Corporate America in decline
Today we are witnessing an alarming downturn in America’s industrial health, led by the airlines and the automobile manufacturers. These companies are piling up losses, facing possible bankruptcy, and are unable to meet their employee pension commitments. Unfortunately they are not alone.It is no coincidence that the CEOs of too many of America’s corporations seem to be either crooked or incompetent, and in many cases, both. This is in stark contrast with the industrial giants of the past: Henry Ford (Ford Motor Co.), William Knudsen and Charles E. Wilson (General Motors), Henry Kaiser (steel, aluminum, and shipbuilding), Thomas J. Watson (IBM), and Juan Trippi (Pan-American Airways), to name but a few.How did these companies go wrong? In the companies where those in charge were ripping off their stockholders and employees for their own enrichment, the answer is pretty obvious. Their real motivation was nothing more than personal aggrandizement.The airlines and the automakers are examples of poor management decisions. In the half-century of relative prosperity, from 1950 to 2000, they were enjoying high profits, and it was easier to make financial concessions to avoid controversy with their employees, which might have ended up in strikes (which would have hurt the earnings report for the next quarter). In effect, they were bargaining away their company’s financial future without any serious analysis of the financial implications of what they were agreeing to in the areas of wages, health care and retirement benefits. Their chickens are now coming home to roost, making it difficult for both industries to survive lower-cost competition.In the case of the auto manufacturers, the misjudgments are even more glaring. In its complacency, the industry counted on the American consumer being willing to continue to buy whatever it produced, regardless of quality or fuel consumption. Bigger was better because it made immediate profits. No consideration was given to the fact that if you continue to turn out dinosaurs, the day will come when the public will stop buying them.While Detroit was fat, dumb and happy, the Japanese auto industry was making giant strides in improving the quality and useful life of their cars. They were also looking into the future and the likelihood of higher gasoline prices, and improved fuel efficiency without sacrificing performance. So when the gasoline crunch of 1973 hit, the Japanese had exactly what the American driver wanted, and Detroit’s dominance of the American auto market was history.Forced to play catch-up, the American auto manufacturers went back to the drawing boards and began to improve both the quality and fuel efficiency of their cars, resulting in a gradual improvement in their competitive position against the Japanese.But did they learn anything from that experience? Instead of reading the handwriting on the wall, which clearly warned of future increases in gasoline prices, they banked their future on turning out gas-guzzling SUVs – again because they yielded a higher profit margin, which made the next quarterly report look good. The auto industry even went crying to the administration to make the Environmental Protection Agency cut back on its fuel efficiency requirements so it could continue with business as usual. So what happened? Once again the Japanese have scooped Detroit by reading the future of gasoline prices, and are mass-producing hybrid vehicles that get twice as many miles per gallon as the cars Detroit is turning out! So Detroit must again try to play catch-up.Will our corporate CEOs get their heads out of the sand in time to save their industries? Or is it already too late?Glenwood Springs resident Hal Sundin’s column runs every other Thursday in the Post Independent.
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