(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.

Jordan: “Matt, we’ve covered a lot of ground about GM. Any thoughts on what else about GM we should cover for reporter on typewriter clipart POTUS’ project? There’s 10+ years left before GM files bankruptcy.”
Matt: “From what I’ve heard from you, the GM ship really started to take on water during Roger Smith’s tenure. The EV1 (electric vehicle) could have helped plug the leak but EV1 was thrown overboard.”
Jordan: “And the situation continued to get worse.”
Matt: “From what I know, seems like GM continued to wander around under Jack Smith and who followed him…Rick Sinkship Wagoner?”
Jordan: “You are spot on. Believe it or not, instead of GM trying to fix the car divisions, GM bought other car companies, probably in worse shape than GM.”
Matt: “What did they buy?”
Jordan: “SAAB and Hummer. And then made an alliance with Fiat. And that was Fiat pre-Sergio Marchionne. At the time Fiat was anything but a top-line European car manufacturer.”
Matt: “So more cash out the door. What on earth did anyone see in SAAB?”
SAAB Jordan: “SAAB is…or was…an interesting car with a group of buyers who would not normally consider GM products. But the SAAB buyers were quirky and more attracted to the quirkiness of SAAB.”
Matt: “So if GM tries to integrate SAAB into the rest of the company, the quirks go away and SAAB becomes…something other than SAAB. If they do not integrate it, then what’s the benefit of buying SAAB? I’m confused.”
Jordan: “You’re not the only one. Another GM boondoggle was buying Hummer. As you know, Hummer was really a military vehicle…more like an old-style Jeep on steroids.”
arnold_schwarzenegger_1641045 Matt: “Who bought Hummers? How many Arnold Schwarzenegger’s are there?”
Jordan: “Matt, quit being so perceptive. There weren’t many Schwarzenegger’s out there. GM eventually came out with a smaller version – still large but not gigantic. But GM also had SUV’s from Chevrolet, GMC and even Buick.”
Matt: “Seems as if GM kept adding new mouths to feed for product updates. And that is expensive. Putting more people at the dinner table with less money in the bank to buy food is not a good formula.”
Jordan: “Now think about GM’s alliance with Fiat. Talk about mouths to feed. Fiat was a very large family…that was very hungry.”
fiat3 Matt: “How did the Fiat alliance work out?”
Jordan: “It didn’t. I think GM had to pay about $2 billion…yes one billion plus one billion…to get out of it.”
Matt: “What the heck were they thinking?”
Jordan: “I don’t know exactly but I do know this. A lot of financial guys measure transactions at the margin.”
Matt: “Not sure what you mean.”
Jordan: “The question becomes, ‘What is the incremental cost in terms of cash?’ Using that approach there is little, if any recognition to the long-term cost…and impact on such factors as manpower needs, corporate image, time available for decisions, distribution, and a bunch of other stuff.”
Matt: “Interesting that all the deals beginning with Roger Smith and thereafter – EDS, Hughes, Saturn, EV1, SAAB, Hummer, Fiat…and who knows what else – are all dead. And all died relatively quick deaths.”
Jordan: “Some were spun off but you’re right, most died relatively quickly.”
Matt: “How much cash did GM burn in these deals?”
Jordan: “We will never know but fair to say these deals were a major contributor to putting GM into bankruptcy.”
CashBurn_big Matt: “Rather than plowing earnings back into the car divisions and making them stronger, GM kept bleeding the car divisions and making them weaker. GM spent money like a drunken sailor.”
Jordan: (laughing) “Matt, now you know all sailors aren’t drunks.”
Matt: “You know what I mean.”
Jordan: “GM’s wild spending spree and Squeaky’s reorganization plan also killed some very good suppliers divisions, which were big money makers for GM.”
Matt: “I forgot how vertically integrated GM. Why did GM get rid of the supplier divisions?”
Jordan: “Vertical integration was part of the formula for the GM money machine. Squeaky then spun off the supplier divisions. From a pure financial perspective, it appears cheaper to buy products from outside suppliers rather than buying from GM divisions…because you can shop around for the best price.”
Matt: “But, if there is anything I’ve learned from this study, the purchase price is only part of the equation. There are many more things to consider.”
Jordan: “Bean counters don’t look at the whole picture, only tangible cost. A lesson for POTUS is executives should be focused on understanding how different part of the business affect the whole. Bean counters…and all executives…should be taught to take a holistic approach to cost and many other issues.”
Matt: “You’re starting to sound like some granola junkie. Holistic approach?”
Jordan: “Look at the companies that are most successful long term. The companies are more balanced…much like GM was for many years.”
Matt: “Other thoughts?”
Jordan: “I know I’m repeating myself, but until we started this assignment for POTUS, I did not appreciate the extent to which Roger Smith, then Jack Smith and finally Rick Wagoner, screwed up the GM money machine.”
Matt: “Think it was intentional?”
Jordan: “That’s like saying there was a conspiracy to kill the electric car.”
Matt: “Then what happened?”
oneway_dictatorJordan: “The singular focus on financial – earnings per share — rather than growing the business was the problem. Squeaky’s ‘my way or the highway’ decree that earnings were more important than market share changed the culture and turned out to be the death knell of GM.”
Matt: “What about post bankruptcy?”
Jordan: “The group that replaced GM management didn’t get it either. The CEO was from a telephone company. C’mon.”
Matt: “You know, Jordan, this might be a good place to wrap up lessons learned from GM. How do we apply those lessons to help POTUS formulate a policy to rebuild US manufacturing.”
Jordan: “As simple as this sounds, and for fear of repeating myself yet again…
Matt: “Say it again.”
Jordan: “Companies need to be balanced. Take a holistic approach. And companies need to be fair. Fair to customers, fair to suppliers, fair to employees. And by employees I don’t mean just executives, or even salaried workers. Fair to everyone, including the lowest paid workers. And by being fair, the company will be consistently profitable over the long term.”
imbalance Matt: “That seems so simple.”
Jordan: “The company must have incredible discipline to continue to be fair to all parties, and not get hung up in short-term earnings. It is very difficult to create and maintain that discipline. GM maintained it for many years.”
Matt: “And during those years made tons of money, even in the Depression. Then GM lost its balance, as it were, and slid into bankruptcy.”
Jordan: “A simple and powerful lesson.”
Matt: “Jordan, thanks for the insight. This has been a great education for me. Are you available if POTUS wants some additional information?
Jordan: “Of course. Matt, I really enjoyed working with you. And thanks for your time and patience.”