When cars were America’s idols

If you were to walk up to a typical New York executive in the 1960s -- think Don Draper in AMC’s “Mad Men” -- and tell him that General Motors Corp. would be in bankruptcy by 2009, he would have thought you were delusional, or perhaps a Communist. GM was more than just the world’s largest and most admired corporation; it was the final vindication of the American Way, the perfected and even divinely inspired example of democratic capitalism that stood opposed to the airless atheism and nullity of the Soviet system.

Or imagine that you were somehow able to drag Nikita Khrushchev from the United Nations podium into the street to confront -- no, behold -- a 1959 Cadillac Eldorado Biarritz. Nearly 19 feet long from its Jayne Mansfield-like bumpers to its rocket-like tail lamps, a lyric in steel and mirrored chrome, as bright and beautiful as a ripe plum is sweet, and yet just ever so slightly obscene. Khrushchev would have dropped his shoe.

Surely a company, a country, that could produce such an object would last forever.

At the height of its power, GM represented 10% of the national economy. It controlled more than 50% of the light-vehicle market. Its products, research and management methodologies were the standard of the world. Along the way, GM had, rather accidentally, invented American consumerism. Longtime Chairman Alfred Sloan’s program of “planned obsolescence” -- making annual, often minor changes in the products in such a way as to make last year’s model hopelessly unfashionable -- put Americans on the acquisitive treadmill they are panting on yet today.

Another of Sloan’s big ideas was the “Ladder of Success,” whereby the company’s brands -- Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac -- corresponded to ascending social status. The Ladder of Success was, in fact, an automotive caste system, a program of class stratification. Armed with the power of modern scientific marketing and advertising, GM was able to weld an existential link between who we are and what we drive.


A society obsessed with mobility had found its muse. Chollos and homeboys cherished that ’62 Impala. Redneck country boys had to have that 400-cubic-inch Trans Am. Texas moms loved their blot-out-the-sun Suburban. Playas rode up on Escalades and Hummers with 22-inch wheels. The diversity of GM’s product offerings became a lens through which to diffract American life, which is another way to say GM traded in automotive identity politics.

When GM President Charles Wilson lightly said in 1953 (during his confirmation hearings for secretary of Defense) that “what was good for the country was good for GM, and vice versa,” he synthesized a very big idea: GM and the U.S., each vast conglomerates, each general and united in their own ways, had undergone a de facto merger.

The final chapter of that merger plays out this week as GM weathers a reorganization that will leave the federal government owning 70% of the company. In the midst of the deepest recession since the 1930s, it’s hard not to see GM’s bankruptcy as a signal moment in a larger history. If mighty GM can fail, cannot also the United States? And the answer is, absolutely.

This is the lesson of GM’s bankruptcy, and it has little to do with market share and miles per gallon. It’s a rebuff of the notion of exceptionalism. Any organization that fails to sufficiently safeguard its means of self-correction and reform, that forsakes long-term investment for short-term gain, that piles up debt year after year, will eventually fail, no matter how grand its history or noble its purpose. If you don’t feel the tingle of national mortality in all this, you’re not paying attention.

Many will step forward this week to recite the familiar litany of complaints against GM: It treated its customers poorly; it built boring and awful cars that alienated generations of buyers; it built binge-drinking dinosaurs and murdered the electric car. It bet the farm -- or at least southern Michigan -- on America’s lust for big iron, trucks and SUVs, which left GM undefended when gas prices peaked at around $4 a gallon last year. Its executive leadership was myopic and insular, its board packed with thumb-twiddling cronies. If corporate mismanagement were a crime, you could lock up every one of these guys and throw the key in the Detroit River.

In his book “The Fifties,” David Halberstam described what many regard as the moment of GM’s original sin: In 1958, after a long-standing prohibition, it became permissible to discuss the company’s stock price in management meetings.

From there, it was only a matter of time before the company twisted in Wall Street’s wind and strategic decisions were calibrated according to dividend pennies.

I have my own theory. In 1999-2000, GM had a golden opportunity to right its ship by backing Democratic presidential candidate Al Gore. This might seem counter-intuitive, at least, since the auto industry has long postured against Democratic candidates as being pro-regulation and anti-business. Gore himself is an avowed enemy of the internal-combustion engine.

