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GM's long slow death brings hope of quick rebirth

Bryan Edwards

Don't be under any illusions: GM didn't start dying within the last two years. It has been suffering from a terminal illness for thirty years. It is doubtful if the latest operation will bring anything but respite.

General Motors grew fat and lazy in the 1960s and 1970s. And as it grew globally, so did its problems. The factors that saw the demise of British Leyland almost killed off GM in Europe - and sealed its fate in the USA. GM have made - indeed, continue to make - some excellent cars. They also make some total rubbish.

GM's best cars are its mass-market cars - but the lesson that it learned with its "World Car" were consigned to the scrapyard. Known in the UK as the Cavalier, in Europe as the Vectra and elsewhere - in slightly modified forms - by a variety of names dragged the company from near extinction.

The Cavalier spawned a sports variant - which was little more than re-bodied and shiny wheels fitted - and when the technology was dated, the production capacity was shifted to South Korea where the car became a Daewoo - and was shipped around the world until the South Korean economic miracle fell apart. As Daewoo made old models, GM produced and sold the next generation. But GM changed its strategy - and returned to the one that had failed it before. And worse, it sold the family jewels to keep going.

GM has suffered due to the greed of both shareholders and workers.

In its German factories, it has been forced to adopt "Workers Councils" - in which the shop-floor workers take a very active and prominent part in management. And ramp up their benefits at every opportunity. And strike when they don't get their way.

In the UK, the company was dramatically weakened in the 1970s by shop-floor action which increased costs, reduced output and made poor quality cars. At one time, it seemed that the only thing that worked properly on a Vauxhall was the engine - but its range was dangerously thirsty in a world where oil prices were rising.

If that sounds familiar - welcome to where GM is today.

It bought SAAB - and ruined the marque by turning it into a way to use up parts-bin components. In a world where there is more money in servicing cars than selling them, GM sold its parts business. And in a world where there is more money in lending the money to people to buy cars than in selling the cars, GM sold its finance division.

GM failed to embrace outsourcing: it makes far too much of its cars itself, by today's standards.

Driven by fashion not passion, it churns out new models on an ever-shortening cycle. But each of its models adds more - which reduces margin or makes the car more expensive so less units are sold. It's a vicious circle. It is ironic that the agreement to save at least part of GM is a socialist-capitalist response to a problem caused by socialism and capitalism.

GM has been killed by bad management but also by demanding unions and short termism by shareholders. By cashing in the cash-cows, the primary business became unsustainable. Unions rejected calls for reasonable pay, increased productivity and improved quality - and better made, cheaper cars from other manufacturers ate into markets.

The US industrial companies in the 1950s developed the concept of "built-in obsolescence". Little did they realise that they, themselves, were subject to it.

And now, with GM nationalised - or rather 60% of it being so in order that its debts - mostly incurred since it used up the money from selling the parts and finance businesses - can be wiped out, the irony is that the shareholders and workforce will suffer.

Shareholders will get nothing - in all probability. That means that the pension funds that have not bailed out will face shortfalls. The workers pensions guaranteed by the company are no longer guaranteed.

The lessons from GM are not those that are obvious: they are that a capital intensive company with an inherently medium term development cycle cannot live under short term rules. The workforce must not force companies to spend their money today - and shareholders must not make companies sell off the most profitable parts.

For if they do, they gain today but society loses tomorrow.

That's not how wealth is built. It's how greed comes to concentrate wealth in the hands of a few at the expense of the many. Recognising that is not socialism: it's pure capitalism because the only way to get rich and stay rich is to make sure we have a product to sell and that someone can afford to buy it.

For the bondholders who held GM to ransom last week, before it entered the insolvency courts yesterday, they think that product is money.

And they are right: there will always be a demand for that.