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Should there be a Big Three Bailout?

In today’s issue of the Wall Street Journal, Rick Wagoner, Chairman and CEO of General Motors, argues forcefully for a Big Three bailout in Why GM Deserves Support In the article, Wagoner cites several key actions his company has taken as reason for a General Motors bailout. They are:
* Hourly workforce reductions
* US Salaried workforce reductions
* Transformed labor agreements
* Capital spending cuts

To his credit he does reference that fact that cost cutting cannot establish market dominance, so he cites the introduction of the new Chevy Malibu as an important telltale sign that the company can now produce the products its customers want.

But I’m not so sure.

A few pages later, there’s an article entitled U.S. Car Makers Fail to Improve Resale Values that provides the most crystal-clear reasoning for why the Big Three (including GM) should NOT get a bailout. The article profiles the Top 5 and Bottom 5 vehicles by resale value; that is, the percentage of a vehicle’s sticker price expected to be retained after 5 years of ownership.

BMW, Honda and Toyota occupy the Top 5 positions while Ford, Chrysler and General Motors occupy the Bottom 5.

Very clearly, U.S. automakers have not been producing vehicles that the market values. These companies missed the consumer shift to smaller, more fuel-efficient vehicles, period. May 2004 was the first month regular gas topped $2.00 per gallon. That should have been a harbinger of things to come.

In March of 2005, prices lurched past $2.00 a gallon permanently. So the Big Three have had roughly 4 years to adapt. They haven't until just recently.

What’s the lesson here for small businesses? Stay close to your market. Every day, ask how your market is changing. Listen to what your consumers tell you.

You don’t want your business to end like the Big Three car makers do you?

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November 19, 2008 in Small Business Marketing | Permalink


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I've been stewing on this issue, too. What I've decided is there is a big distinction between 'deserve' and 'need'. AIG certainly didn't deserve the bail-out they got...it was just necessary for the greater good (or so they say).

Posted by: Dave | Nov 19, 2008 11:20:33 AM

The issue with Wagoner's speech was that it read more like a ransom demand letter then a move-forward plan to make the most of the money. X people will lose their jobs, $X Million in taxes will be lost, X suppliers will not get paid, etc. At no point does he say, "We know what we need to do." or "We know exactly how we'll use this money" outside of just using it to survive longer. When asked how much money GM needed, he wouldn't say and more likely, didn't know.

Posted by: Scott | Nov 19, 2008 11:47:22 AM

You raise an interesting point Scott. At the very root of this situation is an unhelpful attitude among Big Three executives that seems to indicate that they lack introspection, or even humility.

Anyone else agree (or disagree?)....?

Posted by: Jay | Nov 19, 2008 1:00:37 PM

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