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Blooming Idiots or Bureaucratic Blight?
There is nothing inevitable about the trajectory of a nation or a business enterprise. While we may perceive patterns, these arise from human nature at the mean. Yet, we see moments when individuals and relatively small groups make a real difference for some time. Consider two instances of business enterprises seeming to go badly wrong, and ask if blooming idiots or bureaucratic blight are to blame.
Cadillac: an instance of automotive industry decline?
The Wall Street Journal recently reported on Cadillac’s stalled U.S. sales.
Cadillac’s U.S. comeback has taken another detour.
General Motors Co. has been trying for decades to revive Cadillac in the U.S. luxury car market, where it was once the standard-bearer but now is No. 5 in sales behind BMW, Mercedes-Benz, Lexus and Audi.
Cadillac’s latest reboot began a year ago with the installation of a new executive team, which has overhauled marketing and relocated its headquarters from Manhattan’s SoHo neighborhood to a Detroit suburb.
[…]
Most of the brand’s sales growth now comes from China, where it has expanded rapidly in recent years. But GM executives also are counting on Cadillac’s renewal in the U.S. to drive future profits and help it diversify beyond its big money-making trucks. GM last year said it wants to double Cadillac’s profits over four years through 2021, but didn’t disclose a number.
Two photographs accompanied a graph showing the trend line for Cadillac and rival global brands. My father suggests that the pictures explain the graph, and it is hard to argue otherwise.
Approaching two SUVs from the rear recently, it seemed the only visible difference between the Kia and the Mercedes was the brand badge. Is that tristar badge really worth almost twice the price? With Cadillac priced squarely in the middle of Kia and Mercedes, what is the incentive to spend more than the Kia price, and why not get into the lower level trim Mercedes rather than the top level trim Cadillac?
One explanation of the homogenization of vehicle body forms is the ascendance of bean counters and management fad chasing MBAs over engineers and gear heads. This is the blooming idiot explanation. We can rack up instances of this, and point to bright moments when the gear heads grabbed the corporate wheel back for a moment.
Yet, the bean counters have a point, and so do the lawyers. If the whole industry is moving the same way, then we should look to causes outside the corporations, as well as considering group think. Here we must count the cost of a massive regulatory state, especially “safety,” “environmental” and “fuel economy” regulations. Indeed, “state” is an understatement, as every major automotive brand operating in a global market, exposed to every national or supra-national regulatory regime. If the bloom is off automotive art and romance, it may well be due to bureaucratic blight, leading to regulatory rot.
Sears: How did the proto-Amazon fail?
Sears and Roebuck has died a long and painful death. It need not have been so. Indeed, Sears was Amazon on steroids over a generation ago. There was virtually nothing you could not order from the Sears catalog, including a house. So why is Sears in bankruptcy and fighting in court with a venture capitalist buyer over the allocation of responsibility for mere millions of dollars?
Writing from the home of the Sears Tower, the Chicago Tribune offered an analysis of Sears‘ withering:
The most impressive statement to make about Sears as it seeks bankruptcy court protection is also the most damning: Sears was the Amazon of its time.
Impressive because Sears really was that influential long ago. Damning because the company’s decline wasn’t preordained. Sears could have maintained pre-eminence and, in the digital era, elbowed out Amazon and other retailers. Some companies do preserve and build on success through reinvention. Look at McDonald’s….
[…]
By 1972, 2 of every 3 Americans shopped at Sears in any three-month period, and more than half of households had a Sears credit card, according to “The Big Store,” an engaging 1987 biography of the company by Donald R. Katz. The Sears Tower rose in downtown Chicago as “a lasting monument to the invincibility and boundlessness and extreme profitability of a company that now accounted for fully 1 percent of the Gross National Product,” Katz wrote.
Parallels to Amazon are uncanny: Almost 2 out of 3 U.S. adults purchased something via Amazon in a three-month period in 2017, according to market researcher Packaged Facts. Amazon’s $177 billion in revenue last year is in the neighborhood of 1 percent of GNP.
