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

16 Monday Sep 2019

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

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.) 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 Jordan Abel in Corporate Policy, General Motors, Personal Stories, Uncategorized

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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.

#348 More about EV1 (Electric Vehicles): Story Behind the Story (Part 3)

26 Monday Aug 2019

Posted by Jordan Abel in Diversions, General Motors, Personal Stories, Uncategorized

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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 next few entries — I actually do not know how many — will attempt to provide addition insight. Stick around. 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 and #347, suggest you do so before reading this entry.)

In-house development of GM EV-1 begins. At the 1990 Los Angeles Auto Show Roger Smith, then GM chairman, introduced the first modern electric vehicle (EV-1) and proclaimed GM would produce it. As described in Entry #347, the concept car introduced in LA had been developed in secret by a company with no affiliation to GM. Formal development and production were to be inside GM.

Soon after the announcement in LA, the program kicked-off inside GM. The program manager was selected and then initial staff members recruited from different divisions. Additional staff was added as the program progressed. The EV-1 program was headquartered in the Advanced Engineering Building at the GM Tech Center. Being housed in the Advanced Engineering Building reinforced the impression, both inside and outside GM, that an Innovative product was being developed.

Another decision was to not assign the EV-1 to an operating division — Chevrolet, Oldsmobile, etc. On the plus side, not selecting the operating division helped avoid the EV1 being pushed aside by the designated division and having EV1 resources diverted for near-term marketing activities. On the negative side, not selecting a “division home” for EV1 reinforced the perception among many operating division executives that the EV-1 was part of Smith’s portfolio of projects that diverted cash from critical product development and marketing programs, which in turn, caused GM to lose market share.

One of the benefits of hindsight is the opportunity to ask, “What went wrong during the EV-1 program?” And then ask, “What did I do or not do that might have contributed to what went wrong?”

Over the past 20 years or so, I’ve been asked to discuss various aspects of the EV1 in different forums — public presentations, media interviews, guest lecturer at a university, even a movie. With each one of these “events,” I’ve tried to assess how different decisions might have affected the outcome of the program, both positively and negatively.

This series of entries, of which this is the third, attempts to analyze the “non-product” side of different activities. I have stated repeatedly in the various forums that I believe the technical limitations of the EV-1– limited range, 2-passenger seating capacity, e.g. — were not the underlying causes for GM pulling the plug on the EV1. Some of the technical limitations have been used as excuses, but were not really the causes.

What were the causes? Before pointing fingers at others, it’s always a good idea to first look in the mirror. Most of my role at EV-1 the project was to help manage a team that focused on educating groups outside GM. The groups ranged from utilities to fire-and-rescue organizations to Federal and state-government officials to the media to the general public. While most of the efforts were in the US, we also met with officials in Europe.

The efforts of the team were incredibly successful. Even though our marketing and promotion budget was a mere fraction of the budget for the operating divisions, the team’s efforts, as measured by the amount of media coverage, resulted in a significant increase in the public’s awareness of electric vehicles and a significant increase in positive perception of General Motors.

If memory serves correctly, over a roughly three-year period, the EV-1 program generated more positive publicity for GM than the rest of the company combined. (As we’ll discuss in a future entry, all that goodwill and more was lost when GM decided to kill the program and crush all but a few EV-1’s.)

So with such a positive track record, what could have been done differently? Frankly, what did not occur to me at the time, and I don’t recall anyone else discussing this either, was the need to present to the operating divisions — Chevrolet, Buick, etc. — the same type of educational program about the EV-1 as we presented to outside groups.

While many staffers on the EV-1 program had been in the divisions that suffered because of cash diversions to fund Smith’s projects, I’m not sure any of us fully appreciated how negatively our former colleagues at the operating divisions viewed the EV-1 program. We were all enamored with the idea of an electric vehicle and assumed everyone else inside GM was equally excited.

Clearly not everyone was. An example was a return to my former division, Buick. After working many years helping position Buick for the future, I thought the EV-1 would be a perfect fit for Buick and its dealers, many of whom I knew personally. My thinking was the EV-1 could attract younger buyers to Buick, give dealers a sporty model in the showroom to attract new floor traffic and allow Buick to leverage interest in EV-1 among younger people to help build long-term brand loyalty. My rationale, however, when presented to the Buick general manager, fell on deaf ears. Buick was not interested in any association with the EV-1.

Buick and the other operating divisions were not alone in poo-pooing the EV-1. Somehow, we managed to get on the “Do Not Call List” for a number of staffs. Part of the conflict stemmed from assigned responsibilities. For example, EV-1 was the only group outside of the corporate staff whose responsibility included “government relations”. While our dealings with the government were restricted to topics associated with electric vehicles, we were allowed to approach legislators, government agencies and staff without first seeking approval of the corporate “government-relations” staff.

To me the limited scope of our government-relations activities made perfect sense. If a goal of the EV-1 program was for those in government to understand requirements for a successful introduction of electric vehicles, then the group charged with the introduction should be making contacts with various government entities. In my view we were judicious in our approach and diligent about keeping the corporate staff informed of our activities.

Were we successful? Like the group’s efforts in educating the public about electric vehicles, I think we did a good job educating legislators, legislative staff and a number of agencies. We also worked with other auto companies to ensure there was a consistent message to government about how it could help support the development and introduction of electric vehicles.

So what could go wrong? Let’s start with the relationship with the corporate government relations staff. I can state categorically there was no intent on our part to have the relationship go sideways…but it did.

Scene: Executive dining room at the GM Tech Center. Table for two. At the table are GM’s chief environmental lobbyist and me. Part way through lunch the other GM executive (I’m withholding the name intentionally) leans over the table and says, “Dabels, you’re my worst enemy.” My response, “How can that be? We work for the same company.” His retort, “You’re my worst enemy because my job is to convince Federal and state legislators there’s no demand for electric vehicles and you’re out there proving me wrong.”

The conversation continued, rather politely, but without resolution. The lack of resolution stemmed from our instructions. He was to promote a corporate policy that was in direct conflict with the policy the GM EV-1 group was to promote. We finished lunch and then left to carry out our respective instructions.

Inconsistent internal policies within GM were not uncommon. Another rift, which will be discussed in the next entry, was how the financial staff viewed the EV-1 as a cost center, and not a marketing opportunity. Focusing only on cost created an environment where the financial staff placed no value on improved corporate image, no value on increased future buyer potential, no value on brand loyalty, and no value on myriad other non-product attributes that often differentiate one brand from another and can lead to higher market share and earnings.

My view? Supporters of the cost-center perspective ended up killing the program. The next entry will also provide some insight about what happened during the meeting the day the EV-1 music really died.

