Monthly Archives: September 2019

#352 Why Do Federal Reps, Senators Have No Shame? My 25¢ Analysis.

29 Sunday Sep 2019

Posted by in Societal Issues, Uncategorized

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #332.  

The past few blog entries have been an intentional diversion from the craziness in Washington. This entry puts us back inside the Beltway.

Ever wonder why elected Federal representatives, House and Senate, seem to have no shame? Why some individuals take one position when a Republican is in office and flip-flop when a Democrat is in office?

An extreme example of no shame is Lindsey Graham, Republican Senator of South Carolina. In 2016, when Graham and Trump were Republican presidential candidates, Graham claimed Trump was evil and untrustworthy. The criticism from Graham went far beyond what one would consider normal “campaign talk.”

Once Trump was elected, and after Graham’s guardrail John McCain died, Graham became a die-hard Trump supporter. In the most recent Trump fiasco – threating to withhold approved military aid unless Ukraine investigated a potential Democratic rival, and then trying to squash an investigation — Graham dismissed Trump’s actions as a mere phone call, not worthy of Investigation.

Graham was more than willing to overlook the abuse of power for personal gain, Trump obstructing Congress and then Trump publicly threatening anyone who put country ahead of politics. To Graham, let’s forget the oath to uphold the Constitution he took as a Senator, supporting Trump is more important. One has to wonder if Graham would have taken the same stance if those actions had been taken by a Democratic president.

Another flip-flopper is Senate Majority Leader, Mitch McConnell. McConnell has been more than willing, with no apparent remorse, to switch his position whether the Senate should have a hearing for a Supreme Court nominee if an election is upcoming within a year or so. When Obama was President, McConnell stated emphatically any hearing for a SCOTUS nominee was out of the question. While Trump has been President such a SCOTUS hearing is imperative and must be done now. Mmm, wonder what Mitch’s position will be on voting on impeachment?

Graham and McConnell are not alone. There are many examples on both sides of the aisle. In the current environment, Republicans seem to hold the edge on shamelessness. In the Trump/Ukraine debacle, among the Senators, the only one who seems to have expressed publicly any concern about Trump’s behavior is Mitt Romney. Might be a coincidence that Romney is not a lawyer but a businessman.

I’m not naive about politics and party loyalty. However I do find troubling a willingness to support party over the Constitution and frankly, what’s right for the country.

Why are these elected officials exhibiting behavior that most of us would never tolerate in the private sector? Have these officials no shame?

My $0.25 analysis? The cause of the behavior, in Yogi Berra terms, is a combination of training and lack of training.

#1 The effect of training. Most Federal Representatives and Senators are lawyers.   Lawyers are trained to be able to take multiple stances on a given issue. Successful attorneys, especially defense attorneys, may need to present different sides of an argument depending on the particular situation of and charges against their client. Further, society does not expect attorneys to agree personally with every stance taken in defense of a client. The only expectation of the attorney is to make a fair effort defending the client.

Not being expected to argue a position necessarily consistent with personal beliefs allows attorneys to shift positions back and forth without any concern about consistency in approach. For many lawyers supporting a position without regard to past support of a different position, might seem perfectly normal and part of their everyday activity. However, members of the House and Senate need to put away their lawyer training and remember their oath of office is to uphold the Constitution; not an oath to represent the president of the United States. The president is NOT their client.

#2 The lack of training. The second factor why Congressional reps show no shames could be lack of military service. For lawyers, the effect the lack of military training may be more pronounced than other occupations. For lawyers, there are generally two outcomes, win or lose. There are very few situations where a win-win is a desired outcome.

As anyone who has been in the military knows, two things become evident in basic training. The first is it matters not your background, family wealth, family connections, one’s level of education, etc. During basic training drill instructors treat every trainee exactly the same, like dirt.

The second thing that becomes evident in basic training is the necessity to work in teams. In military training at least early on, the object is not to win or lose but to build a team and learn to work closely with other teams. And you have no choice of what team you’re on. The teams are comprised of people from all different backgrounds and skill levels. Thus, to make any progress, and avoid further harassment by the DI, one needs to learn to cooperate and work with people who are radically different than normal associates.

