GM’s Slide: Bosses Misjudged New Urban Tastes

Lee Hawkins, Jr (a writer who used to work in Madison and Milwaukee):

In December, General Motors Corp. ran a series of ads across the U.S. showing Cadillacs being driven in snow. The decision to do so was made by the giant car maker’s executives in Detroit, where on Christmas Day, temperatures hovered just above freezing.
The ads also ran in Miami, a vibrant car market where GM has bombed for the past 15 years. As Christmas dawned, temperatures there started climbing into the high 70s.
GM is struggling under a financial burden created by monumental pension and health-care obligations. But it’s also having a hard time persuading Americans to buy its cars. One reason: GM’s cumbersome and unresponsive bureaucracy, the one that ran the snow ads in Miami, has for years failed to connect with the tastes and expectations of consumers outside the company’s Midwestern base.

Hawkins does a nice job digging into this issue with examples from mid level GM employees. GM has a large assembly facility in nearby Janesville.

How Wisconsin Lost Its Big Advantage in the Ginseng Game

Jane Zhang:

In a cramped shop filled with stale aromas of Chinese herbs, Keary Drath, a stout Wisconsin farmer and self-appointed ginseng sleuth, picked up a dry, wrinkly ginseng root, broke it in half and chewed it.

Clerks and customers of Ginseng City Trading Inc., stopped haggling in their rapid-fire Mandarin and stared. “From China,” he declared. “Not Wisconsin.”

“What’s the difference?” asked a shocked customer, Max Chen, who has used ginseng for 20 years. “They all say it is Wisconsin ginseng. I know Wisconsin’s is superior.”

Mr. Drath, 42 years old, wishes he had an easy way for Mr. Chen and millions of other ginseng buyers in Asia and in Chinatowns all over the world to make the distinction. The future of Wisconsin’s century-old ginseng farming business, now under attack by global rivals, depends on it.

The root has been worshiped as an energy-balancing folk medicine for 5,000 years. Ginseng — or Ren Shen, meaning “Man Root,” in Chinese — has two types. American ginseng (Panax quinquefolius) has a cooling effect. Asian ginseng (Panax ginseng) provides a hot rush of energy.

With its rich loam, sunlight and cool summers, Wisconsin — especially Marathon County in the central part of the state — produces premium American ginseng. It is more potent and more bitter than American ginseng grown elsewhere.

To an untrained eye, dried Wisconsin roots look the same as those produced in great quantity in Canada and China. Mislabeling and product mixing abound.

And that is threatening the livelihood of Wisconsin’s ginseng farmers, whose roots trace back to the early 1900s when the four Fromm brothers began cultivating ginseng in Marathon County. Ginseng isn’t easy to cultivate: It takes four to five years to grow ginseng under wood or fabric canopies.

“Kids are easier to raise than ginseng,” says Stephen Kaiser, 59, of Rozellville, Wis., who has been grown ginseng since 1977. “Kids only get colds, flu or pneumonia, but ginseng, it tends to die very easily.”

The Birth of the Toyota Prius

Alex Taylor III:

New York (FORTUNE Magazine) � In late 1995, six months after Toyota decided to move forward with its revolutionary hybrid, the Prius, and two years before the car was supposed to go into production in Japan, the engineers working on the project had a problem. A big problem.

The first prototypes wouldn’t start. “On the computer the hybrid power system worked very well,” says Satoshi Ogiso, the team’s chief power train engineer. “But simulation is different from seeing if the actual part can work.” It took Ogiso and his team more than a month to fix the software and electrical problems that kept the Prius stationary. Then, when they finally got it started, the car motored only a few hundred yards down the test track before coming to a stop.

It’s hard to imagine Toyota (Research), with its aura of invincibility, running into such trouble. But the story of how it brought the Prius to market — a tale of technological potholes, impossible demands, and multiple miscalculations — reveals how a great company can overcome huge obstacles to make the improbable seem inevitable. The gas-electric auto represents only a tiny fraction of the nine million cars and trucks the Japanese company will produce this year. But it is the first vehicle to provide a serious alternative to the internal combustion engine since the Stanley Steamer ran out of steam in 1924. It has become an automotive landmark: a car for the future, designed for a world of scarce oil and surplus greenhouse gases.

Plus Shipping and Handling……, Making Money on eBay

Alex Tabarrok:

Would you rather pay $10 and have free shipping or pay $5 and pay $6 for shipping?  Answer: you prefer the latter.  Well, at least if you are like most bidders on eBay. 

Morgan and co-author Tanjim Hossain, an assistant professor at Hong
Kong University of Science and Technology, held 80 auctions of new
music CDs and Xbox video games to test how consumers respond to
different price schemes. In the eBay study, they varied the opening bid
price and shipping charges on identical CDs, ranging from Britney
Spears to Nirvana, and video games, including Halo and NBA 2K2.

…A
perfectly informed and fully rational consumer will merely add together
the two parts of a price to obtain the total out-of-pocket price for an
item and then decide whether to buy and how much to bid based on this
total price.

But that’s not what happened
in their eBay auctions. Instead, they found that lowering the opening
bid price while raising shipping charges attracts earlier and more
bidders and ultimately leads to higher revenues compared with doing the
reverse. Those findings suggest consumers pay less attention or even
completely overlook shipping costs when making bids…

The quote is from a writeup, the full paper is
…Plus Shipping and Handling: Revenue (Non) Equivalence in Field Experiments on eBay (subs required).

Also check out the interesting data on online pricing at Nash-equilibrium.com.

More on General Motors

Robert Farago takes a look at GM’s supplier situation in his latest “Deathwatch” editorial:

A couple of days ago, I was talking to an auto industry analyst about the world’s largest automaker. We were discussing the cracks in GM’s hull, trying to figure out which of The General’s compartments were already breached, which are filling with water and which remain viable. A wistful tone in the analyst’s voice indicated head-shaking dismay. “I’m no longer hearing anything positive about GM,” he revealed. “The conversations range from how bad it is, to how bad it’s going to get.” I didn’t want to sound like a paranoid fantasist to a new source, so I tried not to out-pessimist the doomsayers. But it wasn’t easy.

GM operates a large SUV assembly plant in nearby Janesville, WI

Surviving Globalism – Caterpillar

Joann Muller:

Caterpillar confronted the same labor costs and Asian competition that the auto companies did. But Cat is doing just fine. Why?

A Midwest manufacturing company, fat and lazy, heavily unionized, suddenly faces foreign competition. You know the ending: massive layoffs, closed factories, consolidation, rumblings of bankruptcy. That’s the familiar story of General Motors, Ford and lots of other big manufacturers over the last 20 or 30 years.

Great article, particularly in contrast to GM’s challenges.

Congressman Quizzes Net Companies on Shame

Declan McCullagh:

Rep. Tom Lantos: Can you say in English that you’re ashamed of what your company and what the other companies have done?

Google: Congressman, I actually can’t, I don’t think it’s fair for us to say that we’re ashamed.

Lantos: You have nothing to be ashamed of?

Google: I am not ashamed of it, and I am not proud of it…We have taken a path, we have begun on a path, we have done a path that…will ultimately benefit all the users in China. If we determined, congressman, as a result of changing circumstances or as a result of the implementation of the Google.cn program that we are not achieving those results then we will assess our performance, our ability to achieve those goals, and whether to remain in the market.