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The Cadillac of Commodes - Oct 19, 2009

Posted by: David Kirkup in Articles

In a recent Economist article about the sanitary hardware produced in Japan, the paper referred to the excellent toilets produced there as the "Lamborghini of Lavatories" and the "Cadillac of Commodes". In a brilliant Letter to the Editor a contributor suggested the "Jaguar of Johns" and the "Lexus of Loos". The Economist headed the letter "The Bugatti of Bogs" (which is a British term). Given the current global turmoil in the auto industry it's somewhat amusing that car companies are still held up as examples of efficiency, quality and productivity. Perhaps the "Chrysler of Crappers" is unfortunately more appropriate. So, exotic cars and potty humor. How do we turn this to small business...?

The story of GM's bankruptcy has been very interesting. After years of losses, wrong turns, unfulfillable commitments, shoddy quality and design, the once proud GM had reached the end point in 2009. Seemingly unable to wrestle with a firestorm of critical issues, GM management appeared clueless and mired in inertia. The US Government's auto czar stepped in and fired the CEO, prepared the company for bankruptcy and provided funds for the transition. Bankruptcy has enabled GM to streamline it's absurd product range, dramatically downsize it's dealer distribution system and cap its legacy pension mountain. Whether or not it can now succeed is open. Certainly, government run auto companies have a dire reputation: e.g. British Leyland, East Germany's Trabant.

The inertia of management at GM is not uncommon, especially in the economy of the past two years. Many companies had spent time building infrastructure: hiring good people, making investments, opening larger facilities. When the recession hit, many owners were staring at double digit falls in revenue and hoping to weather the storm - rather than batten down the hatches. At first this worked, but as cash started to fall the situation became more uncertain. Line of credit resets and weak banks began to cause problems with cash safety nets, so companies were squeezed on both ends. Payroll became a large problem as positions hired in good times were no longer generating revenue, or were under-utilized. Overhead had risen as such "essentials" as free coffee service and extensive first class travel had risen to bloated levels. Large fixed asset buys had contributed to lingering lease payments on unsellable, unused equipment. Things looked bad...

At this point there were two approaches: the GM way or the savvy operator way. Savvy owners, armed with clear financial information were able to make fast decisions: reducing staff, selling equipment, clamping down on overhead. They could make future plans for emerging from the recession by shepherding cash, and dealing pro-actively with their banks. The GM operators have largely closed down now, or soon will. Unable to make critical decisions quickly, lacking financial analysis and guidance they hoped that something would turn up. It didn't.

To really understand how you business makes money you need a CFO. Every business does. Contact David Kirkup, Partner at B2B CFO ^® on 404 348 0326 or dkirkup@b2bcfo.com, for a free analysis