(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, the story might be more meaningful by starting at the beginning.)

(Want a PDF version for Entries #1-10, #11-20, #21-30 formatted as an e-book? Entries #31-40 available soon. Click links for download. America’s 5th Revolution Volume I (Entries 1-10), America’s 5th Revolution Volume II (Entries 11-20), America’s 5th Revolution Volume III (Entries 21-30)

Scene: Jordan’s office with Matt, reporter for major publication. Matt has been asked by POTUS’ office to help write the story of GM. POTUS wants to use the information as part of a plan to help rebuild US manufacturing. Entries about GM begin #41.

Matt: “We need to talk more about Saturn. I know the program upsets you but I want your perspective.”
Jordan: “Of all the programs and changes Roger Smith implemented, I think starting Saturn division was the worst.”
reporter on typewriter clipart Matt: “Why do you say that? Saturn seems like a good idea.”
Jordan: “The concept of Saturn was OK. But concept and execution are entirely different.”
Matt: “What do you think went wrong?”
Jordan: “Squeaky was adamant that Saturn become, in the words of the Hal Riney ad agency, ‘A Different Kind of Car Company.’”
Matt: “Good idea. You think bad execution. Why?”
2007-saturn-outlook-grille-badge-photo-54586-s-1280x782Jordan: “Because the Saturn team was given carte blanch to build a new assembly plant, new foundry, new whatever they thought…emphasize what they thought…would separate Saturn from the rest of GM.”
Matt: “Do I detect a bit of jealousy? How was Saturn funded?”
Jordan: “Now we are getting at the heart of the problem — funding. GM profits were down because Squeaky and the gang ignored market share and kept thinking GM could save its way into prosperity.”
Matt: “So profits are flat to down and in the meantime GM spent tons of cash to buy Hughes, EDS and then pay Ross Perot another $700 million to get off the Board of Directors.”
man_with_piggy_bank_2 Jordan: “With the buying spree and payoff to Perot…plus keep in mind GM is still paying a dividend even though it needs cash…there is no money left in the piggy bank. Pardon me, no money except for Saturn.”
Matt: “Then where did the money come from?”
Jordan: “Cutting product programs at the life blood of GM – the car divisions.”
Matt: “You’re kidding. Squeaky funds Saturn by not spending money to update product at Chevrolet, Olds, etc. From what you said GM makes money at the car divisions. What am I missing in Squeaky’s logic?”
Jordan: “You are not missing anything other than a classic case of stupid is as stupid does. These kind of decisions show how little Squeaky and the gang knew about the car business. They were just moving numbers around on a worksheet with no real understanding of the implication.”
Matt: “Where was there head during these decisions?”
doctor-clipart-illustration-31325 Jordan: “In a place where only a proctologist could find it.”
Matt: “Despite all this wasn’t Saturn successful?”
Jordan: “Depends on how one defines success. Once Saturn finally got on the market, it did capture some buyers new to GM.”
Matt: “What about profits?”
Jordan: “Oh, profits? You mean a division is supposed to make profits? Saturn costs were so high that it would probably never make money. If you took away all the development costs, Saturn might have made a little money in its best years. But not enough to pay for development and not enough to fund new product. It was a cash drain…a sinkhole.”
Matt: “I’m stunned. In a way, GM starting Saturn is like cutting off your nose to spite your face.”
Jordan: “If you had to pick a single event that put GM on a clear path to bankruptcy, it was the creation of Saturn. The drain on the rest of the organization was so great that it effectively killed the company.”
Matt: “Do you think other people feel that way?”
Jordan: “If they spent time thinking about what really happened and the effect on the divisions that were generating the profits, I think many people would reach the same conclusion.”
Matt: “I can tell by the tone of your voice how frustrated you are.”
Jordan: “When one guy and his henchmen basically kill an economic engine then I have a right to be angry. And so should everyone who was committed to making GM a success. It is truly maddening.”
Matt: “Whew. The scope of what you’re talking about is hard to comprehend.”
Jordan: “I’ll give you one more Squeaky proctology story and then we will move on.”
Matt: “…and that is?”
Jordan: “About one of my favorite cars, the Buick Reatta.”
1988-buick-reatta-1_800x0w Matt: “Wasn’t Reatta a two-passenger sorta luxury car? And it wasn’t around very long. What’s Squeaky have to do with the Reatta?”
Jordan: “Yes, it was a two-passenger car in what was labeled the ‘near-luxury’ segment. Why wasn’t it around very long?”
Matt: “Squeaky? But what did he do?”
Jordan: “Squeaky doomed Reatta from the start, even before it was formally introduced. During development Buick conducted some very sophisticated market research about the price point. The research, some of which was conducted through MIT, indicated MSRP should be less than $20,000. Remember this was the mid-1980’s.”
Matt: “Price sounds reasonable.”
Jordan: “That’s what we thought. At the time prices for all GM cars and trucks were reviewed by what I think was called the Price Review Group, or PRG.”
Matt: “Part of Squeaky’s reorganization plan?”
Jordan: “Yes. And guess who was chairman of the PRG?”
Matt: “Let me guess. Mmmm…Squeaky.”
Jordan: “During our presentation about Reatta, Squeaky interrupts and states, ‘Reatta price is $25,000.’ Next item.”
Matt: “Any discussion?”
king-solo-hi Jordan: “Squeaky the king had spoken and no one on the PRG was going to challenge him. They had seen what happened to others who challenged the king.”
Matt: “How did the price affect sales?”
Jordan: “Reatta is a new entry into the two-passenger market with an MSRP 25% higher than all the research suggested. Many people who were interested in Reatta balked at the sticker price. As a result, sales never met expectations.”
Matt: “Squeaky’s pricing strategy seems just the opposite of how the other auto companies price cars.”
Jordan: “I told you it was a Squeaky proctology decision. When Toyota introduced Lexus, they low-balled the price to generate interest and sales. Same strategy on Prius.”
Matt: “But not GM…with Reatta and more recently with the Chevrolet Volt. Squeaky seems to have thought the model for pricing cars should parallel the model for pricing new electronics – like computers and phones. Price high initially and then decrease prices over time.”
Jordan: “One key difference between cars and say computers. Cars have a residual value…used car value…that electronic items do not. That residual value…trade-in value…is very important to personal use buyers and fleet buyers. Very few customers own a car for its entire life.”
Matt: “Your Miata being an exception.”
Jordan: “Yes but I knew that when I bought the Miata. For virtually all buyers, personal and fleet, there is an expected depreciation schedule. What happened with Reatta was the expected depreciation plus another 25% depreciation for the first owner. Fleets in particular were upset because costs for owning Reatta were higher than forecast.”
Matt: “So the expected depreciation schedule is why auto companies maintain prices over time for older models rather than dropping prices like computers.”
Jordan: “Matt, you now understand more about the car business than Squeaky and his gang ever did. I’m going to say it one more time, then let’s break. After the break we will move into the post-Squeaky era at GM.”
Matt: “Let me guess what you were going to say. Decisions by Squeaky and his gang were the primary cause of GM going bankrupt. And diverting funds to start Saturn were the single biggest cause.”
Jordan: “You took the words out of my mouth.”

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