#61 Herpes Handbags? So, What’s Not Fair?

21 Saturday Jun 2014

Posted by Jordan Abel in Back Asswards Thinking, Causes of the Revolution, Economics, Societal Issues

(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, after a few recent entries, you might want to start at the beginning. More about the blog and about the author. )

Scene: Italian restaurant. Jordan and friends, Ms and daughter, Maggie.

Jordan: “Great to see both of you. Maggie, your mother and I had dinner a few weeks ago. It’s been years since we’ve seen each other. Bring me up to date.”
Maggie: “Short version is finished college. Got married. Got divorced. Moved to California and started working in high-end fashion.”
Ms: “Really high-end fashion. Maggie is too polite to mention she managed a fashion store in Beverly Hills.”
Jordan: “Wow. That’s impressive. What kind of stuff did you sell?”
Maggie: “Probably a better word than ‘stuff.’ We sold women’s shoes, handbags, other kinds of accessories. All fairly high-end.”
Ms: “High end is an understatement. Outrageously expensive.”
Jordan: “Coming from you, it must be expensive.”
Maggie: “Excuse me but the waiter is here to take our order.”
Jordan: “Speaking of giving orders. Maggie, you remind me of your mother. Do this. Do that. I think what we have is a case of ‘Like mother, like daughter.’”
Ms: “Jordan, let’s order as Maggie is suggesting.”

(Order complete. Waiter leaves.)

Jordan: “Just how expensive are these handbags? A thousand, two thousand?”
Maggie: (Laughing) “Two thousand would be our Wal-Mart model.”
Ms: “Add some more money.”
Jordan: “OK, five thousand.”
Maggie: “You’re still cold. Try $20,000 plus.”
Jordan: “$20k for a handbag? What’s it made out of, dinosaur skin with kryptonite locks?”
Ms: “You’re not far off. They use some really exotic skins and precious metals.”
Jordan: “Does anyone really buy this stuff?”
Maggie: “Each handbag is a limited edition. We usually have a waiting list.”
Ms: “There’s even a market for used handbags. Not used a lot, but still used.”
Maggie: “A few years ago a college student starting buying used handbags and reselling on eBay. In a couple of years he built a very nice business.”
Jordan: “There was an article in the NY Times about the guy. He was selling herpes handbags…”
Ms: ”…Jordan, those are not herpes handbags. They’re Hermes handbags. Hermes. Got it?”
Jordan: “Hermes handbags, herpes handbags, what’s the difference? You’ve been screwed either way.”
Ms: “You are awful. And in front of my daughter.”
Maggie: “Mom, I’m not some kid. Besides, I think calling it a herpes handbag is pretty funny.”
Jordan: “Anyway, there was some controversy because the used bag man left one company and went to Christie’s Auction House. Is a used bag man like a used car salesman?”
Ms: “Sometimes I just have to shake my head when I hear you talk.”
Jordan: “Really, this all seems rather stupid to me.”
Maggie: “That’s because you’re not a woman. It is a big deal. There is a real market for used bags.”
Jordan: “Funny, I know a few old bags and no one seems interested in them.”
Ms: “Careful. Were you talking about me?”
Jordan: “Did I say you were an old bag?”
Maggie: “You guys always talk to each other like this?”
Ms: “He’s usually not so polite. Must be because you’re here.”
Jordan: “C’mon, Ms. When have I not been polite to you?”
Ms: “Well, OK. You do always respect me…in the morning.”
Maggie: “Children. Back to the story, please.”
Jordan: “I don’t really care what people do with their money. But I do think when one company files suit to stop a used bag salesman from going to another company to sell used bags, the country’s value system has gotten out of whack.”
Maggie: “BH…I mean Beverly Hills…has always been a little out of whack.”
Jordan: “True, but at some point sanity needs to take over. Selling handbags that cost more than many people earn all year seems over the top. And waiting lists!”
Ms: “Are you implying that’s not fair?”
Jordan: “I suppose I am.”
Maggie: “What’s not fair? I mean didn’t these people earn the money fair and square?”
Jordan: “Earned yes. Fair and square? A lot of times, not really.
Ms: “Here’s dinner. Hold that thought.”
(To be continued)

(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)

#59 Customers Unite. Out with the Bean Counters.

14 Saturday Jun 2014

Posted by Jordan Abel in Back Asswards Thinking, Personal Stories, Societal Issues, Stupid Is as Stupid Does

≈ Leave a comment

Scene: Jordan and JC continuing earlier conversation.