And yet, by backing Gore, who had the support of organized labor, GM would have gained enormous goodwill with the United Auto Workers, goodwill it desperately needed as it attempted to downsize in the new century.

Gore also argued for universal healthcare, a program that, had it become reality, might have relieved GM and the other domestic carmakers of that burden. In testimony before Congress in 2006, GM’s former chairman, Rick Wagoner, said the company had spent $5.3 billion on healthcare in 2005 alone, more than it had spent for steel. Elsewhere, Wagoner said healthcare was the single biggest competitive disadvantage the company faced, amounting to a $1,500 handicap on every vehicle produced.

A Gore administration also would have raised fuel economy standards for carmakers and instituted a significant tax on gasoline; either move would probably have blunted GM’s continuing and foredoomed reliance on the full-size truck and SUV market.

As it was, the board’s pro-business patricians actively opposed the Gore candidacy. The irony is that the Big Government Democrat might have saved GM from the eventual ignominy of bankruptcy and government ownership.


It’s not that GM hasn’t tried to reform. It has. The alarming fact is that GM has done so much right and still failed.

In the last decade the company has slashed its white-collar and blue-collar work forces, closed plants, expanded in Asian markets and -- after an agonizing bit of backroom brinkmanship -- struck a deal with the UAW in 2007 that largely brought its labor costs in line with those of foreign manufacturers assembling cars in non-union shops. In the same agreement, GM and the UAW agreed to establish a union-run healthcare trust that would take much of the company’s so-called legacy costs off its books.

Meanwhile, GM’s cars and trucks have got vastly better and some -- the Corvette, the Cadillac CTS, the Saturn Vue and Aura -- are world class. One of the miserable consequences of the government-mandated restructuring is the sale of German subsidiary Opel, which makes cars for Saturn, and the loss of the Saturn division itself, which builds exactly the kinds of cars GM needs going forward. At the same time the company has poured $1 billion into a range-extended electric vehicle program, the Volt, as ambitious as anything in the company’s history.

In the midst of turning the ship around, GM hit not one but three icebergs: the sudden collapse of the U.S. auto market, the sharp spike in gas prices and the crisis in credit. U.S. auto sales contracted from around 16 million vehicles a year in January 2008 to fewer than 10 million in March. GM’s sales plummeted by roughly half, which meant it burned through its cash reserves much more quickly than anyone could have imagined and sent its total debt soaring to more than $60 billion.

Bankruptcy was not inevitable, until it was.


From a certain historical altitude, GM’s problem is fairly simple to appreciate: Call it a prosperity hangover. The company acquired enormous momentum in the postwar boom when the United States was the world’s only functioning economy. With no domestic peers and no overseas rivals, in a society frantic for mobility and flush with cash, GM became the colossal incumbent it was.

In the decades since 1962 -- the peak of its market dominance -- GM’s singular dilemma has been servicing its own over-scaled nature as it competed against a succession of younger, smaller and more agile companies, primarily from Japan. To cite but one example: For years, critics of the company called for the elimination of the Oldsmobile division and the GMC truck division, which sold clonal versions of Chevy trucks. But GM found itself handcuffed to its obstreperous network of dealers who were protected by state franchise laws. It cost GM more than $1 billion to buy out Oldsmobile dealers when, at last, the division was closed in 2004.

GM also struggled with its vast and unresponsive, self-perpetuating bureaucracy. When Chairman Roger Smith -- the “Roger” in Michael Moore’s skewering “Roger & Me” documentary -- attempted to streamline GM’s back-of-the-house operations in the 1980s, the result was chaos.

Divisional managers openly subverted the reorganization, hiring new people and reestablishing the old chains of command until they had created a weird rump parliament inside the company. GM’s capital outlays soared, while sales and quality plunged.

To justify its own size, GM’s bureaucracy was neurotically preoccupied with scale, market share and volume, while seemingly agnostic regarding profit. In 2002, GM execs took to wearing lapel pins with “29,” indicating their goal to maintain a 29% U.S. market share (GM sales now represent about 20%). Lotus. Hummer. Saturn. Saab. Daewoo. All of these companies were purchased or established in an attempt to increase global volume. Add to that a series of wobbly strategic alliances with Fiat, Fuji Heavy Industries (Subaru), Suzuki and others, designed to help broaden its reach overseas even as the North American market was deteriorating.