#347 GM EV1 (Electric Vehicle): Story Behind the Story (Part 2)

14 Wednesday Aug 2019

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

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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.

There are two sides to the EV1 story — product and non-product. The product side is reasonably well documented. The non-product side story is far from complete, and what’s been told so far I think is misleading. The next few entries — I actually do not know how many — will attempt to provide addition insight. Stick around. The series will be a good diversion from DC madness and offer a good lesson or two, I hope.

(If you have not read Entry #346, suggest you do so before reading this entry.) On top of the array of his decisions to divert cash from developing and marketing new products, Roger Smith (GM CEO) hired McKinsey & Company (consulting company) to study and determine if GM should be reorganized, allegedly to streamline operations.

As someone trained in finance, I agree that some improvements in operations likely were needed. At the same time, those improvements could have been accomplished without a reorganization. Just for some perspective on relative size of GM at the time, Buick Motor Division generated more revenue than the worldwide operations of the entire Goodyear Tire & Rubber Co. Chevrolet Division was more than two times the size of Buick. In addition, under the then current organization structure, GM had been extremely profitable for decades. So why would anyone want to reorganize?

When I was interviewed by McKinsey for the study, it was clear from the questions that Smith had already decided to reorganize the corporation. The study was a sham and used as a front to justify the decision. The reorganization, or so we were told, would streamline product development and eliminate redundant cost.

Not part of the study was the value of “organizational loyalty.” Smith never spent time on the revenue side with a US operating division — Chevrolet, Cadillac, etc. If he had spent time, he might have understood how most employees felt about “their” division. Many people at Buick, for example, whether in field sales or on the assembly line, considered themselves part of the “Buick family.” At the time of the “study” Buick had been operating in Flint, MI for more than 75 years. Many workers were 3^rd, even 4^th generation. Same type of history existed with many hourly and salaried employees at Chevrolet, Pontiac, Oldsmobile, Cadillac and GMC Truck.

For many of the same workers, even though their respective operating division was part of General Motors, the other GM divisions often were viewed as competitors. Oldsmobile was considered a competitor by many people at Buick and vice versa. While this might seem a bit unusual to many outside GM, I personally believe the sense of loyalty to a particular operating division was one of GM’s strengths.

The reorganization ignored the “emotional bond to the division” of the various employees. The reorganization created two major operating groups – CPC, which consisted of Chevrolet, Pontiac and GM of Canada – and BOC, which consisted of Buick, Oldsmobile and Cadillac. In addition to now being grouped with a former competitor – Buick and Oldsmobile, e.g. — the name of the group, “BOC” changed the alignment of the position in the marketplace of two divisions.

Since the 1920’s, Buick had been positioned higher than Oldsmobile in the GM hierarchy and higher in the car-market pecking order. Yet, the BOC name implied Buick as being lower on the pecking order than Oldsmobile.

Another example of the people driving the reorganization being incredibly tone-deaf was the names initially assigned to the “manufacturing-related” groups within BOC. Names for these groups were apparently chosen by people who never worked in communications or marketing. Or, if they had worked in these areas, the names assigned were to thumb their nose at those responsible for the reorganization.

The initial names for the groups were etched on large metal signs and installed at the HQ buildings. The morning after the installation I saw the sign driving into Buick’s office. The sign noted the Flint Automotive Group would be co-located in the Buick HQ building. At Oldsmobile, I assume there was a sign indicating the Lansing Automotive Group would be co-located at Oldsmobile’s HQ.

After a quick chuckle and a head shake, I asked someone in the Flint Automotive Group if anyone had considered the initials of the group — “FAG”. The Lansing Automotive Group initials were “LAG”. Apparently no one had considered the initials.

After the inquiry, the names were quickly changed but another example of someone making decisions but not paying attention to anything other than what was considered a possible cost savings. The inept “non-financial”-related decisions — group alignment, group names, sub-group names, etc. – never set well with most employees and the ill-will towards Smith continued at least into the 1990’s, past the announcement of the EV1.

As if it were not bad enough that Smith diverted huge amounts of cash to non-core projects that diminished GM’s competitive position and earnings power, Smith was a control freak. Smith seemed to have to make all key decisions, even if he knew little or nothing about the topic. An example was when Buick sought approval for the introductory MSRP of the Reatta, a 2-passenger near-luxury car.

Buick had completed extensive research about consumer expectations for the MSRP. Two different research methodologies were used and results of each method suggested a price of less than $20,000 ($1985). Research also indicated a price above $20,000 was a psychological barrier and would reduce sales potential significantly.

Buick presented the research findings and the ~$19,950 MSRP to the Price Review Group, whose members consisted of various GM executives. While we were making the presentation and discussing the findings of the research, Smith interrupted the presentation and stated, “The MSRP is going to be $25,000. Next item on the agenda.”

So the Reatta was introduced with about a $25,000 MSRP. What happened? The Reatta had great visual appeal and consumer interest, but sales never achieved potential. Why? Rather than argue about the correct MSRP, a better indicator of value is to look at what happened in the used-car market.

The used-car market sets prices on what customers will pay, not what a manufacturer claims the price should be. A year or so after introduction, if one applied the traditional depreciation schedule to the Reatta, the introductory MSRP should have been about $20,000 (just what the research indicated and what Buick proposed), and not Smith’s demand of $25,000. The result? Smith’s arbitrary “seat-of-the-pants” 25% premium on the Reatta basically killed the program…and with it GM lost another opportunity to build market share and make money.

Buick was not alone in being subjected to Smith’s arbitrary decisions. All divisions suffered. I’m just not as familiar with some of the details since I was focused on activities at Buick.

With no love lost for Smith among a wide swath of GM executives, along comes the GM electric vehicle, the EV1. To add a little salt to wounds inflicted by Smith, how did the EV1 concept car get developed? Through GM Design Staff? Developed in conjunction with an operating division? No, the EV1 was developed in secret by a company located in southern California, called AeroVironment.

How are GM executive introduced to the EV1 concept car? Showings at the GM Tech Center? An in-house video? No. The executives found out when the EV1 (called the Impact at the time) was introduced at the 1990 Los Angeles Auto Show. The introduction in Los Angeles also included Smith’s surprise proclamation that GM would put the EV1 in production.

Just think about what’s happened the decade preceding the surprise introduction of the EV1. Smith’s decisions included diverting cash to: (i) buy Hughes Electronics; (ii) buy Electronic Data Systems (EDS); (iii) buy back all the stock owned by Ross Perot as part of the EDS purchase, (iv) start yet another GM division, Saturn, which then never made money; (v) reorganize a company that had essentially printed money since the early 1920’s; (vi) arbitrarily price vehicles (I’ve spared you other stories about how Smith put the kibosh on breakthrough advertising and marketing ideas at Buick); (vii) focus on profit per car rather than market share.

