How to Fix the Auto Industry

A few quick thoughts so I don’t miss a day so early in the month. (Must. Post. Daily.) Last week the New York Times ran a story with the headline “Ford to Examine Troubled Brands.” And I thought, gee, why don’t they start with….Ford.

And if GM recently completed a huge program of paying individual employees payouts of more than 100K to leave the company, and it was deemed a success, how about they try this one on for size? I propose they pay me double that amount for saving them the expense of ever paying me a salary. That’s right, GM should pay me a preemptive buyout. About $300K sounds good to me. And for that I pledge never to work for the company, therefore saving it decades of salary, and permanently eliminating the burden of my legacy costs.

And finally, if all else fails, I’ve got one more solution….For that I will reproduce a piece I wrote that was intended for the radio, but never aired. Here goes.

The real answer to GM’s woes is new ownership, and I’ve got just the white knight: Exxon.

Exxon has annual profits topping 36 Billion dollars. In the last quarter alone, it made TEN BILLION DOLLARS, the largest operational profit ever tallied.

GM's market value fluctuates around $12 billion, so Exxon could finance this deal without burping. Exxon could pay retail for General Motors on the open market, and still have enough cash leftover to buy at least two, or even three, shares of Berkshire Hathaway stock.

Why do this? Well, natural synergies…just think razors and blades. Gillette invented this famous business model 100 years ago. The company sold men on the idea of a safety razor—which generated huge profits from sales of disposable blades. Exxon should steal a page from this playbook.

Think of cars as the new safety razor—the Mach 3 system you eagerly replace when a Fusion-Hybrid Mach Twelve (LX) comes along. The big money isn’t in the big thing anymore. Think of gasoline as the high-margin software if you will, the disposable blades that generate crazy profits for the parent company.

Other companies have scored by migrating into higher-value adjacent-cies. Just look to IBM: when profits waned selling big boxes a decade ago, Big Blue successfully shifted its focus to services.

There’s a compelling logic to this deal, which follows the Chinese wisdom of turning problems into opportunities. By purchasing GM, Exxon could relieve the company of its nagging hybrid headache. The auto company could stop fretting so much about Prius this and Prius that. They could simply take all that R and D money, and pour it into the development and marketing of bigger, heavier, Hummers.

GM would sell fewer cars with worse gas mileage, and still rack up greater profits for the parent Shell—I mean Exxon. It’s a thing of beauty. It’s a sad commentary on the state of manufacturing today when Exxon can earn in three months virtually enough to buy GM on the market. But like they say: when life hands you lemons, make gasoline.

Posted by tom at August 10, 2006 08:59 PM
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