Our warning column on General Motors Co. (NYSE: GM) in Tuesday’s Strategic Tech Investor really seemed to resonate with you folks.
It generated a lot of emotion, elicited some personal experiences from you folks and even a few suggestions that we recommend “shorting” the stock.
We also received a very strong response from GM itself.
On Their “Radar”
In Tuesday’s column – “Why GM’s Recalls Are Worse Than You Think“ – I argued that I just don’t buy into Wall Street‘s talk of a turnaround at the once-great U.S. automaker.
I cautioned STI subscribers to not view GM’s current recall problems as a “buying opportunity.” In fact, I explained why it would be a bad decision to add the company’s stock to your portfolio right now.
Indeed, I said you should just avoid GM altogether.
It hurt to write that. As a consumer, I’ve been a GM guy for as long as I can recall.
My family, too.
My concern, I said, was that GM still doesn’t have all its problems under control.
As I told you:
New CEO Mary Barra, who took the job in January, recently fired 15 employees and disciplined five others involved in the faulty switches.
But GM as a whole seems to be in a state of denial about how extensive its problems really are – and I just don’t think Barra has a firm grasp on quality control at her company yet.
She’s talking tough and making quick moves, but Barra is facing, as she put it herself just last month, “a history of failures” for which “nobody took responsibility.”
Some GM officials knew of these problems and covered them up for years.
Just one day after my column appeared, Tom Henderson, manager of global financial communications at GM, posted a lengthy response. We’re reproducing the entire comment here.
While we can debate the merits of investing in our company – and we think there are many – I’ll leave that for the markets to determine.
More importantly and at the heart of Mr. Robinson’s blog is the question of whether GM is operating differently today. Our short answer is “yes” – we are putting the customer at the center of all we do.
For example, our approach to safety today can be seen by the aggressive actions we’ve taken to recall vehicles this year as a result of an exhaustive review coming out of the ignition switch recall. If we see an issue that could compromise the safety of our customers we will act swiftly.
And, we’ll do this while also building some of the highest quality vehicles in the market. In fact, GM had the most segment winners for the second year in a row in the 2014 J.D. Power Initial Quality Study. We also had the most segment winners in the 2014 J.D. Power Vehicle Dependability Study.
While we’re proud of these vehicles, we know we can continue improving and we will. Whether its safety, quality, design or value, we’re working every day to put our customers first.
As someone who’s spent three decades dealing with public companies – meaning I’m aware of all the politics and corporate bureaucracy that simmers just below the surface – I can attest to the fact that this is a pretty remarkable response.
Most of the time, companies ignore analyses like the one we published for you earlier this week. And If I went to them afterward for a response, the only one I’d likely get is “no comment.”
That’s part of the reason that I give Henderson a lot of credit for posting this response. Clearly, the gentleman from GM put a lot of thought into these comments as he penned them. And what’s written here was clearly written by someone with a passion for his job – and for the company. He was doing more than just spouting the corporate line. And kudos to him for that.
That said, I still believe this is a deeply troubled company.
For instance, while I was aware of the J.D. Powers results on initial build quality, I intentionally didn’t use them. The reason: So many of GM’s recalls are for newer vehicles, meaning they may pass the first test only to have the “faults” show up sometime later.
But GM’s problems go deeper than the assembly line… or even the engineering “drawing boards.”
That’s because the company’s real problem is its flawed corporate culture. That will take time to change… and even longer to fix.
Indeed, changing a corporate culture – especially with a firm as massive as GM – is one of the most daunting challenges a CEO will ever face.
Comparatively speaking, finances are easy to fix. You cut waste, make over the product line or lines, and perhaps even slash jobs.
But changing the culture – to keep the company from repeating its same mistakes over and over again – means you have to change the way your workers think. You have to excise their suspicions, break down the interdepartmental barriers that create “functional fiefdoms,” and give decision-making responsibility to employees far down in the organization. (And with that responsibility comes a more intense accountability, too.)
As I’m sure you can see, none of that is simple.
And that’s on top of old problems that just won’t go away.
In fact, the day after my warning column was published, Money Map Press Executive Editor Bill Patalon – a colleague I work very closely with – called to tell me he’d just seen a news segment telling viewers how GM was resisting a recall on trucks and SUVs in “snow country.” According to the news report, there have been a fairly extensive number of cases in which the brake lines on those trucks simply rusted through.
If GM were smart, it would just recall the vehicles, fix those problems and move on. The cost of those fixes would be miniscule compared to the recall costs the company is already incurring.
In late June, GM increased its projected second-quarter recall costs from $700 million to $1.2 billion. That’s in addition to the $1.3 billion hit it took in the first quarter, and it boosted its total expected recall costs to $2.5 billion – or about 66% of its corporate earnings for 2013.
By refusing to recall these additional vehicles, GM has yet again bolstered the image of a company that refuses to be accountable.
Contrast that with Subaru, which a week or so ago said it was recalling about 660,000 U.S. vehicles – for the very same reason. The Japanese carmaker told investigators it was concerned the brake lines “could perforate after exposure to seven or more winter seasons.”
Subaru took action without being forced to by federal regulators. And it’s not faced with GM’s recall disaster.
All of this tells me that – despite its assertions to the contrary – GM really hasn’t changed yet… and perhaps never will.
(Although I would welcome the opportunity to interview CEO Barra on her turnaround initiatives and would publish the Q&A here for all of you to read.)
A Final Note
The GM response was interesting – as it related to our column. And it was intriguing in another way, too.
As Patalon, my friend and colleague, observed, the fact that GM took the time to respond to the STI column says this newsletter is gaining a national stature. That means nothing to me from an ego standpoint. But it does mean something from a credibility standpoint, Bill explained.
“What this tells me, Michael, is that your analyses and recommendations are being watched by an audience that’s growing in both size and wealth,” he said. “It means that an ever-increasing number of corporate and institutional players are reading what you write… and are taking your views very, very seriously.”
I suspect that Bill is right. But we created this service to attack one specific issue – the sad and scary fact that more than half of U.S. households have almost no savings. We said that technology stocks were the way to overcome that savings deficit. And we developed the five rules for creating tech-investing wealth to help find the best profit opportunities … and hopefully to help make you all more successful investors.
The bottom line is that I’m not here looking for fame. But I am looking for fortune – a fortune for you.
Have a great weekend.
- Strategic Tech Investor: Why GM’s Recalls Are Worse Than You Think