The effect of these decisions was hugely negative. During Smith’s reign in the 1980’s, GM lost of 10 points of market share – equal to five (5) assembly plants. Plus, GM laid off tens of thousands of employees. Some of the supposed cost savings from these plant closings were never realized as many hourly employees continued to receive full pay even though not working. The net result of Smith’s actions was a loss of tens of billions of dollars profit and a drain of cash for future product development and marketing. And now Smith develops an electric car in secret and the first time most executives became aware of the EV1 and the commitment to produce was the media coverage of the LA Auto Show.

So if anyone wonders what attitude executives in the operating divisions had toward the EV1, now you know why there was little, if any support at the beginning of the program. The lack of support eroded as the program continued and GM continued to lose share and cash.

The next entry will begin to discuss conflicts that emerged inside GM after the program started and Smith retired. For example, one GM executive told me over lunch, “Dabels, you’re my worst enemy.” Stay tuned.

#346 GM Electric Vehicle (EV1) — the Story behind the Story (Part 1)

05 Monday Aug 2019

Posted by Jordan Abel in Corporate Policy, Education Issues, General Motors

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The previous three (3) entries were about my personal experiences with Lee Iacocca, who many consider one of the most effective corporate executives of the 20th Century. I decided to continue the break from the craziness in Washington and discuss another part of my life that continues to generate considerable interest — The GM EV1, the first modern electric vehicle.

There are two sides to the story — product and non-product. The product side is reasonably well documented. The non-product side story is far from complete, and what’s been told so far I think is misleading. The next x number of entries — I actually do not know how many — will be an attempt to provide addition insight. Stick around. The series will be a good diversion and offer a good lesson, I hope.

More than 25 years ago, GM presented to the public the first modern electric car. The car generated widespread interest worldwide and helped boost GM’s image. Despite the positives associated with the car, GM management never seemed to endorse the program. After very limited production by auto company standards, GM pulled the plug. People frequently ask me, “Why was the program stopped?” “What could have been done differently so GM management would have kept the program?” “Did GM killing the EV1 set back development of electric vehicles for a decade or more?”

The questions and discussions about electric vehicles range from informal over drinks and dinner to Q&A following classroom lectures to interviews as part of formal research for a book or academic paper. For example, recently I was contacted by a professor doing research on electric vehicles. He’s been researching EV’s for a number of years and contacted me for more possible insight into the late GM EV1 program.

After two lengthy Skype calls, and roughly a day I spent filling in holes in such public information as Wikipedia, his comment was, “I’ve never heard anyone talk about what you said.” Just to calm the EV1 crowd, no confidential information was provided or discussed.

The focus on the “untold story” was the dynamic inside GM that I considered the primary reason GM management never fully supported the EV1. As will be described in this series of entries, my belief – the underlying reason for stopping the program had little to do with GM’s public claim of lack of demand and excessive cost. True that GM had limited cash but, as will be described herein, much of the cash shortage was self-induced.

As a bit more background, most companies struggle with introducing new technology. Such struggles are well-documented. Two books address the phenomenon of the internal struggles. If you’re interested in learning more, start with Jim Utterback’s, “Mastering the Dynamics of Innovation.” You’ll be shocked at how many companies tried to introduce a threatening disruptive technology but were unable to do so. To help understand more about why the difficulty, read Clay Christensen’s, “The Innovator’s Dilemma.” The books have been around a while but I think still relevant and certainly will help build an understanding of the difficulties of transitioning a company from an existing to a new, disruptive technology that without adoption could put the existing company out of business.

Before getting into the internal dynamics at GM, let’s clear up one gigantic misconception about why the GM EV1, and other electric vehicle models were not pursued. Despite implications in the movie “Who Killed the Electric Car?” from all that I know and experienced – and that was a lot – there was no conspiracy! There was no sinister backroom plot to kill EV’s. Yes, auto companies were frustrated with CARB’s (California Air Resources Board) zero-emission vehicle mandate.

And, yes, oil companies have repeatedly tried to thwart any regulation or legislation that reduces access to drilling, no matter what the cost to society or the environment. But neither of those killed the electric car.

What did kill the EV1 was dynamics inside GM. The dynamics are rarely, if ever, discussed. To understand how the dynamics evolved we need to review actions inside GM during the decade leading up to the introduction of the EV1 concept car. For many inside GM, those 10 years could have been titled “The Decade of Sour Grapes.”

I apologize for the length of this explanation. I still don’t know how many entries might be required to explain properly what occurred inside General Motors and why there was such resistance among so many executives to the EV1 program. Whatever the number of entries, I hope you find these entries enlightening and hope the decision to kill the EV1 becomes more understandable. You might not like the decision, and I certainly did not, but I think it will be more understandable following this series.

In 1980, the position of GM chairman transferred from Thomas A. Murphy to Roger B Smith. Murphy and Smith were polar opposites. Tom Murphy might as well have been the quintessential CEO from central casting. He was well spoken, self-confident, witty, kind and considerate. Smith, his successor, was short, insecure and had a ruddy complexion, squeaky voice and a tyrannical personality.

After Murphy retired I often thought if you could sit down with him, ask him what decision he considered his biggest mistake as chairman, after a couple of drinks he might say appointing Roger Smith as CEO/chairman. After a few years into Smith’s reign, I decided Murphy wouldn’t need a couple of drinks to admit the mistake. A cup of coffee would do.

One of the keys to success for OEM’s in the auto industry — GM, Honda, Daimler, Ford, etc. — is keeping products up-to-date, including significant styling updates. Keeping products fresh requires enormous amounts of cash. Without product updates, sales decline and the amount of cash available usually declines even faster. Further the effect of the decline can take years, if not a decade or two to turn around.

As obvious as the sales to cash generation relationship might seem, Smith took a different view. He believed sales and market share were less important than profit per car. Profit per car is important but without sales, all the fixed cost inherent in the auto industry gets spread over fewer units and the additional cost per unit starts to eat away at even the most profitable car lines. As the sale decline continues the company can be overwhelmed with red ink.

Inside GM the car divisions were profit drivers. Virtually all cash generated within GM was associated with sales of cars and trucks. While some individual product lines were marginally profitable, those product lines helped spread the enormous overhead cost.

Forcing each carline to be profitable also limited the car division’s opportunity to offer competitive products to counter the ever increasing number of imports, particularly from Asia. The goal of the imports was to gain market share and many modals very attractively priced. The Asian companies took a much longer view and were willing to subsidize certain models sold in the US with profits from carlines sold elsewhere.

