Being the Right First

Today was a historic day for the automotive industry.  GM has entered into Chapter 11 bankruptcy protection.  As recent as 2007, GM was the largest automotive company in the world.  Yes, not just in the US, but the world.  In 2008, Toyota finally dethroned perrenial largest automotive manufacturer GM for the top spot.  

The focus on unit sales and top line revenues is a cautionary tale of driving towards the wrong metrics.  In better times, GM entered into ruinous labor agreements.  As global competition intensified, GM's decades of subpar products were exposed.  To make matters worse, GM's cost of production were higher than its Japanese competitors.  Despite its position as top unit sales leader, GM was unable to translate those economies of scale into superior production efficiencies.  The decentralized approach towards GM's product offerings are much to blame.  GM's various divisons including Chevy, Cadillac, Pontiac, and Buick did not have collaborate well.  Much smaller competitors Honda and Toyota with their streamlined product offerings could outscale GM with mega hits such as the Accord, Corolla, and Camry product lines. 

By the 90's, it was clear that GM had too many brands and product lines for their market demand.  Instead of drastically reducing the number of brands and focusing on high volume products, GM took the other course.  They decided to die a slow death.  They were able to hold of Toyota as the largest automotive company for many years, but collectively their brands were losing ground and their cash position was deteriorating as foreign competitors steadily ate away at GM's sales volume.  They took one positive step in 2004 when they pulled the plug on the Oldsmobile line.  The move was too little, too late.  Another American icon, Apple Computer was considered on death's door when Steve Jobs made his triumphant comeback.  He introduced some innovative and cool new products (remember the candy-colored iMac's); while greatly simplifying the number of different products Apple offered.  This was well before the iPod, iTunes or iPhone for that matter.  By reducing the product line complexity and offering a product that people wanted, Apple was able to stop hemoraging cash.  Once they got on better financial footing, they were able to focus on innovation new products and service.  The rest is history.

With the $30 billion in federal investment, GM has a second chance to get it right.  Now that they have finally ceded the position as top sales leader, perhaps they should focus on the metric that matters most - positive cash flow.  Now that much of the union contracts have been revised, and the expected sales volume are significantly lower, there is reason to believe it can be done.  The many missteps that GM has taken do not provide much comfort.  Yet, if GM had the right leadership, they could make a revival.  Too bad Steve Jobs is busy already.