December 08, 2005,
Rather than blame poor management for his company’s woes, General Motors CEO Rick Wagoner offered up contradictions and falsehoods to explain the automaker’s state of affairs in Tuesday’s Wall Street Journal. Although he acknowledged that GM lost a lot of money in 2005, Wagoner cited high gasoline prices, competition, lawsuit abuse, “unfair trading practices,” and remarkably GM’s own benevolence as the primary reasons for the company’s demise.
Addressing fuel prices, Wagoner said “GM offers more models that get over 30 miles per gallon (highway) than any other auto maker.” Despite its apparent competitive advantage given expensive fuel, three paragraphs later Wagoner added that “the recent surge in gas prices hurt sales.” The problem with the latter assertion is that Wagoner previously noted in the piece that GM has “been strong in truck sales” but “weaker in cars” the very cars that would presumably be in demand given high gasoline prices.
On the competition question, Wagoner wrote of “intense competition” as a reason for GM’s struggles. Interestingly, he preceded his mention of the competition problem with citations of two independent studies: a Harbour Report that says GM possesses three of the top five most productive North American plants, along with a J.D. Power Initial Quality Study that says GM’s Buick and Cadillac brands rate ahead of competitors that include Toyota and Honda.
Toyota and Honda offer a worthwhile comparison. Both compete against GM around the world, and in doing so presumably face the same competitive pressures as Wagoner’s firm. Yet both Honda’s and Toyota’s stock prices are near all-time highs, while GM’s shares have fallen 76 percent since 2000. Nowhere did Wagoner see fit to ask whether his company is making automobiles that consumers simply don’t want. Lawsuit abuse in the United States? Honda, Toyota, and GM all suffer together.
Wagoner had an explanation for Honda’s and Toyota’s outperformance of GM, and predictably it had to do with “unfair trading practices,” in particular “Japan’s long-term initiatives to artificially weaken the yen.” Leaving aside the fact that money manipulation doesn’t change the real price of anything, not to mention that a strong dollar would drive down the costs of imported inputs that go into making GM cars, Wagoner’s assertion about Japan’s actions with the yen are blatantly false.
In reality, since the 1985 Plaza Accord, the yen has risen 45 percent against the dollar. In the 20 years since the agreement was reached, the stock prices of Honda and Toyota have respectively risen 922 and 1237 percent. During that same timeframe, the price of GM’s shares has fallen 14 percent. Contrary to Wagoner’s claim that U.S. automakers gain some kind of advantage when the dollar is falling, GM’s stock reached a 20-year high in 2000 when the dollar was bludgeoning the yen.
Regarding GM’s staggering “legacy costs” related to healthcare for employees, retirees, and dependents, rather than acknowledge the major mistakes made by GM management, Wagoner amazingly chose to cast the company’s profligacy in a benevolent light. In his view GM didn’t make foolish promises, but instead it and “other traditional manufacturing companies created a social contract with government and labor that raised America’s standard of living and provided much of the economic growth of the 20th century.” Carried to its illogical conclusion, Wagoner’s statement suggests that all bloated American companies should offer their employees major perks in the hope that more efficient American workers and companies will lower their own living standards in order to pay for the irresponsible actions of companies such as GM.
Notably, Wagoner said GM is “not looking for a bailout” in the same paragraph in which he said, “It’s critical that government leaders, supported by businesses, unions and all our citizens, forge policy solutions to the issues undercutting American manufacturing competitiveness.” Wagoner doth protest too much. He would like for all Americans to pay for GM’s poor management with a cheaper dollar and more government funding of healthcare. If they do, the lifestyles of GM workers will rise while the living standards of the rest of the country will fall.
John Tamny is a writer in Washington, D.C. He can be contacted at firstname.lastname@example.org.