GM

[Urbane Guerrilla]

Michael Medved has an interesting comment about GM's lack of innovation, attributing it to their being in chronic fear of being hit with a major antitrust suit. Senior management, he says, was supposed to let up on competitiveness to keep GM market share below fifty percent, typically about forty-five, and thus stay below the trustbuster radar. This meant, don't claw after that next half percent of market share by any of the competitive means, such as marketing ingenuity, price wars, or technical innovation. The eventual result was technical sclerosis for several decades and then slumping product quality, as everybody in the firm found other concerns than customer service, maintaining customer loyalty by making such things actually palpably beneficial, or really anything that makes a company a good one. Contrast that kind of attitude with, say, what goes on at your local Trader Joe's.

Makes you rethink the whole antitrust idea -- after all, is not the free market itself firmly and naturally anti-monopoly, as trust busting is alleged to be? Why, then, should it be required to bring suit against a business simply because it is successful in a very large way? What that really is is a pointer that says There's a really big market over here. Wanna get into it? Competitors barrel-roll in, many with what they hope is improved or just plain better technology than the pioneer outfit is using, to fill this need that has come up.

Five Big Lies About American Business is one heckuva book.

[ZenGum]

Originally Posted by tw

Well, the Chevy Volt even could not work a few years ago when they tried to demonstrate it to a PBS show. The Volt was supposed to be out already. Something happened. The Chevy Volt is now scheduled for sale at the end of 2010. Was it delayed because car guys finally got control of the car? Are now trying to fix fundamental defects? Or do defect exist because bean counters have still subverted reliability? I cannot learn anything.

We can suspect the Volt is delayed to make something better. Just not known is why.

Maybe the volt is dodgy, but the bean counters are forcing them to put it on sale anyway. Just a thought.

Originally Posted by Urbane Guerrilla

Makes you rethink the whole antitrust idea -- after all, is not the free market itself firmly and naturally anti-monopoly...?

No. Well, not always. Bigger companies have an advantage over smaller companies (economies of scale, bargaining power, ability to survive lean times etc) and can often take over or put out of business smaller competitors. This tends toward monopoly, or at least oligopoly.

Now you might reply that ...

Competitors barrel-roll in, many with what they hope is improved or just plain better technology than the pioneer outfit is using, to fill this need that has come up.

Maybe if you're thinking of lemonade stands, but the cost of starting a car company must be in the billions, before the first sale. How many car company start ups have there been recently?

That said, if a company really did back off from improving their products out of fear of antitrust action, something has gone very wrong.

The market won't solve all our problems, but neither will the government.

[tw]

Originally Posted by ZenGum

Maybe the volt is dodgy, but the bean counters are forcing them to put it on sale anyway. Just a thought.

Maybe. Maybe not. When Iacocca took over Chrysler, the K-car was a disaster designed by bean counters. Iacocca did an emergency total redesign that saved the K-car. And started the rescue of Chrysler. Then he used that design for mini-vans. Nobody previously had designed a new car that quickly. Did that happen with the Volt?

Economies of scale are a myth. Economies of scale only exist in smaller organizations. Why did GM products cost more to build than Mercedes? Because GM's scale made economies impossible.

If economies of scale existed, then Citigroup was the world's most efficient bank. Opposite was true because, again, that 'economies of scale' is only an economist's myth.

As 1980 Ford and IBM both demonstrated, 'economies' only existed after both companies massively downsized. Fiorina was so stupid in the HP Compaq merger meeting. She also repeated that economies of scale myth - claiming HP would be more profitable because they would be #1 in this business and #2 in that market. Reality. They had to throw her out to save HP. She promoted an 'economies of scale' myth because that is what they teach in business school. Fortunately, they threw her out before she did too much damage.

A company becomes #1 in the industry because they are innovative - first have 'economies'. But economists foolishly think if A results in B, then B must also result in B. Defective logic. If 'economies' result from being #1, then #1 must result in 'economies"? Total bullshit.

When a company is profitable, then it can become #1. If a company is #1, it does not automatically become profitable. Did the merger of Sears and Kmart make them more profitable? Of course not.

Mazda could sell less than 13,000 Myatas and be profitable. Due to 'economies of scale', GM could not be profitable on any model if selling less than 50,000. GM products always needed more parts to do same. Scale increased costs. Due to the 'economies of scale' myth, GM parts also cost more to build.

Auto companies would not innovate because management could not see an innovation if they sucked it up their nose. Then, as taught in the business schools, they invented excused to blame others. What made auto companies profitable and efficient? Downsizing. "Economies of smaller scale". Once a company achieves a certain size, then "negative economies" are created with increased scale.

[classicman]

Originally Posted by tw

Why did GM products cost more to build than Mercedes? Because GM's scale made economies impossible.

'economies of scale' is only an economist's myth.

As 1980 Ford and IBM both demonstrated, 'economies' only existed after both companies massively downsized.

Due to the 'economies of scale' myth, GM parts also cost more to build.

What impact does the exorbitant benefit and pensions package have on costs? As more people retired there was an increase in fixed costs to cover them. right?

But economists foolishly think if A results in B, then B must also result in B. Defective logic. If 'economies' result from being #1, then #1 must result in 'economies"? Total bullshit.

Wait what? Where is that from? I'm missing something.

Downsizing. "Economies of smaller scale". Once a company achieves a certain size, then "negative economies" are created with increased scale.

Didn't reducing retirees benefits also have an impact? I'm not saying one is exclusive of the other, but as the number of retirees grew with benefits that were very costly to the companies, the companies fixed costs grew as well, decreasing profit margins.

[tw]

Originally Posted by classicman

Didn't reducing retirees benefits also have an impact?

Once an employee retires, then that employee is no longer an expense to the company. Of course, that means the company is honest. Every day that employee works, the company puts a little more money in his pension fund. When the employee retires, only the pension fund - not the company - pays that retired employee.

But GM mortgaged everything to make management look good. GM stopped funding the pension fund decades ago so that the world's worse and most expensive cars would show a profit in the 1990s and 2000s. Why were pensions a problem for GM? In a world where bean counters screw everyone, the unfunded pension fund then gets blamed on union employees. When tens of $billions are owed to the pension fund, then GM knows a majority of Americans will blame the unions rather than blame what is taught in the business schools. GM did what any good business school graduate would do. Mortgage the company and then blame someone else.

Union costs were never a problem. Lying bean counters who stop funding pension were the problem. GM owed tens of $billions in unfunded pension obligations. Business school graduates who stifled innovation to make short term profits – that is GM's major problem. By shorting those $billions, GM could claim $millions of annual profits. Claim profits on cars that (if the bean counters were honest) should have forced GM into bankruptcy in 1991. Then when the spread sheets could not longer hide the truth, 'blame the unions' always works on an American public fed only by sound bytes. Unions never created any of this.

Once a bean counter is taught that “the purpose of a company is profits”, then his whole life purpose is similar to a mafia don. Do anything to make a profit. Unions did not create a problem that has existed in GM for more than 30 years. So who suffered because top management lied? Everyone except top GM management.

GM's pension problems are directly traceable to spread sheet spin. Other companies simply meet their pension obligations. GM stopped funding the pension funds in 1991 to avoid bankruptcy - to protect top management jobs and bonuses. 18 years later, the bills came due. So we should blame the unions? That is what GM did. GM called it legacy costs rather than call it by its real name - bean counter fraud.