Tuesday, November 22, 2005
Death Spiral or Venture Capital?
In 1955, Charlie Wilson, the chairman of General Motors, summed up GM's corporate philosophy during a US Senate hearing:
"What's good for General Motors is good for the rest of America."
Fifty years have passed since Mr. Wilson made this comment but today's news reports of "GM plans to cut 30,000 jobs" will no doubt cause many people to ask what exactly is good for America? I would answer that a dynamic, flexible economy is what is good for America since this is the formula that has proven overtime to generate the economic growth that gives us the high quality of life we have today. A minor example of this economic evolution is the very noble job of farmer -- both of my parents' families come from a long line of German farmers driven to the cheap and fertile land of Iowa so my comments are offered with respect for this profession. Today about 3% of America's workforce is listed as "farming" yet our country is a major exporter of food and based on obesity rates Americans aren't starving by any means!! The American economy simply reinvented itself many times from an agricultural to a manufacturing to a knowledge economy providing services thus yesterday's farmers are today's biotech researchers and computer systems integrators.
There are a host of reasons why GM has lost substantial market share -- the post-World War II recovery of other nations, trade union agreements, failed corporate restructurings (such as its "Project Olympia" for Europe), etc. -- but this posting will focus on today's "30,000 jobs to be cut" news. The headline itself reads like employees will be marched to the door with their cardboard boxes of personal items (I have had to escort such employees when I was in corporate life which is quite unpleasant) but the reality is that GM will eliminate these jobs through "early retirement and attrition" which translates as not a very drastic restructuring at all especially since the United Auto Workers union stated they "would do everything in its power to enforce" job security agreements (how many union bosses/shop stewards will be let go by the union itself??) .
The old corporate/union cabal mindset of -- company grows, union wins job protections, company and union grow together, economy has a down turn, jobs are eliminated in consultation with unions, and eventually the company goes bankrupt, but the union merges with another union or "organizes" a new industry/company -- must end today with some new thinking.
For a start please consult my "Northwest Airlines" blog posting of September 24, 2005 , which suggests an entirely new mindset for the individual trade union member to create their own small businesses. Using this line of thinking let me offer GM and the United Auto Workers (UAW) an alternative plan to the "early retirement and attrition" job cuts:
1.) Step One -- read the PanAmerican Airlines "death spiral" case study which I believe every MBA student in the USA has read or should be required to read.
2.) Step Two -- declare the GM model of several car companies under one roof as obsolete by declaring freedom for all divisions ( Buick, Cadillac, Chevrolet, GMC, Holden, Hummer, Opel, Pontiac, Saturn, Saab and Vauxhall ) as tax free spin off operations to current shareholders available for purchase or merging with other companies or pursuing new business directions. For instance -- perhaps the Saturn division wants to merge with a Chinese company which would be much easier to do politically and economically versus GM offering itself for sale.
3.) Step Three -- concurrent with the GM division spin off process both GM and the UAW would announce a "new business start up" contest as a supplement to their old model of "early retirement and attrition" job reduction model. I envision this contest as offering venture capital to the best business plans for new ventures created by current GM employees whether the plan is developed by one or ten employees working cooperatively. The contest winners would own 51% of the company with the newly formed (as part of the GM division spin off process) "GM Ventures" company owning 49% of the new companies formed by these enterprising employees. Since GM Ventures would be owned by current GM shareholders they are offered a much better opportunity for future gains versus the current GM stock price "death spiral" that is expected by market analysts despite the 30,000 jobs being cut.
Now this new thinking should create hope for greater gains not the fear of losing a job someone thought "I was going to have for life" -- I have been unemployed before and will likely be unemployed again given the "destructive capitalism" model we all work in but preparing oneself for such a change is key versus giving CPR to a corpse.
What do you think Mr. Wilson?