Readers: some of the dialogue in this blog is set in the future (sometime after the year 2020). Entries addressing events in the the future assume 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 #387.  

Some of the entries are part of a series.  Several series are available as easy-to-read booklets for download:

Prelude to the current series of entries: I’ve concluded Trump is a lunatic and the administration filled with lapdogs save a couple of people at CDC.  Instead of wasting time commenting on actions by Trump, I thought it more productive to begin discussing what happens in the US once the coronavirus is more under control.  #378 began the series. At this point not sure how many entries.  Comments and suggestions welcome.

ENTRY #393: Note: This entry was written before the White House announced president Trump tested positive for Covid-19, then hospitalized.  The content of the entry continues to be relevant, whether or not Trump recovers and whether or not the president is a Republican or Democrat.  However, behavior of the current president is the issue at hand.  As you read the entry mentally substitute “Trump administration” for “General Motors.”  

For those who think one person cannot destroy a large, seemingly well-structured organization with significant checks and balances, think again.

A lesson we can learn from industry is how one person destroyed what was the largest, most consistently profitable organization in the world, General Motors. If you are not familiar with the history of GM, between roughly 1920 and the early 1980s, GM could have been the US Treasury – GM was so profitable it might as well have printed money.

As a company, GM was enormously large and yet, maintained very high profit margins on many of its products.  For example, variable profit on some car and truck models was 60%, and in some cases even higher.

How did GM become so profitable, even remaining profitable during the Great Depression? The key to GM’s success was the leadership of Alfred P Sloan.  Under Sloan’s leadership, General Motors operated following three basic tenets.

  1. Set clearly defined roles for operating divisions – Chevrolet, Buick, Cadillac, etc.  The products of each division were distinct in appearance and content.  There was no confusion, for example, between a Chevrolet and a Buick.
  2. Hire highly qualified people.  Sloan viewed his role as providing general direction and then getting out of the way and letting the managers do their job.  Under Sloan, the divisions operated with an incredible amount of autonomy.
  3. Strict adherence to a simple but powerful financial metric.  The metric allowed GM to make money even when sales declined sharply. Inside GM, the metric was known as “standard volume.”  Standard volume was equal to 70% of rated capacity.  If an assembly plant had rated capacity of say 200,000 units per year, standard volume was 140,000.  Budgets were established so the operating unit would break even at 70% of rated capacity. In addition to ensuring GM would be profitable during recessions, the standard volume metric allowed GM to become even more profitable as the economy improved.

What changed at General Motors? Why is GM no longer the juggernaut in the auto industry?  In 1980, then GM chairman Thomas A Murphy retired and was replaced by Roger B Smith.  Unlike Murphy, who was warm, generous and unassuming, Smith was cold, rude and narcissistic. Smith seemed to suffer from an inferiority complex.  He was physically short, had a ruddy complexion and a high voice. Inside GM, at least on the financial staff, Smith was known as “Squeaky.”

During Smith’s autocratic reign of terror – 1980-1990, he made every effort to reshape, some say destroy, most every aspect of what had made General Motors so profitable. My view, having worked on the financial staff for a good portion of my career – Smith was a wannabe Alfred P. Sloan. 

Sloan was, and still is, highly regarded worldwide.  Sloan’s name is associated with among other things academic institutions (The Sloan School at the Massachusetts Institute of Technology), Sloan-Kettering Hospital in New York, and the Sloan Foundation, which makes grants primarily to support original research and education related to science, technology, engineering, mathematics, and economics. 

 Despite experiencing Smith’s management first hand and now 30 years following his retirement, I have yet to understand why he took the approach he did.  One of the most baffling strategies was to divert funds from product development – one of the keys to GM’s money machine – to buy companies that added little or no value to GM.  Electronic Data Systems (EDS) was outside GM’s core competency.  Same with Hughes Aircraft.

Smith also eliminated the standard-volume budget and the discipline associated with that budget.  In addition, he allowed the operating divisions to begin to encroach on each other’s position in the marketplace.  Smith viewed as unnecessary the cost to keep Buick distinct and separate from say Chevrolet.  As a result, Smith began to force the operating divisions to share parts and platforms. 

Sharing, according to Smith, would save money.  And, the customer would never notice those parts that were shared.  Well, guess what?  The customer did notice. One of the most memorable was the disclosure that a more expensive Oldsmobile shared the same engine as the less expensive Chevrolet.  The Oldsmobile was labeled a “Chevmobile.” 

Smith also reorganized GM.  Rather than being an autonomous operation, the divisions were grouped.  The groups were: (i) Chevrolet, Pontiac and GM of Canada, aka CPC; (ii) Buick, Oldsmobile and Cadillac, aka BOC.  (The grouping is not dissimilar to how the Trump administration has grouped staffs at say CDC.) 

