GM: Leading On U.S. Business Issues
This month, the spotlight of public attention drifted from the continuing war in the Mideast, to the losses in U.S. business. While ExxonMobil reported the largest quarterly profits of any corporation in history, many blue-chip U.S. companies are struggling with record high costs of petroleum-based raw materials and parts, production, and shipping. And their customers are similarly finanically stressed.
The auto industry is only one example.
In an exclusive interview with El Lider, USA, General Motors’ Chief Executive, Rick Waggoner, explained how
GM- the world’s largest automaker- is coping.
(Interviewing Mr. Waggoner, are Gretha Gudmundsson, Publisher of El Lider, and Jonathan Mark, Editor of Auto Age, USA.)
Mr. Waggoner, I read the article by you in the Opinion
Journal- ‘A Portrait of My Industry’- and you mentioned you would like an “even playing field.” What does this mean exactly?
“What we were addressing there was really two questions. One, the point that we know that within the
company- and with our constituents, like our unions- we need to make some significant changes to be competitive in what is now an ever more open and global marketplace. We accept that, and we’ll do that.
“By the same token, we have by virtue of our history, a huge manufacturing, engineering- employment- presence here in the U.S. which we like to keep up, to the greatest extent that we can.
“Some of the policies of the U.S. government make it a less competitive place to manufacture. What I was trying to do, was make it clear that things like the high healthcare costs- which are paid in the U.S.
primarily by employers- in other places are paid in different ways by employees, and by governments. It’s an element that makes us less cost-competitive than other countries where you can produce cars.
“Over time, as the industry becomes more open, and trade is more open; that’s an important factor for us to address- and for the U.S. government to address- if we want to keep growing manufacturing jobs and growing our economy.
“Another issue we highlighted was this issue of exchange rate policy. We in the U.S., follow a policy of open trade, and let the market also determine our exchange rates. What has been particularly unnerving to us, is that not everybody plays that way. Japan, in particular, has taken full advantage of the open U.S.
market for many years. I think that has been good- the consumers have benefitted from that- and the economy has benefitted.
“But what is unfair from our perspective, is that our government lets our exhange rates be determined by market forces- which we think is fair- that’s what everybody agreed on. The Japanese government does not do that. They have a policy of regularly over the last 20 years; spending resources to artificially weaken their currency, which enables them to maintain manufacturing jobs in Japan. Rather than- if the currency was valued correctly- some of those jobs might move to the U.S.
“It’s those kinds of policies that we think only the government can take a leadership role. There are things we need to do, but there are things we need the
government to help on.”
How is GM going to convince the government to make those changes?
“So far, we haven’t been that successful. We do what any citizen- or what any business or constituent would
do- we try to make sure that we have a good, logical case, one that’s fair. We talk to people elected to
Congress- the House and Senate- we talk to key members of the executive branch of the government. We talk to other businesses and advocacy groups: whether it’s business round-tables or chambers of commerce. We try to get a broader understanding of the issue; why it’s
important- not just for General Motors- but why it’s important for the auto sector, why it’s important for business as a whole, why it’s important for the whole economy.
“Our view is that’s one of the opportunities and responsibilities we have. Sometimes the government listens to us, sometimes thay don’t. But we have to
“There’s an element of leadership in addressing the healthcare problem- even if it’s not immediately what you see as positive leadership. Right now, GM’s got the opportunity to put this in front of everybody. My guess is that you’ve studied this problem. Is there anything you can talk about, whether it comes from the government or the private sector, or from the union?
Systems that work in other parts of the world?
“It’s a massive issue. There’s not one solution. There are a lot of things that can and need to be done.
“There are things- like the fact that in the U.S., we don’t have a very good information technology system in the healthcare industry- it’s sort of done by manila folders in your doctor’s office. We used to have that system at General Motors for all our employees. Now it’s all on computer. If I want to know something about an employee at Holden (an Australian GM subsidiary) I can get on and call up and I can see it right there. Think of the time and efficiency. But when you go to your doctor, he’s got your files. When you go to your next doctor, what do you have to do?
The first half hour, you sit in the waiting room filling out this mind-numbing form. One of which is ‘How are you going to pay me?’
“If we had a system where you could have your own medical record- and have this stuff stored in it- you could get more efficient treatment. And, I think- in clear ways- higher quality and faster treatment. Take kind of a real downside scenario. You take a certain drug. Something happens to you; you have to go to an emergency room. The doctor there doesn’t know you take that drug. He either can’t treat you- or in the worst case he treats you the wrong way- you get a negative reaction. There’s a lot of waste, a lot of inefficiency.
“If we look at those kinds of things, it’s clear we need to do it. It’s just a question of when? Who’s going to lead it? We do think the government is the biggest purchaser of healthcare- through Medicare.
They could just say: ‘In five years, we’re not going to reimburse you unless you do this’, and people would figure this out.
