http://blogs.edmunds.com/roadtests/2009/...rt-ii.html#more I fully agree with Mike Magrath and Josh Sadlier that this one of GM's major problems. What do you folks think?
Magrath: Okay, by training you're a scholar of religion, and I'm a journalist. So let's dive headfirst into a heated, highly sensitive, incredibly difficult business topic: Detroit. Magrath: You cannot be relevant with a headquarters in the midwest. You can't be impartial and forward-thinking when 8/10ths of the people in your area depend upon you and buy your products. Sadlier: See, I disagree with this argument. Hear it a lot, don't like it. Sadlier: Look at Dell Computers. Granted, Austin's not like the rest of Texas, but still. Magrath: Austin might as well be Berkeley. It's nothing like Detroit. And computers aren't cars. Also, computer people aren't as isolated as GM execs seem to be (with the apparent exception of the jerks who made Office 2007 and Vista). GM should endeavor to be Apple and think ahead, innovate with style. Magrath: And anyway, maybe the midwest is bad for Dell too. It just pumps out cheap computers at maximum profit designed to last till the warranty runs out, and it inflates its numbers with massive "fleet" sales to corporations and government institutions. In other words, it's the old GM. GM Textcast Part II 2.jpgSadlier: Okay, here's the problem with GM's location: it has led to a situation where GM employees are largely from the Midwest. That means there's not the range of perspectives and worldly experience you'd ideally like to have in a leading company. No disputing that. Sadlier: But I think that's a hiring issue, not a regional issue. Get someone in charge of hiring who targets talent regardless of regional affiliation, and you're good. Magrath: I'm certainly not going to take a job in the midwest, are you? Sadlier: If GM reinvented itself as a cool company to work for, and paid well? Absolutely. If Google were in Detroit, it'd still be Google. And people would still want to work there. Magrath: No, absolutely not. I've never lived more than 12 miles from an ocean and I never will. (Of course, if GM really is offering us executive titles and salaries, I could be convinced that one of those lakes is an ocean.) Sadlier: Ha. Well, that's a personal preference. Mine too, as it happens -- but negotiably so. I could be persuaded by a cool new GM. Magrath: So your contention is that the midwest has a lack of talent? Or that the good talent goes east and west? Sadlier: I don't care who's got a lack of what. GM should hire the best people, period, without giving preferential treatment to midwesterners, as has long been the case. That's all I'm saying. Sadlier: Sure, all else being equal, good talent goes east or west. But if GM reinvents itself as a cool company with products that make people say "Wow," I think that would attract good talent. Magrath: Talent is an interesting one. I know guys who've gone to Michigan to become automotive engineers because they want to be in the car biz. They want to work in Detroit and shape the domestic car business. I also know other engineers who went to better schools (sorry, Michigan) with no clear idea of where they wanted to go. One's in aerospace now and the other is working on solar panels. They were top of their class in everything and got scooped up by some very high-end employers. Would GM really be able to attract those guys from the top schools (which, by the way, takes serious cash)? I worry that even a cool new GM might be stuck taking people out of automotive engineering programs who love cars but aren't necessarily the sharpest tools in the shed. Sadlier: Yeah, maybe. But first things first: build a cool new GM. I say the talent will follow. Magrath: Build it in Detroit though? Let's take a step back to my argument about Detroit being bad for GM. Say you live in a culturally and geographically isolated region that's ruled by a benevolent king. Gold flows as freely as the mead. Life is good and harvest season is rich. But then you hear that other regions have begun to switch from rye (which you've been producing since anyone can remember) to barley. Well, you know all about rye. And everyone you know likes rye. And you're all getting fat on the profits from rye. You assume the barley producers are being silly, and you keep on producing rye. Eventually demand for your rye dries up, and nobody's quite sure what's wrong with their grain. GM Textcast Part II 3.jpgMagrath: Now imagine instead that the king ruled you from a thousand miles away, where people ate rye, barley, rice, quoina and corn. He'd see the writing on the wall ahead of time and organize a shift in production to keep pace with changing consumer preferences. Sadlier: Have you considered a second career as a fairy-tale writer? Sadlier: Also, as it happens, GM is in fact ruled from a thousand miles away at the moment. Sadlier: Question though. Suppose GM really did hire us and relocate us to Detroit. Would we inevitably fall into that