JC: “OK, tell me the airline story. Given all the miles you’ve travelled, this must be a good one.”
Jordan: “It’s more about an organization’s culture and being fair.”
JC: “What happened?”
Jordan: “Friday afternoon, I’m in Houston, headed back to Charlotte on USAir. Everyone boards. Then the captain announces the maintenance crew is working on the plane and it will be another 30 minutes or so. Emphasis on ‘or so.’”
JC: “Not a good start.”
Jordan: “2 to 2½ hours pass and everyone is ordered off the plane.”
JC: “No doubt you were toward the back of the plane.”
Jordan: “Yep. Huge line at the gate and only one ticket agent. So, being the genius that I am I decide to go to the ticket counter in the terminal to get help.”
JC: “So now you are back where you were three hours ago — in the terminal needing to get past security again.”
Jordan: “While in line, I call USAir 800 number and the agent arranges a flight on United. Flight leaves in about 45 minutes from the same terminal.”
JC: “And you have a new reservation number.”
Jordan: “All I have to do is go to the United kiosk, punch in the number, get a ticket and off I go. I’m a happy camper.”
JC: “So what became the problem Mister Happy Camper?”
Jordan: “The kiosk accepts the reservation number and then spits out a message, ‘See ticket agent.’”
JC: “Big line to see the agent?”
Jordan: “No. the agent is in a different terminal.”
JC: “So United has ticket kiosks and gates in this terminal…and I assume counter space…but no agents.”
Jordan: “You got it.”
JC: “So did you head out to the next terminal?”
Jordan: “No. I once again applied logic…mistakenly. I go to security and show them my boarding pass for the USAir flight and the reservation number for the United flight.”
JC: “Given this story, they must not have let you through. Why not?’
Jordan: “Because, according to TSA, the USAir flight had departed…
JC: “…even though the plane was at the gate right outside the security checkpoint.”
Jordan: “They refused to accept any type of reasoning. Nor would they even look to see if the plane was at the gate and 100 people waiting in line for help. Only comment from TSA agent, ‘You need a new ticket. Go to the other terminal.’”
JC: “Not sure if TSA has back asswards thinking or just stupid is as stupid does. You hardly fit the profile of a terrorist. Next?”
Jordan: “Off to Terminal B.”
JC: “How far is it?”
Jordan: “Half mile at least.”
JC: “Was there a shuttle close by?”
Jordan: “Train downstairs. Of course, I got to the bottom of the escalator as the train pulled out. So I walked briskly to Terminal B, found the United desk and presented my information.”
JC: “Let me guess. ‘Sorry sir, you are too late.”
Jordan: “Yes and followed by an unfriendly ‘We can’t help you. You need to go back to USAir.’”
JC: “So back down the escalator and if Murphy’s Law holds true the train was there this time.”
Jordan: “Murphy was right. ‘Whatever can go wrong, will go wrong at the worst possible time.’ Since I am now to the point where I will leave Saturday at the earliest, I don’t need to rush and then train is there.”
JC: “So back to USAir and what happens.”
Jordan: “After about 30 minutes in line I get to an agent and tell my story. She starts to write-up some information and I ask if she wants an ID?”
JC: “And…another issue?”
Jordan: “No. The only humor in the whole fiasco. She says to me, ‘No ID. No one would make up a story like that.’ She then proceeds to book a hotel.”
JC: “Decent digs?”
Jordan: “Yes, a 3-star, maybe 3½. And met a couple of other people on the shuttle who were on the flight.”
JC: “Got out OK the next day?”
Jordan: “Yes. And the night before had dinner with one of the other people on the flight. Turns out he had the same problem with United. Had a flight but the time required to get to a ticket in the other terminal caused him to miss it. He was worse off since luggage was on the canceled flight.”
JC: “USAir never unloaded the luggage?”
Jordan: “Apparently not.”
JC: “What I take away from this story is yet another example of bean counters looking at cost and not the customer.”
Jordan: “How so?”
JC: “USAir knew there was a serious problem with the plane at least an hour before departure. They spent that hour and another two hours trying the same fix over and over and expecting a different outcome. And Houston is not a hub so they mechanics are not as sophisticated as say in Charlotte, which is a hub.””
Jordan: “What the pilot said was the problem occurred on landing and he told the maintenance crew what the problem was. Most people in maintenance have a sense of how hard a problem is to fix…and if they are qualified to fix it. A lot of times the fix requires special equipment.”
JC: “So if the pilot identified the problem at landing, the maintenance crew should have been able to determine whether they could fix it or needed more expertise.”
Jordan: “USAir had more than enough time to call Charlotte or Phoenix or even contract another mechanic in Houston – some airline must have a hub there – and at the worst fly in a mechanic or fly in another airplane.”
JC: “USAir is bad but who really qualifies as ‘stupid is as stupid does’ is United Airlines. Having gates in one terminal and no one to help. No doubt some bean counter figured United could save a few thousand dollars per year by not having a ticket agent.”
Jordan: “The same bean counter assigns no value to customer’s time going back and forth between terminals, no cost to possible missed flights and certainly no value to customer satisfaction.”
JC: “You going to fly United any time soon?”
Jordan: “Not if I can help it. As frustrated as I was dealing with USAir, dealing with United was even more frustrating.”
JC: “The TSA agent is right up there with United in terms of not being fair. Through no fault of your own, the flight was cancelled. Through no fault of your own, United does not have a ticket agent in the terminal with the gate. In addition, you already passed security for your flight at that same TSA checkpoint. Yet they refuse to let you through security that you went through earlier.”
Jordan: “If asked, TSA would probably claim they could not let me through for reasons of national security.”
JC: “They let you through once but would not let you through again. I think that is stupid and unfair.”
Jordan: “But TSA suffers no consequence for not being fair.”
JC: “But you do and so do a lot of other people.”
Jordan: “Not to bring up General Motors again…”
JC: “…but you will.”
Jordan: “The report of why GM did not fix the ignition switch for more than 10 years indicated employees were encouraged not to bring up problems.”
JC: “Don’t rock the boat. The pressure to conform must have been intense. Knowing there was a clear safety problem and yet virtually no one openly talked about it and no one led an effort to fix it. In fact, the report said some employees hid info about the problem, even lawyers.”
Jordan: “GM was not fair to customers and not fair to employees. USAir and United…and remember ATT…were not fair to customers.”
JC: “Let’s not forget our friends as TSA.”
Jordan: “Right. Each organization fostered a culture that encouraged employees to ignore the customer, no matter how illogical or unfair the behavior.”
JC: “You have got to work with Matt and make sure a section on consequences of these type behaviors gets into the report for POTUS on rebuilding US manufacturing. I know ATT, United, USAir and TSA are services organizations, not manufacturing. But I think attitudes and cultures that evolve in manufacturing companies eventually migrate to service companies as well.”
Jordan: “JC, I will meet Matt again. Your observations about culture in manufacturing migrating to service organizations is a good one.”
JC: “OK. So what Engine Charlie Wilson said years ago still holds true today. What’s good for General Motors is good for the country and vice versa. Say goodbye Jordan.”
Jordan: “Goodbye JC. And thanks.”

#58 More about Being Fair. Do Companies Really Understand?