“There are about 10 of those kind of things. It doesn’t require us to get into this very sensitive
debate: ‘Should there be a national single-payer healthcare system?’ or ‘Should individuals be responsible for their healthcare payments?’ If you try to get on either one of those debates in Washington, half of the people are on one side- half the other.
I think no matter what- who- pays for healthcare in the future; things like this will make sure the quality of the healthcare is better, and the waste is going to be lower. It’s estimated that doing something like the information technology (as described above) could actually reduce cost by about 25% in this country, and improve the quality, so that’s the kind of thing where you go, ‘Wow. We ought to be doing that.’”
“Do you think you’ll be able to have some impact?”
“I think there’s a growing understanding. The current head of Health and Human Services, has taken a proactive lead on the information technology system:
so I think that’s an example that there’s a growing interest in it.”
“Any coalition with other industries- other manufacturing?”
“We do things like that in Detroit, where we have concentrations of employees. The ‘Greater Detroit Healthcare Alliance’- ourselves- the big auto
manufacturers- some big suppliers, Detroit Energy; we work together on regional healthcare issues.”
“I would say mixed. But it’s getting more attention, so we can do more than we used to.
“I personally think there’s a growing consensus. We’ve seen it because of our specific circumstance- providing healthcare to over a million people. But I think it’s affecting more and more businesses.
“Now we see a lot of the healthcare in the country is provided by state and local governments, too. To their police force, or to services they offer. And they’re now seeing these costs go up, as well. So- if you talk to the governor to Michigan- the biggest issue is the growth of healthcare costs, and the employees that she must cover. I think there’s a growing consensus that somebody needs to do something. And I think that that’s going to lead to some action. I personnally think, that if we had strong leadership out of Washington, that it would be well received.
“Are there ways in which stockmarket analysts may not be a good measure the health of the auto inudstry?”
“Well, it’s like every profession- there are some very insightful reporters that know a lot about the auto business- some reporters that think they know a lot- but aren’t as insightful. It’s true of auto executives, as well. Some of the analysts actually understand how the industry works, and maybe others don’t. There are some nuances about the business. How can you have a good feel for where an auto company is going without knowing quite a bit about the product side of the business?
“Half of the success in our business is driving the revenue line. In many cases, if you’re just looking at financial measures, you may be looking in the rear-view mirror. If I’ve got great numbers, but if you go to an auto show and look at my products and you say they’re old, we’re not replacing them, we have lousy fuel economy, we don’t have any strategy to get into the emerging segments- you may say ‘Hey, your financial results are good, but it looks like you’re headed for trouble.’
“Whereas, you could have a company, frankly, like us.
We lost a lot of money last year- by any measure, pretty bad. But if you go look at our products- and it’s not just me- some of the auto writers are very positive. So, how do we change the public image? How do we get the right pricing?
“Eventually you’re going to be driven by your products- and the capability of your people. The financials will arise from that.”
From the Editors-
What Does it Mean?
If you were around for the last energy crisis in the 1970’s, you might note that it didn’t take a lot of conservation to back off the oil companies. A relatively small reduction in overall fuel use across the industry, got the oil industry back in line. Small cars emerged, but big cars and trucks didn’t go away.
Although it was predicted at that time, that a diverse energy supply was going to be the solution: very little was done. Today, windpower, nuclear power and alternative fuels like ethanol and bio-diesel are proved, but not available in volume.
In 1973, a full-sixed V-8 sport-utility got about 10MPG. Today, it can get close to 20MPG- not including the options of alternative fuel or hybid powertrains.
The next goals are around 30MPG, and full-sized sedans are already there.
On the healthcare and benefit side, we seem to be even further behind. The three parties that manage healthcare costs- physicians, insurance companies and
hospitals- also benefit from ever higher billings.
Individuals and employers have little choice. Pension plans have moved from defined benefits to defined contributions with possible benefits. Young workers are particularly cynical.
Almost no one believes that they will be the beneficiary of a company retirement plan- or even Social Security. There has been no national leadership on that issue, either. Sad to say, the idealism represented by the legacy costs borne by GM, will probably not be seen in the future.
As times have become tougher in the auto indutry, we wind up with more respect for these manufacturers, who commit to a product life of about three administrations in Washington. And that’s after 2-5 years of research and development. The auto manufacturers have to take a longer view than the politicians. That’s a good thing for America:
automobiles are our largest industry.
The other leadership from the auto industry this month, was the announcement by GM that their executives would take a pay cut along with the workers. Separately, it was noted that if American Airlines executive salaries were reduced to only $750,000/yr, every flight could offer free meals again.
We should note, in closing, a more signficant piece of news. While the labor rate in mainland China is quoted at $3.00/hr: the government there requires an almost equal amount to be deposited into a pension and healthcare fund. This puts their basic labor rate not too much different from our own minimum wage. But it includes the two major benefits.
Maybe globalization will be our salvation.