"Change or Die" Watch: General Motors' bankruptcy

Anyone who's wondering how a company that it had so dominant in its field, as General Motors once was, could wind up declaring bankruptcy, as GM did today, might want to read the sections about GM in my book "Change or Die" (Collins, 2007). Here's one passage from the book describing the "denial" of GM's executives about their problems going back a half century:

In its heyday GM had been had been extraordinarily dominant in its business. It captured 60 percent of the U.S. car market in 1960, selling twice as many cars as Ford and Chrysler combined and six times as many as the imported brands. But GM's executives developed a superiority complex, and for decades they remained in denial about their cars' quality problems.

They had the facts from the beginning. In 1960 GM's engineers came up with a 100-point scale for comparing the quality of cars produced by the company's many factories. A perfect car would score one hundred. Every defect would knock off a point from the total. It turned out that many of GM's plants typically made cars with forty or more defects. They posted scores of sixty or below. That was embarrassing, since everyone remembered their own schools days, when a sixty was an F, a failing grade. They didn't improve the quality of the cars--they didn't know how. Besides, their cars weren't any worse than their competition's. Instead, they recalibrated the scale so 145 would represent a perfect score. This way, all of GM's plants would score one hundred or higher. A-plus! When a plant scored 130, employees would throw a celebration even though the cars still averaged fifteen defects. No customer would celebrate buying that car.

Of course GM ultimately closed the quality gap, but its top executives remained in denial about the crisis that confronted its industry beginning in the 1970s. Instead of learning lessons from the '70s oil shock, they went right back to relying on big gas-guzzling vehicles for their profits while Toyota got a crucial head start of several years in developing the technology and the market for fuel-efficient hybrids. GM has been in crisis since the '70s, but crisis does not actually inspire change, contrary to the conventional wisdom.

Faced for decades with a "change or die" scenario, GM didn't change.

Now Geneal Motors is going to survive only because of the federal government's role. But from what I hear, the Detroit auto executives are still in denial, even now. For months they've felt that U.S. has been ungrateful for everything they've done for this country, as evidenced by the feds' refusal to bail out Detroit to the extent that it bailed out Wall Street, instead forcing the automakers into bankruptcy and GM into nationalization.

Never underestimate the power of denial.