An example I recall from my own un-storied military career was during advanced training for light infantry. Part of the training included qualifying on a wide range of weapons. The base commander put a challenge out to several larger units training at the camp. If a designated training unit could tie or break an existing scoring record when qualifying with a specific weapon, that group would receive a weekend pass beginning noon Friday. I don’t recall whether we had six or seven weapons to qualify with — pistols, assault rifles, machine guns, anti-tank weapons, etc. — but I do recall our group setting 5 or 6 post records and being able to leave Friday noon.

The records were achieved because we worked together. Most of us had not been in basic training together so there was little many of us had in common other than wanting to get through training and wanting to get a pass starting Friday noon.

Another major incentive to work together and set a base record, although not articulated by the training staff, was the fort’s location. We were stationed at Fort Ord, California, near Carmel and Monterey Bay. Getting out Friday noon would give us enough time to visit Reno, drive Big Sur to Santa Barbara, go to San Francisco and generally have a good time.

Since sending our Congressional reps to Army basic training would be fun to watch, but not really practical, what do we, societal we, do to get our elected officials to begin working more closely with one another? A solution used in private industry that might work is to have Democrats and Republicans participate in team-building exercises. Before legislators began returning to home districts on the weekends, interaction with members of the other party occurred regularly at golf courses, during poker games, and family outings. During that era many reps, spouses and children of both parties were close friends.

Like the idea of basic training, the chances of either party supporting team-building exercises is nil. I cannot imagine how loud Fox News bloviators Sean Hannity and Tucker Carlson would scream over such an idea. “Political parties working together? How dare someone suggest cooperation. An effective outcome would ruin our ratings!”

Thus, the only realistic approach seems to be the ballot box. But I think we, again societal we, need to start thinking differently about the importance of elections. To effectuate change, the primary election may be more important than the general election. If we want government to start working again, then we need to start nominating centrist candidates in both parties. We also need to be willing to switch parties if the candidate of one’s preferred party is too extreme.

If your state requires party selection to vote in the primary, then chose Republican or Democrat and vote in the primary. No one’s forcing you to vote a straight ticket in the general election.

The only way we are going to get elected representatives to Congress to start behaving with some consistency and integrity is to nominate people with positions on issues that are good for the welfare of this country, not some small slice of the population. If you look back in US history, the times when the economy was the strongest over time (constant $), when a strong middle class developed (think of “Leave It to Beaver”), when a major portion of society was able to advance in education, and when we had the most support among a wide range of countries worldwide was a time when we had a president and members of both parties working together.

The most disruptive times in US history occurred when there was a major division of the parties. I’m voting for working more closely together.

As a sidebar: One of the reasons I started writing this blog in 2013 was to alert people to what was likely to happen without some major changes in society. While I remain hopeful such changes can occur, my fear is the US will experience another revolution, the Revenge Revolution, before any meaningful change happens. Please prove me wrong.

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#351 What if Trump Were…? Serious Questions about How Individually We View Presidential Behavior.

22 Sunday Sep 2019

Posted by in Societal Issues, Uncategorized

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #332.  

The past few blog entries have been an intentional diversion from the craziness in Washington. While this entry doesn’t address activities inside the Beltway per se, the entry does address how we view such activities.

As 2019 progresses into primary season then migrates to the general election, I thought voters should ask themselves a very simple question. In order to put the question in proper context, there’s some background information, which you should read, please.

Background Information. Trump took office as president in January 2017. Assume everything about the president and the presidency is unchanged since that point. For example assume: the same number of and content of Executive Orders; the same high turnover of cabinet members; the same number of “acting” heads of agencies; the same number of unfilled agency staff positions; the same effort to rollback all environmental programs implemented during the Obama Administration; the same denial that global warming has been accelerated by human activity; the same tax cut that transferred huge sums to corporations and the wealthy; the same tax cut that has created sharply higher federal budget deficits; the same tweets that have insulted members of Congress; the same tweets that have insulted Cabinet members; the same tweets that have insulted heads of state of long-term US allies; the same unusually friendly and secretive behavior with Vladimir Putin; the same unusual behavior with Kim Jung Un; the same refusal to disclose personal income taxes; the same effort to direct military expenditures to benefit property in Scotland; the same promise that Mexico would pay for the border wall; the same meetings with Russian diplomats, one of whom a known spy, after which notes from the meeting were destroyed; the same effort to strong-arm president of Ukraine to investigate a political rival’s family; the same repeated trashing of the US intelligence community; the same appointment of “Where’s my Roy Cohn?” as Attorney General; the same encouragement to white supremacists; the same numerous cabinet and Trump election-campaign officials who have plead guilty to felonies and are in prison or awaiting sentencing; the same number of days spent playing golf; the same repeated trashing of the judicial system; the same repeated refusal to comply with the US Constitution…and on and on and on.

