Saturday, February 14, 2009

GM: Bankruptcy Looking Likelier

General Motors' talks with its labor union have broken down over GM's obligation to pay $20B (yes, that's a B and not an M) in connection with retirees' health benefits. That's not the pension payments, mind you -- that's health care benefits for those on pensions. No wonder the UAW wanted the government to lend GM money last year.

GM's obligations to suppliers and the union impact GM's flexibility to restructure operations. In particular, collectively-bargained labor contracts specify job titles with sufficient detail to preclude GM from implementing cross-training programs, and bar programs in which managers would participate with laborers in quality circle production schemes on the theory that managers' power to do what union members might do would undermine the assurance that labor would be performed by union members. In short, GM has been barred for decades from implementing Deming-style quality assurance concepts that its Japanese competitors mastered during the second half of the last century. A look at recent recalls suggests that US manufactorers are overrepresented, and that Japanese manufacturers are overwhelmingly underrepresented.

American workers are highly motivated and skilled and creative. Artificially classifying them according to World War Two era job titles and setting them loose in plants in which they can't take turns with managers at the machines that make the place run is a recipe for (a) managers who never learn how the work is really done (and thus can't manage with any particular depth of understanding), and (b) employees who aren't allowed to understand the whole product being made (and thus can't contribute meaningfully to the product's development or improvement). In an ideal world, feedback systems would connect assembly personnel to engineers so that improvements could quickly be implemented and quality improved and overhead reduced. The existing system ensures that this is utterly impossible. It's a crime against the principle of free competition to shackle both the employees and the employers into such a scheme. Contract avoidance in bankruptcy might offer some help in this regard, assuming that GM still wants to build cars and its employees still want to help build them.

It's clear that something drastic is needed to enable GM, and its American competitors, to become competitive after years of declining global and domestic sales share. The question is whether it's now too late.

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