The 100 year old General Motors filing for Bankruptcy is a warning signal to the United States of America. You might ask 'This is obvious is'nt it?'. But not in the way I look at it.
Why did GM fail? Many reasons. They were the number one car maker in the World till 2007. They were big, no, they were huge with production and brands spread across the Globe. They had the volume, economies of scale, followed the best of the management practices (when I was doing my MBA in 80's GM was the Company we looked up to to learn Management, one of the reason I yearned for a GM vehicle and finally bought an Envoy in 2009) and was cash rich. But they got mislead by their invincibility. They were arrogant. They thought they were infallible. They did not read the enviornmental and industry signals, or they feigned ignorance. The world was screaming for economical, fuel efficient cars, but GM made bigger, heavier gas guzzlers. The US and Canada operations were becoming untenable due to high cost of inputs, mainly labour. And more importantly it is now clear that years of collecting bargaining has left GM with a retired workforce of 400,000 employees in US & Canada alone who had to be paid pension. Each car made in these countries were costlier by $ 1500 due to this factor alone (this is a warning signal for Indian Government. The pension bills of Govt. employees is becoming too hot to handle. A need for pruning the Govt . sector is long overdue). Instead of restructuring to become a leaner and meaner organization, GM became bloated. They did not see them losing their core competence. People used to buy GM because they made the best cars. Not any more. Toyotas of this world made better quality cars at lower prices. The GM was becoming non sustainable. The push towards ultimate demise started almost a decade ago. Then a combination of factors like Spike in oil prices, recession, credit crunch, higher unemployment, changing consumer tastes, environmental issues, liquidity crunch gave GM the shove and it hurtled towards bankruptcy. This means that the Company will be restructured with Govt. taking over more than 60% of the shares. But for all practical purposes GM's dominance is over. How the mighty have fallen?
What has this got to do with USA? USA, as a country, is in pretty much the same position as GM. Big, living on past glory, not taking into account the Global signals or chaning scenario, losing its core competency of dollar supremacy, carrying the burden of an inefficient high spending unproductive population, losing its military might - well US is in trouble. They used their market size and the consuming power to subjugate export oriented countries in Latin America, Far East and even China. Not any more. It was amusing to see the US Secretary of Treasury to go to China recently to assure China that their trade surplus kept in US as Treasury bonds are relatively safe. The oil producing countries have been raising murmurs as to why the trade should not be in a currency other than Dollar. They were shut up using the military might of US (remember Iraq and the real reasons for the war). But defeat in Vietnam, the loss of face in Iraq and the disasterous adventure in Afghanistan has taken the sheen off US military might. USA just cannot win a war against lowly opponents despite all their sophisticated weapons. The bully is not so mighty after all. Dollar is in deep trouble. Three trillion dollars deficit, global pressure on US Dollar is pointing to an economy that is hurtling towards a calamity. USA has lots its core competence in the Agriculture (highly subsidised), Industry (cost inefficient and poor quality) and Services (again cost ineffective and having to outsource) industries. There is nothing to fall back on other than bluff and bluster. The moral high ground USA had on being the high priest of Capitalism and free market is also gone. The financial system on which USA built its global aspirations has lost its credibility. It wont be long before the smaller countries start taking pot shots at USA. They will start chipping away. Dollar is on a very weak wicket, propped up artificially by exporting countries, but it is becoming difficult as the days go by. USA is in trouble, big trouble economically and strategically. The signs are ominous. Only thing is that while GM could run to the bankruptcy court and to the Government to bail it out, USA has no place to go as a Country.
