Failing to Read the Tea Leaves Again

Cool Friend Sally Helgesen joins our blog again. This entry appears on her website, too. We welcome Sally’s voice here:

As someone who grew up in Michigan, I’ve always followed the news from Detroit, and been particularly fascinated by GM. So I’ve found the announcement this week about massive layoff and shutdowns riveting, not only because of what it means for the prototypical corporation that shaped America’s industrial age, but also because of what it seems to say about how the U.S. practices market capitalism in the global era.

Of course, we all know the obvious reasons that GM is undergoing its present agony. Periods of stunningly mediocre leadership (think Stempel) have often alternated with periods of a willful but misguided visionary approach (think Roger Smith). And then there are all those pensions and the extraordinary burden of having to bear soaring health care costs for millions. Why, given the latter, Rick Wagoner hasn’t led the charge for government health insurance, and brought a couple of his Business Roundtable buddies along for the ride, is a mystery best explained by experts on the subtleties of corporate suicide. But what seems above all to have gotten GM into trouble is its astonishing inability to read the tea leaves—despite having been punished for this same failure once before.

I’m not going to jump all over SUVs. I drive a Jeep Grand Cherokee, a car that must warm Dick Cheney’s heart every time he spies one at the pump. Still, despite my fondness for my car, it was hard not to conclude watching the start of the Iraq War, and reading of unrest from Lagos and Caracas, that oil prices would indeed be going up in this decade, and that people like me were going to be stuck with cars they wished they hadn’t fallen for and so put fuel efficiency at the top of their must-have list when they made their next purchase. This could not have been more obvious, yet Detroit continued to buy into the conventional wisdom that Americans have such an abiding attachment to roadhogs that they will happily go broke keeping them up.

Of course, Detroit made the same mistake in the 1970s, when the OPEC oil embargo made all those guzzlers we loved suddenly impractical. I was able to buy a seven-year-old De Ville in the late 70s for $900 because dealers could hardly give the things away. So why weren’t the automakers on their guard this time? Why didn’t someone say, yes, Americans will continue their love affair with SUVs for as long as gas is reasonably priced, but given what’s happening in the world, that’s not going to last. So let’s learn from the past and put our best efforts into developing cars that suit the way the planet seems to be heading.

No such luck. And that brings me to my point about whether the U.S. has the right stuff for long-term competitiveness in a global arena. For the truth is that the financial structure of our corporations forces them to sacrifice long-term development for short-term profit. The markets would have brutally punished GM for not turning out SUVs at a torrid pace in 2002-2003, even though all the signs said that change was coming. Shareholders would have been storming out of annual meetings if the company hadn’t been rolling the hogs out fast enough.

So GM’s managers let themselves be blinded by ideology (“Americans insist on big”) in order to avoid the evidence of what was coming, because if they had confronted that evidence it might have impacted their value as gauged in quarterly reports. It’s hardly a stretch to see a similarity between this and the company’s refusal to use its influence to lobby for changes in how this country pays for health care—despite this being a major reason that GM cars have an uncompetitive cost structure from the get-go. Yes, this represents a failure of both leadership and imagination, but I also believe it represents something else: an inability to recognize that some of the structures that made American capitalism the wonder of the industrial era won’t be adequate in the global era that this same form of capitalism has spawned.

Seth Godin posted this on June 15, 2005, in Strategies.
Bookmark and Share