I tossed a coin and the Republicans get the question asked first. The question to Democrats follow.

Republicans: none of the above information changes except one thing – Trump is a Democrat.

Question: if Trump were a Democrat, would you continue to support him as vigorously as you have and as most Republicans have?

If you answered, “Yes,” then if a Democratic president were to take all or most of the same actions, obviously you would support the Democratic president.

If you answered “No,” then why are you supporting actions taken by Trump, if you oppose the same actions if Trump were a Democrat?

The question is not some trick or “gotcha” question. Go look yourself in the mirror and answer the question as honestly as you can. Your call, not mine. If you really believe Trump, and would support him as a Democrat, OK.

If you wouldn’t support Trump’s same actions if taken by a Democratic president, then your loyalty is to the Republican Party and not to any kind of personal moral or ethical standard. Before you react to my comment, go sit down and think seriously about the question and your answer.

Democrats: none of the above information changes except one thing – Trump is a Democrat.

Question: if Trump were a Democrat, would you oppose him as vigorously as most Democrats have?

If you answered, “Yes,” then if a Democratic president were to take all or most of the same actions, obviously you would oppose the Democratic president.

If you answered “No,” then why are you opposing the actions being taken by Trump?

The question is not some trick or “gotcha” question. Go look yourself in the mirror and answer the question as honestly as you can. Your call, not mine. If you really oppose Trump, and would oppose him as a Democrat, OK.

If you wouldn’t oppose those same actions by a Democratic president, then your loyalty is to the Democratic Party and not to any kind of personal moral or ethical standard. Before you react, just sit down and think seriously about the question and your answer.

Whether these-type questions will help people pause and at least think through their positions, I don’t know. What I do know, is these-type questions need to be asked and each of us should take time and consider our answers.

Comments and questions welcome as always.

#350: GM EV-1: Story behind the Story. The Day the Music Died. (Part 5 of 5)

16 Monday Sep 2019

Posted by in Corporate Policy, General Motors, Innovative Thinking: Ideas and Products, Uncategorized

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Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #332.  

The past few entries have been a break from the craziness in Washington.  Entry #346 started discussing a project that continues to generate considerable interest — the GM EV1, the first modern electric vehicle, which was introduced more than 25 years ago.

There are two sides to the EV1 story — product and non-product.  The product side has been reasonably well documented.  In my view, the non-product side of the story is far from complete, and what’s been told so far is misleading.  The series of entries has been an attempt to provide addition insight.  If nothing else, the series has been a diversion from the madness in Washington and has provided a good lesson or two. (If you have not read Entries #346-#349, suggest you do so before reading this entry. 

if you want to read all five entries as an ebook, download 2019Q4 GM EV-1 Story Behind the Story Booklet.  Also, thanks very much to editors for these entries — my wife Pamela and Wayne Henegar, who was also on the GM EV-1 program.

This is intended to be the final entry of the series about the “inside story” of GM innovative electric vehicle, EV-1…although one never knows. The ending of the EV-1 is both sad and happy.

Sad because the EV-1 met an untimely and ugly death. Happy because many things were learned from the EV-1 program and the program has continued to this day to influence development of electric vehicles worldwide. The demand for and availability of electric vehicles has continued to grow. Even such storied brands as Porsche are introducing electric vehicles.

The EV-1 set the standard for electric vehicles, both in terms of technology innovation as well as quickly building an emotional bond with a wide swath of people. It truly bothers me to say this, but I think the auto company that so far has best captured the spirit EV-1 brought to electric vehicles has been Tesla and not General Motors.

To finish the EV-1 story, let’s start at the end and work backwards to the day the music really died. The formal death of EV-1 was in 2002. The formal death included an orderly return to GM of all EV-1’s that were on lease to customers, mostly in California.

The EV-1’s were only leased and not sold. Why only leased? Keep in mind the EV-1’s were still “experimental” by auto industry standards. Even though the EV-1’s were fully functional and met all federal safety standards, a number of items on the car had not been tested as thoroughly as most regular production models.