11 Wednesday Jun 2014

Posted by Jordan Abel in Back Asswards Thinking, Personal Stories, Stupid Is as Stupid Does

≈ Leave a comment

(Readers: Please note the blog about the 5th revolution in the US is constructed as a story. While not all chapters are linked, after a few recent entries, you might want to start at the beginning. More about the blog and about the author. )

Scene: Jordan and JC continuing earlier conversation.

JC: “Jordan, I need to leave pretty soon. But, if you ask me, which you haven’t, I think the POTUS project needs to be expanded beyond General Motors.”
Jordan: “I agree. GM is what POTUS asked me to focus on.”
JC: “And you have. But your experience extends well beyond GM. You need to at least include some other ideas, especially about the importance of being fair. Besides not being fair has been a big problem for many companies, not just GM.”
Jordan: “Funny you mention other companies. Two incidents that happened to me recently point that out in spades. I’m not sure either company remembers why they are in business.”
JC: “Let me guess. One is a cell phone provider and the other a cable company.”
Jordan: “You got one right – the cell-phone provider. The other is an airline.”
JC: “Alright, what happened? Start with the airline. No, changed my mind…
Jordan: “…a prerogative of women.”
JC: “Jordan, now, now. Be careful. Like I said, I changed my mind. Start with the cell-phone provider.”
Jordan: “I get a new smart phone.”
JC: “iPhone?”
Jordan: “No LG. I have the phone a little over two weeks…16 days actually…and then have a problem. Take it back to the ATT store where I bought it. But, like the good service-minded company that ATT is, they refuse to switch it out.”
JC: “Why?”
Jordan: “Because I’ve had the phone for more than two weeks.”
JC: “What do they do, if anything?”
Jordan: “Sent me to an ATT service center, about 20 minutes away.”
JC: “Service center fix it?”
Jordan: “No. The tech…let me rephrase that…the alleged technician said nothing was wrong. Before reaching that conclusion, the tech erased all the information on the phone.”
JC: “What happened next?”
Jordan: “I get the phone back and sent on my way with the claim that nothing is wrong. After 30 minutes or so, I figured out a solution that sorta, kinda solved the problem. At least enough that I could continue to use the phone. My fix worked for about six months then no more.”
JC: “Did ATT finally fix it?”
Jordan: “Tried to fix it then said the phone was defective. They agreed to replace it, except…”
JC: “…except what?”
Jordan: “There was no replacement phone in stock at the Service Center. Seems odd but I don’t work at ATT. Anyway, the plan is to ship a phone from somewhere.”
JC: “When?”
Jordan: “Next business day for sure and maybe next calendar day. But now it’s mid-afternoon Friday and ATT is unwilling to guarantee delivery to the house on Saturday. I tell them I will be in Houston Monday and ship to that office. But do not ship to the office Saturday because no one is there on weekends.”
JC: “Let me guess. ATT ships to Houston for delivery Saturday.”
Jordan: “Exactly. And then it gets delivered again Monday.”
JC: “So now you have a new phone. What’s the problem?”
Jordan: “ATT only sent the back half of the phone, not the front half. So I had to take the old phone apart and put the new phone together.”
JC: “For an MIT guy that must have been a no brainer.”
Jordan: “It was easy but the phone still does not work. I have to find an ATT store to activate the phone.”
JC: “OK, what about the old back half.”
Jordan: “The store that activates the phone will not take the broken half. I am supposed to send it back.”
JC: “So now what?”
Jordan: “I get busy all week and take off for Charlotte with the back of the old phone but not the box.”
JC: “Just get another box.”
Jordan: “I would have except the shipping label is in the box in Houston. I called ATT, told them the situation and they said to take the broken phone to the service center in Charlotte where all this started. The Service Center would then mail the phone back to wherever broken phones go.”
JC: “Seems simple enough. End of story?”
Jordan: “No. Get to the Service Center and they refuse to take the phone…but did give me a new box…”
JC: “…but no shipping label.”
Jordan: “In the meantime I am getting texts and robo calls from ATT asking me where the phone is.”
JC: “What’s next? By the way, you making up this story? Seems too bizarre.”
Jordan: “I’m not creative enough to make up a story like this. So back to Houston, find the box, put the old phone in it, use their label and mail it.”
JC: “Let me guess, again. ATT claims you still have the phone.”
Jordan: “You got it. I call ATT to explain I mailed the box and the guy at ATT asks me for the tracking number off the return label.”
JC: “Didn’t ATT send you the label?”
Jordan: “Yes. ATT does not have a record of its own tracking number. And then the guy at ATT has the audacity to tell me if I can’t find the tracking number and the phone is lost, I get to pay $300-$400.”
JC: “Gee, that seems fair to me. ATT sells you a defective phone. Finally replaces the phone. Then insists it’s your responsibility to tell ATT its own tracking number. If the phone…broken phone…is lost somewhere along the line, even though not your fault, they will charge you $400.”
Jordan: “Good way to build customer relations, right?”
JC: “By the way, did it ever get resolved?”
Jordan: “I don’t know if the broken phone ever got back to ATT. But 7-8 days after the ATT guy told me it was my job to find the tracking number, I get a text saying to the effect ‘All is well and we love you as a customer.’”
JC: “Whew! ATT has a new definition of ‘fair.’ You are responsible to overcome our incompetence. If you can’t, then you pay us even more money.”
Jordan: “Have you got time for another story about fairness – this time the airlines?”
JC: “Yes, but I need to get rid of this coffee first.”
Jordan: “Me, too.”

#57 Being Fair Is Good for GM and Good for the Country

07 Saturday Jun 2014

Posted by Jordan Abel in Back Asswards Thinking, Causes of the Revolution, General Motors, Personal Stories, Societal Issues, Stupid Is as Stupid Does

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(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.)

Scene: Coffee shop with Jordan and JC. Catching up on recent events. They’ve finished their first cup.

