As Karl Marx once said, history repeats itself, first as tragedy, second as farce. In last year’s epic auto chronicle, Crash Course: The American Automobile Industry’s Road from Glory to Disaster, author Paul Ingrassia wrote about the catastrophic decline of the American automobile industry in the seventies:
Just as General Motors was led by financial people, Honda would always be led by engineers… Put another way, the bean counters ran GM, while the car guys ran Honda. It would make a crucial difference between Honda’s success and GM’s failure.
While Ingrassia has recently written that he sees a glimmer of hope in what he terms GM’s great “restructuring,” the fact remains it wasn’t a “restructuring” at all, but the largest government seizure of privately-owned assets in history.
The reality is that GM seems to be making the same mistakes all over again. Less than two years after the government’s historic $50 billion taxpayer bailout of the Detroit automaker, now forever known as “Government Motors”, the troubled company installed its fourth CEO, Dan Akerson – another “finance guy” to be sure, but far more concerning to GM’s long-term health, also a creature of Washington.
Akerson is a former telecom exec turned private equity guy who was installed at GM by political operatives in the Obama White House. While there’s little question that Akerson has his talents, they most assuredly aren’t in the car-making business (as even he is quick to admit). No, Akerson’s talents are in private equity finance – or more accurately, politically-connected private equity finance.
Coming directly from The Carlyle Group, unquestionably the most politically-connected equity finance firm in the world, and one that is packed to the rafters with political has-beens – ex-regulators, Congressmen, and cabinet secretaries – Akerson’s talents are an ideal fit for the busy body bureaucrats who now run Government Motors.
That’s because Akerson straddles the world of equity finance (characterized by a gambler’s mentality), and an “inside-the-beltway” collegiality and chumminess with the Washington know-it-alls who now arguably have the largest say in how GM makes and sells cars.
Already, the storm clouds are gathering on the horizon.
Peter DeLorenzo at the auto blog autoextremist.com wrote recently that there is turmoil building inside GM’s ranks over Akerson’s offensive to “put his stamp on the company, no matter what the cost.” DeLorenzo suggests that GM is “on a runaway train to Hell,” and that the Detroit behemoth is already “chafing under the barrage of nonsensical orders and pronouncements emanating from Akerson by the minute.”
Daniel Howes of the Detroit News echoed the criticism, writing that Akerson’s questionable management decisions looked like “déjà vu all over again” harkening back to the bad old days of GM’s “finance- and marketing-led disasters” of the past.
Meanwhile, the influential auto reviewers at Edmunds.com sounded the alarm bell in a piece titled simply, “Is Dan Akerson Going To Run GM Into the Ground?” Akerson’s recent moves and his hand-picked marketing chief’s statement that GM should become “more of a marketing organization,” has Edmunds seeing red: “This may sound innocuous to the average business magazine reader, but anyone who follows GM will recognize this as a disaster in the making.”
Mark Rechtin of Automotive News piled on, suggesting that so far, Akerson’s leadership has been defined by “hubris,” panning reports that GM is planning to double Chevy Volt production from 60,000 to 120,000 units next year. Rechtin argues convincingly that even with the generous federal tax credit of $7,500, the Volt’s steep $41,000 price will make it impossible to sell so many units. All this, despite the fact that the Volt – which Akerson touts as the “soul” of the new GM, isn’t even making money for GM – since it costs upwards of $40,000 to build each car. Indeed, leave it to Government Motors to spend tens of billions of taxpayer dollars producing a product that doesn’t make any money.
While criticism of Akerson may seem unfair – after all, he’s only been at the helm for four months – the decision to hand the wheel to a politically-connected “finance guy” with zero manufacturing or auto experience is emblematic of GM’s larger problem. Thanks to the huge $50 billion government bailout and $7,500 federal tax credits which effectively subsidize the cost of its hybrid-electric vehicles, Government Motors can afford to gamble again… with taxpayers money of course. That’s the hazardous part of “moral hazard.”
But should this really be any surprise? When the Feds become your company’s largest single shareholder, the painstaking process of building cars, the engineering expertise and knowhow that’s required, and the “sixth sense” that all good auto execs have in spades, all take a back seat to the political whims of Washington. It’s no longer about what consumers want, it’s about what Washington bureaucrats decide they need.
The whole process of building cars inevitably becomes politicized. And that’s why Washington insider Dan Akerson’s appointment as CEO has worried so many. Yes, GM may struggle along for a few years. It may even be profitable in the short term, but at what cost over the long term?
For Washington, the answer is irrelevant. When the business of making cars becomes political, it will be at the whim of the political cycle – subject to huge gambles with taxpayer money, short-term thinking, and run by Washington insiders. It will be up to future Administrations to once again pick up the pieces after Government Motors fails – again.