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GM: Death of an American dream

General Motors was the Great American Company. But by clinging to the attributes that made it an icon, GM drove itself to ruin.

By Alex Taylor III, senior editor
Last Updated: November 25, 2008: 4:32 PM ET

Fortune's car guy, Alex Taylor, at the wheel of a 1956 Cadillac, built the year he was in the sixth grade.
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CEO Roger Smith tried to modernize the company, but his reorganization left it so traumatized that subsequent bosses were reluctant to take more steps.
CEO Jack Smith shrank the company, but not fast enough to save it.

(Fortune Magazine) -- Back in 2004, when it was still relatively flush, General Motors invited automotive journalists to the South of France for a three-day "global product seminar." The idea was that writers like me would drive new cars, consume loads of free food and wine, pal around with executives, and develop favorable opinions about GM.

Still a little jet-lagged, I arranged to drive with chairman and CEO Rick Wagoner in a yellow Corvette. Our route would take us from the Four Seasons resort in Provence, where we were staying, through the French countryside and on to the Paul Ricard race circuit near Marseille in time for lunch. My job was to navigate while Wagoner drove, but I used the face time to pepper him with questions rather than pay attention to the route book.

Polite and good-humored as usual, Wagoner mostly ignored my directions and followed the car in front of us. Two hours later we found ourselves back at the hotel. I had been navigating from the wrong map, and the car in front of us, driven by Chinese journalists, was just as lost as we were. Lunch would be delayed while we hurriedly made our way to the track, meaning I had effectively kidnapped the chairman of General Motors (GM, Fortune 500) for three hours.

Sure, we had been tailed the whole time by Wagoner's security detail, but it remained behind at a respectful distance and never stopped to ask us where we were going. What I learned from the incident were several things.

First, never underestimate the ability of a know-it-all journalist to get it wrong. And second, at some point good manners and civility become a liability rather than an asset.

After three decades of covering the auto industry, I've learned that Ford (F, Fortune 500) executives tend to be scrappers skilled at bare-knuckle office politics, while the top brass at Chrysler traffic in bravado and charisma. Not at GM. Guys like Wagoner set the tone: smart, sincere, diligent - modern-day Eagle Scouts.

But in working for the largest company in the industry for so long, they became comfortable, insular, self-referential, and too wedded to the status quo - traits that persist even now, when GM is on the precipice. They prefer stability over conflict, continuity over disorder, and GM's way over anybody else's. They believe that hard work will overcome adversity, and that tomorrow will be better than today - despite four decades of evidence to the contrary.

Is bankruptcy the best way to get GM back on the road? Tell us what you think.

In many ways the story of General Motors since the 1960s is a tale of accelerating irrelevance. Customer preferences changed, competition tightened, technology made big leaps, and GM was always driving a lap behind. It became a red-state company, its Buicks and Pontiacs seldom seen in California or New York City. GM has been losing market share in the U.S. since the 1960s, destroying capital for years, and returning no share price appreciation to investors.

I've had a chance to watch all this up close as a business journalist for the past 32 years, including 23 at Fortune. Over the years the company has tried to reform itself any number of times, but it has been doomed by what once made it successful: doing it the GM way. Ask Rick Wagoner why GM isn't more like Toyota (TM), and he'd tell you, "We're playing our own game - taking advantage of our own unique heritage and strengths."

Turns out GM should have forgotten that and become more like Toyota. Toyota's market cap is now $103.6 billion; GM's is $1.8 billion. I've visited GM operations in Japan, China, Germany, Brazil, and Chile, not to mention the U.S. I've attended auto shows, product launches, technical background sessions, and news conferences, in addition to interviewing legions of GM executives, analysts, and consultants. Looking back, three relatively recent events signaled the depth of the problems that have overwhelmed the company.

I was in the audience at GM's Tech Center in Warren, Mich., on the day in October 1999 when GM revealed the production version of the Pontiac Aztek to the press for the first time. The company was positioning it as a "lifestyle support vehicle" that was the "most versatile vehicle on the planet." With our curiosity piqued, we watched drapes pulled off - and the room went strangely silent. The Aztek bristled with gills, creases, roof racks, and plastic cladding - and that was the good news.

A toxic mix of overreach by market research, compromises by manufacturing, and pound-foolish accounting by finance had resulted in a vehicle that appealed to practically no one. Within weeks the Aztek would be judged one of the ugliest cars of all time. Creating vehicles that people want to buy is the most fundamental mission of any auto company, and GM had failed with the Aztek.

Now it's September 2006, and I fly to Southern California to drive GM's new fuel-cell car, called the Sequel. New government fuel-economy standards and changing consumer preferences are creating a demand for cleaner vehicles; GM wants to leapfrog its Japanese competitors with fuel-cell cars. Since the Sequel isn't licensed for on-the-road use, GM has rented the U.S. Marine Corps' Camp Pendleton as a proving ground. Aside from some stalling problems caused by software glitches, the vehicle runs as promised, generating electricity from the fuel cell and producing only water droplets as exhaust. A GM executive calls it a "game changer." We are told GM will have a production-ready fuel-cell vehicle by 2010. Is GM ready to become a technology leader again?