JC: “Thanks for buying my coffee refill. You’re so generous.”
Jordan: “You’re welcome. Next time, you buy…dinner.”
JC: “So when you look back at what went wrong at GM, is there one overriding issue that comes to mind?”
Jordan: “Yes. And I am not sure I actually said this to Matt. GM’s downfall started when it stopped being fair.”
JC: “Stopped being fair? Jordan, that seems odd and naïve, especially from you. You want companies to be fair? What planet are you living on?”
Jordan: “Think about it? Do you deal with people or companies you don’t think are fair? They must win and you must lose.”
JC: “Occasionally, we all end up with the short end of the stick. But I try to avoid situations where I am always the loser and getting screwed.”
Jordan: “That’s what I mean. Everyone makes mistakes and not every situation is fair. But people try to stay away from situations where ‘heads I win, tails you lose.'”
JC: “Now give me an example. And not just the car stuff.”
Jordan: “OK. Do you know what COLA means?”
JC: “Cost of living allowance.”
Jordan: “Hey, you’re good.”
JC: “Jordan, most everyone knows what COLA means. So tell me the story, already.”
Jordan: “I don’t remember the exact year…sometime in the early 1980’s…and the economy was in a mild recession. Car sales were down and GM was under pressure to maintain profits. More self-induced pressure but that was the claim.”
JC: “And who was captain of the GM ship at the time?”
Jordan: “Roger Smith.”
JC: “Oh, Mister ‘focus-on-cost’ himself. This story should be good.”
Jordan: “So Squeaky decides all salaried people should sacrifice some compensation in order to help earnings.”
JC: “Everyone was to sacrifice? Across the board?”
Jordan: “All salaried employees. And Smith decides the most equitable way is to stop paying COLA. That way no one has to take a salary cut.”
JC: “How is…or was COLA calculated at GM. I know for Social Security, COLA is a percentage of benefits. Everyone gets an increase, say 2-3%. The higher the benefit payment, the higher the amount of the COLA increase. A benefit of $1,000 per month would receive $30 more per month. A base benefit of $2,000 per month would get $60 more per month.”
Jordan: “COLA was different at GM. COLA was not tied to salary amount. COLA was a specific dollar amount. And COLA was paid each quarter, not every month. The amount was linked to the UAW contract.”
JC: “You in the UAW? I mean really. ‘Look for the union label…’ That’s really funny.”
Jordan: “C’mon. By linking COLA for salaried employees to the UAW, GM thought it would deter people from joining the union.”
JC: “So Squeaky…I mean Mr. Smith…decides fair means every salaried person should give up COLA. But COLA for salaried is the same dollar amount, whether the person is chairman of the board or a mail clerk. That seems like a new definition of fair.”
Jordan: “That was Smith’s definition of fair. For Smith, COLA was barely pocket change. For lower-paid staff, eliminating COLA meant a noticeable pay cut.”
JC: “What really troubles me about the story is Smith not understanding what’s fair. If everyone had to give up say 5.0% of salary, then people would not like it…but they might understand…and think its fair. But pocket change to one person and 5.0% to another is not fair. For the lower-paid employees, that might have been grocery money.”
Jordan: “I hear you. Before announcing the plan, I wonder if Smith discussed it with anyone or if he did, if anyone tried to talk him into making it more fair?”
JC: “This story is maddening…and probably all too typical. How do we make sure CEO’s and Boards of Directors of companies become more fair? I’m convinced if POTUS wants to rebuild US manufacturing, there needs to be strong emphasis on companies being as fair as possible.”
Jordan: “Telling stories like the one about taking away COLA is a good start. Everyone…well, most everyone…will understand that was not fair.”
JC: “Here’s another fairness issue. Fast forward to GM post bankruptcy, which is a whole lot more recent. GM starts recalling millions of cars. What was it for… something to do with starting the car?”
Jordan: “The ignition switch.”
JC: “That’s it. What really happened?”
Jordan: “Short answer is GM was still run by bean counters. GM saved about $1 per car by not fixing a design flaw in the switch. Then GM spent hundreds of millions, maybe a billion dollars or more, to recall the cars and fix the problem.”
JC: “What about all those people who died?”
Jordan: “When the switch failed, the power to the rest of the car, including the airbags was cut off.”
JC: “How many people died?”
Jordan: “We’ll never know exactly. Initial reports indicated 13 or so…but likely more.”
JC: “That’s awful. Why didn’t they fix the problem?”
Jordan: “I’m not trying to defend any actions by GM. But most people have no idea how complicated an automobile is…and how driver’s abuse it.”
JC: “Stuff happens. I understand that. But what’s not fair is the way GM knew about the problem for 10 years and never fixed it.”
Jordan: “I agree. But the report said the problem was confined to a group, not all of GM.”
JC: “Not fixing a problem is a reflection of corporate culture. And culture starts with the CEO. Worse yet, from what I read, the lawyers were some of the main culprits. Jordan, when you were at GM, was there a culture of burying problems…I don’t mean for 10 years…or even five years. And did a bunch of bean counters and even worse a bunch of lawyers effectively run the company?”
Jordan: “The problem would have been fixed…and quickly.”
JC: “That’s my point. GM ran amok. Why? And, you know why.”
Jordan: “GM management go so focused on trying to generate earnings by controlling cost, it lost sight of why it was in business.”
JC: “And, oh great GM historian, when did that culture begin to change?”
Jordan: “You know when. With the reign of Roger Smith.”
JC: “You know something, Jordan, as much as I agree with your assessment of GM changing starting under Roger Smith, GM was not alone. The United States when thru a similar transition starting at the same time.”
Jordan: “You mean under Ronald Reagan?”
JC: “Yes. Just take a look at some basic economic statistics, especially median household income. We talked about this before. Upper incomes started to gain and lower incomes remained flat. The disparity got worse, and worse and worse. Then the disparity became so great…and so unfair…that people revolted. The unfairness resulted in US having its 5th revolution.”
Jordan: “Point well taken. And lesson for the project for POTUS.”
JC: “And the lesson is ‘Why being fair is good for General Motors and good for the country.’ I know, a variation on what Engine Charlie Wilson said but still true.”

