Monday, June 1, 2009

What’s bad for G.M. may be good for Magna

What’s good for General Motors is good for the country. These once true words sound pretty hollow now as G.M. files for bankruptcy, something that would have been unthinkable for most of the 20th Century. Founded in 1908, General Motors was, for decades, the biggest company in the most important industry in the world. 

Until last year, when it was surpassed by Toyota, G.M. was the world’s largest auto maker. It once led in automotive innovations, but, through a series of strategic blunders starting in the 1960s, consumers began blaming G.M. for sub-par vehicles. Some diehard customers gave it second and third chances; eventually, however, even the most loyal started switching to competitors’ brands.

During the 1980s G.M. tried cutting costs by sharing the underpinnings of its cars across different brands, but that strategy back-fired when it blurred the brands’ distinctiveness and made them less attractive to customers. In 1990 the company gave in to union demands and created a program that paid workers even when plants were temporarily shut down, forcing G.M. to build cars and trucks it could not sell without offering incentives. Expensive benefits for retired union workers also took their toll.

G.M.’s stock fell steadily from about $70 U.S. at the start of the decade; it closed at 75 cents a share on Friday.

We can expect a new, much smaller G.M. to emerge from bankruptcy. And we can expect a much greater focus on its home market. But the automaker that so dominated the American car market for so many years will have its work cut out for it.

As for Canada, I believe we will be big losers. The billions we are pouring into this ailing industrial giant will never be recovered. And the jobs we have tried so desperately to protect will soon be lost anyway. For some years to come, G.M. will be forced by pressure from its U.S. government and union shareholders to concentrate manufacturing and assembly in the continental United States—operations in Canada will atrophy.

The best Canadians can hope for is that our government’s bailout of G.M. Canada will buy time for someone else to fill the vacuum as demand for vehicles inevitably returns to historical levels.

Perhaps in G.M. Canada’s demise are the seeds of success for Magna International’s future entry into the North American auto-making/assembly market.

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© 2009 Russell G. Campbell
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  1. But see end of this post for Magna, Opel and Canada:

    "Government Motors in action--and Opel"


  2. Next step is for all sorts of pressure to be put on Toyota to unionize its workers.