Auf Der Festung - Fortress Mentalities and General Motors

In the 1950s and early 1960s, life at General Motors was as good as it gets. GM was making really hot cars. Gas was so cheap that four four barrel carburetors was a goal to which we consumers all aspired. Wide track Bonnevilles and powerful Oldsmobiles made us all priapic. GM could do no wrong.

The advent in the 1960s of foreign cars as serious contenders in the US auto market produced scorn from GM management. One executive announced that it was not GM’s destiny to make small cars for small profits. That may have been the moment when being out of touch with reality began to set in. Small, reliable cars consumed more and more of the market. The advent of the Mustang may have been the last great flash of genius in the US auto business, When the Mustang made its debut, GM had the Corvair and had just been caught trying to set up Ralph Nader with a hooker in his hotel room. GM settled the Nader lawsuit over that for about $ 450,000, thereby funding its great nemesis’ center for auto safety –irony of ironies.

Not long after that, word on GM began to be that it lost money on auto manufacturing and was relying on GMAC to produce profits from the financing business. That became more and more the story at GM, with various contrapuntal rhythms about actually making money in foreign markets, the amount of substance of which could have been more accounting legerdemain than business genius. Eventually, not even GMAC could carry the enormous load of bloated, out of touch management at the top.

The fortress mentality was OK while the market was expanding and there was no foreign competition and gas was cheap. But when those major factors changed, GM’s management mentality did not change. You either agreed with the inbred notions of what the company model would be or you were gone.  The DeLorean mentality was ousted, and certainly no Lee Iacocca would ever be tolerated.

GM is a classic case study in refusing to adjust. It is to business management theory what fundamentalism is to religion – unyielding absolutism. The problem is that its absolute fortress model was becoming more and more out of touch with reality. You simply cannot survive, not even if you are GM, under those conditions.

Will government bailout money make a material, substantive difference at GM if the fortress mentality management principles continue to prevail? I think not. That money will be consumed by the appetite of the enormous beast that GM has become. Only becoming in touch with the realities of what the business model has to be to compete and being willing to become that business model could prolong its life expectancy. Nor are its work force leaders any different when it comes to their diet. The whole scenario represents a massive, malignant end stage patient on the fat of which the parasites cannot stop feeding. Government bailouts can’t make anyone buy products that are perceived as unreliable. Government bailouts will not bring about the rehiring of one worker if the failure to address what the market needs within the asset base that the economics of the real market will support persists.

Would that it were otherwise.