Smith’s time horizon was much shorter and the emphasis on profit per car/truck, rather than overall profit, had a devastating effect. For reference, think about a grocery store. In order to attract people to shop, the store has “loss leaders.” If the store stops offering such loss leaders, what happens? Profit margins might increase but overall profit will likely decrease as people begin to shop elsewhere. And this is what happened to General Motors in the 1980’s under Smith’s strategy of emphasis on profit-per-car/truck rather than sales. People stopped coming in GM dealerships and started shopping elsewhere.

How bad was the strategy? Over the decade of the 1980’s GM market share of all cars/light-trucks sold in the US declined from roughly 45% to 35% — a relative decline of about 25%. What did that mean in terms of unit sales? During the 1980’s, the US averaged about 13-15 million cars and light-duty trucks per year. The 10 points lost by GM (45% to 35%) equated to sales of 1.3-1.5 million cars and trucks per year.

What did that mean for employment? 1.3-1.5 million cars and trucks per year equates to roughly five (5) assembly plants. Thus, Smith’s strategy resulted in unemployment for everyone who worked at those five assembly plants and unemployment for thousands more at GM suppliers. In addition GM made huge cuts in white-collar staff. (Yes, I understand there is another discussion that needs to take place about which auto companies gained share that GM lost. However, that conversation is not relevant to the dynamics inside GM that affected the EV1 program.)

Did GM profit improve under Smith’s strategy? In terms of earnings, if each car averaged say $2,000 variable profit (a reasonable estimate), then GM lost market share during the 1980’s reduced potential GM earnings over the 10-year period by at least $15-$20 billion. (Roughly $30-$40 billion in $2019.) In addition, GM profit margin declined as did overall profits. If you were the teacher grading Smith’s performance, a grade of “D-“would be extremely generous.

In addition to a strategy that generated lower profits and less cash, Smith directed GM to purchase Hughes Electronics, to purchase Electronic Data Systems (EDS) and to start the Saturn division. Where did the cash come from for these ventures? Funds from an ever smaller piggy bank that should have been allocated to help car and truck divisions maintain competitiveness were instead diverted to Smith’s various projects. As such, the divisions — Chevrolet, Buick and others — had even less money to update new products and less money for marketing. Of the GM car and truck divisions, only Buick managed to maintain market share during Smith’s reign.

The purchase of EDS created another problem. With the purchase of EDS, Ross Perot became GM’s largest single shareholder. Perot asked many thorny questions during the GM board meetings which irritated Smith. Perot irritated Smith so much he ordered GM to buy back all of Perot’s stock — for $750,000,000. (About $1.5 billion $2019.)

Where did the $750 million cash come from to repurchase Perot’s stock? Again, funds diverted from the car divisions that should have been used for product development and marketing.

Another major diversion of cash went to the creation of Saturn division. Smith created Saturn because he believed the existing car divisions were incapable of attracting younger buyers. Smith’s attitude angered many senior executives at the car divisions.

To make a bad situation worse, Smith insisted Saturn should be set up as a completely separate car company, even to the point where Saturn had a separate foundry to cast engine blocks. Such vertical integration was ridiculous. No one, and I mean no one, cares which supplier casts a particular engine block as long as it meets quality standards.

In addition to diverting funds to set up Saturn as an operating unit, Saturn never made money. The longer Saturn stayed in business the more the other car/truck divisions suffered as funds were diverted from product development and marketing programs to prop up Saturn. (Although not a topic of this set of entries, Smith’s negative impact on GM did not stop when he left office. The decline in GM share became almost impossible to stop because the product competitiveness of the divisions had fallen so far behind. In my view, GM’s eventual bankruptcy should be attributed directly to Smith.)

Hope you’re beginning to get an understanding of frustration among executives at the car and truck divisions. Hard to believe, I know, but there’s more background we need to cover. You mean like why Smith cast aside the organizational structure that had made GM hugely profitable for decades? Yes. And when the reorganization happened Alfred P. Sloan likely rolled over in his grave…and rightfully so. Time to pause for now.

#185 One Person Can Make a Difference (Part #9)

17 Wednesday Feb 2016

Posted by Jordan Abel in Corporate Policy, General Motors, Personal Stories, Societal Issues

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First-time 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 Revenge Revolution and author, Entry #1. List and general description of entries to date. Annual assessment whether Revolution plausible.

Note: most characters appear in a number of entries, with many entries building on previous conversations. Profile of characters. You’ll catch on quickly. Thanks for your time and interest…and comments.

Scene: Jordan still in Charlotte and on limited work schedule while recovering from prostate surgery. Jordan calls his office and talks to Gelly, his assistant. Earlier Jordan and POTUS began conversation about rebuilding US manufacturing and the middle class. Series starts #177; conversation with POTUS, #179.

Jordan: “Gelly, could you do me a favor, please?”

Gelly: “Yes, but only because you are so helpless.”

Jordan: “C’mon. I’m not helpless. I’m just a little slow getting around that’s all.”

Gelly: “I must say. Your recovery seems to be progressing more quickly than I anticipated. You pleased with progress?”

Jordan: “I’m pleased with progress and so is the doctor. I just need to make sure my expectations don’t race too far ahead.”

Gelly: “OK, so what do you want me to do?”

Jordan: “POTUS called me at home. By the way, did you tell him about my surgery?”

Gelly: “I’ll never tell. And he certainly doesn’t need me to tell him what’s going on in your life. Isn’t that what those agencies are for?”

Jordan: “We had a nice chat about the technology used in surgery.”

Gelly: “Only guys would talk about the machines and software used to cut them open and remove parts. OK, I’ll stop and listen.”

Jordan: “What we never got around to was a story I had promised to tell him. He said to call when I was feeling better.”

Gelly: “So, now you’re feeling better and want me to find out a good time for him to chat, right?”

Jordan: “Yes, please. Earlier in the day is better for me. Thanks.”

Gelly: “I’ll make sure Little Jordan is not in his jammies when POTUS calls.”

Jordan: “You’re tough, Gelly.”

Gelly: “I harass you because I like you Jordan. When I stop harassing you is when you should be concerned.”

Next day Jordan receives call at home.

Jordan: “Jordan Abel, may I help you.”

POTUS: “He doesn’t get it. Relax dude.”

Jordan: “Alright, Mr. President, I’ll relax. I’m just so programmed to answer the phone a certain way.”

POTUS: “I hear you. Gelly said you were ready to tell me the second story, which is about how one person can make a difference. If you have time, I’m ready. Is this another Buick story?”

