General Motors Rick Wagoner finally admits his biggest mistake

It takes a big man to admit a mistake, especially when the mistake almost crippled an industry giant. Rick Wagoner, former GM CEO, came clean this week admitting his mistakes. Now, no one likes to see anyone lose a job, but this mistake placed General Motors (NYSE_GM) in jeopardy years ago.

So what was Rick Wagoner's big mistake?

First off, I think you have to look at the man himself. By all accounts, Rick Wagoner was a very popular person both in Detroit and with the press. Maybe his Achilles' heel is that he came from GM's accounting department  and was not thought to have a great feel for the automotive business.

Now GM is in the energy and transportation business. Of course, without the energy market (crude oil), you wouldn't have a transportation business. So surely they must have known somewhere along the line (maybe after the gas crisis in the 70s), that gas was going to be a problem sometime in the future.

So being in a business with a double edge sword, where one revenue stream flows from another, you must keep your eyes on both areas. I'm sure that's not an easy thing to do

It seems as if General Motors got it right when they made a decision to go into the electric car business in the late 90s where they produced an outstanding electric car named the EV 1. Had they stuck with this plan, they would be in much better shape than they are now. It was Rick Wagoner's decision to kill this project and that is what he calls his biggest mistake.

Like I said, General Motors by default is in the energy and transportation business. Regardless of whether the energy is provide by gasoline or electricity, it literally is the fuel that drives the automobile business.

I think you'll enjoy this post that we put up six months ago about the share price of General Motors (NYSE_GM).

One of the biggest keys in business is to dynamically change with the times and to resist complacency. There are always competitors out there that are going after your share of the market. Sometimes companies become so big that they become arrogant and take their eye off the ball. In the case of General Motors, the world was zigging while General Motors was zagging.

There is no doubt in my mind just like I said six months ago, that General Motors is not going to survive in its present form. I expect we're going to see General Motors go into bankruptcy and emerge as a completely different company. This is going to affect thousands and thousands of people, both former General Motors employees and also its suppliers. But it has to be done if we're going to move forward in this economy. Companies should be allowed to fail no matter how big they are.

There used to be a company named F. W. Woolworth Co. and it was the biggest five and dime store in the US. In 1913, this company built the tallest building in the world in New York City and paid for it in cash!! F. W. Woolworth Company, in its hay day, was a very big company that employed thousands of people around the world.

In 1997, F. W. Woolworth Company converted itself into a sporting goods retailer, closing its remaining retail stores operating under the "Woolworth's" brand name and renaming itself Venator Group. By 2001, the company focused exclusively on the sporting goods market, changing its name to the present Foot Locker, Inc. (NYSE: FL).

In other words, the company evolved into something totally different. I expect the same will happen to General Motors  as it too will evolve into a totally different company and will remain in the energy transportation business but under a new identity with a fresh start.

Adam Hewison


Co-creator, MarketClub

18 thoughts on “General Motors Rick Wagoner finally admits his biggest mistake

  1. The real pill to swallow in the US auto industry is: "wages and salaries" must always be less than the "value added" in the process, or eventually you always run out of "other peoples money", as Mrs. Thatcher, so wisely commented about socialism.
    US auto workers and management must set and seek a goal of creating more "value added" for less cost than Toyota.... "duhh": "think value", raises will come later.

  2. That is that bankers asking for and receiving 100's of billions from Obama, they get it and get to keep their jobs and even after public sentiment shows that the people want some accountability and want some of these high rollers replaced it doesn't happen. Then after a 72 hours meeting is held that includes these bankers and the current administration, GM's CEO is fired??????
    You have to ask yourself was Rick Wagoner's demise the fact that he was a poor leader or was it the fact that he wasn't a banker?

  3. Dropping the electric car was probably a bad decision in hindsight, if we assume the electric car will ever be the real alternative to the current version of fuel burning cars. I am not a technologist, so I have no idea.

    I do find the current hybrids rather dubious. I drove one for a while and noticed several things. The gas engine was very weak, so outside town it struggled when we got to the hills. I would never have bought a gas powered car with an engine that small.

    The other thing I noticed was its gas consumption outside the city, which was much higher than my normal car. Now considering the fact that driving in cities is something to avoid like the plague as you cant get around and parking is a nightmare, I wonder why the objective is to make a car which is fuel efficient in town but less so on the open road.

    I drive a diesel car, on which I average over 50mpg (English gallons). It is quite powerfull with its 2liter engine, so no problems with hills and it has all the latest filters to keep the particulates or whatever it is out.

    So electric and hybrids may or may not have a future. Whichever it is, it is going to be a while. In the meantime, there are lots of cars out there which will make life much better for all of us, not including the new Cadillac Escalade Hybrid.

  4. Thanks for sharing this Adam!

    People are looking to save money hence buy cheap. If you have a cheap car (no matter if it's electric or not) and the use of it it's cheaper than most of the offers out there, you'll succeed. Look at European cars, they are cheaper and more energy-efficient. But look at Renault, Peugeot or Daimler stocks. Opel is on the brink of bankruptcy (that is still GM) and SAAB went under (SAAB was not cheap at all and not very efficient). So maybe GM would have been a bit better, but auto-makers in general are suffering huge right now; people won't buy a 3rd car or change the car at all right now!