Leasing also allowed GM to restrict use of the cars to certain areas – initially California and later some parts of Arizona and Georgia. Leasing enabled GM to avoid what would have become a logistics nightmare. When title to a car/light-duty is transferred from the auto manufacturer to the buyer, the auto company becomes liable for providing parts and service for at least 10 years, in some states the requirement is longer.

In addition, if the owner moves from say California to Vermont, the auto company must provide service at an authorized dealership. For the EV-1 that meant possibly training dealer technicians or providing direct service to many locations throughout the country where there might be only a few EV-1’s in use.

While cancelling the EV-1 program was a strategic blunder, what GM did after the cars were returned from lease may be one of the greatest PR blunders in automotive history. After the program was canceled, remaining leases were not renewed and all EV-1’s had to be returned to GM.

So far, so good. But then what did GM do with the cars? GM crushes all but a few EV-1’s, which were donated to museums and universities but with the driveline disabled.

The giant PR mistake consisted of two components. The first mistake? With a minimal amount of effort and cost GM could have updated the cars and re-leased the EV-1’s. Doing so would have allowed GM to continue to gather customer data and maintain a positive public image about developing electric cars.

The second mistake? How the cars were disposed of.   Rather than explaining to the public why the cars needed to be crushed, GM tried to keep the crushing a secret. Hard to do with that many cars and car crushers often located in open areas with no trees or other cover.

You’d think someone in GM might have remembered a previous PR fiasco, but apparently not. In the 1960’s (many people from that era had not yet retired from GM) there was a huge public outcry against GM after disclosure GM had hired a private detective to tail Ralph Nader after he published the book, “Unsafe at Any Speed,” which was critical of the safety of the Chevrolet Corvair. I guess reviewing company history and lessons learned was not part of the discussion whether to crush EV -1’s.

What happened to GM’s image after the public found out about the crushing? Almost overnight GM’s image went from good guy trying to help the environment to bad guy. Out the window went all the positive gain in GM’s image that started when the EV-1 was introduced. In fact, GM’s image slipped from positive to negative.

The public outcry over the GM crushing EV-1’s helped spawn the movie, “Who Killed the Electric Car?” Given the seemingly esoteric topic, the movie was remarkably popular. When it premiered in Charlotte, I was invited to attend. Following the movie, there was a spirited Q&A session that lasted almost an hour. The popularity of the movie helped erode GM’s image further.

But did the EV-1 really die when the cars were crushed? Or, did the EV-1 program suffer a mortal wound sometime before, and that would lead to its death? From my perspective, the real death of the EV-1 was in late 1992, years before the public demise. In blog Entry #349, I discussed how the GM financial staff viewed the EV-1 as a cost center. Entry #349 also raised a question whether there was a conspiracy among financial executives to set up, then justify replacing Chairman Robert Stempel, who had succeeded Roger Smith. Stempel was the first chairman in some time not from the financial staff.

Financial staff executives knew whoever followed Roger Smith as chairman would be faced with a host of difficult problems created while Smith was chairman in the 1980’s. The effect of most of these problems was a cash drain and reduced ability by the operating divisions to generate additional cash. In addition, it was clear by the late 1980’s that the US economy was weakening and likely would slide into a recession. The recession would cause auto sales to slow and cash reserves to erode further.

Regardless of who was appointed chairman, no question GM needed to cut expenditures. But where to cut? The financial staff continued its drumbeat that all costs associated with the EV-1 were of no value elsewhere in the company, despite evidence to the contrary.

How was the EV-1 program affected as GM looked for cash? Here’s the scene in fall 1992. Location: General Motors Building, Detroit, conference room near the boardroom. Time, 3:00 p.m.

Attendees at the EV-1 status review meeting: on the corporate side are the chairman, president and two senior financial-staff executives. Representing EV-1 are four executives, including me.

Meeting content includes an update of engineering developments, review of marketing programs, and review of program cost. During the meeting, the chairman takes notes and asks a number of questions. The president takes no notes and does not ask a single question.

At precisely 5:00 p.m., the president stands, turns to the chairman and states, “Bob (Stempel), you can’t afford the program.” The president then excuses himself and leaves the meeting. The meeting concludes shortly thereafter.