Jordan: “Yes. Here’s the background. Buick spends lots of money modernizing an old assembly plant. Production then resumes but quality lags.”

POTUS: “How bad was it?”

Jordan: “Second worst plant in North America.”

POTUS: “You mean 2^nd worst for Buick?”

Jordan: “No, 2^nd worst of any assembly plant in the industry. That’s all domestic plants and all foreign-owned plants.”

POTUS: “Quality was that bad after all the money was spent modernizing the plant?”

Jordan: “Yes.”

POTUS: “Big problem.”

Jordan: “The main character in this story works in the Buick service department. Mid-level salary guy but his family is…”

POTUS: “…Let me guess. This is Flint and he’s the first of his family not working on the assembly line? How’d I do?”

Jordan: “Dead on. The family is 3^rd or 4^th generation hourly worker and 2^nd generation UAW.”

POTUS: “What happens next?”

Jordan: “He comes to my office and borrows a report with all kinds of quality data and consumer rankings. Like a JD Power report but it’s developed internally and has much more detail.”

POTUS: “Is he supposed to have the info in the report?”

Jordan: “No reason he can’t. But unbeknownst to me and any other department head, he takes the report and meets with the UAW.”

POTUS: “The same UAW guy you talked to. You know, the one whose son you mentored? Wasn’t he president of the UAW local?”

Jordan: “Probably but the same guy but I’m not 100% sure. Whoever he talked to, he reminded them his family had worked in the plant since Buick was founded in 1903. He also told them the ratings were not Buick’s but from customers. Finally, he told them that if quality did not improve, the company was likely to close the plant and move production elsewhere.”

POTUS: “Close it, even though they’d spent all the money modernizing the plant?”

Jordan: “His analysis was spot on.”

POTUS: “What happened?”

Jordan: “I’ll tell you the results. How the idea was communicated with the rank-and-file, I have no idea…nor frankly, do I want to know. But what happened is quality started to improve quickly.”

POTUS: “Then what?”

Jordan: “Within 18 months, the quality of the plant went from 2^nd worst in the industry to 2^nd best…and within a whisker of being first.”

POTUS: “in just 18 months? Really?”

Jordan: “Really.”

POTUS: “This guy get some kind of award?”

Jordan: “No one even knew about it or talked about until a few years later. Management knew that quality turned around but no other exec I talked to knew exactly what happened.”

POTUS: “So one guy did all this on his own?”

Jordan: “One guy started the ball rolling. But when you step back and think about, this guy had more credibility with the UAW than the entire management team. They trusted him. He wasn’t a suit. He wasn’t out for some political gain…or some promotion. In fact, he risked getting demoted for going outside the system. But he didn’t worry about personal consequences. And he had credibility because of his family history.”

POTUS: “Quite a story. I keep shaking my head. Just one guy who did this on his own. Wow.”

Jordan: “One guy. No committee. No incentive other than trying to do the right thing and save jobs for his family and other members of the community. And he’s not from central casting. He’s overweight and low-key — in some ways reminds you of a Guernsey cow. I mean that in a positive way…but you get the idea.”

POTUS: “Interesting profile for guy that made such an impact. Did GM keep the plant open?”

Jordan: “The plant stayed open for another probably 20 years. They shut it as part of the bankruptcy, and then demolished it. 100 years of automotive assembly history turned into a pile of rubble.”

POTUS: “As a country we’ve got to change. Stories like this one make me inspired by the effort of one individual. The story also makes me sick because 100 years of effort by a lot of people got tuned into a heap.”

Jordan: “I still get upset with the ending to the story.”

POTUS: “What are we going to do, Jordan, to help rebuild US manufacturing? And get those middle class jobs back to Flint and many other locations.”

Jordan: “You want to talk now or later?”

POTUS: “I’ve got to run. And you probably need some rest. Let’s chat some more soon.”

#181 Flint, MI – Squeaky’s Sacrificial Lamb Kills the Middle Class (Part #5)

23 Saturday Jan 2016

Posted by Jordan Abel in Corporate Policy, General Motors, Personal Stories, Societal Issues

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Scene: Jordan’s office a few days after POTUS’ first call re manufacturing and rebuilding the middle class.

Gelly: “Jordan, POTUS is on the line again.”

Jordan: “Hello, Mr. President.”

POTUS: “Hello, Jordan. Have a few minutes? I want to continue our conversation about rebuilding US manufacturing.”

Jordan: “My calendar is clear.”

POTUS: “Good. I understand the need to rebuild manufacturing and the middle class. But these are abstract concepts. If we are going to sell the idea, we need to personalize the story. Make it so people can relate to it and understand what’s happened. You have an example or two in mind?”

Jordan: “You mean like what’s happened to Flint, Michigan?”

POTUS: “Wow, what a tragedy. They first lost all the manufacturing jobs, then they get hit with lead in their drinking water. Given your background, tell me what you think really happened in Flint. It went from a thriving community to being in the dumper. Why?”

Jordan: “The very short answer is Roger Smith. He’s not the only reason but if you’re looking for the primary cause and way to personalize the story, look no farther than Roger Smith.”

POTUS: “Not sure who you mean.”

Jordan: “Ever hear about or see the movie, ‘Roger & Me’?”

POTUS: “Wasn’t that one of Michael Moore’s movies? He’s had some interesting ones. I’ve seen snippets of ‘Roger & Me’ but never the whole movie. What’s it about?”

Jordan: “About how Roger Smith, as chairman of General Motors, destroyed Flint.”

POTUS: “You think that’s true or was that just some Hollywood make-believe?”

Jordan: “My perspective is a bit different from Michael Moore’s. However, his conclusion is correct. Smith destroyed Flint. Flint became a sacrificial lamb.”

POTUS: “Seems like you’re taking an extreme position. Flint was a sacrificial lamb for what?”

Jordan: “Smith was chairman of GM throughout the 1980’s. He was also feared within the company, despite being known as ‘Squeaky’ to some insiders.”

POTUS: “Was he that bad? Was Squeaky…I love that name…a real ‘my way or highway’ kind of CEO?”

Jordan: “More like ‘my way or the guillotine’ kind of CEO. He was ruthless.”

POTUS: “So what made Flint different from other GM towns in Michigan? There’s what Lansing, Pontiac, even Detroit. What’s so different?”

Jordan: “Because Flint is where the UAW forced GM to recognize the union.”

POTUS: “But didn’t GM start in Flint with Buick? Flint was GM’s hometown. Who was the guy that started GM.? Wasn’t Sloan. What was the guy’s name?”

Jordan: “William C. Durant, aka Billy Durant.”

POTUS: “That’s the guy. If GM started in Flint, then what’s the big deal about the union?”