  5. "Companies should be allowed to fail no matter how big they are." I think that says it all, Adam.

    As a former auto worker (Chrysler, 12 years) I can agree that there were some bad business decisions made by management, but the elephant in the room nobody wants to talk about is the ridiculously bloated union contracts.

    Sure, I can tell you first-hand that the work was physically challenging, and the plant I worked in was stifling hot in the summer, but it was basically unskilled labor. Nevertheless, we were paid $25-$28/hour, and that's not including benefits. I regularly worked overtime and easily made over $80,000/year. Are unskilled laborers really worth that much in a global economy? I doubt it.

    Mind you, I was glad to make that kind of money, and the benefits were tremendous, but in the back of my mind I think I always knew that the day of reckoning would come when it would all go kablooey. There was really no incentive to work hard or excel, and if you got out of line, you could count on the union to bail you out.

    I was even told to work slower because if I worked too fast, management would expect me to do it all the time. And lots of luck trying to get a skilled tradesman to come and fix your machine promptly. They got there when they got there, and they walked around like they owned the place.

    As the lower-cost foreign competition kept getting stronger and stronger, it was only a matter of time before the weight of the overly-generous labor and legacy costs would have its day. It was greatly accelerated by the credit crisis. So it probably happened sooner than it should have, but eventually something drastic had to change.

    But to be fair, there's plenty of blame to go around from upper management all the way down to the production floor. Poor decisions were made, excellence was not rewarded, and costs of doing business got out of control.

    The way I see it, bankruptcy is the only solution. It doesn't have to be the complete demise of GM or Chrysler, just a reorganization into a more efficient, lower-cost producer. Bankruptcy is the free market at work. Bailouts are merely the socialization of bad business decisions and debt.

    1. amen to brians comments. I drove 50000 miles a year and had to stop buying us cars because they. were of poor quality and had high maintence. german cars would easily go 200-300,000 miles.

  6. Emerson,

    Everyone in the GM game is going to take a haircut. I expect that retired GM workers will receive on a worse case scenario zero benefits and in the best case scenario benefits that are greatly reduced.

    No one is going to be happy with the outcome of this mess.


  7. What will happen to all of the retired GM folks that are receiving a pension if GM goes into bankruptcy?

    1. Maybe they could go after their wonderful union that helped create the problem in the first place.

  8. So many views are so right! But they miss one thing that is true for many other companies, too. CEOs see themselves as generals in a war and they want to be both aggressive and defensive at the same time Aggressive means killing or buying the competition (read up on the destruction of public transportation by the surrogates of GM, Esso and others). Defensive means they want to have a wide moat around their fortress. That stifles progress and creates a disadvantage that is not seen right away. So cost cutting leads to poor products. I am not fond of US products. They are usually good improvisations but far from quality.

    When Daimler tried to make something out of Chrysler the Chrysler guys just could not handle the quality Mercedes demanded and they used a cultural war to defend themselves. We know where that got them. Fiat will suffer the same fiasco because these old companies lack the flexibility that once was a staple in US attitude. GM had a ball and chain with Opel. Opel was not known as reliable even though they advertised just that as their foremost quality.

    GM cheated decades ago by not not putting enough money aside for pensions and health care of their workers. And the unions did not make sure their members future would be safe. Management acts like dictators. If the people don't love me I have to find another people.

    The US industry is down the toilet because of management, greed, and arrogance. It will not come back, not even with a stimulus package, or two, or three, or...

    1. I could agree more. As I said in my previous post, when I worked in a dealership way back in the 70's the quality of the Japanese cars far, far exceeded the quality of the GM & Chrysler products. Ford was much better than both of them but still couldn't match the Japanese. And to have someone working an assembly line making $70 an houd is ludicrous. The mechanics working in the dealerships don't make anywhere near that & they have to know much, much more than the assembly guy, not to mention having to have $40-50K in tools.

  9. Adam,
    You hit the nail on the head. Bailouts are good under certain circumstances but when the purpose of a bailout is not being immediately served, it is time to take a proven approach and let the business be challenged to survive.

  10. I'm hoping for the best for GM and all the related businesses and workers.
    But the company as a whole did mess itself up.

  11. You are right on the money. Another factor is the quality of the vehicles compared to the Japanese vehicles. I worked in a multi brand dealership way back in the 70's and at that time the GM quality was not even close to the Japanese vehicles.

    The other thing I think people need to realize that although the politicians are talking about how electric vehicles just aren't practical now that gasoline proces have come down. They seem to have a short memory about what happens when prices do go up, AND THEY WILL GO UP AGAIN, it's just a matter of time. We can't wait until that time to begin working on electric or some other form of fuel. We should have been doing the research after the shortage in 74, if we had we wouldn't be as oil dependant as we are today. It's time the politicians, and the public for that matter, start thinking about the future, not today.

  12. Adam,

    What nobody is talking about is that GM owned Ditech which got them wrapped up in the subprime crisis. I am sure that this was not a trivial matter and although I agree that they did not do a good job managing the auto side - it is the finance side that also took them down.

    1. Ron,

      Thanks for your valuable input. I was like many folks out there unaware that Ditech was owned by GM.


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