Once a Recession Remedy, GM's Empire Falls
Tuesday, June 2, 2009
For an idea of what it meant to be an American corporate icon, Time magazine's article about the 1955 "man of the year" -- General Motors President Harlow Herbert Curtice -- provides a good snapshot.
That year the economy was slowing, unemployment rolls swelling and uncertainty spreading when the GM president unveiled plans to spend $1 billion expanding its plants for an anticipated increase in auto sales. His announcement was credited with spurring car purchases nationwide, starting within GM's army of more than half a million workers.
"Because of the success of the American economic system, the U.S. rolled through 1955 in two-toned splendor to an all-time crest of prosperity, heralded around the world," Time said. "Much of this prosperity was directly attributable to the manufacture and sale of that quintessential American product, the automobile." That year, the industry produced and sold 8 million vehicles, about half of them made by GM.
GM's splendor has since dimmed and its empire has shriveled. No longer a bulwark against recession, it has become another victim. Yesterday, the company Time once hailed as a symbol of American success filed for bankruptcy protection. The Dow Jones industrial average, to which GM has belonged since 1925, dropped the company, replacing it with Internet router maker Cisco Systems. GM finished the day with a market capitalization of just $458 million, down from $59 billion in 2000.
Once, the very name General Motors conveyed the kind of industrial dominance shared by the likes of Standard Oil, American Telephone and Telegraph, and General Electric. Unlike most of those companies, GM also invoked Americans' sense of manifest destiny and unlimited possibility. "See the U.S.A. in your new Chevrolet," the legendary Dinah Shore sang in a 1953 ad.
Those companies or their progeny live on, in some cases after dramatic restructuring. The "new" GM may survive, too, but it is unlikely to ever command the market share, influence and pizazz that it once possessed.
In 1955, the GM empire included 514,000 employees in 119 plants in 65 cities in 19 states; as Time put it, Curtice had "more income and more resources at his command than most sovereign nations." Yesterday the company entered bankruptcy with just 88,000 U.S. employees, and those ranks are destined to dwindle further in the bankruptcy reorganization. More than half a century after Curtice ran GM, the entire U.S. auto industry will sell only slightly more cars in 2009 than it did in the mid-50s, and GM's share will not exceed 20 percent.
In announcing another $30 billion in taxpayer support for the company, President Obama said yesterday that GM was still essential to the economy and a symbol worth saving. "I recognize that today's news carries a particular importance because it's not just any company we're talking about -- it's GM," Obama said. "It's a company that's not only been a source of income, but a source of pride for generations of autoworkers and generations of Americans."
The latest injection of taxpayer dollars boosts the U.S. government investment in GM to $50 billion, setting off debate about whether that's too high a price to pay to help a fallen icon.
"I think that was the right thing," said John Paul MacDuffie, an associate professor of management at the University of Pennsylvania's business school. "I really think that it's in the national interest and economic interest of the United States to have a vibrant manufacturing sector. The role that an auto company plays in the national economy is large and its capabilities hard to replace." Moreover, he added, "liquidation would be disastrous for the national economy, and the states and communities where those jobs are."
Not everyone agrees. The price of the U.S. government bailout comes to about $125,000 per employee, including those working for related suppliers and dealers -- roughly triple the number at GM itself.
"Countries don't let market forces happen. They protect ailing auto companies on the theory that they need to protect jobs," said Maryann N. Keller, an independent auto analyst. "But it's not clear that protecting companies leads to the revival of those companies." As for the jobs, Keller said "a lot of that is bunk" because Americans would buy the same number of cars no matter who the maker is. "Somebody would still make the parts," she said. "They would just be made for a different customer."
But MacDuffie argues that even though foreign companies make cars in the United States, much of the most sophisticated engineering tends to be done in the home country, just as some U.S. electronics companies manufacture goods in China, but keep technical and design jobs in the United States.
Even if Keller is right, however, GM's iconic nature makes its demise different from that of a company like American International Group, the insurance giant the federal government has committed even more money to since seizing it last year.
"This is a terrible day in Michigan; there's no doubt about it," Michigan Gov. Jennifer M. Granholm (D) said in a CNN interview. "I mean, GM . . . is part of our DNA, as are the other auto companies. And people move to Michigan to be able to work on the line, and it's been for generations. It's just part of our identity. So it's a tough day for those families that are affected, and the seven plants and the communities that surround them."