insular mindset you're describing? Is it the midwestern culture and isolation that breeds that way of thinking? Or is it rather that the people in charge at GM have long been close-minded by nature, and like has hired like? Sadlier: I'm going with the latter. I still say it's a talent issue more than a regional one Magrath: Interesting. It could be another one of those issues where seniority and political posturing trumps merit, so that nothing changes but the name on the big door. Eventually people get set in their ways and, if we're being honest, afraid for their jobs, so they're not willing to take risks or fall out of line. Herd behavior. Magrath: And no, I don't think you and I would fall into that trap, but that's probably why we're not being recruited by the General new or old. Magrath: They really should be looking at things from a fresh perspective. Not that I don't dig Bob Lutz, but he was hardly cutting edge. Magrath: Here's another issue, and Katy Perry touched upon it re: her career. She said in an interview that she will never be as big as Madonna, that nobody will ever be that big again; the industry has changed and can't support that. The auto industry is the same way I think. GM will never be as big as they were. No company ever will be. The landscape has changed. So if GM's slice of the pie is inevitably going to be smaller, then how can it afford to invest the money it must in order to produce the "Wow" cars you're talking about? Also, all of this revolves around the ever-fickle, quarterly-profit-loving American stockholder. A private company can take a loss for a sustained period of time to come out leaner; GM had to go into bankruptcy. Going forward, how are they going to explain to shareholders that big investments in quality products are advisable? And that consequent short-term losses are acceptable? Sadlier: On the investment question, hey, GM can whine till the cows come come about how the market has changed, but at the end of the day, it's the quality of its products that will determine its success. You can't compromise on the investment required for that. As for stockholders, yeah, that's another issue. But plenty of American corporations have succeeded in this climate, against international competition no less. Magrath: Name one that faces the kind of comparative disadvantages in raw materials costs and labor costs that GM does relative to its international foes. Sadlier: Whatever. Can you imagine the Germans or the Japanese, to take the two most prominent examples, whining about domestic conditions and how they're standing in the way of competitiveness? GM Textcast Part II 4.jpgSadlier: No. They'd just make it happen. Magrath: But how do Germany and Japan deal with health care? Sadlier: Taxpayer money. Universal state-provided coverage. Which is good for employers. Which is why you've seen this unlikely alliance recently between automakers and those who are advocating for universal healthcare in the US. Magrath: I never found that alliance unlikely at all. Sadlier: Well, unlikely in that on most other issues the two camps don't see eye-to-eye. Magrath: But seriously, is a competitive, profitable, high-volume domestic automaker still a possibility in this day and age, assuming we don't levy punitive import tariffs (which may be a blog for a different day)? Or roll back the minimum wage and child labor laws I suppose. Sadlier: Well, right, import tariffs are a huge advantage that Japanese automakers enjoy. Sadlier: Did I ever tell you about the teacher at my Japanese high school who had the OJ Simpson-model Bronco? Paid $20,000 just to bring it into the country? Magrath: That's the most money anyone's ever spent on a second-hand Bronco. Sadlier: Yeah. That's what you have to do if you want a non-Japanese car in Japan. Sadlier: To your question, I don't know if it's a possibility. Honestly there's a lot of factors pointing toward "no." Sadlier: Notably, (1) German cars -- increasingly the world standard, I think -- have few obvious signs of cost-cutting, so it's going to be awfully tough for a cash-strapped GM to compete with them in the short run, and (2) Japanese automakers will always enjoy a comparative edge due to those punitive tariffs and the consequent lack of domestic competition. Sadlier: Back on your question about the cost of labor and materials...even if those costs are equal across the board, (1) and (2) put the US at a distinct disadvantage Magrath: Cadillac can get away with (1). If GM pulls out all the stops, I think they can build a highly competitive car deserving of a high price tag. The CTS proves that. They just need to stop pandering to us with "The biggest car for the least money!" edict. Just build a good car and charge people more money for it. They can out-cheap BMW and Mercedes, but they can't out-cheap the Japanese or Koreans without just looking like cheapskates. Sadlier: GM as the American Volkswagen, eh? I dunno. But it's better than a lot of ideas floating around out there.