The number is shocking: "GM axe is to fall on 30,000," read the Financial Times banner headline.But it's even more shocking to me that the chief executives who run some of our biggest manufacturing companies now seem to have only one solution to any corporate problem: Cut costs. These CEOs are cost-cutting the U.S. out of a middle class. They've forgotten how to compete and grow. U.S. companies such as Google ( GOOG) and Apple ( AAPL) still know how to innovate. Technology giants such as Cisco Systems ( CSCO) and Dell ( DELL) still want to conquer the world. U.S. companies such as Nucor ( NUE) and Starbucks ( SBUX) can still revolutionize mature industries such as steelmaking and coffee-dripping. But too many of the biggest -- and once the best -- U.S. companies have abandoned growth. I know that the conventional wisdom is to blame the problems at General Motors ( GM) and Delphi and other U.S. manufacturers on globalization. But I think globalization is just a comfortable excuse that lets management off the hook for its own failures of vision, strategy and execution. Some managements seem genuinely afraid of trying to compete in a globalizing world. It's just too hard. Baloney. If Nucor can succeed against foreign competitors that have cheap, government-subsidized capital and cheaper labor, so can U.S. automakers or U.S. airlines.
I think it's time to separate the real dangers of globalization from how it has become a red herring that lets corporate managers divert attention from their own failures and lack of creativity. Knowing history can sometimes be a terrible thing. In the current case, for example, only if you don't know the history of previous GM job cuts can you have a shred of hope that this round will work. We already know enough from previous rounds at GM that cutting costs without growth does not work. All the evidence is that this huge dose of pain for GM workers won't fix the company's problems, and that GM will be back on the verge of bankruptcy again in two to five years. On Nov. 21, General Motors said it would cut an additional 5,000 jobs in the U.S. and Canada -- bringing the announced total to 30,000 in the current round of job cuts -- and shut all or part of 12 North American plants to reduce the company's U.S. annual manufacturing capacity by some 1 million cars and trucks by 2008. GM, which lost $4.1 billion on its North American operations in the first nine months of 2005, estimates it will see eventual annual savings of $7 billion. Splashy, no? CEO Rick Wagoner really seems to be attacking the company's problems, right? Well, no. In the crisis before the current crisis struck, General Motors closed three factories over the last five years, reducing the company's North American manufacturing capacity by 1 million cars and trucks a year. Sound familiar? And in the early 1990s, General Motors closed 21 factories and cut 70,000 jobs. Now that was a huge restructuring.
Economists and Wall Street analysts think GM will continue to lose market share. Global Insight, the big economic consulting firm, forecasts that GM's market share will be down to 23.5% in 2008. That should be just about enough to erase all the gains from the latest round of job, production and wage and benefit cuts -- if the company actually succeeds in achieving all of its goals. One of the great things about the globalization goblin -- at least if you're a CEO -- is that you can blame your loss of market share, or your red ink or your inability to execute a manufacturing or sales strategy, on cutthroat competition from low-cost overseas labor. That's certainly been an effective strategy at Delphi. I'm sure you've heard about how new CEO Robert S. "Steve" Miller plans to turn around the company with his straight-to-the-heart-of-the-matter focus on costs. "The days when unskilled manual labor can deliver a $65-per-hour wage are disappearing," he told The Wall Street Journal. "Globalization is a fact of life." Miller's point is, I suppose, that in a world where Delphi can and does pay the workers at its Chinese plants roughly $2 an hour in wages and $1 an hour in medical and pension benefits, U.S. workers are fools to expect wages of $27 an hour and benefits of an additional $38 an hour. Miller's definition of a reasonable package for U.S. workers comes to $12.50 an hour in wages, according to the company's latest offer to its unionized workers. Benefits would bring the package up to the neighborhood of $25 to $27 an hour. You've probably heard a lot less about the lawsuit by Delphi shareholders and the Securities and Exchange Commission lawsuit charging former directors -- not Miller -- auditors and bankers with boosting profits through phony sale and repurchase deals. Entering Chapter 11 bankruptcy gave Delphi automatic protection from this suit, although shareholders are asking the bankruptcy court to set aside the protection.
Despite such alleged shenanigans, Miller has made globalization and cost-cutting the focus of Delphi investors. Everyone on Wall Street wants to know, will Miller be able to get the cost cuts he needs to fix Delphi? Focusing on globalization and cost-cutting makes sure the issue at Delphi isn't, as it's not at General Motors, the competence of the managers who got the company into this mess in the first place. It's not the likelihood that short-term cost-cutting is just a short-term fix. (If GM keeps losing market share and cuts production, you think the fix will stick at Delphi, its former parts division?) And it's not on the lack of a long-term vision that would lead to long-term growth. The saddest, funniest comment I've heard out of GM CEO Wagoner recently was about growth. The company's strategy isn't limited to cost-cutting, he told Wall Street. "We continue to be equally committed to revenue drivers," he said, referring to the launch of such new products as its large SUVs in January. Yep, large SUVs. That's where the auto market is headed, with oil at $60 a barrel.
So pardon me if I find Miller's crack about unskilled workers not being able to command $65 a hour in wages and benefits in the age of globalization somewhat misleading (even ignoring the issue of whether the workers who make auto parts are unskilled). The implication is that globalization may force down the wages of "unskilled" U.S. workers, but skilled U.S. workers in manufacturing -- such as those who might be employed in a design center except, whoops, it was built in Asia -- don't have to worry. Nor, the argument goes, do service workers in the U.S. Their jobs can't be shipped overseas. Except, of course, that they can. As part of its plan to emerge from bankruptcy, Northwest Airlines ( NWACQ) has proposed hiring cheaper overseas-based flight attendants on its international flights to replace its U.S.-based flight staff. The foreign flight attendants would be cheaper, you see. There's a common thread that unites this proposal from Northwest Airlines to the cost-cutting at GM and Delphi. It's a short-term fix designed to dress up the bottom line. But it doesn't do anything to grow the airline, just as the cost cuts at General Motors or Delphi don't do anything to grow the car company or the parts maker. Can companies such as General Motors and Delphi and even Northwest Airlines be saved? Even in this age of tough, tougher, toughest global competition, I think the answer is yes. What these companies lack is great management with a commitment to beating the competition and the ability to deliver on that goal. That's always in short supply, of course. And unfortunately, right now it's more needed than ever.