#55 Wrap-Up of the GM Story…for Now

31 Saturday May 2014

Posted by Jordan Abel in Back Asswards Thinking, General Motors, Personal Stories, Stupid Is as Stupid Does

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(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.)

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 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 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?”
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.”
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.”
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.”
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?”
Jordan: “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.”
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.”

#54 EV1 Ends CEO’s Tenure. Bean Counters Reign, Again.

28 Wednesday May 2014

Posted by Jordan Abel in Back Asswards Thinking, Economics, General Motors, Stupid Is as Stupid Does

≈ 2 Comments

(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.)

Matt: “As you were saying…something about a meeting.”
Jordan: “The GM EV1 (electric vehicle) program was effectively dead before it was ever introduced. Like we talked about earlier, when Bob Stempel supported the program, it likely killed his career.”
Matt: “I hear you say that but really?”
Jordan: “Here’s the scene – GM Building, West Grand Boulevard, Detroit, small conference room, near executive offices and the Board room. Meeting starts at 3:00pm.”
Matt: “Who was there?”
Jordan: “Four executives from the EV1 program and four from GM corporate – chairman, president, head of financial staff and an assistant.”
Matt: “Man, heavy-weight group. What was the content?”
Jordan: “We presented a review of progress on EV1 – product update, interest among prospective buyers, media coverage, cost, etc. A bit broader than the typical product program update.”
Matt: “What was the reaction?”
Jordan: “The behavior of the individuals was the most telling. Stempel, who was a strong supporter of the program…”
Matt: “…He was still chairman, right?”
Jordan: “Yes. Stempel took notes during the meeting and asked a number of questions. Jack Smith, then GM’s president, sat with his arms folded and took not a single note.”
Matt: “What a contrast. Wasn’t Jack Smith really a financial guy?”
Jordan: “Yes, virtually all of Jack’s career leaned toward the financial side. No one ever called him a car guy…at least that I heard.”
Matt: “Then what happened?”
Jordan: “During the meeting Jack would occasionally glance at his watch. Then at precisely 5:00pm, Jack stands up, turns to Stempel, who is to his right, and says, ‘Bob, you cannot afford the program.’ Then walks out.”
Matt: “What happened at the rest of the meeting?”
Jordan: “To tell you the truth I do not remember. Smith’s remark and then leaving the meeting effectively ended it.”
Matt: “Quite a scene. By the way, is Jack Smith related to Squeaky…I mean Roger Smith?”
Jordan: “No relation to my knowledge.”
Matt: “So Jack Smith says the EV1 program is too costly. How does Stempel counter the argument and keep the program alive? After all he is chairman.”
Jordan: “The short story is…he doesn’t. Within a few weeks Stempel resigns as chairman and Jack Smith takes over as CEO. My version of events is slightly different than the official story.”
Matt: “Different in what way?”
Jordan: “I believe that Jack Smith instigated a palace coup to throw out Stempel.”
Matt: “Why so?”
Jordan: “The Board of Directors was still packed with appointments from Roger Smith’s tenure. These were guys who supported Smith’s idea that earnings were more important than market share. Under Stempel, earnings started to fall, but through no fault of his.”
Matt: “It was on his watch.”
Jordan: “Matt, Matt, you know better than to say that. Earnings during Stempel’s time suffered from some of the shenanigans pulled under Squeaky’s reign. The poor economy just made earnings look worse. Truth be told, GM was probably technically bankrupt at the time.”
Matt: “Stempel gets caught in a vortex.”
Jordan: “My view is Jack Smith could see the problems coming. Rather than have the problems on his watch, he supported…or didn’t resist…putting Stempel in as chairman following Squeaky. Stempel was set up as the fall guy.”
Matt: “Really?”
Jordan: “Think about this. If you’re Jack Smith…or Roger Smith, who is still on the Board…you can state that Stempel’s support of the EV1 program when the company was so short of cash was proof that he did not understand how to run the company. Therefore a change at the top was needed.”
Matt: “I recall there was an issue about Stempel’s health.”
Jordan: “He did not look good at the meeting. I rarely talk about business issues with wife but I did mention to her how he did not look well.”
Matt: “How serious was the problem?”
Jordan: “He ended up with a stent as I recall. But Bob was very active for many years after the procedure. I think any concern about his health was a smoke screen.”
Matt: “OK, so Stempel is out and is replaced as CEO by Jack Smith. Based on what you’ve said, Jack is more of a bean counter than product guy. Then what happens?”
Jordan: “Soon thereafter, the GM Board of Directors effectively kills the EV1 program. And guess what date?”
Matt: “I have no idea.”
Jordan: “December 7.”
Matt: “You are kidding, right? How ironic. GM has a car that creates all kinds of interest and improves GM’s image. GM could capitalize on the improved image and begin to counter losses in market share to imports, especially Japanese imports. And then what does the Board do? Kill the EV1? And on what day? December 7.”
Jordan: “Hollywood script material, huh?”
Matt: “Better than Hollywood. True back asswards thinking. Actually, maybe no thinking by the Board.”
Jordan: “Let’s get another cup of coffee.”
Matt: “How about a glass of wine, instead. I’m still shaking my head.”

#53 GM Lets the Batteries Drain on EV1

24 Saturday May 2014

Posted by Jordan Abel in Back Asswards Thinking, General Motors, Innovative Thinking: Ideas and Products, Stupid Is as Stupid Does

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(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.)

