How GM Could Fail Sooner Than You Think

Yesterday, I tried to explain how GM could rebound sooner than you think, but for the sake of balance (and, as the case may sadly be, accuracy) we should also consider whether GM is in fact doomed.

This month's Atlantic piece Do CEOs Matter? argues that very often they do not. The ethos and worldview of companies are often so homogenous and insular that the chief executive could often be replaced by any number of minions under him. If that is indeed the case, it is not good for GM.


Why? David Brooks' column today quotes former GM execs and consultants admitting as much: that "G.M.'s core problem is its corporate and workplace culture." They lost touch with buyers and continue to produce a fleet that's batting under the Mendoza Line: Consumer Reports recommends only 19% of its cars. But the product problems are only compounded by its anchor of a benefit system. The Washington Post estimated that GM has been paying around $65-per-hour to each its employees, if you factor in the cost of benefits, pensions and retirees.

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Brooks lists six reasons why the Obama bailout is unconvincing and likely to zombify the company -- it reduces the influence of innovative outsiders, calcifies the old guard leadership, etc. The list reminded me of something a little different: when Ezra Klein compared the TARP banks to a gambler who knows secrets about the casino owner's wife, so he bets higher knowing the house will always bail him out. The upshot was this: the banks didn't have to change a thing, because when "The House" needs you to be happy, a game of risk suddenly isn't a risky game at all.

Now GM is the gambler that won't be allowed to fail. But it's a totally different kind of player. Instead of acting like a high-stakes roller who continues to take big risks, Brooks worries that GM will continue to behave like a gambler who never took risks in the past, won't take risks in the future, and still, as ever, does not understand how to play craps. End metaphor. GM will fail, but in slow motion.

That would seem to put Brooks and Klein on opposite sides of the spectrum, but essentially what they're both saying is that government bailout money calcifies corporate culture because it reduces the incentive for the struggling company to change the way they do business or seek innovative outsiders. By insulating companies from the risk of true failure, we are insulating them from the incentive for true change.



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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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