[…]
The question of what befell Sears isn’t hard to answer. It was internal attitude as much as external forces. Katz’s book explored the hubris and insularity of a behemoth that couldn’t imagine being usurped, and thus didn’t anticipate the rise of mall competition or discounters or, eventually, the internet. “Sears doesn’t have competition save ourselves,” one company executive quoted in “The Big Store” said in 1975. “Sears is number one, two, three and four.”
Notice that Sears did not die because “change” or because “internet.” Decisions to act and to not act were taken by a series of executives. No government bureaucracy, no regulatory regime, seems implicated in Sears’ long withering. Instead, it seems that the management and shareholders became so complacent for so long that they failed to do the periodic plant care needed for continued health, let alone production of new seasons of fruit. Beyond neglect bred of complacency, we should also recognize that a fabulously successful firm is producing great wealth in the present. Any discussion of change may sound like a threat, like an unnecessary risk to ongoing production of profits and jobs.
When we consider Sears and Cadillac side-by-side, are we to conclude that Cadillac, and the rest of the automotive companies are effectively driven to sameness by irresistible forces, in contrast to the retail sales business? Perhaps not. Consider that these outside influences shaping car design are from governments, and that the vast majority of the relevant governments can credibly claim to arise from the consent of their citizens.
So, the growth of the regulatory state and regional regulatory schemes can be said to be responsive to governments seeking election and reelection by their voting public. However, once a regulation starts to grow, it attracts its own admirers, like a volunteer plant sprouting in a garden. While some argue that it should be trimmed back, it becomes harder over the seasons to seriously discuss ripping out a regulatory system and planting something new.
Yet, there may be a change in the global political climate. Might “populism” allow more local variation to flourish for a season? Might the latest waves of elections create an opening for those who would “make automobiles great again?” Readers doubtless have their own gardening analogies, which they are invited to share in the comments.
Published in Group Writing
It’s interesting that mention Sears credit. My parents had a bankruptcy in the early 70s (before I was born) when their business failed. Of all their creditors, Sears was easily the cruelest and most impatient to deal with. My parents had been loyal Sears customers for years, and after that time they avoided the store for decades. They were not alone in their experiences either. Even at that time, Sears was losing its reputation for customer service it seems.
Before the launch of Amazon in the late 90s, an internal team at Sears put together a system which functionally would have made them what Amazon is today. Top brass nuked the program.
I’ve found that Sears was the first credit card for many people. It seems likely that, having taken on people with little or no credit history, they decided that they had to play hardball across the board to collect from those who fell behind. They were sufficiently reliant on credit that I recall hearing the company described as a bank that sold stuff. Discover was a Sears company at one point, along with Dean Witter and Coldwell Banker as part of some cockeyed diversification into financial services. Allstate was originally a Sears tire brand before they leveraged it into insurance.
It is beyond coincidence that a lot of downhill moves include some sort of relocation of headquarters.
When I was growing up, my parents had a friend who was a salesman at a Cadillac/Buick dealership. I remember him saying that the Buick sales were much more difficult than Cadillac. Buick buyers were trying to move up and were trying to save what they could. Cadillac buyers came in knowing they would leave with a Cadillac.
I never had any direct exposure to Kodak but if left to speculate, I’d speculate that it likely suffered from a similar problem.
The way Sears treated people in bankruptcy leads me to an interesting legal tale. Ignore this comment if legal minutiae bores you but here it is:
Sears credit card agreement contained a grant of a security interest in the goods it sold to secure payment of the credit card debt. This is perfectly legal, even if nearly unheard of in the credit card world. Anyway the security interest gave Sears the right to repossess the goods purchased on the card if they weren’t paid for, and when I worked in Sears credit, we did in fact repossess larger items – furniture and appliances mostly – with some frequency. Sears had outlet stores that resold these used items.
If a customer files bankruptcy, however, the rules change. Simplifying a little, a security interest against a bankrupt is only enforceable if it’s been “perfected” by filing an Article 9 UCC form with the requisite state agency (usually the Secretary of State) more than 90 days before the bankruptcy petition is filed. Of course Sears’ myriad local stores didn’t have any system set up to track this and make these filings so legally, its security interest was generally worthless in bankruptcy.
