GM & Ford Are Struggling With EVs Again, But Why?

August 24, 2024August 24, 20244 months ago Jennifer Sensiba 0 Comments

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Recently, there’s been some bad news out of Detroit. Ford’s backing off on some upcoming EV models, including a three-row SUV many had been looking forward to, and will instead be focusing more on hybrids. GM has been having different problems with software, recently laying off 1,000 developers after a string of Silicon Valley types failed to acclimate to more traditional corporate culture.

While these companies would like to have us all believe that making EVs and software for EVs is simply too hard, other companies like Tesla and Rivian have been doing a lot better. Tesla is now making more EVs than anybody, even beating out ICE models in some segments. Rivian is still climbing the profit ladder, but is selling software to Volkswagen, a pretty good sign that “legacy auto” is struggling in odd ways while newcomers are having no problem churning out EVs.

So, we need to ask ourselves why these established players are struggling while newcomers are doing just fine.

One Possible Problem: Jack Welch Corporate Culture

While there have to be multiple things feeding the problem of “legacy” EVs, one obvious issue is that established old guard corporations like GM and Ford are doing what they’ve always done in a time when they need to be doing something different.

One big contributor to today’s corporate culture was Jack Welch.

After World War II, things were pretty different than they are today. They obviously weren’t perfect (especially for minorities and women), but the mindset toward employees and the communities companies existed in was a lot more cooperative. Instead of trying to grab what they can, everyone else be damned, companies tried to understand that they couldn’t get ahead if they were grinding everyone around them.

But, in the 1970s, things started to change. Ideas like downsizing, deal-making, and financialization became popular during that time, with a lot of it starting at General Electric under Jack Welch’s leadership.

Today, we’re constantly told that downsizing is healthy for business. Layoffs did happen before Jack Welch, but only as an extreme measure and not as something a company should do periodically (“pruning”). Instead of only laying off during hard times, he started experimenting with layoffs even in times when GE was pulling in record profits. This was better for the company’s numbers, but destabilized the employment base that the company had counted on for decades.

Worse, this move normalized the idea that corporate management could ignore all of the broader costs of mass layoffs, which led to the decline of the American industrial base in following years. This eroded the American middle class, moved manufacturing overseas, and caused many of the political problems we’re grappling with today—and all this so that GE could have some better quarters decades ago.

Deal-making, or the practice of buying and selling companies instead of running them, was harmful, too. By picking up other companies that competed with GE, gutting them, and coming out with a lean company, the competitive environment suffered along with employee bargaining power. Together with buying other companies in the ecosystem and supply chains, this led to a less competitive overall environment and further erosion of the industrial base.

Financialization of the company and moving it away from industry led to even worse things, like getting involved in unregulated banking, subprime mortgages (a factor in the 2008 crash), and more. Even earlier, in 2001, the 9/11 attacks decimated the company’s financing arm, leading eventually to the downfall of the company we’re seeing today.

Today, we see increasing income inequality, with top brass earning hundreds of times more than the median worker. Productivity kept going up in the 1970s, but pay started flattening for non-management. The personal costs of layoffs also mount, especially for people whose careers never fully recover.

Boeing (a company ran by one of Welch’s apprentices) ran on this philosophy until very recently, and cost-cutting led to the serious safety problems we’re dealing with today. The idea that rapid growth, focusing on quarterly numbers over long-term growth and stability, and completely ignoring the effects on society must all come before long-term thinking has sunk not only the corporations that engaged in this behavior, but all of us.

Alternatives To Welchian Thinking

While the video above mostly focuses on treatment of workers, the idea can be extended to other things companies do today. Not only should workers be considered an investment instead of a cost to be cut down to the bone, but communities around company facilities should be considered to help the long-term health of the company. Chasing quarterly numbers and financial numbers might look good for investors today, but if the company can’t sustain itself for decades because it destroys everything around it, investors are really not being served.

More simply, the problem is that shareholders are being considered while other stakeholders are not. Employees, retirees and pensioners, the communities and countries the company operates in, and the world at large should all be considered if the company is going to last and not crash and burn after the CEO leaves.

Specifically for automotive companies, we’re seeing short-term thinking rule over the long term. It might make sense this year or even over the next five years to retreat to PHEV and regroup, but if it leads to the collapse of the industry later when European and Asian companies stuck it out on EVs, nobody is really done any favors. Nobody hired the CEOs of GM and Ford to hand the industry to Kia and Hyundai. They hired them to run GM and Ford.

More importantly, no company can do well if the country it operates in goes into decline. Wrecking America’s industrial base in the long run and destroying the environment means that everyone is worse off, including, if not especially, the shareholders. This hyperfocus on short-term profits might look good to people now, but in the long run, it really means that the fiduciary duty was abandoned.

It’s also important for companies to avoid the temptation of becoming political pawns. I’ve seen that GM donates to political parties, and that’s only done with the hope of getting favors later. But, those favors come at the cost of a competitive and dynamic business environment that companies can thrive in later. In other words, avoiding rent-seeking behavior is key.

Featured image: a “Wojack” meme. Fair Use.