The Hindu Business Line : US auto industry: History already?

IT WAS once the unquestioned wisdom of business. "What was good for General Motors was good for America". This saying has a sepulchral ring this week, as world markets take in the news that the GM chief, Mr Rick Wagoner, has decided to close down a dozen factories and sack 30,000 workers by 2008. Having said that nothing occupied as much of his attention as the task of turning this ailing mammoth around, all he could come up with was the old solution — cut costs by firing people.

There must be a lesson in this for us all. They may have had it coming to them, yet this fall of a once-awesome exemplar of Corporate America is cause for pause. For decades, the post World War American boom was built upon a suburban lifestyle and gas-guzzling cars that were indeed a cultural icon. The automobile industry was the engine of the economy.

Case studies of Ford, GM and Chrysler were pored over by students of organisation structure. Their marketing plans, built around a ladder of models, meant for different budgets and family needs, and introduced the concept of price point based positioning, now textbook material for other industries.

Alfred P. Sloan in the classic work, My Years with General Motors, developed and put into practice a whole new philosophy of organising a multi-business diversified corporation. Make the far-flung outfits work close to the markets with freedom based on decentralised operations, he said, but make them accountable to a centre through an ROI-based evaluation system.

Add centralised, shared, specialist services and an oversight of quality and little wonder that this organisational prescription became the universal template for dealing with a fundamental paradox — namely managing growth, size, complexity and speed of response without compromising any of them. The Management By Objectives that grew out of this structure held an intuitive appeal to the great centralisers such as the present American President.

A good deal of folklore grew around the sales and advertising methods of Detroit. The first blow to this dominance came in the 1970s when the Sheikhs put an end to cheap oil. Producer countries exercised their economic clout over the international energy price by simply turning off the taps. The second onslaught on American supremacy came from Asia, notably Japan, with fuel-efficient, and compact vehicles. What truly shook the managerial mindset was the Japanese quality movement and design cracking yet another paradox — marrying high-precision, trouble-free performance with high volume and low unit cost, considered impossible till then.

Detroit responded slowly, and in predictable ways. One nearly went to the wall and had to be baled out by the US Government. Others looked to Europe and further east, for growth and profits. Many decided to sleep with the enemy. Strategic alliances became common. The American hubris finally melted, reluctantly of course, and many went after the Japanese style of managing as the latest Holy Grail.

Last week's developments, however, show that history has a way of catching up. The benign accumulation of long-term liabilities, so much taken for granted, has meant that the US companies are now asking the car owner in effect to pay for astronomically high costs of health and retirement benefits.

There is no known market-based way to resolve this conundrum. Industries, like civilisations and dynasties, seem to follow an inexorable path — and will be absorbed or over-run, it seems, by conquest or by consent, into the new empires emerging today. Every manager worth his salt must stop to think. Is history unstoppable?

(Response can be sent to sr86@guest.ac.uk)

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