After the internal review but before the next meeting of the Board, usually the first Monday of the month, Bob Stempel resigned as chairman and retired from GM. Soon thereafter the Board announced that Jack Smith would be promoted from president to the CEO’s role. The chairman’s role was assigned to an outside Board member.

The Board also approved a significant cutback in staff throughout the company as well as a cutback funding for certain product programs, including the GM EV-1. All the cutbacks, including funding for the EV-1, seems consistent with the idea that Stempel had been set up as the fall guy before someone from the financial staff could ride in on a white horse and save the company.

Oh, I almost forgot. What date did the Board formally approve cutting back on the EV-1 program? An action that in my opinion effectively killed the momentum of the only program which was improving GM’s image; a program which had the potential to attract to GM younger buyers who were more prone at the time to buy Imports, especially Japanese models. What date was the Board meeting that mortally wounded this program? None other than December 7th.

OK, so the Board was tone deaf to the irony of the date of their decision. Not having been privy to the discussion in the Board room, one has to wonder how objective the presentation was about the EV-1 program. Given the negative attitude toward EV-1 of the incoming CEO and his former colleagues on the financial staff, which usually coordinated presentations to the Board (a job I held for a while), I have serious doubts many of the positive aspects of the EV-1 program were presented.

But all connected with EV-1 program has not been lost. A number of positive aspects of the program seem relevant today. For me, probably the biggest takeaway has been how a small group of people with such a limited budget could build such a huge following and have such a lasting impact.   By traditional automotive standards, the size of the individual staffs, amount of the engineering budget, amount of the marketing budget and other support was tiny.

By almost any measure, we were also an eclectic group – some staff members had lots of auto experience; some had almost none. Yet, collectively we became a highly effective team that had a major positive impact on GM’s image and set the standard for a new generation of electric vehicles.

GM senior management’s failure to realize the positive benefits of the program, especially how EV-1 improved GM’s image among younger generations, was an indication then and now that GM senior management was too focused on costs and not focused on generating revenue. The concept of a company trying to cut costs and “save its way into prosperity” never works. Such an approach often is a path to bankruptcy.

The focus of senior management on cost savings and not revenue generation also alienated a number of younger, more innovative-thinking executives inside the company. Many of these innovators left GM. Their departure left GM with far fewer executives willing to take risks and try new ideas, just at the very time GM needed this kind of thinking.

The combination of focusing on cost and avoiding any kind of risk taking proved devastating. GM’s loss of market share that started in the 1980’s because of actions by then chairman Roger Smith continued throughout the 1990’s. By the time GM finally declared bankruptcy in 2008, GM’s share of cars/light-duty trucks sold in the US had fallen from about 45.0% in 1980 to less than 25.0% and was headed toward 20.0%. In say 2006, had GM maintained the share it held in 1980, GM would have sold an additional 3,500,000 cars and trucks in the US.

Could EV-1 have saved GM from bankruptcy? As a car program, no. Annual EV-1 volume was too small to offset declines in other carlines. However, the spirit, enthusiasm and innovation that was generated by the EV-1 program, both inside and outside GM, could have been the catalyst to change thinking inside the company and stop the slide in market share. Only years after the EV-1 program was cancelled, did Rick Wagoner (another financial guy), who succeeded Jack Smith as chairman, admit cancelling EV-1 was a major mistake.

Another major irony of the program?  EV-1 could have been Roger Smith’s best idea to help change GM and his legacy. Unfortunately for Smith, and GM, this great idea was preceded by actions that did irreparable harm to the company.

So, now you have another side of the GM EV-1 story. While writing these entries I was reminded of the opening words to Don McLean’s most famous ballad, “American Pie.”

“A long, long time ago
I can still remember how that music
Used to make me smile
And I knew if I had my chance
That I could make those people dance
And maybe they’d be happy for a while
But February made me shiver
With every paper I’d deliver
Bad news on the doorstep
I couldn’t take one more step
I can’t remember if I cried when I
Read about his widowed bride
But something touched me deep inside
The day the music died.”

Hope you found the series of interest. Comments welcome, as always.

#349 GM EV-1: Story Behind the Story. Inside Conspiracy? (Part 4)

08 Sunday Sep 2019

Posted by in Corporate Policy, General Motors, Personal Stories, Uncategorized

≈ 1 Comment

Readers: this blog is set in the future (sometime after the year 2020). Each entry assumes there has been a 5th revolution in the US — the Revenge Revolution. More about the Revenge Revolution, a list of earlier revolutions and the author, Entry #1.

