Answering Their Own Question

Page 48 of the November 27th edition of Forbes has two short articles that have a definite relationship.  I doubt the editor realized it at the time.

The first, titled Why Detroit Can't Compete, details the average vehicle price differences between GM, Ford, and Chrysler and the big 3 Japanese automakers of Toyota, Honda, and Nissan.  These factors include:

• U.S.-based automakers have a fundamental profit gap of about $250 - $450 per vehicle due to incentive deals, discounts, and rebates.
• $590 - $630 increased cost due to the exceptionally high pay and benefits GM and company give their workers.
• $50 - $350 per vehicle for "excess capacity," where GM and company pay their idle workers instead of sizing factories and workforce appropriately.
• $490 - $705 per vehicle for retiree healthcare, primarily due to short-sighted decisions the U.S. big three management made during their lucrative years a decade or more ago.

Poor capacity planning, paying idle workers, poor negotiation with unions on healthcare and other benefits, discounts and rebates... all management decisions, right?

The second article on that page is titled The Madness of Crowds, and describes how "business school students are terrific indicators of what sectors were hot - two years ago."  Examples such as how 17% of Wharton's graduating class of 2000 went to work in Silicon Valley's tech sector... only to see technology collapse the next year.  In 2001 over 20% of Wharton's grads took investment banking jobs... and Wall Street laid off tens of thousands of bankers over the next two years.  As an aside, the hot job market now is private equity... and we're just starting to hear of the scandals in that sector.

Guess where they went a decade or so ago... the big 3 auto companies.  Hmmm...

We've criticized MBA programs quite a bit over the past couple years.  Other blogs have done the same.  Putting a bunch of generally inexperienced grads into the real world, taught by professors often outside of the real world, and paying them rediculous salaries, is usually a formula for trouble.

Leave it to Forbes to ask a question and give us the answer... on the same page.

Comments

[Joe]

Is it an indictment of all MBA programs, or just how pathetic Wharton grads are? Perhaps they should teach a class in "analyzing the future." But as traditional financial management types, don't they learn to put that statement of "past success does not necessarily predict future success" on everything the write?