January 3, 2011 – The Problem With GM

Featured Trades: (THE PROBLEM WITH GM), (GM)

4) The Problem With GM. Like a heroin addict who just can't wean himself off of the good stuff, General Motors (GM) is going back into subprime lending to finance new auto sales.

Although the much diminished company is still has a large government ownership,  and has made great strides at reforming its errant ways, they still do not understand their fundamental problem. My dad was a lifetime GM customer, religiously buying a new Oldsmobile every five years. Once he even flew to Detroit for a factory tour and drove his new prize all the way home to California.

Thirty years ago I told him he was doing GM no favors buying their cars, and the only way to force them to improve a tragically deteriorating product was to buy better made German and Japanese vehicles. This was right after the state of California forced auto makers to install seatbelts on new cars. Airbags and ABS brake systems were still years away.

His response, "I didn't fight the Japanese for four years so I could buy their cars" (He was a Marine). GM's problem is that my Dad passed away nine years ago. Of the original 17 million WWII veterans, 1,500 a day are dying, and there are less than 1 million left. All of them loved Detroit because it built great Jeeps, Sherman tanks, and half tracks that brought them home from harm's way.

Their kids preferred German, Japanese, and Italian cars. Their grandkids buy Korean, and soon, Chinese and Indian vehicles. It is no coincidence that GM's problems really accelerated with the passing of the "Greatest Generation."

During the last 35 years, when Japan's share of the US car market climbed from 1% to 40%, I begged GM to mend their ways and build a quality, price competitive product that Americans wanted to buy. They answer was always the same: "Nobody can tell GM how to build cars." A more inbred, blinkered culture you could not imagine. Maybe someone should have told them.

Today, the company's only real hope is that young, upwardly mobile Chinese continue to buy their low end cars in large numbers. Over the last decade, GM has boosted the number of dealerships in the Middle Kingdom's capital city from seven to 27, while closing hundreds of rural dealerships in the US. The problem is that the next time you need a tune up for you Caddy, you may have to drive to Beijing to get it.


Dad Drove His Olds to the End