Nonetheless, for years Sears took the position in bankruptcy (premised on its security interest) that debtors had to either turn over the “collateral” – the goods purchased on the card – or reaffirm the credit card debt and not discharge it in bankruptcy. And it got away with it. Ultimately this resulted in a class action out of which Sears agreed to stop the practice. But it went on for a long time, to the detriment of a lot of debtors.
I will tell you that to my knowledge, people in the credit business (non-lawyers) probably had no idea they were enforcing legal rights they didn’t have. I certainly didn’t. I didn’t recognize or understand the issue until I started practicing bankruptcy law more than a decade later. But there were lawyers involved and only sloppiness on the part of hordes of bankruptcy lawyers, judges, and trustees could have let it go on for so long literally unnoticed.
That’s true but it’s surprisingly common. Many manufacturers and retailers make most of their money on financing or other financial services, not product margin. Have you tried to walk out of a Best Buy without buying an extended warranty lately?
Well, the 3 year warranty on the Snickers bar I got at the checkout did seem excessive at the time….
It depends.
Are you black or white, male or female?
I’ve noticed that Amazon has started to slip. I have been a member for 20+ years. Initially, it was just for physical books, now, mostly for Kindle books. We live pretty far in the country, so using Amazon Prime for consumer products is faster than getting into town and then finding the store is out. This has worked out fine. I since we signed up for prime, there has only been one problem – until now. In the last two months, they have lost (“item destroyed”) or delivered the wrong items about 5 times. I think it is tied to when they stopped using UPS for deliveries and went to their own trucks and private operators. Unlike the UPS driver, we never see the same Amazon driver twice and given the country roads around here, that is a real mistake.
It’s interesting–considering the small sample size–that at least three or four posters have ties of some sort to Sears, as do I. As I recall, Sears called their extended warranties “merchandise agreements” (MA’s), and there was quite a bit of pressure on the floor staff to sell them.
Amazon Gold Box used to have known products from known brands. Now their deals of the days, and the results of most searches, are odd brands from China from odd sellers. Really difficult to find what you want anymore.
Used Cadillac ATS, CTS , XTS & CT6 vehicles are well depreciated and nice cars. Original owner’s loss is your gain. I am a GM employee, speaking for myself and not the company. If I was in management, I would call them DeVilles & Sevilles & Fleetwoods etc. Bring back the historic names. A large convertible, build on a Suburban frame, would sell nicely.
Then there’s this…
White male. Even worse, I’m straight.
We have two and like them very much. But I think you are wrong about styling. The car culture we grew up with is gone. Excluding pickups, where there is a fierce degree of brand loyalty, most people are buying features, not body styles.
I agree with Lileks, the screens are substandard. But I think in 5 or 10 years they won’t come with built in screens. Screens will be an IPad type option that is removable and replaceable.
I’d be tempted by just about anything built on a Suburban frame… (-:
{ I’m on my fourth Suburban }
Oh, you can have one…for the right price.
I think that you and EJHill are getting at some of the specifics of how Sears failed.
Exactly so.
This was a helpful explanation of a very “sharp,” yet ultimately foolish, business practice by Sears.
The main screwups in my deliveries from Amazon have been when a) the package is turned over to USPS, and b) it’s Friday night. I’ve seen the USPS truck speeding down the road past our house at what appears to be some arbitrary quitting time, leaving our package undelivered, about the time a lie about it is posted in the tracking information, such as claiming a delivery was attempted and a notification was left at our house. Amazon provides no way to communicate about this, just pointing me to a web site that suggests things like asking neighbors if the item was delivered to their house by mistake.
Embrace the &! Your choices are not mutually exclusive. It could be Idiotic Bureaucratic Blight.
I saw this report on GM from CNBC just the other day:
Its not specific to the Cadillac brands but is interesting.
