General Motors is on its way to bankruptcy, in all likelihood, and it’s been clear since last June, at least, that this would be the inexorable, inevitable conclusion of a long decline, suddenly accelerated, that didn’t have to be. Certainly Rick Wagoner, a likable but luckless CEO, impressed nobody with his last months in office, pleading for more and more help from the feds without realizing that each enormous bundle of cash bought him thirty, maybe sixty days at best. A year ago, GM was worth less than the Hershey’s chocolate company, and now it is capitalized at a tiny fraction of the billions it requires to fight another day, though with little chance of another quarter, much less another year.
Bankruptcy would have been the answer months ago. It would have wiped out the union contracts that have hobbled GM for years. The question is: why didn’t Rick Wagoner and his predecessors take on the unions in the same way Maggie Thatcher, as prime minister of Britain, stood down the coal miners? And why didn’t Bob Lutz, the car wizard from Chrysler hired by Wagoner, a numbers guy, to shore up production at GM, do a better job with styling?
Why, also, did GM bet everything on SUVs and pickup trucks?. That’s where the big profits were, of course, especially in the US, but it’s not all that people were buying. If they had looked at the traffic on the street, it was plain to see that many were driving cars. If only GM had hedged its bet, with more assembly lines more easily convertible from one style to another, it might have withstood the gas- price onslaught of last spring. Now, of course, gas prices are down, and big vehicles, to some extent, are back, so it’s a mistake to make permanent plans. “Permanent”, in fact, is a word to be dropped from the dictionary.
Another word to drop is “model,” not in the sense of automobiles but of computer modeling. It can be seductive, especially with supercharged, redundant machines that can gobble data and disgorge amazing arrangements of business affairs where dissonance turns to dazzling harmony. But these computer models are not a reliable basis on which to build a financial system. They are whimsical human constructs. They are hypothetical, not sent from God.
The absurdity of modeling was apparent in a recent remark by former Federal Reserve chairman Alan Greenspan. “We have never successfully modeled the transition from euphoria to fear,” he confided. And if we had fed the frightening facts of the past several months into a computer, what would we have found? First of all, that there is no transition to fear. It strikes all of a sudden. We have only to observe a scared cat, with its back up, claws extended, hissing to know what I mean.
Would Alan Greenspan also like to model grief? If so, no computer is needed. Simply go to Detroit where GM was issued a life or maybe death sentence in the same week that Detroit’s daily newspapers cut home delivery to two and three days a week. Or go to the GM plant in Arlington, Texas, builder of the Cadillac Escalade, which may or may not survive.
What’s to be learned from all of this? Cultivate options, and leave plenty of room to be nimble, be quick; when necessary, be tough; question dreamy economic systems that bear little resemblance to how life really is lived. Believe, instead, your own eyes, and call things by their rightful name. Only then can the great work of reconstruction begin.