As Goes General Motors, so Goes the Nation.

Friday, November 14th, 2008

For the past two decades, this remark made by the head of GM when Dwight Eisenhower was President, was thought to be a quaint bit of “Americana” no longer relevant in the new economy.  A memorable moment was when Microsoft surpassed GM in market cap in the mid-90’s and some financial journalists suggested changing the mantra to “as goes Microsoft, so goes the nation,” since the fortunes of America’s largest technology company was thought to be a more important indicator than a car manufacturer. That was then. In the past eighteen months, however, as the economic downturn has gained breathtaking speed, we are now struck between the eyes by its relevance as GM has come to Washington hat-in-hand and our President-elect and several members of Congress agitate for a bailout of US automakers.

This brings us to the recent comments of the auto analyst at Deutsche Bank who reduced his rating on General Motors to sell and set a price target of zero. As several readers of the Wall Street Journal opined, thanks for the helpful comment.  We might want to alter the last word of the often quoted line from Shakespeare’s Henry VI, Part II: “The first thing we do. Let’s kill all the lawyers.” GM is now back to its 1946 price level and the question at present is whether or not a government backed bailout would help enough.  Many Wall Street and armchair analysts think GM is more than a lost cause.  Perhaps so, but before tossing in the all the towels, we should take a hard look at a relevant precedent in the very unexpected and stunning turnaround of Nissan/ Renault.

Nissan Motors, in 1998 had been given up for dead. The Japanese economy was in a prolonged recession and Nissan was suffering more than its competitors Toyota and Honda whose global franchises were thriving . Nissan had an enormous amount of debt for its capital structure, a crumbling stock price and a lack of profitable models. Sound familiar? Into the fray stepped Carlos Ghosn, a Brazilian born Lebanese citizen of France to take the helm the third largest Japanese auto manufacturer.  Brought in as the Chief Operating Officer as a result of the merger with Renault, Ghosn became the CEO and orchestrated an improbable and spectacular turnaround under very difficult economic and cultural conditions. Ghson focused the merged company on the leverage that could be gained through a few profitable models. Japanese corporate culture was viewed as impenetrable by an outsider and Nissan, like Ford was for many years run by the founding family. Being an outsider proved to be an advantage since part of the turnaround of Nissan involved layoffs and plant closings—steps a Japanese corporate insider would have been hard pressed to execute. When responding to questions about how he was able to do this, Ghosn very diplomatically speaks about how he was able to connect with Nissan employees and get them to buy into his vision for change.  Ghosn also put his own body on the line saying he would resign if he did not return Nissan to profitability after one year and eliminate their debt after 6 years. Ghosn is still at Nissan and recently placed the company in the forefront of electric car development through his partnership with Project Better Place.  The ultimate cultural seal of approval came for Ghosn was when his life was turned into a Japanese comic book series.

Can GM be saved along the lines of Nissan?  A couple of years ago, Kirk Kerkorian thought it could and became the largest individual shareholder of GM. His plan was to have Ghosn run GM, but he could get nowhere with the GM board. Kerkorian sold his stock and CEO Rick Waggoner still occupies the head seat. Would Ghosn be interested in taking on the largest challenge in the history of the auto industry?  Perhaps he is content to stay where he is, but two things are clear: it is crunch time and a version of the Nissan template needs to be tried in Detroit. If the respective managements cannot see the light then Detroit’s new partner, the US taxpayer and their new CEO need to apply the necessary pressure to the car makers to clean house and to Michigan legislators who have prevented this by protecting the Big Three from fuel efficiency standards and modifying union and legacy contracts.  So we are more than ever back to the original saying about GM and the nation and there is the potential for a great success story or a missed opportunity. In either scenario (hopefully the first), there will be far reaching consequences for the economy and financial markets.

1 Comment to As Goes General Motors, so Goes the Nation.

Kylie Batt
April 11, 2010

Между нами говоря, по-моему, это очевидно. Попробуйте поискать ответ на Ваш вопрос в…

  A memorable moment was when Microsoft surpassed GM in market cap in the mid-90’s and some financial […….

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