive Industry: 30,000 layoffs at GM
2005 November 27
© 2005, Libertiny Financial LLC
Living in metro-Detroit, I can tell you that 30,000 layoffs at GM plus the subsequent layoffs at their Tier 1 and Tier 2 suppliers are going to hurt the Michigan economy quite a bit.
This problem of too much capacity in the automotive industry coupled with high wages (when compared to global standards), boring products, and absolutely terrible management. All of these problems have been going on since the early 1970's. The reasons are the same as those found in the U.S. steel industry, which is mostly gone, and the U.S. airline industry which is continuing its slow motion collapse: Key management doesn’t know how to plan for the future and only reacts in a knee-jerk fashion when the house of cards is about to collapse.
There's no question that the U.S. healthcare system is an expensive mess but that’s a general problem with the U.S. insurance industry (Note: Insurance in general is a very profitable industry).
If GM wants to remain a viable business, they need to make a profit. And with global competition, that means reducing costs while increasing the quality of the product and service (the Southwest airline model comes to mind). Every solution should be on the table, especially the hard ones such as firing management that is unwilling to make the difficult decisions year after year, reducing manufacturing capacity, and analyzing the option self-insuring their employees.
Next, GM needs incentives so that the best and brightest will want to work for them: Base pay plus profit sharing coupled with genuine control over their ability to achieve the goals necessary to earn annual bonuses are some of the basic requirements. To achieve this will require a significant flattening of the management organization, firing those at all levels of the company who are simply there for a paycheck and retaining bright people throughout the company (design, engineering, manufacturing, marketing, administration, finance).
Without changing the people in top management, thinking far outside of the cube regarding cost control, quality of products and services, who would want to work for GM or purchase their products? It’s time to go back to the basics for GM or we'll just see the next version of the slow motion failure that is occurring in the U.S. airline industry.
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