General Motors is on the ropes, a victim of the kind of arrogance common to many corporate giants. Frank O'Donnell looks at how GM preferred to lobby Washington rather than compete, deliver healthy products or protect the environment. Now, decades of market manipulation have made the auto giant weak and vulnerable to innovative competitors like Toyota, who have embraced environmental responsibility.
Frank O'Donnell is president of Clean Air Watch, a 501 (c) 3 non-partisan, non-profit organization aimed at educating the public about clean air and the need for an effective Clean Air Act.
More than half a century ago, then-General Motors President Charles Wilson was misquoted as having said, “What’s good for General Motors is good for the country.” That quote came to epitomize the auto giant’s arrogance.
Now, the giant automaker is seemingly spinning out of control. On Monday, GM’s management team was shuffled, presumably in response to the threat from Standard & Poor's to downgrade its debt to “junk bond” status. On Tuesday, Moody's downgraded GM's bonds to one step above junk. With a powerful blue chip company on the ropes, it might be worth a moment to see what their corporate culture of arrogance has wrought.
By the time Wilson made his infamous declaration, the company was a dominant political force. It had already led a successful effort to destroy the streetcar system in America’s cities in order to force people to buy cars, rather than take public transportation. GM later spent decades battling efforts to reduce tailpipe pollution emissions that caused public health problems throughout the nation.
Little has changed. GM today remains the industry leader in opposing government efforts to limit heat-trapping gases wafting from its tailpipes. The company has succeeded not only in sabotaging congressional efforts to significantly improve fuel economy, but it has also led an industry suit to block California from trying to reduce motor vehicle greenhouse gases.
GM has taken that position in order to keep promoting its gas-hogging SUVs. But GM could become victim of its own success: In an era of rising gasoline prices, this short-term corporate thinking has left the company with a potential flat tire in the global marketplace.
GM remains the world’s largest auto maker, but perhaps not for long. Yesterday, a greenhouse gas reduction plan was announced by the government of Canada and Canadian auto makers—a move that a Massachusetts state lawmaker predicts could prompt some U.S. residents to buy lower-emission cars in Canada. More importantly, some analysts predict that Toyota—which has gained market share by introducing innovative, lower-polluting cars such as the Prius hybrid—could take the number-one spot within the next few years.
The company faces a particular challenge in China, amid a prediction that most U.S.-made cars and gas-guzzling SUVs would flunk new fuel economy standards there—set to be phased in starting later this year. "Eighty percent of U.S.-made cars would not fulfill these [requirements],” said Timo Makela, director of sustainable development and integration at the European Commission, according to Greenwire.
GM faces big problems in the United States as well. In Charles Wilson’s era, the company controlled more than half the U.S. car market. Now, GM may finish the year with less than 25 percent of the market, as higher oil prices are prompting consumers to abandon gas-guzzling SUVs in favor of cleaner, more advanced vehicles. The company has already warned that it may suffer a significant loss in North America this year.
Just last Friday, GM announced weak U.S. vehicle sales in March, losing further market share to Toyota and Nissan because high gasoline prices hurt sales of gas-guzzling SUVs. The two biggest Japanese auto makers recorded double-digit sales gains and their best month ever. Asian brands amounted to more than 36 percent of all March car and truck sales in the United States, compared to only 27 percent for GM (down from 34 percent just a decade ago).
Internally, the company faces a separate problem in managing the ballooning health care costs of employees, retirees and dependents—a problem euphemistically described as “legacy costs” that prompted the reports that Standard & Poor’s might reduce GM’s bond rating to junk status.
But critics are noting that if GM had spent half as much over the years lobbying for better health care as it has to protect rock-bottom standards for fuel efficiency, it might have avoided this problem.
Can GM get back on the right road? There is plenty of reason for doubt. The Wall Street Journal notes that GM Chairman and CEO Rich Waggoner has “put a big bet on the resilience of the large-SUV market”—unlike competitors like Ford, which is scaling back production capacity for the big vehicles.
A smarter strategy might involve recalling Charles Wilson’s original declaration, which read, “What is good for America is good for General Motors, and vice versa.” That means taking steps to align the company’s interest with the national interest. Today, that means increasing vehicle efficiency, reducing carbon and toxic emissions and advocating a sustainable national health care system.
The result would be enormous. America would begin to recover from 50 years of unsustainable industrial policy. The transition to clean and efficient transportation would be launched, reducing our contribution to global warming and Middle East instability. Not to mention that GM would get a shot at the fastest-growing market—and a second chance right here at home.