Matt: “I’ve been thinking about the last session. GM was generating a lot of positive media coverage around EV1 (electric vehicle). But support for the program internally was weak so GM pulled the plug, as it were.”
Jordan: “I would call it more like letting the batteries drain. GM eventually introduced the EV1 but the program was effectively cancelled before it was ever introduced.”
Matt: “So by pulling the plug on EV1 GM managed to take all the positive publicity generated and turn it into negative publicity.”
Jordan: “Probably more negative publicity generated than positive…so GM ends up losing on what was developing into a major win for GM. Another case of GM grabbing defeat from the jaws of victory.”
Matt: “Wasn’t there a movie made about GM killing the EV1?”
Jordan: “Yes, a so-called documentary titled ‘Who Killed the Electric Car.’”
Matt: “You were in the movie if I’m not mistaken.”
Jordan: “Yes, my one and only…at least I hope only…feature film.”
Matt: “You said ‘so-called’ documentary.’ Why the label?”
Jordan: “I think the producer left out key points in the film. Look, I understand all films take some license. Films need to tell a story.”
Matt: “But you think the whole story wasn’t told?”
Jordan: “The movie claimed, or at least implied, there was a conspiracy to kill the electric car. I laughed at that idea. We were all too naïve…I sometimes say not smart enough…to have a conspiracy. The EV1 died because of some bad decisions, not because of some conspiracy.”
Matt: “What about GM crushing all the EV1’s? Why?”
Jordan: “This is my frustration with the movie. Key points were left out. In fact, I agree that GM should have crushed the cars.”
Matt: “Huh? Seems like convoluted thinking on your part. You are frustrated that GM killed the program but agree they should have crushed the cars. Why?”
Jordan: “GM made two big mistakes when they crushed the cars. One was they never explained why. Second was they crushed the cars too soon. GM management never understood or appreciated the value of all the positive media coverage the EV1 continued to generate.”
Matt: “You’re right, I’ve never heard why the cars were crushed. All I know is the cars, other than a few, are long gone. What’s the reason?”
Jordan: “Remember GM never sold the EV1 to anyone. All cars were leased.”
Matt: “Why not sell them?
Jordan: “Two reasons. Leasing avoids the battle with the GM financial staff over what the MSRP would be. Financial guys wanted to recover costs as quickly as possible and given the low volume, MSRP would have been outrageously high.”
Matt: “I know the timeframes are different but Tesla has a high MSRP and sells quite a few cars.”
Jordan: “You’re right. And GM might have sold as many as Tesla. The more important reason GM leased the cars was associated with providing service. EV1 was plowing new ground. There were no other electric vehicles, no hybrids and very limited knowledge on how to provide service. Working on the EV1 battery pack was not like changing your car battery.”
Matt: “You mean I could have gotten fried.”
Jordan: “In a heartbeat, or lack of a heartbeat. The battery pack had lots of volts and amps. But there was also a law…at least at the time…and I suspect something similar exists today. At the time if an auto company sold a car…transferred title…then it was obligated to provide service and parts for 10 years.”
Matt: “So if I bought an EV1 in California, where it was introduced, and then moved to say Bangor, ME, GM would be obligated to provide service in Bangor for 10 more years? Even if the car was not sold in Maine?”
Jordan: “Essentially, yes.”
Matt: “And lease cars have different rules?”
Jordan: “The person leasing the car never takes title and therefore does not trigger the service obligation. Plus, the lease can include restrictions on where the car can be driven, where serviced, etc. As a lease car, the EV1 still belongs to GM. The person leasing is really like a long-term renter.”
Matt: “Now I understand why GM leased the EV1’s. I wish the movie would have explained that.”
Jordan: “You and me both. Virtually no one is aware of the service requirement.”
Matt: “But why didn’t GM renew the lease instead of calling all EV1’s back and then crushing them?”
Jordan: “Matt, quit thinking like a marketing guy and start thinking like a bean counter. As a bean counter, you would view the EV1 program as a cost center and not recognize any benefit. The faster the program was shut down, the faster the cost could be eliminated.”
Matt: “I’m still having trouble understanding why the financial guys could not understand the value of EV1. It seems so obvious.”
Jordan: “I hear you. Maybe a story will help you understand. The story I’m about to tell is rarely told. One reason is so few people were involved.”
Matt: “I’m all ears.”
Jordan: (cell phone rings) “Excuse me Matt. I need to take this call. We’ll continue shortly.”

#52 Value of GM EV1: Holistic Cow

21 Wednesday May 2014

Posted by Jordan Abel in Back Asswards Thinking, General Motors, Stupid Is as Stupid Does

≈ 2 Comments

(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.)

