Parochialism at General Motors

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An interesting article on the front page of the Wall Street Journal this morning (subscribers only) on the parochialism of the giant, sclerotic bureaucracy of General Motors. The lead paragraphs encapsulate the problem.

In December, General Motors Corp. ran a series of ads across the U.S. showing Cadillacs being driven in snow. The decision to do so was made by the giant carmaker's executives in Detroit, where on Christmas Day, temperatures hovered just above freezing.
The ads also ran in Miami, a vibrant car market where GM has bombed for the past 15 years. As Christmas dawned, temperatures there started climbing into the high 70s.

Here's more:

In Miami, where no GM car is a top seller, GM started bilingual advertising much later than its rivals. Some of the ads it did run were duds. One wooed Miami's mostly Cuban-Hispanic population by showing a woman in a Mexican dress standing in front of the Alamo as GM Saturns raced around her. Another was built on the theme "Breakthrough" – a word that doesn't have a direct Spanish translation.
In the late 1990s, years before GM's Cadillac Escalade became a hit, dealers in Miami suggested GM build such a luxury sport-utility vehicle. They were shot down by executives in Detroit who said it would never work. GM later went on to sell more than 400,000 of the luxury SUVs.

I grew up in the Detroit area and at the boys' schools I attended had some exposure to the sons of auto executives. One thing I noticed fairly early on was the parochialism of the Big Three auto execs. They assumed that everyone in America was like them—a family man who needed a big car to take the family up north every summer. That's the way most people in Michigan—auto execs or UAW members—lived. And in the two decades after 1945, in an America characterized by great cultural homogeneity, a baby boom, conformism, this parochialism was not a liability. You basically had to build one kind of car, with price gradations based on engine size, interior décor, and chrome, and people would buy it.

But there were problems even then. One of the problems was the auto clocks. As I remember my parents' GM cars from the 1950s and early 1960s, they were equipped with automatically self-correcting clocks. Since the automakers had evidently not mastered the technology of keeping electric clocks operating accurately in vehicles in which the electricity was not on at all times, the clocks were engineered to adjust when you reset them to the correct time. Reset them 20 or 30 or 60 minutes later, and they would run faster. Reset them 20 or 30 or 60 minutes earlier, and they would run slower.

This worked fine in Michigan, which between 1945 and 1966 was one of the small number of states without daylight-saving time. But in states with DST, if you reset the clock when local time changed, it would never keep correct time again. The Detroit auto execs took a long time to figure this out. They thought everyone lived in a state like Michigan.

The Wall Street Journal article suggests that this mind-set continues to this day, or continued until very recently, at executive-clogged General Motors. Since the late 1960s, it has been apparent that the market for cars is not a single market for one kind of universally sellable vehicle, but many markets for many different kinds of vehicles. Not every buyer is a family member who wants the car to navigate through snow in the winter and to be large enough to transport the family up north in the summer. But evidently that insight took a long time to percolate through at General Motors. Here's one last quotation:

In early 2005, Mr. Wagoner [the GM CEO] flew to Miami for a "state of the business" briefing from a group of regional marketing managers. The presentation showed how GM lost about 11 percentage points of market share among Hispanics in South Florida between 1990 and 2000, even as the local Hispanic population grew to encompass 60% of Miami's population.
"It took you five years to see the decline?" Mr. Wagoner said, recalls Ms. Green, the GM marketing executive who was also visiting Miami at the time. There was silence in the room. "He was pretty harsh," she says.

What some executives in the room didn't say was that many people locally held Detroit responsible for the company's collapse in Miami. Local dealers and managers saw the decline firsthand but say their appeals to Detroit for help fell on deaf ears, a problem that was repeated across the country.

Oy vay.

Footnote: Over the past 120 years, American Jews have been fabulously successful in businesses in which there is a tremendous premium on being exquisitely sensitive to the rapidly changing tastes of people totally unlike themselves: women's wear, retail, show business. You could argue that Jews, often immigrants with an imperfect command of English, to a large extent created these industries. The movie-studio bosses of the 1930s and 1940s, almost all of them Jews, created movies that present an image of what it means to be American that still rings true 60 and 70 years later.

But in the 1950s and 1960s, the Big Three automakers, like most manufacturing corporations, employed very few Jews. As William H. Whyte pointed out in his 1957 classic The Organization Man, corporations hired people not for their skills and abilities but on how well they fit in with other people in the organization. So General Motors didn't hire Jews, because it was clear they wouldn't fit in at the Bloomfield Hills Country Club. So, at a time when auto styling was important in sales and at a time when the demand for different kinds of vehicles was growing, the Big Three denied themselves the services of members of a group with a demonstrably superior ability to understand the rapidly changing tastes of people unlike themselves.

Instead, they hired and promoted people who assumed that everybody in the marketplace was just like themselves. Stupid.

Some free- market economists argue that racial and ethnic discrimination is likely to die out because it's economically irrational. It's an attractive argument, and one I long to believe. But the experience of the Big Three suggests that the people running big organizations can take a long time to wake up to that irrationality. I was blessed to grow up with parents who believed that discrimination against blacks and Jews was morally wrong and led their lives accordingly. As a result, I was always hostile to such discrimination and thought it was not only wrong but stupid. General Motors' plight, as sketched out in the Wall Street Journal article, is just the latest evidence that I was lucky enough to be led early on toward a view that is correct.