Two examples associated with the reorganization.

  1. Because of my job at the time, I was part of a small group interviewed about whether the company should be reorganized and, if so, how.  It was obvious during the interview by McKinsey & Co that the interview was perfunctory; my opinion didn’t matter and the decision to reorganize had already been made.

At the implementation kickoff, the “justification” for the reorganization was presented to about 100 executives.  Following the general meeting we broke into groups.  There were 10 people in the new Buick-Oldsmobile-Cadillac group.  At the beginning of the BOC group meeting, I asked a simple question to the head of the new BOC group, “What are we trying to accomplish with the reorganization?”  After what seemed to be an eternal pause, the executive responded, “Let’s get on with the implementation.” 

During that meeting and later, no one was able to answer my simple question.  (For reference, at the time Buick Division, which was by no means GM’s largest operating division, generated more revenue than say the worldwide operations of Goodyear Tire.  Why combine so many functions with another operation whose products have been distinct for decades?)  

The result of Smith’s reorganization and other actions was GM lost market share and significant earning power. Between 1980 and 1990 GM market share declined 10 points — ~45% to 35%.  The loss equates to far more than all Honda’s sold in the US every year. 

In 1992, just two years after Smith retired, GM was technically bankrupt.  GM avoided declaring bankruptcy by borrowing money from its finance subsidiary, GMAC.  GM has never fully recovered from Smith’s reign of terror.  While the current management has made impressive gains in product design and innovation, GM remains a mere shadow of its former self.   

2) Smith also demanded loyalty. Smith’s mantra was simple, “My way or the highway.”  To ensure loyalty and no dissent, Smith handpicked the staff that would support his decisions, whether or not the decisions were in the best long-term interest of General Motors and shareholders. He also tried to pack the Board of Directors with “yes” men. 

One problem, when Smith bought EDS, Ross Perot became GM’s largest individual shareholder and joined the Board.  Perot was good at asking tough questions.  Smith became so irritated he paid Perot $750 million for his stock (~$1.8 billion in 2020$) and kicked him off the Board.

What can the US learn from the experience of Smith as CEO of General Motors?  First the similarities in personality and management style between Smith and Trump are remarkable.  Many of the approaches taken by Trump to “break the mold in Washington” are similar to what Smith did with General Motors.

And the results of Trump’s actions are very similar to what happened to GM. Trump eliminated significant revenue potential to the federal government with a 2017 tax cut.  The tax cut created no jobs and ended up being a transfer of wealth from the middle class to the wealthiest Americans. Plus, the tax cut cost the government revenue and, as a result, the Federal deficit balooned.

Like Smith, Trump demands absolute loyalty, surrounding himself only with people who bend to his wishes.  Those who challenge Trump are broomed out. 

C’mon, you say, “How can you even compare GM to the Federal government?  GM was large but not that large.” 

“Do you really believe one person can ruin a country? A country that has been a beacon worldwide for openness, honesty and integrity? A country that was founded on the principles outlined in the Ten Commandments. Do you really think it is possible one person could bring it to ruin?”

My short answer is, “yes.” Yes, a country can be ruined by one person. And the US is on its way to ruin unless the approach to governing is changed quickly.  If there were any question about how Trump’s radical approach to governing is negatively affecting behavior in the US, then one should look no further than the so-called stalwarts of the Republican Party. 

These so-called stalwarts, who claim to believe in the core values of Christianity.  Who claim to believe in duty, honor, country.    

Duty, honor, country?  No, according to Trump, that’s only for fools.  Be proud, says Trump, that before Justice Ginsburg’s body was cold you Republicans were able to disregard what you claimed was necessary when Obama was President. Be proud you are able to throw away your ethics and ignore all teachings of your supposed religion.

So, stalwart Republicans, with all that kowtowing, what did you get in return?  What you got was a Supreme Court Justice nominee who will disregard what is good for the country.  Disregard what you claim you stand for and disregard what’s good for the American people.

Instead this nominee for SCOTUS will support laws that give more power to a few that already have too much power.  This nominee will vote to overturn the Affordable Care Act, and then replace it with, well, nothing.  And who will suffer?  The very constituents you supposedly represent.

When history books are written about the end of the great democratic experiment in America, the text won’t assign all the blame to Trump.  In fact, most of the blame won’t fall on Trump.  Trump’s personality and style has been familiar to anyone who spent one iota of time searching. 

Most of the blame will fall on the weak-kneed Republican who enabled his behavior.  So-called adults who were afraid of some tweet from Trump.  So-called stalwart Republicans, go look in the mirror and ask yourself, “With such behavior am I worthy of any recognition or reward?  Am I worthy of being called an honorable citizen?”  And then ask yourself, “After all that kowtowing to Trump’s whims, what did I get for my constituents in return?”