Automotive World - GM: Politics and business rarely mix

GM: Politics and business rarely mix

By: Dr Peter Wells, Thursday, June 04, 2009, AutomotiveWorld.com

In the end, it seemed inevitable that GM would enter Chapter 11 bankruptcy in North America, and equally inevitable that President Obama would feel compelled to take direct and overt control over the restructuring process. The governments of the US, Canada and Ontario now have the future of GM in their hands having already poured in billions of dollars in loans. Not least, Obama sought to justify this (evidently none too populist) decision by reference to forcing GM down a much greener route.

In Europe the fate of GM Europe is even more complex and uncertain. Multiple different national governments, the European Union, regional governments and the myriad social partners all are fighting to ensure that ‘their’ interests are recognised and accounted for.

In North America, this is the largest manufacturing bankruptcy in history. The process at least insulates the non-North America operations from the disaster unfolding in that region, but in real-world operational terms GM globally employed some 234,500 people, had manufacturing operations in 34 countries, and sold in 140 countries with 13 brands. The entire thrust of global strategy, for GM as for all other major vehicle manufacturers, has been the integration of these global operations to achieve economies of scale in R&D, purchasing and manufacturing.

Can politics make a difference? It should be remembered that GM prior to the bankruptcy was already a shadow of the business it once was. In 1979, GM employed nearly 620,000 in the US alone, and some 850,000 world wide. Prior to the bankruptcy, employment in North America (i.e., including Canada and Mexico) was just 35,100 and is set to fall further to 27,200. It is not surprising then that for some commentators, saving GM was hardly worthwhile: most of the jobs had long since gone.

Simply taking the global business apart and rebuilding it is a massive undertaking that will take years to take effect. Achieving the best business model is a daunting enough task if only the business issues were the consideration. The trouble is that the political intervention that comes as the price for getting support from the public purse then adds a further layer of complexity that could fatally undermine any recovery effort. In Europe politicians are talking of ‘assurances’ given regarding the future of this plant or that, of measures that might be taken to enable production to continue in the face of declining demand, and of stimulating the market to kick the industry out of recession. Tragically, this is all just rhetoric. Assurances are worthless when nobody knows where the market is going to be in 12 months time. As pressure mounts on public finances, politicians may lose their taste for corporate management and cut their losses. As the UK experienced over many painful years with the creation of the ill-fated British Leyland group, politically-motivated industrial rationalisation is generally ineffective and can never hold back the tide of economic events.

No matter what the ideology, politics and business rarely mix.

Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. He can be contacted on wellspe@cardiff.ac.uk or peterwells@automotiveanalysis.co.uk.

Published on Thursday, June 04, 2009