The Crony Capitalist Corruption At GM

By David Stockman, Budget Director under President Reagan and author of the bestseller, The Great Deformation: The Corruption of Capitalism in America. This article originally appeared on David Stockman’s Contra Corner.

So GM is now trying to blame its ignition switch safety scandal on a low-ranking “lone wolf” engineer. That doesn’t even merit an “oh puleese!” Instead, it deserves scorn, derision and sharp poke in the eye.

The fact is, no “lone wolf” has ever survived long enough to collect a single paycheck at General Motors anytime during the last century. It has always been the ultimate corporate bureaucracy ever since the legendary Alfred P. Sloan Jr. organized it that way back in the 1920s.

After all, GM did originally master the art of mass production. You don’t roll-off the assembly line 1500 cars in one day from a three shift operation without layers upon layers of management, and without procedural manuals and operational paper flows that in the pre-computer era took down a good sized forest every month.

And that was in GM’s heyday before it liquidated its competitive advantage and 50% market share in the 1960s and early 1970s in order to pacify and drastically over-compensate its UAW workers. Yet during its long, slow, inexorable decline over the three decades ending in its thundering 2009 bankruptcy, the brilliant managerial structures that Sloan had pioneered atrophied, festered and putrefied into the most bloated, rigid, and ass-covering bureaucracy that the business world has ever known.

I speak from the experience of owning a supplier company that was smashed to smithereens primarily by the GM engineering and purchasing bureaucracy during the last decade of its mayhem. If there is one thing that could be said about GMs modus operandi during the era of the safety switch fiasco, therefore, it is never did any engineer walk alone anywhere within a country mile of GM operations.

Business meetings at GM were held in small auditoriums. Even mid-ranking executives were accompanied by a posse of aides every step of the day. And the layers of bureaucratic approval were so dense and deep that it is amazing that the GM monster actually functioned—so sclerotic had its bureaucratic arteries become after the temporary boom of the 1990s.

But nowhere in the vast expanse of GM did bureaucratic layering and encrustation reach a more absurd level than in its so-called PPAP (“production parts approval process”) procedures—a regime that governed every waking move of the tens of thousands of executives and functionaries that compromised its purchasing and engineering departments. The inherently true fact is this: the alleged villain—Mr. Raymond DeGiorgio—was a prisoner of the PPAP bureaucracy, not a lone wolf that fooled the thousands of managers, checkers and overseers above him.

Indeed, the GM PPAP process—which was followed by all of the OEMs—was detailed, structured, supervised and documented to such a fanatical extent that it would have made the ordinary Washington bureaucrat green with envy.

But here’s the point: No one in GM land or in its vast food chain of suppliers and sub- suppliers could get a production part “PPAP’d,” or even change a color shade or a type size on any previously approved part, without enduring a bureaucratic gangbang that involved hundreds of players, thousands of test cycles, tens of thousands of pages of documents, and millions of dollars per part to obtain final approval.

The proposition that DeGiorgio single-handedly got his “switch from hell” through this maize without anyone noticing the issues is beyond absurd. If anything was covered up before or after the switches were approved, dozens of executives would have known about it; and in a CYA army like GM there was not a scrap of information that did not rapidly leak upward if it meant that someone along the way could thereby duck blame.

But this episode is not about culpability for one failed part—especially since it now appears that GM is close to achieving the recall of every single car it has ever made in the last several decades. The real issue is the corruption of crony capitalism.

An out-of-control, dysfunctional, dangerous, red-ink bleeding industrial dinosaur like GM should have been put out of its misery in Chapter 11 in 2008. After all, folks, GM did manage to lose the stunning sum of $85 billion during the five years leading up to 2008, and it did so after selling 35 million vehicles at total revenues of nearly $1 trillion. No industrial managers have ever—before or since—managed to accomplish such an economic fiasco.

So instead of being resuscitated with $50 billion of taxpayer money, there should have been a giant house-cleaning at the top. The entire corpus of management should have been unceremoniously fired, stripped of their perks, pensions, and other retirements and pursued relentlessly by the creditors for their insuperable incompetence. That includes not only the Rick Waggoners and Bo Andersons who walked away with handsome paydays and no accountability, but also the crew who claims to be running the place today—that is, the Mark Ruess’s and most especially CEO Mary Barra.

After all, she was Executive Vice-President of Global Product Development, Purchasing and Supply Chain during the period in question. Can Ms. Barra say “PPAP!” Under a proper bankruptcy, she would have been engaged in an alternative line of work long ago.

Yet look at what has happened. GM got tons of taxpayer money; not so much as a dime of real economic concessions from the UAW, according to the auto czar himself, Steve Rattner; and an LBO guy to warm the CEO seat for a long enough interval to collect on a windfall of options and permit the old gang of company wreckers to get back in the saddle.

The GM recovery was no miracle of statist intervention. It was a travesty on capitalism and the taxpayers of America. And the unraveling is just getting underway. Just wait until its junk-bond financed sales to subprime borrowers collapse and it uses up the tens of billions of phony “fresh start” cookie-jar reserves provided by its quick rinse bankruptcy.

GM is an ugly mess–made all the more so by an ugly government bailout that has destroyed the last vestiges of accountability and honesty in American capitalism. By David Stockman. Check out his bestseller, The Great Deformation: The Corruption of Capitalism in America. This article originally appeared on David Stockman’s Contra Corner.

Also by David Stockman: Coach just had an earnings fiasco. Sales plunged 21%. Prospects are worse for the period ahead. Store closings are coming. That’s the payoff for playing the destructive game of the Wall Street casino. Read….Canary In A Handbag: Why Coach Hit The Skids.

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