Jordan: “Roger hated the UAW. He never forgave the rank-and-file or the people of Flint for participating in the sit-down strike of 1936.”

POTUS: “You’re really into GM history aren’t you? The strike was 45, almost 50 years before Smith became CEO. The strike was ancient history.”

Jordan: “Not to Roger, or many other people. You know Gelly, right?”

POTUS: “I talk to her when I call. Very pleasant by the way. I’ve never met her in person. Why?”

Jordan: “Her grandfather participated in the sit-down strike at Fisher #1 in Flint. She said he talked about it until the day he died. She’s 3^rd or 4^th generation auto family. Or at least she was until Smith’s reign of terror.”

POTUS: “Not to sound like an attorney for the defense, but did you ever see any memos or plans to destroy Flint?”

Jordan: “You know better than that counselor. My conclusion is based on his patterns of behavior in other situations. Also, I also looked at the number of facilities in Flint that were shut down in Smith’s reign compared to other locations. Disproportionately high.”

POTUS: “Maybe true but wasn’t GM losing share during the 1980’s? As I recall, GM was losing ground and imports were gaining ground.”

Jordan: “Except Flint’s hometown car, Buick, actually held its own during the 1980’s…and set a sales record.”

POTUS: “I’m certain you had no influence on that. Look, I can’t argue with your logic. You saw the company from the inside. You also analyze situations differently than most people. That’s why I call you. One question, ‘If Smith was so bad, why didn’t GM go bankrupt in the 1990’s? They didn’t go BK until what 2008-2009?”

Jordan: “They did go BK in the 1990’s…but not officially. I’ll tell you why.”

(Continued)

#163 VW Emissions Debacle

08 Thursday Oct 2015

Posted by Jordan Abel in Corporate Policy, General Motors, Gov't Policy, Societal Issues

≈ 1 Comment

First-time 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 Revenge Revolution and the author, Entry #1. List and general description of entries to date.

Scene: coffee shop near office. Jordan meets Matt, a reporter for a major newspaper. Matt interviewed Jordan for an earlier series of articles.

Jordan: “Matt, been a long time. Nice to see you.”

Matt: “Nice to see you Jordan.”

Jordan: “Tell me about the book you’re working on.”

Matt: “That’s one of the reasons I called you. Before we talk about the book, I want to ask you about an issue that still troubles me…and that you can provide some insight.”

Jordan: “What’s that?”

Matt: “The VW emissions debacle – programming the software to rig the emissions tests. And I have it on good authority that someone in POTUS’ office called you for advice when it happened.”

Jordan: “You know I can’t confirm whether anyone called, even though it’s a few years later. What I can tell you is what I would have told them if they had called.”

Matt: “OK, we’ll frame the conversation as a hypothetical. I’ll pretend I’m from POTUS’ office. Now, what’s your take on what really happened at VW?”

Jordan: “I only know what I read in the papers. But if what has been reported is anywhere close to the facts, the action by VW was the most blatant violation of federal auto laws by far. Nothing else comes close.”

Matt: “I know this might sound odd but what’s so blatant? Other companies have violated safety laws. VW’s violation was only emissions.”

Jordan: “C’mon. Emissions are a safety issue…a safety issue for society. But the real difference is VW violated the laws knowingly. And from all indications, the violations were directed by senior management.”

Matt: “You really think senior management knew?”

Jordan: “If senior management didn’t know, they all should be fired. Probably should be fired anyway. I mean, the head of US operations – Horn, Michael Horn – was told at least two years before the public announcement.”

Matt: “So one of his underlings says, ‘Houston, we have a problem.’ And the top dog responds, ‘OK.'”

Jordan: “Allegedly, Mr. Horn – great name for a car guy – never bothers to probe. Where were such questions as, ‘What is the problem?’; ‘How severe?’; ‘What are the consequences?’; ‘How long will it take to get fixed?’; ‘Were any EPA or NHTSA rules broken?’; ‘What will the fix cost?’; and a bunch of other obvious questions you’d expect from senior management.”

Matt: “As bad as VW’s violation was, they’re not the first. What’s different about VW than say GM’s failure of the ignition switch?

Jordan: “Fair question. I think two major differences. First GM was at fault for the design. No question. But the intent to defraud, if there was one, was confined to one or two people. I am not aware of any senior managers charged with fraud.”

Matt: “Shouldn’t GM have caught the failure in testing or at least a potential problem during a review of the specifications?”

Jordan: “Yes. My understanding is the design engineer also signed off on the changes. No having an independent review was a mistake and a flaw in GM procedures.”

Matt: “What’s the second difference?”

Jordan: “People get upset when I explain – and claim – some of the deaths linked to the ignition switch failure can be attributed to driver behavior.”

Matt: “How so. Doesn’t seem right, but how so?”

Jordan: “You know enough about cars that if the power steering and power brakes…actually power-assisted steering and brakes…fail you can still maneuver and stop the car.”

Matt: “My grandfather had an old pick-up truck that he used to let me drive. The truck had manual steering and brakes. It was a bit harder to steer but not that much.”

Jordan: “Most of the deaths attributed the ignition switch were younger people so it’s doubtful the drivers had any experience, or even knowledge, of operating a car without power steering and brakes. Plus…”

Matt: “Plus what?”

Jordan: “Some of the drivers and occupants were not wearing seatbelts. Probably one out of every 5 or 6 people, maybe more.”

Matt: “Hadn’t thought about not wearing belts. Belts are operated mechanically and work whether or not the car has any power.”

Jordan: “Like I said, not a very popular observation. I’m not saying GM’s not at fault. Just that the effort to deceive was confined to a couple of people.”

Matt: “I know we could talk about problems at Toyota, the airbag supplier Takata but let’s go back to VW. What do you think the penalty should be?”

Jordan: “You mean, what did I tell POTUS’ office had they asked?”

Matt: “Yes, had they asked.”

Jordan: “At a minimum VW needs to fix the 11,000,000 diesel cars with the emissions override program. Then for customers who are dissatisfied with lower performance, lower mpg, or whatever, VW should buy back the cars.”

Matt: “At what price?”

Jordan: “Current list price. No allowance for depreciation. And maybe even some sales tax. People have to buy another car.”

Matt: “What about people who want to keep their VW?”

Jordan: “Some compensation for reduced value of the used car.”

Matt: “What about penalties?”

Jordan: “The potential fine in the US is something like $18, billion. That’s 18 and nine zeros. Not sure about Europe.”

Matt: “What about the government forcing VW to cease operations? At least stop selling in the US.”

Jordan: “Doing so might make some people feel good. But doing so makes the current owners SOL, as it were. If the market forces them out of business, OK. But the government should not.”

