Friday, June 05, 2009

GM - Government Motors

I have been passionate about automobiles since I was a kid. With a special interest in vibration and dynamics, I landed six years ago in US to do a MS at Penn State which had close ties with "The Big3" in Detroit. I even overlooked a Fellowship offer from Ohio State to take up a Research Assistant offer at Penn State as I thought the latter would provide me best access to my career industry. Six years ago, I was dejected that I couldn't make it to Detroit. But after observing the automobile industry over the last few years, I am glad that my dream never came true!

On Monday, June 3rd, GM officially declared bankruptcy and in effect may have ended the glorious reign of one of the most popular companies worldwide. Kept alive on life support by the government for last few months, GM finally succumbed to the inevitable. It was unfortunate to see a company, which at one point held 46% of US market share, fold so abruptly. As it stands today about 3/4th of GM is now owned by the governments of US and Canada. It is the irony of Capitalism that allows paupers to become kings overnight and vice-versa. For almost a century, the US economy's crown jewels were the two Generals - General Motors and General Electric. With GM almost wiped out and GE stock flirting $6 few months ago, this might be the perfect time for a change in Guard. Welcome ExxonMobil & Walmart?

3 months from now, GM might still emerge strong, albeit leaner, from bankruptcy. It would however remain only a shadow of its prestigious past. It would be a miracle for this company to reach its glory days of mid 1950's. More importantly it would have to learn to compete with global market but not just the V8 savvy local truck markets. American car companies need to realize that cars (and trucks) cannot be sold on Patriotism alone. Patronizing the customers with advertisements like "This is my country", "American Revolution" etc can only get so much incremental revenues.

Some believe that cars would soon become a commodity. Just like the US no longer manufactures Televisions or Computers, similarly all cars would soon be made in India or China and probably assembled in Japan. The nice ones might still come from Italy and Germany, but most of the non-luxury, regular performance cars will come out of third world countries. In some ways this theory feeds on to the general trend that most manufacturing jobs will eventually gobbled up by developing economies. A few years ago, a person would have been ridiculed for suggesting that someday Jaguar would be owned by Tata and Hummer by a Chinese company. And its not surprising that the only profitable centers of GM today are GM Brazil, GM India and GM China!!

For over a century the American lifestyle has been defined by cars. The largest market in the world fed the automotive industry worldwide and at the same time employed millions at home. Its hard to imagine a similar scale of employment in this industry at home to continue any further. The only path forward for the US car companies would be to innovate and differentiate. I think that this might be the perfect time for the US to dump all its V8s and invest everything into electric cars. There is a whole new market to be tapped into and the country which jumps into it first will rule the industry worldwide for most of this century. Tesla anyone?

1 comment:

Anonymous said...

This is America. There will always be steak, guns, and pickup trucks. The American Way is to feel macho driving a big vehicle. That psyche will not change. Rednecks don't ride Priuses.

Plus, the profits on passenger cars are ugly compared to SUVs/trucks. Even Toyota got suckered into making big bets with the Tundra, and now what do they have?

On a personal level, rarely anyone truly gives a damn about the environment, the economy, the country, or other people. On a collective level, most CLAIM to care, but somehow we all continue to be stuck in the same bogs as ever.

Now let me go see if I can get that double cab Silverado for 18 grand.....