Periodically I write a “sense check” to assess whether in the next few years, a revolution in the US is still possible or whether the entire exercise is based on a statistical aberration — i.e., a roughly 50-year cycle between major upheavals in the US.  Most recent sense check, Entry #332.  

The past few entries have been a break from the craziness in Washington.  In Entries #343-#345 I included some observations about my time working with Lee Iacocca, who died July 2.  Entry #346 started discussing another project that continues to generate considerable interest — the GM EV1, the first modern electric vehicle, which was introduced more than 25 years ago.

There are two sides to the EV1 story — product and non-product.  The product side has been reasonably well documented.  In my view, the non-product side of the story is far from complete, and what’s been told so far is misleading.  The series of entries — I actually do not know how many — will attempt to provide addition insight.  The series will be a good diversion from the madness in Washington and offer a good lesson or two, I hope. (If you have not read Entries #346-#348, suggest you do so before reading this entry.)

As described in previous entries, there was a dichotomy on the GM EV-1 program. The public, the media and most government organizations were interested and viewed very positively GM’s efforts to develop and introduce an electric vehicle. Inside GM, the view was just the opposite. Many GM executives intensely disliked the EV-1 program and considered it a waste of scarce funds.

An example of the public support was the number of people who contacted the program seeking information. When the program kicked off, there was no internet. Hard to imagine now but true, no internet. The primary contact was via an 800# and some contact by snail mail. The 800# was staffed by a firm which I had used at Buick.

The firm kept a record of every contact. If you were a first-time caller, you also received a response letter written on executive stationery, which I hand signed with a fountain pen. If I knew anything about the location or something else that might be of interest to the recipient, I would write a short note in the margin.

Over roughly a two-year period, I signed about 25,000 letters. It was not uncommon to return from a week-long business trip and have a stack of 300-400 letters delivered to the house waiting for me to sign.

Did this letter writing effort have an impact? For maybe 10 years after the program, I would be introduced to someone who would say, “Oh, I know you.” I would ask how they knew me since we were just introduced. “You wrote me a letter.” Then often as not the person would reach into the desk and retrieve the letter.

Most people seemed to retain the EV-1 brochure, which was sent along with the letter. Like many efforts on the program, we broke the mold for what was considered a standard car brochure. The advertising manager on EV-1 was Amy Rader, a history major from Princeton. Amy thought we should have a different kind of brochure. She managed to convince the Robert Frost Foundation to allow EV-1 to be the first commercial use of his works. The EV-1 catalog, of course, was on recycled paper.

Contact with the EV-1 group was not limited to the United States. One day we received a package from a group of high school students in Bulgaria. Somehow they’d heard about the program (remember pre-internet) and completed a class assignment centered on the EV-1. When finished with the assignment they sent us a copy.

Unfortunately, the widespread interest in EV-1 fell on deaf ears inside GM. Part of the cause was frustration among many GM executives with 1980’s chairman Roger Smith diversion of cash from product development and marketing programs. As noted in an earlier entry, during the 1980’s Smith purchased Hughes Electronics, Electronic Data Systems, stock held by Ross Perot associated with EDS purchase. Also, Smith diverted a huge amount of cash to start Saturn. GM EV-1 was also tainted because Smith had it developed in secret by a company in California. He then held a surprise introduction at the LA Auto Show, including the statement that GM would produce EV-1.

While Roger Smith’s follies festered frustration and anger toward EV-1, some of us on the program could have done a better job trying to convey the value of EV-1 to executives inside GM. We did not spend enough time making sure our colleagues at the GM operating divisions understood how the EV-1 program could benefit GM and benefit the operating divisions.

However, even that effort might not have overcome what seems to have emerged over time as the death knell of the EV-1 program. The cause of death was the view by the financial staff that EV-1 was nothing more than a cost center. As someone who cut his teeth on the GM financial staff, I can sort of understand that view, although I do find baffling the lack of enlightenment about the non-product value that EV-1 generated for GM.

