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.

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Pray for Newspapers

The WSJ reports that Tribune has retained Lazard to help restructure its debt and that Tribune may seek Chapter 11 Protection.  A month ago I met Bruce Toll (Toll Brothers) at a cocktail party.  Toll is the Chairman of Philadelphia Media Holdings and had helped lead the deal to buy the Philadelphia newspapers from McClatchy.  He was very pessimistic about McClatchy’s ability to avoid bankruptcy proceedings and disclosed that Philadelphia Media itself was really in no position to continue meeting its debt obligations.

Meanwhile Henry Blodget continues to track the travails of the NYT and I encourage you to make sure you read his posts today and in the future

Whither These Friends

Whither These Friends

While the automobile industry commands most media attention these days, the rapid demise and potential reinvention of the newspaper business will likely be a huge story in 2009.  Major cities in America may find that the newspaper of record no longer exists or emerges from a restructuring with a far leaner news gathering organization.  At best, diversified newspaper companies such as the NYT, Hearst, Cox, Gannett, Tribune and others will have to sell off valauble assets to restructure the balance sheets.  Goodbye television stations and baseball teams.

The good news is that the Chapter 11 process or other debt restructurings could pave the way for new ownership and reduced debt service.   Plenty of debtholders will settle for 30 cents on the dollar to get something in what they perceive to be a  dying newspaper industry.  So new equity participants could get in inexpensively with significantly less debt on the balance sheet.

Here’s what’s interesting about this dynamic.  In some communities — Philadelphia, Minneapolis, and New Orleans to name a few — newspapers play a central role in people’s lives that takes years to establish.  Even young people in these communities appreciate the newspaper brands of these towns and that awareness could be utilized to grow a local business that is central to people’s lives.  These companies also have one of the few sales organizations capable of selling at the local level.  Citysearch wants that capability.  Yahoo has partnered with newspapers around the country because they couldn’t grow that same competency.  Local advertising remains remarkably untapped and newspaper companies still may be able to retain and nurture that business.

Interestingly, this bad economy might be the saving grace for the newspaper industry.  Debt holders want something and the need for restructuring may bring more innovation to the beleaguered category.   Recent history has been brutal.   Tribune has struggled in LA and Chicago.  The Philadelphia Inquirer,like so many others big dailies,  has been unable to stanch the bleeding subscriber base, and many of the big newspaper companies carry debt levels that required healthy classified and national advertising franchises to service.

The few times I’ve visited Detroit it’s felt  like dead city walking.  Old buildings, bored employees, little diversity, marginal passion. I’m sure I have not seen all that Detroit has to offer, but the car industry feels tired.  When I visit newspapers they may have much of the same physical architecture, but they crackle with energy.  They have experimented, they still want to win.  The car industry may not be able to find its way back in this brutally global marketplace.   But the newspaper industry can find their way.  Pray they do.  Bloggers need newspapers to help set the agenda so they can frame it.  People need newspapers to ensure that institutions private or public do not run completely amok.

Think the financial crisis is bad?  Imagine what it would be like if nobody was reporting on it.

Better Place Yes. Detroit No.

I still loathe the BIG 3 Auto CEOs today. I know that’s strong, but these guys are the Larry, Moe, and Curly of the Fortune 500.

Meanwhile John Markoff at the NYT reports that Better Place is moving into Hawaii with another sweet deal in the worst financial climate in two generations.  Because Electric cars make sense.  Renewable Energy makes sense.  Why would I believe that Detroit will crank out more fuel efficient cars with their $40bn bailout?  How do we know they wont’ be back in 6 months asking for more?  Is a Hybrid Navigator or Hummer our future?

Better Place is one part of the future.   Detroit is the entire past.  Israel, Denmark, San Francisco, Australia, and Hawaii have seen that future.  Detroit will drill for oil on 8 Mile Road, before they let electric cars into town.

GM, Ford Management Must Go

The current Venture Capital Road Trip (literally Wagoner and Mullaly are driving from Detroit to Washington in hybrids; Nardelli reserves the right to fly) reeks of prepackaged public relations.   These guys presided over huge destruction in shareholder value and been very well compensated for it.   The WSJ now reports that Ford will speed up production of Hybrids and that William Clay Ford believes Ford can be the green car company of the future.  No.  You will not get away with this. You can’t even run your own football team.

Bill Ford and Alan Mullaly had their chance and they kept pushing Broncos and Explorers down our collective throats.    GM has been told to reduce their number of brands for decades and they haven’t done it.  I guarantee you that Rick Wagoner has been driving an SUV for years.  Did anybody see the film Roger and Me (1990)?  It’s like nothing has changed at GM in a twenty years.  I will not be suckered by this staggeringly disingenuous offer to take $1 dollar in compensation next year.  Mullaly made $22mm last year.  Come on people.

My guess is that bankruptcy restructuring remains our most prudent course of action, but I will consider some kind of loan package if management is radically changed at any car company that receives federal assitance.  Collectively the big 3 have been broken strategically, culturally and financially for years.  They have lived off of financing revenues for decades.  They are an American embarrassment.

The Obama mandate is change.  We cannot allow Detroit’s car companies to receive taxpayer money without a radical restructuring of corporate governance.  This includes directors who approved compensation packages and did not push their managers to seek pre-packaged bankruptcy solutions.  Even now, Rick Wagoner maintains bankruptcy is not an option.  This is the equivalent of a startup CEO saying to his VCs, ” oh you’ll give me more money.  I’m not worried. ”  They don’t have a creative bone in their bodies.  They must, must be thrown out.