Matt: “No easy solutions. What about the VW executives?”

Jordan: “Someone or some bodies need some jail time. There was clear intent by VW management to defraud. Defraud government, consumers and the general public. The icing on the cake is VW sought Green Seal approval. Imagine, a Green Seal for a car that spewed out 40 times allowable emissions. What gall. Anything less than jail time would not be a deterrent for others.”

Matt: “Thanks for the briefing…just in case POTUS’ office asked for your opinion. Let’s get more coffee, then back to the book.”

#137 Corporate Behavior: GM Ignitiongate con’t (#7 in Series)

24 Wednesday Jun 2015

Posted by Jordan Abel in Causes of the Revolution, Corporate Policy, General Motors, Gov't Policy, Societal Issues

≈ Leave a comment

Scene: Continuation of conversation between Jordan and JC, a long-time friend. Conversation started as deciding on a simple, understandable theme for government policies following Revenge Revolution. Jordan and JC agreed to a one-day deadline to complete the work. When finished, Jordan would schedule a review with POTUS. Conversation begins Entry #131.

JC and Jordan concluded the standard measure for future government policies should be ‘treat thy neighbor as thyself.’ They also agreed to assess whether the standard is appropriate for corporate policy. Disney was the first case. GM the second case.”

JC: “Whew. I’m back and feel much better.”

Jordan: “I needed a break, too.”

JC: “OK, back to the list. Who’s on the list for being at fault in Ignitiongate?”

Jordan: “We agreed on GM. #2 could be the driver.”

JC: “You implied that before the break. That seems awfully cruel.”

Jordan: “But what if the driver is under the influence of something – alcohol or drugs? Remember during two seconds…one thousand one, one thousand two…a car going 60 miles per hour travels 176 feet.”

JC: “More than half the length of a football field. I remember.”

Jordan: “So any kind of delay in reacting can have major consequences. But I think there’s a third element that I’ve not heard anyone talk about.”

JC: “And that is?”

Jordan: “Driver education.”

JC: “You mean good old driver’s ed classes?”

Jordan: “Exactly. How many students, especially those under say age 30-35, do you think were taught how to drive the car without power steering or power brakes? How many students even know that you don’t need power steering or power brakes to operate the car safely?”

JC: “Probably not many. And from what I read many accidents after the ignition switch failed involved younger drivers.”

Jordan: “The cars with the faulty switch were smaller, lower-priced. Drivers of these cars are generally younger.”

JC: “So you’re saying GM’s at fault but others might be at fault as well, right?”

Jordan: “If we assume that fault is split evenly among GM, drivers and driver’s ed, then merely pointing the finger at GM…or in your case giving the finger to GM…does not address a broader issue – personal responsibility.”

JC: “How do you address the broader problem?”

Jordan: “Fining GM a huge amount of money might make some people feel good and it might change some behavior inside the company, but it doesn’t address the problem of driver responsibility and certainly not address the scope and quality of driver’s education classes.”

JC: “Why isn’t GM fighting some of these cases in court?”

Jordan: “Good question. They likely have data that indicates some very irresponsible driving.”

JC: “How would they get that kind of data?”

Jordan: “You know your car has a black box, much like an airplane’s black box, right?”

JC: “Say what? There’s a black box in my car that tracks my driving?”

Jordan: “Yes, and black boxes have been around since the early 1990’s. And there were two reason the boxes were installed: #1, safety. The data were used to help analyze conditions prior to an accident. #2, and less publicized, the data provided some defense against spurious law suits.” (Article, 13 07 21 NYT re Black-Boxes in Cars)

JC: “With all these data, you’d think GM would fight some of these cases. Why aren’t they?”

Jordan: “My guess is GM doesn’t want to tarnish their image. Think about it. GM clearly was to blame for the faulty ignition switch. How would it look if they started to pin part of the blame on a driver, even if it’s more than justified?”

JC: “I see what you mean. It’s a no-win situation. Go to court and fight and more media coverage about the faulty switch. Then blame some or all of the accident on the driver and you look like a real a-hole.”

Jordan: “And gun-slinging lawyers know the image dilemma for high-profile companies like GM. So what do they do?”

JC: “File a suit, even of the case is flimsy, because they know the company…GM in this case…likely will settle out of court to avoid tarnishing their image.”

Jordan: “For GM, the case is a no-win. For lawyers and the plaintiffs they corral, it’s no lose. The case is on a contingency basis so plaintiffs have no cost.”

JC: “Don’t doctors suffer from the same problem…spurious lawsuits?”

Jordan: “Yes and just for the record, I agree that some, maybe even most of the plaintiffs deserve an award. There are people injured through no fault of they own. But, there are many cases…”

JC: “…like the one against Starbucks. The cop gets free coffee…free mind you…then doesn’t check if the lid is tight. Spills coffee in his crotch and claims some kind of injury. Except when the facts came out, the injury or condition, or whatever he claimed it was, existed prior to spilling the coffee. Talk about ungrateful.”

Jordan: “Fortunately Starbucks won the case. But in cases with multiple claimants, like GM and the BP spill in the Gulf of Mexico, there are a number of people who file lawsuits who have absolutely no right to any damages. In fact I know one of the BP plaintiffs who suffered not a single dollar loss yet claimed damages of something like $400,000.”

JC: “Did he get paid?”

Jordan: “You know, I never asked. I was so infuriated with the idea of filing a claim that I never followed up.”

JC: “Alright, let’s lay out a policy for the GM case based on the standard, ‘treat thy neighbor as thyself’. What’s the policy?”

Jordan: “First, GM is at fault. Everyone agrees, even GM. Some fine should be levied. There might have been criminal activity with intentionally covering up the flaw and/or not reporting to NHTSA.”

JC: “What’s NHTSA?”

Jordan: “National Highway Traffic Safety Administration. Any safety related defect you have to report. Apparently GM did not. #2, GM should be liable for some of the injuries and deaths that occurred. However, GM should not be responsible for injury or death where there was excessive speed and/or occupants unbelted. GM cannot be held liable for irresponsible behavior by a driver or passenger.”

JC: “What’s the third?”

Jordan: “Driver education classes, whether private or in public schools, need to include a section of learning to operate the vehicle without power steering and without power brakes. Make it part of the driver’s test. You don’t want to take your first lesson in an emergency.”

JC: “You think any of these changes will occur any time soon?”

Jordan: “No, unless the public starts to demand them. As an example of how disconnected some legislators are with reality, Republicans in the North Carolina senate wanted to eliminate all driver training in schools. Turn age 15, take a test and get a permit with no training whatsoever.”