Just four months later GM announces it is heading down a different research road. In Detroit another group of executives unveils plans for a plug-in electric car called the Chevy Volt, and it also will be ready for market in 2010. A GM executive calls it a "game changer," and nobody mentions fuel cells. Has the future suddenly dimmed for fuel cells? Or have they fallen victim to some corporate infighting? GM isn't saying. Here is the nation's biggest carmaker, struggling mightily to meet tough new fuel-economy standards, suddenly changing strategy without warning. What's remarkable about it is that it isn't surprising.

My father wasn't much of a car guy, but he considered himself a shrewd shopper and always looked for the best deal. In the summer of 1952, I was sitting on the front step of our home in Byram, Conn., when a new Chevrolet Deluxe two-door was delivered. Price: $1,696. The Taylor family turned out not to be loyal GM customers. My father moved on to Fords, a Plymouth, and then, as my siblings and I reached driving age, a hodgepodge of used European imports that wouldn't be hurt by dings and dents. But the idea of a big, powerful General Motors resonated in my unformed mind.

A couple of years later Time named GM's president, Harlow Curtice, man of the year. Time described Curtice as "first among equals," a businessman "whose skill, daring, and foresight are forever opening new frontiers for the expanding American economy." Curtice told the magazine, "General Motors must always lead." I started telling people that I wanted to be the chairman of General Motors when I grew up.

After getting out of college and journalism school, however, I decided to be a network TV correspondent. So I went to work as a reporter at a Time-Life television station in Grand Rapids. Like the rest of lower Michigan, Grand Rapids was part of the GM empire, home to three big GM parts plants. One gloomy afternoon a smallish man in a gray suit named Richard Gerstenberg came to town to hold a news conference. He was next in line to run the largest corporation in the world. GM sold half the cars in the U.S., and by itself, the Chevrolet division was larger than most standalone auto companies. Everybody knew the slogan "See the U.S.A. in your Chevrolet."

* * *

Gerstenberg was the quintessential GM man. A graduate of the University of Michigan and an accountant by training, he got his first job at GM keeping track of employee timecards and worked his way up from there. After he retired as chairman and CEO in November 1974, he remained on the board of directors until May 1980. He was part of a system that perpetuated the automotive enterprise but did not admit much in the way of fresh air. "We have the best people in this or any industry," Gerstenberg told a group of employees in November 1972. "I always feel a special personal pride, a General Motors pride, because I am one of you - a General Motors man."

Years later I saw Gerstenberg again at a GM event in New York City. By then 80 years old, he shyly introduced himself to a current GM executive in attendance. Though still a GM man, Gerstenberg seemed shrunken and insignificant without the corporate apparatus behind him. Mere men, even a former chairman and CEO, were nothing compared with the might of the company.

In 1970, I witnessed my first strike against GM by the United Auto Workers. It lasted 67 days, triggering layoffs at parts suppliers and steel companies, and dampening economic growth nationwide. The UAW deployed a massive army back then. Some 400,000 union workers walked off their jobs; one historian described it as a "titanic clash between two massive permanent entities." The union won this clash, as it won most, because GM's high fixed costs made the company especially vulnerable to a production shutdown.

The new contract was a sweet one: no cap on cost-of-living adjustments to wages, full retirement after 30 years regardless of age, and increases in already lavish health-care benefits. Detroiters referred to the company as "Generous Motors." The cost of those benefits would bedevil GM for the next 35 years. But they didn't buy union peace. Rancorous relations and periodic strikes remained a fact of life at GM.

GM was still growing - the number of employees worldwide reached an astonishing 853,000 in 1980 - but cracks were appearing that would widen into fissures. The company seemed to forget how to execute. It started to downsize its model line after the 1973 oil embargo and change over to front-wheel drive, but it encountered all kinds of engineering problems.

The small Chevy Vega was prone to overheating that warped the cylinders in its aluminum engine block. GM introduced diesel engines that couldn't withstand the higher temperatures needed to burn diesel fuel. To save money, GM was sharing more parts among its brands, blurring their distinctiveness. A shortage of V-8 engines caused GM to install Chevrolet engines in mid-priced Pontiacs, Oldsmobiles, and Buicks. Complaints crescendoed in 1981 with the arrival of the Cadillac Cimarron, which customers quickly discovered was little more than a Chevy Citation wearing the Cadillac crest.

Since Roger Mudd was in no danger from my career in TV news, I started to freelance in print and landed a job in 1977 on the Detroit Free Press, a morning paper then the sixth-largest in the U.S., with a daily circulation of 620,961. Detroit had been badly scarred by race riots in 1968 and the recession of 1973, and white residents were fleeing the city, but it was still a great news town, and we fought every day against the afternoon Detroit News.

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
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