I’m so pissed off right now I can’t think straight.  A month ago, Lindzon wrote that he wanted to punch somebody at the company.  At the time, I thought that was aggressive, now I’m worried even Howard was too soft on these fuckers.  Are you kidding me with the $1 salary this week?  Two weeks ago, Mulally was asked about his compensation and he said, “I’m fine where I am.”  Guys, you need to admit you have done a terrible job.  Typically, I don’t believe in trying to recoup compensation, but if we’re doing a bailout here I think we are entitled.

Look, I’m ranting.  Elizabeth Kolbert (the best environmental journalist in America except for Michael Pollan) wrote a nice editorial in The NewYorker.  Read her here.  And while you are at it, please support and subscribe to The NewYorker.  It’s a national treasure.

Disclosure:  I am a subscriber and avid reader of The NewYorker.

If you agree, please email me or comment below.  I will move the whole discussion to the offices of Nancy Pelosi and Carl Levin to name a few.

Obama’s Internet Use Will Change World

One need look no further than changedotgov to understand how Obama and future presidents will use the Internet to communicate in a completely unfiltered way with citizens and the world’s population.  Obama uploaded his weekly radio address earlier today.  Already a 155,000 people on YouTube  have seen it on by Saturday at 5PM EST.   Remeber all of this behavior is “ondemand.”  People opting in to watch.

Meanwhile Obama is using his campaign infrastructure to continue to send his constituents his messages including today’s address.

In today’s speech, Obama says he’s going to pass progressive legislation to invest in alternative energy and national infrastructure.  The Washington lobbying machine will gear up to drive those dollars to individual states and to ensure that traditional speical interests (Oil, Auto, Teachers Union)  maintain their traditional hegemony.

Obama and his administration have a chance to seriously dampen special interest power by mobilizing his army of volunteers and millions of Americans to send emails, call congressmen and even to raise money to combat certain special interests.  The question is will Americans cotinue to engage beyond the election?  Will they stay motivated to fight for what they believe in, even when a presidential race is not on the line?

Obama’s domestic Agenda

Today’s radio address begins the beginning of a progressive political era in Washington.  Obama has said that he will create a sustained economic stimulus plan focused on improving the country’s infrastructure and investing in the still amorphous alternative energy economy.

The Republicans held the line this week with the automotive industry and with Waxman replacing Dingell on the House’s energy committee, the cards are lining up to focus all governmental intervention in Detroit on huge fuel efficiency improvements.  Fortunately, for Obama, who really wants to invest in environmental and educational change, he will face little resistance to spending initiatives this spring.  The country’s political leadership is scared not to spend money during this recession.  As we have written before, some people fear we really are heading into a depression and think the economy will fall off a cliff in 2009.

Obama now has a chance to use the disastrous economic climate to invest in a progressive agenda on his three key issues: Energy, Education, and healthcare.  On energy, expect to see tax incentives and investments made in what is likely to be the fastest growing sector in America:  Alternative energy.  People will get rewarded for making their homes more energy efficient, producing wind power, recycling, and my longshot, riding bicycles in lieu of cars.

Obama has a chance to radically address education.  We do not know who Obama’s choice for Education will be, but I’m hopeful he will make his most radical appointment here.  Today’s NYT says that Obama will govern from the center-right with appointments like Clinton, Daschle, and Geithner.  We have to govern from the radical progressive on education.  We have to try anything and everything.  We have to be provocative.  The Atlantic ran a well-researched story about Washington D.C. School Chancellor Michelle Rhee this month.  That’s the kind of innovation we need now.

Finally, what can Obama do in healthcare that doesn’t cost a fortune and will not face resistance from the HMO, Pharma, and AMA lobbies?  This is the toughest and most concerning of the issues because so many people have no insurance and the cost of healthcare has risen so much faster on a percentage basis than anything other than higher education.  I’m most worried about this issue, but I think the appointment of Daschle shows it’s going to be more reform rather than revolution and I’m ok with that.  If we can get radical change on energy and education I could live with reform in healthcare — at least this term.

Coolest Company in the World

This week, Better Place cut a $1bn dollar deal to bring electric car charging stations to the San Francisco area.  Better Place is without question, the most ambitious startup to ever come out of Israel and perhaps the company that has the best chance of restructuring the automobile industry in the next 5 years.

The Better Place Station

The Better Place Station

Better Place will replace fossil fuel burning cars with electricity consuming cars using a series of battery swapping stations around a given metropolitan area.  Nissan is the first company to build the cars.  Israel became the first country to commit to building the infrastructure and now Denmark and San Francisco are joining them.

Remember when everybody (Jobs/Bezos etc) hyped the Segue has an urban lifestyle changing device?   Well I’m hyping Better Place. To be sure, creating electricity can create CO2 emissions when we use coal, but there are many sustainable and renewable ways to create electricity. Denmark, for example, gets 20% of their electricity from wind.

There will be much more to say about Better Place going forward.  I am following the company closely.  But I wanted to introduce you for two reasons:

First, the wheels are really coming off the economy.  Everybody is terrified.  Shai Agassi gave us hope this week  announcing  that he will raise $1bn (in equity!) to change the Bay Area and help us out of global energy and environmental crises.  Second, to me Better Place symbolizes the rise of Israel as a first world economic power.  I don’t care how small the population is.  I don’t care about the geographic location.  The cooperation between universities, the military and the government coupled with a relentless entrepreneurial spirit among Israelis makes it the most undervalued population in the world.

Better Place is headquartered in Silicon Valley, but make no mistake, it’s an Israeli multinational company.