In 1992, GM’s revenue was $132 billion on sales of 7.7 million vehicles, with a net loss of $23.5 billion; in 2007, revenue was $181.1 billion on sales of 9.37 million vehicles with a net loss of $38.7 billion. In other words, the company was selling millions more cars and losing more money.


Large and mature, capital-intensive corporations can achieve a lot, but none ever downsizes gracefully. GM didn’t, and Toyota won’t when its time comes.

It will be painful, it will be ugly and there will be many losers, but GM will emerge out of bankruptcy, in all likelihood before the end of 2009. When it does, it will have shed many of its historical burdens and will still possess a talented workforce, significant physical assets and some of the best minds in the car business. A restructured GM will be a force to reckon with. If I worked for Ford or Toyota, I might be getting a little insomnia by now.

This could still be a great company, the company of Harley Earl and Bill Mitchell, of Olds Rocket 88s and Pink Cadillacs and Little Red Corvettes, the company that put a car on the moon, that killed and then resurrected the electric car. The post-imperial GM will be smaller, leaner, smarter and hungrier. I hope. Bankruptcy’s purifying fire will burn away debt and, as important, a legacy of comfortable arrogance. And it will be truer than ever: What’s good for GM is good for America.




General Motors: a 101-year timeline

Sept. 16, 1908: William C. Durant, owner of the 5-year-old Buick Motor Co., founds General Motors Co. Two months later, GM buys Oldsmobile.

1909: GM acquires Cadillac, AC Spark Plug and Rapid Motor Vehicle Co., now known as GMC. It also buys a half-interest in Oakland Motor Co., today’s Pontiac.

1910: With GM facing bankruptcy, bankers oust Durant.

1916: Durant regains control of the company, bringing in Chevrolet, an automaker he founded in 1911.

1920: Durant resigns under pressure from lenders.

1924: Chief Executive Alfred P. Sloan describes GM’s marketing strategy as “a car for every purse and purpose.”

1936-37: Violent sit-down strikes at a GM plant in Flint, Mich., lead to the formation of the United Auto Workers union.

1942-45: Because of World War II, all GM production is devoted to military vehicles.

1948: The first tail fins debut, on a Cadillac.

1953: The Chevrolet Corvette, the first production sports car, debuts. Cadillac introduces the first car with air conditioning.

1962: GM’s U.S. market share peaks at 51%.

1965: Ralph Nader’s book “Unsafe at Any Speed” challenges the safety of the Chevrolet Corvair and U.S. cars in general.

1979: GM’s U.S. workforce peaks at 618,365, making it the largest private employer in the country.

1980: Roger B. Smith is named chairman. GM posts its first financial loss since 1920.

1983: GM and Toyota form a joint venture to build cars at a plant in Fremont, Calif.

1986: GM announces plans to close 11 U.S. plants and eliminate 29,000 jobs.

1990: The first Saturn cars are produced. Smith resigns as chairman.

1991: GM loses $4.45 billion, the worst annual performance to date by a U.S. company. GM announces that it will eliminate 74,000 jobs and close 21 plants in North America.

1997-98: Strikes at Delphi parts plants twice bring GM’s North American auto assembly to a virtual standstill.

2004: The last Oldsmobile is produced.

2007: GM loses $38.7 billion, the largest annual loss in auto industry history.

June 2008: GM puts Hummer up for sale.

December 2008: GM tells Congress it needs $18 billion to stay afloat and says Saturn and Saab brands are also for sale. The Bush administration agrees to lend $13.4 billion.

February 2009: GM asks the government for $16.6 billion in additional loans.

March: The Obama administration forces out CEO Rick Wagoner, installing Fritz Henderson, and gives the company until June 1 to restructure.

April 27: GM proposes to cut 21,000 workers, 2,600 dealers, $44 billion in debt and four brands -- while making the U.S. government majority owner.

Wednesday: GM bondholders overwhelmingly reject a deal to swap their debt for equity in the company, pushing the company toward bankruptcy.

Thursday: The company offers a larger stake to bondholders, provided they don’t contest a bankruptcy plan.

Saturday: A majority of bondholders accept the revised offer, paving the way for GM to file Chapter 11.

-- Scott J. Wilson