Republican Senators Have Courage

Fred Wilson beat me to a GM post that I wanted to write over the weekend.  If only I had watched less football.  Fred nails it so read his post, but here are my thoughts.   General Motors is a disaster and we send the wrong message to everybody in this country and around the world if we give the company money without demanding changes.  The republican senators stood up to the Bush, Obama, and Pelosi and said the legislation that was originally intended to “green” the auto industry should be used as a stop-gap to save GM for a few more months.  It’s discouraging that Bush has the ability to use TARP money to bailout GM, but not surprising that a President who has never paid attention to what anybody else thinks would just circumvent the system using poorly written legislation.  TARP was done to prevent a collapse of teh financial system not bailout any company that needs help during these savagely difficult times.

I recognize that GM employs lots of people, but we will face this problem every quarter in 2009 if we don’t make some changes.  Here is what the United States government must get if we are going to bailout GM.

1.  Goodbye  shareholders.  This is a pay to play situation.  If you don’t want to pay you can’t play and the United States and GM employees should be the only shareholders at GM.

2.  American Government picks up the the GM healthcare obligations for retired workers until healthcare legislation is passed that can replace it.  This would give GM a competitive chance at going forward and relieve huge expense burdens that have no impact on the company’s ability to make good cars.  This is expensive. Hopefully the rise in GM’s equity will help offset that.   We cannot abandon these workers’ healthcare needs.

3.  New Management.  We are all shareholders now and I don’t believe Rick Wagoner.   Find somebody else.

4.  UAW contract must be revised.  The union leadership postures because Pelosi, Obama, and even Bush look for ways to circumvent the Republican Senate.  Everybody needs to be on same page.   We can’t pay workers double what Toyota does and expect GM to compete.  Only the threat of Chapter 11 will bring the UAW in line.  Use the threat.

5.  GM board should meet monthly to review monthly objectives and see if the company is making progress.  Management should be under tremendous pressure to perform and be rewarded properly.  But make no mistake.  Working at GM should be the hardest job in America and every effort should be made to apply massive pressure on this mgmt team to deliver change in 2009

6.  Extract the appropriate commitment to greentech as a way of getting GM’s marketing muscle and scale behind environmental changes.

7.   Move GM out of Detroit.  This is radical, but I think would help.  Detroit is bad for the automobile industry.  It’s insular and suffering from years of failure  GM needs a rennaisance and the American car industry does not all need to be in the same city.  If people don’t want to move, don’t move and find new people.  That would help GM.   Michigan has good things going for it and they need to reinvent the economy.  I think GM moving to say Dallas or Atlanta or Los Angeles or even Chicago would help them find new people, new ideas, and most importantly the pyschological will to start again.


7 Responses

  1. Hey Aaron. As a social liberal / fiscal conservative, I too lean with the Republicans on the bailout issue. The problem is that the democrats and Bush have have conflated a financial issue into a social issue. A few brief notes on your points.

    1. Cerberus isn’t involved with GM, they are involved with Chrysler and own an 80.1% stake in the company. However, your point is valid. If Cerberus, with $24B under management and a majority share in Chrysler, won’t re-up and pay to save their investment, neither should the American taxpayer. Heck, even Daimler-Benz, with a 19.9% share isn’t rushing to save their investment. Goodbye Chrysler. As for GM shareholders, the idea of saving them is also a lost cause. Those who didn’t get the hint when GM debt went from investment grade to junk 4 years ago are fools.

    2. The defined pension benefits for the Big 3 cover more than just healthcare. The idea that the American taxpayer must subsidize the failed negotiating power of the UAW to move pensions into separate 401K’s run by (ostensible) professionals years ago is awful. I found it hilarious when the UAW president was asked if he’d roll just half of the $21B of pension obligations into GM stock. I could hear the crickets from Jersey. Even he knows GM is deader than fried chicken.

    3. New Management goes without saying. Our appointed Car Czar should be on a newly appointed board of directors.

    4. Honestly, don’t just threaten Chapter 11, let GM trip its covenants and be put there by the debt holders. The system works for a reason. GM is not too big to fail and I don’t believe in subsidizing work-practices. The UAW will continue to play chicken and waste Congressional time and effort until they go Chapter 11, the exact place where such historical idiocy is remedied with a grenade, not a scalpel.

    5. “Working at GM should be the hardest job in America”. As a fellow serial entrepreneur, wiser words have not been said.

    6. I have a problem with fallacy of auto GreenTech – it is a promise that doesn’t make sense given the deep structural and financial barriers to it working. So-called “green” cars are just too expensive and will be for years to come. The price performance is not there yet – blame R&D, blame consumer demand, blame big oil. The industry has had decades to change and chose not to. The kind of necessary restructuring will only happen in under Chapter 11.

    7. Move GM out of Detroit? No, move GM out of the country. GM should be run like Nike, which is a US based marketing company that exports production to the cheapest producers. The American future is about owning brands, not PP&E (power, plant and equipment). It’s far beyond a psychological – it’s physical, so cut the cancer.

  2. Greg:

    My repsonse to yours.

    1. I screwed up on Cereberus. Great Catch. Sloppy job by me. Thanks.

    2. I hear you on the 401k (although it’s a whole separate conversation as to whether these are a good idea), but I focus on healthcare for the simple reason that the car companies have been at the forefront of the business roundtable discussion on the burdens of healthcare. The Big 3 have employed so many people that there healthcare burden is just enormous on absolute basis. I think fixing their expense issues forces a radical rethinking of the healthcare system.

    3 and 4. I think we are in agreement on bankruptcy proceedings being the only real way to bring the UAW in line and the need for mgmt change.