Matt: “I’m really surprised there was not more support inside GM for the EV1 (electric vehicle). I mean, people must have been aware of all the positive media coverage.”
Jordan: “The lack of support within GM was virtually everywhere.”
Matt: “I really don’t understand. Why?”
Jordan: “The problem was two-fold. One, the car divisions – Chevrolet, Buick, etc. — had experienced 10 years of Roger Smith diverting funds that should have been used for product programs.”
Matt: “Funds for buying Hughes, buying EDS, buying out Ross Perot for $700, and then starting Saturn division. So the EV1 comes along and all the divisions think more product development dollars are being diverted to some low volume, goofy-looking electric car. I can understand why they did not support it.”
Jordan: “The divisions might have supported it if they understood the potential value.”
Matt: “What do you mean? It was an electric vehicle. What value is an EV to say Buick or Cadillac?”
Jordan: “EV1 qualified as what one could call a ‘halo’ car. A halo car helps improve the image for the company.”
Matt: “Which in turn increases the number of people who might consider buying a car or truck from the company, not just the halo car.”
Jordan: “Grocery stores have specials to get people in the door. The halo cars do the same for auto dealerships. Corvette is a halo car for Chevrolet. Viper for Chrysler. You get the picture.”
Matt: “But the ‘halo’ message never got across…at least inside the company.”
Jordan: “Here’s where I need to take some blame. The EV1 marketing effort focused almost 100% outside GM. We assumed…erroneously…that people inside the company understood the value of EV1.”
Matt: “How widespread was the misunderstanding, even resistance, inside GM? The divisions, yes. What about the staff?”
Jordan: “Funny story. More tragic than funny but I think representative of the problem.”
Matt: “Ok, what happened?”
Jordan: “The EV1 group had its own government relations staff, which reported to me.”
Matt: “Was that unusual?”
Jordan: “Within GM, yes. We were the only group with a separate government relations staff. All other government relations efforts had to be channeled through corporate staff.”
Matt: “Mmm, interesting. A bit of friction there?”
Jordan: “Some but I think the real problem was a perceived difference in function.”
Matt: “Not sure I understand.”
Jordan: “An example. I’m having lunch one day with the chief environmental lobbyist for GM – just the two of us. He leans across the table and says, ‘You are my worst enemy.’”
Matt: “An odd statement. What did he mean?”
Jordan: “That’s what I wanted to know. So I asked why.”
Matt: “And?
Jordan: “He said his primary task was to convince federal and state legislators to overturn tailpipe emissions laws that were too strict for the auto companies to meet. And since I was out there promoting an electric vehicle with no tailpipe emissions. My efforts were proving him wrong.”
Matt: “Did he want you to stop?”
Jordan: “Yes. Then I asked who was signing his paycheck. I told him our group worked directly for the chairman and until I was told to do otherwise, I was going to promote the zero emission EV1.”
Matt: “Now I see what you mean about internal misunderstanding and friction.”
Jordan: “The real resistance was at the operating divisions.”
Matt: “They were still smarting over the diversion of funds.”
Jordan: “I can’t blame the divisions for lack of support. Product program funds had been diverted for the Squeaky’s boondoggles. Matt, at the same time the CEO says the company policy is to increase earnings and not be concerned about market share.”
Matt: “And for 75 years the divisions and dealers have focused on market share. Isn’t achieving certain market share a key part of the dealer franchise agreement?”
Jordan: “It was then and I assume so now. “
Matt: “No wonder the divisions were in a sour mood about EV1. What about the US economy? Wasn’t it starting to slow down about the same time?”
Jordan: “Yes, for lots of reasons. Plus the savings and loan scandal disrupted the financial markets for a while.”
Matt: “Sounds like the perfect storm.”
Jordan: “It was not the same storm as in 2008 but things were not good.”
Matt: “You said part of the problem was not educating the staff inside GM on the value of the EV1. Tell me more of what you mean.”
Jordan: “What the EV1 group did not promote was the spin-off benefits.”
Matt: “Such as?”
Jordan: “While the EV1 was in development, engineers at Delco were taking components and testing in gasoline cars.”
Matt: “You mean integrating some of the electronic features from EV1?”
Jordan: “Exactly.”
Matt: “Who knew about such programs? I’ve never heard anything about it.”
Jordan: “I don’t think many people knew, even many GM executives.”
Matt: “But why? Seems like a good idea.”
Jordan: “Part of the problem was GM and the other auto companies were suing the state of California over laws requiring zero-emissions vehicles, aka ZEV’s. One of GM’s arguments was cost for developing EV’s was too high.”
Matt: “The argument goes away if development costs are spread over say 4-5 million cars and trucks versus say 25,000 EV’s.”
Jordan: “Absolutely. Take say $250 million development costs for the EV1. If you spread out development costs over GM production for 5 years – about 25,000,000 cars and trucks – the cost is $10 per car. The same $250 million over 5 years of EV1 sales – remember the forecast was about 5,000 per year – development cost comes to $10,000 per car.”
Matt: “So GM knows it will lose its argument for the lawsuit if it promotes using EV1 components in all its cars and trucks.”
Jordan: “Another case of back asswards thinking. Why not promote the value of the EV1 as helping all cars and trucks?”
Matt: “Senior GM management apparently did not understand the value of what it had developed.”
Jordan: “Unfortunately, EV1 suffered from the same problem as the boy who cried wolf’ too often. When the real wolf came no one believed him.”
Matt: “No one believed him but it was true. But wasn’t Bob Stempel chairman by now?”
Jordan: “Yes, but he was fighting the financial staff who looked only at the bottom line. Remember the financial guys were part of Squeaky’s cadre, and not loyal to Stempel. In fact, many in the EV1 group considered the CFO as a spy.”
Matt: “Not a good scene. Let me summarize. What I want to do is translate the events into al lesson POTUS can use to help explain how to rebuild US manufacturing.”
Jordan: “For me the simplest lesson is educating people inside the company is as important…maybe more important…than educating people outside the company.”
Matt: “Another lesson is to look beyond the obvious. Making lemonade out of lemons. GM kept claiming costs for the EV1 were excessive but in fact, could have been spread over many carlines.”
Jordan: “If you think about the cost of the EV1 – use $250 million – and take a look at the positive media coverage that was generated about GM, the development cost becomes inexpensive advertising.”
Matt: “But the financial group would not recognize the value of positive image?”
Jordan: “Never. To them EV1 was only a cost program. Virtually none of the financial guys had any experience in marketing.”
Matt: “So the lesson is to implement a more holistic approach to value creation and not just look at cost.”
Jordan: “Matt, great way to end this session.”

#51 The Electric Spark

17 Saturday May 2014

Posted by Jordan Abel in Back Asswards Thinking, General Motors, Innovative Thinking: Ideas and Products

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(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.)

Matt: “So the Squeaky reigns ends when, sometime in 1990.”
Jordan: “Yes, ten years of proctology decisions. I will say the last major idea had merit.”
Matt: “Really? What decision was that?”
Jordan: “At the Los Angeles Auto Show, early 1990, Squeaky announced GM would build a 2-passenger electric car.”
Matt: “Was that the EV1?”
Jordan: “Yes, but the original name was ‘Impact.’ Great name for a car, huh? Impact.”
Matt: “Whose idea was that?”
Jordan: “I don’t know for sure but I should. Might have been Smith. Might have been someone else. But Smith bought into the name.”

