Wednesday, March 26, 2014

But They Were NOT Forced From the Marketplace!

 Instead, we bailed them out.  GM was poorly managed.  Yes, they had dumb labor relations.  But mostly they had dumb leaders.  They should have been allowed to die.

Management Practices, Relational Contracts, and the Decline of General Motors 

Susan Helper & Rebecca Henderson 
Journal of Economic Perspectives, Winter 2014, Pages 49-72 

Abstract: General Motors was once regarded as the best-managed and most successful firm in the world. However, between 1980 and 2009, GM's US market share fell from 46 to 20 percent, and in 2009 the firm went bankrupt. We argue that the conventional explanation for this decline — namely high legacy labor and healthcare costs — is seriously incomplete, and that GM's share collapsed for many of the same reasons that many highly successful American firms of the 1960s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did. We focus particularly on the problems GM encountered in developing the relational contracts essential to modern design and manufacturing, and we discuss a number of possible causes for these difficulties. We suggest that GM's experience may have important implications for our understanding of the role of management in the modern, knowledge-based firm and for the potential revival of manufacturing in the United States.

Nod to Kevin Lewis 


W.E. Heasley said...

"That illustrates a general rule: If a private enterprise is a failure, it closes down - unless it can get a government subsidy to keep it going; if a government enterprise fails, it is expanded. I challenge you to find an exception." - Milton Friedman, from the essay Why Government is the Problem

Anonymous said...

I agree with all this but you can't deny the quality of their automobiles in the last 5-7 years. Chevy, GM and Cadillac are all excellent autos, and Pontiac (which was forced to fold because of the bailout) had arguably the best cars on the road at the time of the crisis.

The way the company is managed makes it deserving of a painful death, but their engineering and manufacturing and whatever/whomever does the actual work on the ground deserve better than that.

Storewars News said...

Nice read! Very informative. Did you know that P&G, Unilever are beacons of purpose? Full story here:

ColoComment said...

This was an excellent book on the demise of the auto industry: Crash Course, by Paul Ingrassia.