JC: “What a back asswards way of thinking. What happened?”

Jordan: “The public forced them to drop the idea. The legislator’s kind of thinking and lots of other issues helped precipitate the Revenge Revolution. The public is still hungry for change. This is an ideal time for these proposals.”

JC: “One last thought. Does GM deserve the one-fingered salute?”

Jordan: “Not now. Their screw-up with Ignitiongate was some years ago. Management seems committed to improving. Let’s give them a bit more time before you give the salute.”

JC: “I’ll wait. What’s next on the agenda?”

Jordan: “Call centers based in foreign countries…after we have something to eat.”

More about the origination of the blog and the author, Entry #1.

Ebook format of recent series of entries on Federal Budget. 15 05 23 Do They Really Understand Entries #121-#130

#136 Corporate Behavior: GM and Ignitiongate (#6 in Series)

20 Saturday Jun 2015

Posted by Jordan Abel in Causes of the Revolution, Corporate Policy, General Motors, Societal Issues

≈ Leave a comment

Scene: Continuation of conversation between Jordan and JC, a long-time friend. Conversation centers on themes for government policies following Revenge Revolution. Jordan and JC have agreed to a deadline of this evening to complete the work. When finished, Jordan will schedule a review with POTUS. Conversation begins Entry #131.

Background: JC and Jordan concluded that the standard measure for future government policies should be ‘treat thy neighbor as thyself.’ They also agreed to assess whether the standard is appropriate for corporate policy. Disney was the first case. GM the second case.”

JC: “Ok, Jordan, now that I have beaten up Disney, I have a question for you.”

Jordan: “Shoot.”

JC: “What about the behavior of your old employer. I mean, General Motors really screwed up with that ignition switch failure. Did they treat thy neighbor as thyself? What do you think happened?”

Jordan: “Your right, the General made some major mistakes, starting with a poorly designed ignition switch. How that design passed any kind of durability testing is beyond me.”

JC: “But what about those indictments? US Justice Department found criminal wrongdoing…and some charges about wire fraud, which I did not understand.” (Articles 15 05 22 NYT Justice Dept Finds Criminal Wrongdoing at GM, 15 06 10 US Weighs Charges Against GM)

Jordan: “The wire fraud charges…charges, not convictions…in my view were a circuitous way to bring criminal charges. And more problematic.”

JC: “OK, what about the cover-up of bad engineering?”

Jordan: “Look, I have no inside knowledge of any of what happened – call it Ignitiongate. I agree GM is at fault for the ignition switch that failed, but…”

JC: “…but what else is there to the story? GM releases a poorly designed switch and there’s a bunch of accidents and some people die. What else is there? Doesn’t GM deserve the one-fingered salute for bad behavior?”

Jordan: “Probably…but I think there is more to the story. If you can sit still for a few minutes, I want to walk you through some other issues that seem to have gotten little attention.”

JC: “I’ll sit here as long as you don’t sound like some PR blowhard. By the way, what makes you an expert?”

Jordan: “You know I’m not an expert. But I did spend a lot of time in product development and spend a lot of time dealing with dealers and customer issues. Aside from that background, there seems to be a lot of common sense that has been overlooked.”

JC: “OK, big boy, start your spiel.”

Jordan: “You might not like my comments but here goes. Yes, GM is at fault. There is little question that the ignition switch failed. And the failure rendered inoperative the power assist for steering and braking and the airbags. But, my question, ‘Was GM entirely at fault?’”

JC: “Isn’t that a rather harsh statement? The driver’s didn’t doing anything wrong? So all the fault has to lie with GM.”

Jordan: “I said GM was at fault for the poor design. But I also think part of the fault lies elsewhere. And here’s why I say that. First some facts about the vehicle. #1, power steering is not necessary to steer the car effectively, especially at higher speeds. If the power assist for steering fails, you can still drive the car safely. Takes a bit more effort but not much. Power steering is mostly for parking.”

JC: “Haven’t thought about that for a long time. But I remember my dad had cars without any power steering. My mom drove the cars…and she was no weightlifter. She didn’t like to parallel park those cars but how many people do. Next item.”

Jordan: “#2, same type issue. Power-assisted brakes are not necessary to slow or stop the car. Without power assist, the stopping distance likely will increase but you can still stop the car. Granted it takes more pressure on the pedal but brakes still function. Besides stopping distance is not just brakes alone. Other key factors are (a) vehicle speed; (b) driver reaction time; (c) road conditions; (d) amount of tread on the tires. Remember your physics class? Braking is a physics problem with several variables…and driver behavior being one of the most important.”

JC: “Physics class? Yes, braking really overcomes the kinetic energy of the car. And the formula for kinetic energy is…ok brain, dig deep…the formula, kinetic energy equals mass, or one-half mass times velocity?”

Jordan: “You’re close. I’m impressed. Kinetic energy equals ½ mass times velocity squared.”

JC: “I forgot about the squared part. When you double miles per hour of the car, kinetic energy increases four times. So speed is a big factor.”

Jordan: “Along with driver reaction time. In one second, a car going 60 mph travels 88 feet. Two seconds, 176 feet. That’s more than one-half a football field in just two seconds.”

JC: “Yikes. Any kind of hesitation deciding what to do makes a huge difference.”

Jordan: “Which leads to my third point, safety standards. Cars and light trucks are subject to a plethora of safety standards.”

JC: “What’s that mean?”

Jordan: “It means that the front occupants must be able to withstand a frontal crash up to about 30 mph without serious injury.”

JC: “Is what airbags are for?”

Jordan: “Airbags are considered supplemental restraints. You still have to wear your seatbelt.”

JC: “What if you don’t wear a seatbelt? The airbag should give you enough protection, right?”

Jordan: “No, you need the seatbelt. You can skip the airbag but you can’t skip wearing a seatbelt.”

JC: “I always wear my seatbelt but I thought the airbag was the key.”

Jordan: “Despite laws about using seatbelts, too many people think that way. A seatbelt is more important than an airbag. Is that clear?”

JC: “I got it, already. A seatbelt provides lots of protection even if the airbag doesn’t work.”

Jordan: “Yes.”

JC: “Now, where does leave us? We still need to talk about who’s to blame?”

Jordan: “We already know GM is at fault. But let’s list some other candidates of where the fault might lie.”

JC: “OK…but after we take a break. Too much coffee.”

More about the origination of the blog and the author, Entry #1.

Ebook format of recent series of entries on Federal Budget. 15 05 23 Do They Really Understand Entries #121-#130

usrevolution5

~ USA Headed for a 5th Revolution! Why?

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#137 Corporate Behavior: GM Ignitiongate con’t (#7 in Series)

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