Sunday, June 21, 2009

Why Government Motors (GM) Won't Work

As a parent I've learned that the most difficult, and at times most unpopular, decisions are often the ones that are in my children's best interests in the long term. They don't notice it now, but they probably will 15 years from now.

The same is the case for businesses. Difficult decisions today (layoffs, budget cuts, diversification) may be the best decisions for the future of the company. Even though these decisions might be unpopular today, they may mean the company exists 10 years from now.

That is precisely the reason Government Motors, the new GM, won't work. Politicians don't care about long-term, they care about popular opinion and making voters happy.

This is already happening at Government Motors. Here's a great example.

GM recently announced a decision to close a parts-distribution center in Norton, Mass. The reasoning seemed sound. The company is bleeding money and parts weren't really flowing from the distribution centers. So, consolidating the centers would help save costs.

The problem: The Norton, Mass., distribution center happened to be in Congressman Barney Frank's district. Frank chairs the Financial Services Committee, which is important to GM now that the Government will soon own 60% of the firm.

Frank called GM's CEO and guess what? The parts plant will not be closed after all.

Difficult decisions must be made to save struggling companies. Politicians cannot make those decisions. Can you imagine politicians setting interest rates? Rates would be 0% (and inflation would be through the roof). What politician would have the guts to raise interest rates. They can't even suggest tax increases.

Frank says his decision to intervene in the situation had nothing to do with the parts plant being in his district. (Surprise, surprise). Frank said he intervened because closing the plant meant parts would now be trucked across the country, which means increasing our global warming problems even more. He actually made the decision in order to help save our planet. (I guess this means GM can't close any of the parts plants.)

Now, GM must figure out a way to cut costs and make all the politicians happy so they can be elected next cycle.

Decisions made for a company based on anything but the best long-term interests of the company just won't work.

--Ron Ameln, SBM


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