The “cost-center” view may have been a cover for at least two other actions. The first was that GM kept claiming most, if not all development cost associated with EV-1 had no other application. Yet, as EV-1 was being developed, elsewhere in GM there were efforts to incorporate many features of EV-1 into regular production vehicles. If one were to track incorporation of electronics into regular production cars/trucks, there was a huge jump after EV-1. I like to remind people that even though GM eventually cancelled EV-1, one the major benefits of the program was accelerating the use of electronics in vehicles.

The acceleration of electronics should have been fully supported by the financial staff…but it wasn’t. At the time of EV-1, many electronic features carried a price premium. Yet, the incremental cost to produce many electronic features was almost nothing. With the opportunity to use electronics to increase profit margins on most every car and truck, why was the financial staff so emphatic that EV-1 was a cost center?

The second reason for the “cost-center” claim is more sinister and one I’ve never heard discussed publicly. I reached the more sinister conclusion based on: (i) early training to be an actuary, which includes trying to find patterns out of seemingly random events; (ii) studying the history of General Motors; (iii) having worked with most of the financial executives involved.

My sinister view is the EV-1 happened to be a convenient mechanism for implementing a conspiracy by the financial staff. A conspiracy by the financial staff is unlike the conspiracy implied in the movie “Who Killed the Electric Car?” The movie suggests a conspiracy among various car companies and other organizations associated with electric vehicles. As noted in an earlier entry, I think the multi-organization conspiracy theory presented in the movie is simply not true.

Ok, then what was the conspiracy inside GM led by the financial staff? And why?

Higher-level finance executives knew that actions during Roger Smith’s reign had seriously eroded GM’s earning power. Some of this erosion had been hidden by a number of accounting changes. With that understanding, these executives knew the next chairman of GM would have a very rough time trying to stabilize the company and trying to rebuild earnings.

GM had a long tradition of the chairman coming from the financial staff and the president coming from operations. So here are my questions. Who was chosen to succeed Roger B. Smith as chairman? A financial guy? No, a guy from the operating side. Who was chosen to be president? An operating guy? No, a financial guy. Seems a bit odd, huh? Maybe a bit Machiavellian?

Robert Stempel, who was chosen as chairman to replace Roger Smith, was the quintessential engineer. Stempel had a stellar track record in operating roles at Pontiac and Chevrolet but no in-depth exposure to or understanding of finance. No surprise that Stempel was a big supporter of EV-1 since much of his career involved new product development.

The new president, Jack Smith (no relation to Roger Smith) was the quintessential finance guy with almost no experience in US operations that would help him understand how the operating divisions and the supporting dealer organization worked. An example – during a meeting I mentioned EV-1 was generating a high level of interest among teenagers. Smith replied, “15 year-olds don’t buy cars!” True, but just from a pure economic standpoint that 15 year-old will likely purchase at least 10 cars/trucks in his or her lifetime, and probably more. And who doesn’t remember which brand cars/trucks were “cool” when they were 15 years old?

So, was there really a conspiracy? Was there really a coup d’état at GM? Did the senior financial executives setup Stempel, knowing GM earnings would be rocky the first few years post Roger Smith? If Stempel demonstrated he was unable to stabilize GM, would the financial staff be justified asking the Board to replace Stempel with a traditional finance guy in order to “save” the company?

Stempel faced another problem, which was not unexpected. In the early 1990’s, the US economy slid into a recession. As GDP and personal income declined, predictably so did car sales. GM profits also fell. While Stempel continued support for the EV-1, the recession forced GM into a difficult choice. The loss of market share during Roger Smith’s reign meant fewer vehicles to cover fix cost. Plus, the diversion of cash for Smith’s various projects, especially Saturn, meant GM had no cash reserve.

GM needed to cut costs and few alternatives were available. Product programs and marketing programs at the car divisions had already been raided to fund Roger Smith’s various projects. Closing Saturn, even though it was bleeding cash, would have been a PR disaster.

What was on the table for cutting, at least from the financial staff’s perspective, was EV-1. I agree and understand that sometimes immediate needs for cash overtake future considerations, even if the long-term consequence may be negative. However, cutting EV-1 made little economic sense. The cash burn rate was not that great. Much of the development could be applied to and increase profits of other GM cars/trucks. Plus, EV-1 was GM’s only bright spot. Even with all the other problems inside the company, GM’s public image continued to improve because of EV-1.

But did that matter? Stay tuned. My apologies. In Entry #347 I promised to talk about the dynamics of the meeting the day the music died. I’ll do that in the next entry.