Sometimes things also work until they don’t. Case in point: The Softer Side of Sears, an ad campaign born of a desire to get more women into the store for . . . clothes. At the time, Craftsman and Kenmore were leading brands, but it was thought that this wasn’t good enough. So floor space was realigned, with some given over to the “softer side” when one entered from the mall. This actually worked for awhile and the ad campaign was a pretty big hit. It’s likely execs were congratulating themselves until those same women decided to go somewhere else for the next fashion trend. So then there were blouses and dresses sitting where those dishwashers and ratchet sets used to be.
I worked for our local Sears store through high school, starting at age 16. When I turned 18, and everyone in the building knew who I was (I was a switchboard operator, worked Overs & Shorts, and in the personnel office – not to mention that my car was often in the auto service center.) I applied for a Sears credit card. My dad co-signed, I paid my bills on time, built up some credit. When I got married at 19, I wanted to add my husband (age 21, still a student, but working part time) on to the card. The credit manager – who knew me – refused, because he wasn’t convinced we were a good credit risk. I wouldn’t even walk into a Sears again for about 30 years. I was in a mall Sears store about seven or eight years ago. It was dirty, the shelves were half empty and there were few sales people around. They can (continue to) rot as far as I’m concerned.
I am already maintaining my own little (very little – since I think it is a group of one) boycott of Amazon. I shop a lot on line and will pay a little more to go directly to small business websites rather than buy something from the Amazon site. My kids maintain some Amazon wishlists which I will peruse. But I can generally find the items elsewhere without having to have Amazon track my every move. Also, you can generally buy anything you need from the WalMart site as well. It looks like they are competing with Amazon as many of the items are shipped from other businesses.
Disagree.
I’m in this industry, and I can tell you that the OEMs are increasingly paranoid about system security. No way in heck will they have non-integrated controls, nor any kind of system where they have to support multiple standards. Apple Play got through because Apple just wanted to give customers a way to run their own apps, and the OEMs don’t do things like nav systems all that well (the static map data in their cars has long been a sore spot, and they couldn’t get away with their outrageous fees for map updates much longer). But no way will they allow any kind of removable screen access if there’s any kind of risk that such screens could hack into more critical systems, or crash the center console OS.
Secondly, tablets are too fragile for cars. The screen in vehicles use resistive touch, not the capacitive touch of your ipads, because they want it to work with gloves. Their screens are also specc’d to perform from -40C to +85C, and also to take a physical pounding, whereas consumer OLED screens generally are only functional in a narrower temp band.
Lastly you have the back-up camera requirements. A removable screen, or 3rd party access, could potentially disable camera access. Then you’re into liability territory. That camera system has to always be available. When you are backing, everything on that screen is overridden for the cameras. And NHTSA is very very particular about how those camera systems work.
To show you how gunshy I’ve gotten on weekend Amazon deliveries that might be handled by USPS, I just now ordered a rear bicycle rack for our Subaru Outback, and ordered it from REI instead.
(I already have a top rack, but don’t like loading my bicycle up there, and would rather put up with the inconvenience of the rear hatch door being less accessible.)
REI says delivery is expected next Thursday, which is after we expect to be gone with it on a bicycle outing. I could pay extra for earlier delivery, but the last items I’ve bought from REI have arrived well before the predicted date.
I could buy the same item via Amazon, and Amazon says it will be delivered Sunday. Oh, no! The dreaded USPS weekend delivery! I may never see the item if I let them do that. If they gave me an option for a Monday delivery, I’d maybe go for it. But I’d rather take my chance with REI. Also, REI is a co-op and will eventually give me credit that is worth a bit of the purchase price.
Now, in defense of USPS I’ll point out that they made a delivery at our house this Memorial Day. I told the delivery woman in the USPS truck that I hadn’t expected her to be working that day. She said they were just doing packages that day. She seemed to be a conscientious and efficient worker, but there are also others. I’ve gotten bit by too many weekend non-deliveries accompanied by lies in the tracking record, so I’m not going to take that chance. I’ll take REI over Amazon for that reason alone.
I bow to your superior knowledge.