Matt: “You ended up on that program, right?”
Jordan: “Yes, and I give Squeaky credit. The idea of GM taking the lead on electric vehicles was a good strategy, but…”
Matt: “But what? Poor execution, again?”
Jordan: “Setting proper expectations is critical to any successful program. If you over-promise, then the program might be labeled a failure even though it would have been considered successful if proper expectations had been set.”

Matt: “You’re saying too high of expectations can create the perception of failure.”
Jordan: “Absolutely. And that was one of the problems with the electric vehicle program. Expectations far exceeded what was likely to happen. Yet, many aspects of the program were highly successful.”
Matt: “You need to explain more. I need some reference points.”
Jordan: “On the positive side, many electronics and features, even in today’s cars, had their origin during the Impact program. The program really helped changed thinking about integrating electronics into vehicles.”
Matt: “No one seems to know that.”
Jordan: “You’re right. That was a real positive that helped improve fuel economy on every new car and truck. Now, let’s talk expectation. Impact…err EV1…was announced as a regular production model. Cars in the category need to sell a minimum 20-25,000 units per year to be considered even marginally successful.”
Matt: “That seems like a reasonable number.”
Jordan: “The major hurdle for EV1…aside from being electric, was the 2-passenger configuration.”
Matt: “But you bought a Miata and its 2-passenger.”
Jordan: “I bought a Miata for me as a personal car. On occasion I have a passenger, usually to go get ice cream or something like that. I also bought a Miata because it goes vroom, vroom.”
Matt: “And the Impact didn’t go vroom, vroom.”
Jordan: “You’ve driven an electric vehicle, haven’t you? I know you driven a golf cart. The only noise is a little whine from the motor and the tires on the road.”
Matt: “And guys with sporty cars want noise.”
Jordan: “Beyond the vroom, vroom part 2-passenger cars have an inherent problem – space. People want a back seat, even if it is cramped. And with no back seat, a lot of people who liked the car and the idea of an electric vehicle just walked away because there was not enough room.”
Matt: “I hear what you’re saying but when you look on the road, seems well more than half the cars have just one person. Was there any research to support why people claimed they needed more space?”
Jordan: “Lots of research indicates people buy cars, and especially SUV’s, for occasional, even rare use – one or two trips per year. 2-passenger cars are basically 1-person cars with room for briefcase, backpack, golf clubs…and the occasional passenger.”
Matt: “How can you get around that kind of behavior?”
Jordan: “You can’t, really. We even considered allowing people to have access to a SUV for 1-2 weeks a year through AVIS. But people just don’t want the inconvenience of picking up another vehicle…even if there is no charge.”
Matt: “Seems like more of an excuse.”
Jordan: “I agree. But let me give you an example where the need for room is real. We’re at a research clinic in Phoenix. A lady drives the Impact and says to me, ‘I really love the car and I would buy all electric if…”
Matt: “And the ‘if’ was?”
Jordan: “If it had a back seat. I drop my two kids off at school in the morning and I have a briefcase and purse. Even a small back seat would be OK. But I can’t buy a 2-passenger.”
Matt: “So now you’re discovering the sales potential might be less than the 20-25,000 necessary for a regular production model. And the problem with proper expectations.”
Jordan: “The research suggested no more than 5,000 units per year and less initially. And the 5,000 assumed a very favorable MSRP.”

Matt: “So know you have a piece of the pie but not the whole pie. Knowing the problems with a 2-passenger, why not add a back seat? The car was still a prototype, right? You had time to make a change.”
Jordan: “Funny you mention adding a back seat. I said the same thing in a staff meeting right after the research in Phoenix.”
Matt: “And what was the reaction?”
Jordan: “This is close to the quote, ‘We can’t change the design because Roger Smith said it would be 2-passenger.’”
Matt: “Was Smith still chairman of the Board?”
Jordan: “No. He was a board member but not chairman. Yet, managers more senior than I were still so intimidated they would not go forward to fix an obvious problem.”
Matt: “Did the second seat idea have support among other staff members?”

Jordan: “The manufacturing manager accused me of trying to sabotage the program because I would not support sales volume of 20-25,000 units for the existing design.”
Matt: “A classic case of shooting the messenger.”
Jordan: “That’s a lesson we need to make sure is in the write-up for POTUS. Listen to your customers and your staff, especially when you don’t agree.”
Matt: “So noted. But despite the limited sales forecast, wasn’t support for the EV1 concept among the public pretty good?”
Jordan: “The fact that GM was taking the lead on introducing a viable electric vehicle was great for its image.”
Matt: “GM sure needed a boost following Squeaky. It needs even more of a boost now. But how do you know it was good for GM’s image?”
Jordan: “We hired a company to measure coverage about GM — articles in newspapers, magazines, TV coverage. Remember at the time the internet was in its infancy.”
Matt: “Results were what?”

Jordan: “The EV1 group generated more positive publicity about GM than the rest of the company combined. And that lasted for probably three years.”
Matt: “Promotion budget must have been pretty healthy.”
Jordan: “Oh contraire, Matt. The dollars we spent were a fraction – and I mean a tiny fraction – of the marketing budgets for the car divisions. I think our total marketing budget was about 1% of what Buick spent and Buick’s budget was about 1/5 of GM’s marketing budget. We’re talking peanuts.”
Matt: “That’s impressive. All the positive coverage must have generated widespread support inside GM.”
Jordan: “I wish that were the case but just the opposite happened. There was a lot of opposition.”
Matt: “Another bummer story coming up. GM demonstrates how to grab defeat from the jaws of victory.”
Jordan: “That’s what happens with back asswards thinking. I’ll take part of the blame for not generating more support inside the Company. And I will explain what went wrong at my end…after we take a break.”

#50 GM Saturn: Where Was the Proctologist?

14 Wednesday May 2014

Posted by Jordan Abel in Back Asswards Thinking, General Motors, Personal Stories, Stupid Is as Stupid Does

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(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.)

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.”
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?”
Jordan: “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.”
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?”
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.”
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?”
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.”