You and I hold an investment in the most unlikely turn-around fund. It is about to realize a huge profit with the upcoming public offering of General Motors. Yes, Uncle Sam is a very successful turn-around manager - with an enviable track record. You and I, along with every other taxpayer, are limited partners in this one-of-a-kind turn-around fund.
- close the unsuccessful parts of the business with minimum loss to shareholders
- stabilize the good parts of the business with minimum loss of customers, and
- re-ignite growth with minimum resources.
The company must simultaneously lay off some people, retrain and redeploy other people, and hire new people. All this must happen in the vortex of negative publicity, poisonous morale, and customer cynicism. A raw start-up from nothing is a piece of cake by comparison.
In my career in business, I've been involved with a number of turn-around situations. More ultimately failed than succeeded, but the ones that made it were some of my most gratifying experiences. Also some of the most remunerative.
Former Wall Street Journal editor Paul Ingrassia gives a highly readable account of the decades-long run-up to the GM turn-around effort in Crash Course: The American Automobile Industry's Road from Glory to Disaster. As GM prepares to leave public ownership by taxpayers for public ownership by investors, it is well to review the trail of short-sighted self-absorbed folly by generations of auto industry management, labor leadership, and the GM Board itself. Ingrassia's book ends with the reluctant passage through Congress of the legislation enabling the government to become the active turn-around investor and manager of GM.
But what an active manager Uncle became! GM shed the historic Oldsmobile and Pontiac brands, and sold off Hummer, Saab, and Saturn, reducing its domestic line-up from 9 labels to 4. Over 900 dealers, 7 plants, and 22,500 employees went away. $77.7 billion in debt was restructured: that's more than the GDP of Iraq.
The government even restructured the once-passive Board of Directors, bringing in interim Chairmen with stellar track records. Kent Kressa led Northrup-Grumman through the massive consolidation of the aerospace industry following the end of the Cold War. Ed Whitacre led SBC through the years of chaos and consolidation following the 1996 telecommunications industry deregulation. In the process, SBC acquired AT&T and took the name of the more recognized but less powerful company. Now, as GM primps to go back to the stock market, the Board brought in telecomm veteran Dan Ackerman to give a sense of permanence to the new potential investors.
Any good turn-around manager searches its Rolodex for new leadership. But no private turn-around firm can match Uncle's reach. Any good turn-around manager will give the new leadership a strong incentive to do a good job. But none can match the psychic reward that comes from serving your country. Only Uncle Sam can do that.
When one adds the closures and divestitures GM made during bankruptcy with those made in the years leading up to the final crisis (Delco, GMAC, EDS, Hughes, Detroit Diesel), it looks like the first mission of a turn-around was accomplished. The company, though smaller, is now actually focused on making and selling motor vehicles. The distractions are gone.
While the larger economy is still struggling to get out of recession/depression, GM is growing: sales, profits, and employment are up. The second goal of the turn-around may be in sight: stability of the core business.
A lot of excitement, fueled by hope and hype, surrounds the introduction of GM's electric vehicle, the Chevy Volt. We will know soon enough if the Volt will electrify GM customers and shareholders, but they already feel the tingle. It is too soon to call the third leg of the turn-around, an exciting new product, a success. But it is clear that GM made the investment while going through its other wrenching transitions.
Uncle Sam has been here before. The government played a less hands-on role in the revival of Chrylser under Lee Iaccoca a generation ago. Before that, the government restructured the freight rail industry when it was in collapse. It is hard to imagine a modern economy without freight rail!
So why is Uncle Sam such a good restructuring manager? Probably because nobody -- liberal or conservative, labor or management, government or private sector -- wants Uncle in the turn-around business on a permanent basis. We create a turn-around team for each effort, and disband it as soon as the industry in question shows signs of returning health. We refuse to build "institutional knowledge" of such things, as Japan does in its infamous Ministry of International Trade and Industry (MITI). We do it only when we are desperate, our back to the wall, time running out, disaster for the economy and the people just inches away.
How very American.