    6. On greentech, your argument may be correct. If so, then to me our whole discussion is irrelevant. If the bankruptcy process is the only way to get the Big 3 to focus on radically changing how cars are made and how they consume energy then so be it. We can argue til we are blue in the face about the need to preserve American jobs in a time of immense financial peril, but it’s clear that we will face disastrous, potentially civilization-threatening consequences if we keep burning fossil fuels at the same insane consumption rate.

    7. We disagree about this. I think there is room for the MIT, Caltech and University communities to help restructure and rebuild the American automobile industry. I’m not talking only about manufacturing but about design, engineering, and policy. Imagine an American car company (Tesla say) making the fastest most fuel-efficient cars. To me that company will benefit from the great work ethic, entrepreneurial spirit, and diversity of the American white collar labor force. Perhaps you are right about manufacturing, but there is a big difference between Nike and Coke and say GM and Intel.

  3. Smart post. I agree with you. On the last point – 7 – I think you might’ve also wanted to mention San Francisco, Boston or Seattle as places that would make sense. Even NYC so that they see why the cars they’ve been making for Detroit, make little in an urban environment.

    The other thing that gets talked about but you didn’t mention is the idea of reinventing these companies as transportation companies – not just automobile companies. That means coming up with other ways for people to get from one place to another without depending on a car.

    Also, no one has mentioned that the car companies should be forced to encourage people to carpool. I am still appalled at the number of people who commute alone. And if they can’t do that, then why not come up with more single/double person transportation vehicles?

    Yesterday, Hertz launched its Zipcar competitor, Connect, with a big event downstairs from my office. A few months back Volkswagen posted their visions of what cars would look like in 30 years. What was most interesting to me about that and the Hertz development is that they both foresee a future where people choose to subscribe to their cars, not own them outright. In the VW vision, you call and your car appears (everything is networked including the car, right?). I don’t think that vision is that far off.

  4. I’m all for getting rid of Waggoner and Nardelli and their cohorts. No sympathy there.
    Their stupisity knows no bounds. So they sucked their thumbs on the health care issue instead of recognizing that only some rational system of national health care could get that burden off of the company’s backs.

    But I want to challenge what I consider the myth of the UAW taking the blame for Detroit’s myopia and never dealing with the marketing threats from Toyota, Honda and Nissan.
    Full disclosure: I knew and worked for Walter Reuther when Aaron was born until he was 2. Reuther and I had an earlier and later public history–so there’s a legacy. A principal mentor of mine, Jack Conway, was part of Reuther’s “Cabinet” from the end of World War II until Reuther was tragically killed in an air crash.

    So here’s my disagreement. E. J. Dionne got it right when he wrote “hideous class bigotry has disfigured” the bailout debate. The UAW has not been indifferent to cost issues. The give backs in the last contract caused rank and file eruption that union leadership thwarted.
    David Leonhardt in the New York Times pointed out that the the difference is not as great in wages beyween the Big 3 and the Japanese manufacturers and fringes among current workers as described by Blitzer on CNN.
    There are fixed costs for retirees that have no relation to how many cars are made. These are real and here something has to be figured out. People are living longer so the costs, bargained for when social security alone was terribly insufficient (and alone it still is) requires an imaginative solution–neither coming from management or the union.
    Dionne’s class bigotry comment can’t be ignored.
    In a cynical move on the initial bailout legislation that passed before the election loopholes abound in reviewing executive compensation. Bush and Paulson, by not using auctions, effectively negates the only enforcement mechanism to deal with the lavish salaries of failed executives. Policy analysts may discount the importance of this issue. Political people, workers and journalists won’t. So it had better be dealt with before you can expect workers or retirees to do more givebacks.

  5. For Dionne to write that people are living longer so the calculations that were initially created don’t make sense is exactly why the UAW has not showed quality leadership. The UAW has tried to protect their workers, but they have not wielded the power they had to effect change. They didn’t say, “let’s build different, more fuel-efficient cars.” They didn’t say “let’s change management.” They said, “let’s do our best to hold onto what we can even while we know the industry is imploding all around us.” That’s not leadership, that’s a slow-death. The labor movement simply no longer makes sense when it’s much easier to employ labor at a fraction of the cost somewhere else because the world is flat. The UAW should have been fighting for education benefits and retraining benefits over these past decades instead of fighting to hold onto a structure that was in decay teh entire time. Now there retired members could find themselves with nothing and there current members may be out of a job. How are they not complicit in this? Why is it ok to say, “well they were doing right by their members if their members are getting screwed at the end?” The UAW has had spectacular resources at its disposal over the years. Where are the progressive ideas that they have advanced?

  6. What if’s of history? It’s an exercise that can triggers the imagination.
    What if Reuther hadn’t gone down in that plane crash. Leadership makes a difference. Reuther had boldness and imagination and could inspire people. More importantly he could see past his special interest and organize his members to do the same.
    The UAW has been on a down cycle on its leadership since the end of Doug Fraser stepping down as UAW leader 15 or 20 years ago.
    Demurring to your points in your answer to me, and I agree with them, the bulk of the responsibility for the abysmal decline of Detroit lies with the automobile companies.

  7. You wrote: “We can’t pay workers double what Toyota does and expect GM to compete.”

    Er, you do know that they don’t actually get paid double, right?

    The correct figure is something like 20% more, and the UAW has already made significant concessions that should lower that gap to 10% over the next year.

    The difference in hourly pay to current workers is not really a significant factor in the trouble facing the “big three”, and perpetuating that anti-union disinformation meme weakens your otherwise sensible blog post.


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