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June 29, 2009

MBA Executives Kill An Industry

Dr. Mohamed Elmasry

Dr. Mohamed ElmasryGeneral Motors became the largest U.S. manufacturing company to file for bankruptcy protection.

Then, without asking us, Canadian taxpayers, the Ontario and federal governments committed more than $10 billion of our family’s, children’s, and grandchildren’s money to prop it up.

In the deal announced by Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty, Ottawa will invest $7.1 billion and the province $3.5 billion in exchange for a 11.7 per cent stake in GM and $400 million in preferred shares once the company emerges from bankruptcy.

"The previous [Bush] administration’s decision to support the restructuring of Chrysler and GM left two options for Canada: either participate in the restructuring of these companies which directly and indirectly account for literally hundreds of thousands of jobs, or stand idly by as they are completely restructured out of Canada," Harper told a joint news conference with Ontario Premier Dalton McGuinty.

Federal officials said Ottawa would sell its stake in GM over time but no later than 2018. (Why 2018, no one is saying.)

The company said it has US$172.81 billion in debt and only $82.29 billion in assets. Should I and millions of other Canadians thank the Conservatives in Ottawa and the Liberals in Ontario for being good investors, or should we kiss our hard-earned money good-bye?

According to Canadian Auto Workers president Ken Lewenza, government support for GM was critical because without it hundreds of thousands of jobs would have been lost. GM employs about 9,000 people across Canada and supports many others in the automobile supply industry.

Conservative MP Jeff Watson is similarly positive: "[The Canadian deal] has stabilized the base of the Canadian economy and created opportunities for future growth. We had to do our part to preserve the industry in Canada or watch it restructured away from this country."

Watson, a former autoworker, represents the riding of Essex, near Windsor across the river from Detroit.

The sad reality is no amount of self-serving blather about job protection can hide the fact that the American personal car industry is dying, and the industry’s top executives in the U.S. are to blame.

From my 40 years experience in high tech start-ups, I have learned an important fact about corporate management: a company is doomed if its top executive positions are all filled by people with MBAs instead of technical people who take pride in the company and are constantly looking to innovate.

At GM, all current top executives are MBAs; none is an engineer. Fifty-year-old Fritz Henderson is the current president and CEO. On March 31, he replaced Rick Wagoner who stepped down at the request of President Barack Obama.

It was during Wagoner’s tenure (2000-2009) that GM began to experience serious financial difficulty. Wagoner cut white-collar jobs by 10%, and tens of thousands of workers took early retirement. By 2007, losses soared to $38.7 billion and GM lost its position as the world’s biggest automaker to Toyota. By October 2008, GM shares tumbled as traders lost faith in the company’s ability to avoid bankruptcy.

Henderson’s education is in business administration and that of Wagoner is in economics and business administration.

One of the long serving GM’s CEOs was Roger Smith. Smith began his career at GM in 1949 as an accounting clerk. He was appointed chairman and chief executive in 1981, and led GM until his retirement in 1990.

Barack Obama began the process of rescuing the American car industry when the Big Three pleaded for help. They were eventually given a $17 billion bailout, but had to come up with viable restructuring plans by last March. The rest is history.

Anyone want to buy a GM car?

* Dr. Elmasry is Prof Emeritus of Computer Engineering, University of Waterloo. He can be reached at

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