Oh, the irony

Dec. 3, 2008
“What exposes us to failure now is not our product lineup, or our business plan, or our employees’ ability to work hard, or our long-term strategy. What exposes us to failure now is the global financial crisis, which has severely restricted credit ...

What exposes us to failure now is not our product lineup, or our business plan, or our employees’ ability to work hard, or our long-term strategy. What exposes us to failure now is the global financial crisis, which has severely restricted credit availability, and reduced industry sales to the lowest per-capita level since World War II. Our industry – which represents America’s real economy – needs a bridge to span the financial chasm that has opened before us.” –Rick Wagoner, Chairman and Chief Executive Officer of General Motors

It’s both a sad and strange situation, the groveling Detroit’s automakers are being put through as they seek billions in federal aid to stay afloat – with a big dollop of irony thrown in for good measure.

I mean, the Democratic-led Congress is raking the former “Big Three” over the coals – coldly rejecting their initial plea for assistance back in November while embarrassing their top executives (GM’s Chairman and CEO Rick Wagoner, Chrysler’s Chairman and CEO Robert Nardelli, and Ford’s President and CEO Alan Mulally) about flying in private jets to Washington to beg for money.

Now, true, they deserved it – GM is now unloading its SEVEN corporate jets as a result – yet these three companies at the same time comprise one of the last big bastions of unionized labor in the U.S.; a core Democratic party constituency. If the Big Three file for bankruptcy, all the union contracts go out the window, which includes gold-plated healthcare for employees, pensions for retirees, tuition assistance to cover continuing education costs, the works.

[Ford's Alan Mulally.]

It’s ironic, too, because in the south, many state governors (not a few of them Democrats) waved some rich tax breaks and other goodies to attract foreign car factories to our shores – BMW, Mercedes Benz, and Honda to name just a few – that now employ tens of thousands of non-union workers that don’t share the rich benefit packages negotiated by the United Auto Workers for its members employed by the former Big Three. GM’s pension and retiree healthcare tab alone in the U.S., topped $103 billion over the last 15 years.

True, too, those benefits – such as free-and-clear healthcare for UAW members, paid for by the automakers, plus retirement pensions and 90% of their salary should they be laid off – are partly what’s killing the competitiveness of Detroit. Yet some of those very same kinds of benefits are what President-elect Obama and the Democratic Party would like to bring to all Americans – especially universal healthcare. Yet here they are, holding three companies that already offer some really generous pay and benefit packages to their employees, over the abyss – and laughing while they dangle.

[Chrysler's Robert Nardelli.]

Sure, there are tons of things wrong with the former Big Three. They all made huge bets on light trucks and Sport Utility Vehicles in the late 1990s in the belief that cheap fuel would go on forever – writing off the car market almost entirely. Mediocre products and a bad reputation for service from the dealer networks compounded things tremendously. Toxic relations with their labor force didn’t help, either.

Yet they’ve changed – look at the data J.D. Power & Associates put out in recent years. GM, Ford, and Chrysler are all showing marked improvement in product quality and their plants have become some of the most efficient in the world – and they’ve done all this after withstanding so many shocks, such as the economic fallout from the attacks of September 11 and the oil price explosion that ended only in July this year. They renegotiated with the UAW and now have plans in place to relieve themselves of their benefit and pension burdens to a large extent.

[Ford's Alan Mulally in his own words explains why, despite a wide range of improvements, his company is asking for financial help from the federal government.]

Yet those savings don’t kick in until 2010 – and GM in particular can’t wait that long. “Last October, following the negotiation of a new labor agreement with the UAW, our stock price climbed to almost $43 per-share based on analysts’ views that we had finally overcome the cost-competitiveness gap with foreign automakers,” Wagoner told Congress last month. “Since then, our industry has been hit hard by the global financial markets crisis and the recent plunge in vehicle sales threatens not only GM’s ongoing turnaround, but our very survival.”

Car sales in the U.S. dropped over 20% in October this year – and plunged another 30% in November. It’s a severe crisis, one that even if Ford, GM, and Chrysler were healthy to start with would pose great problems. As it is, GM is figuring it’ll be broke by year’s end, while Ford and Chrysler hope to get federal lifelines in place in case they bottom out as well.

[GM's Rick Wagoner.]

What’s at stake here? Just look at GM: it directly employs approximately 96,000 people in the U.S. alone, with its 6,500 dealers across the country employing another 340,000. In 2007, the company purchased more than $30 billion of goods and services from more than 2,000 suppliers in 46 states. Its pension program covers nearly 475,000 retirees and spouses, with health benefits extended to about one million Americans.

And it’s not like these guys are standing still, either. “In fact, GM has made tremendous progress transforming our business in recent years,” Wagoner told Congress. “Since 2005, we’ve reduced our annual structural costs in North America by 23 percent, or $9 billion and expect to reduce them by about 35 percent, or $14-$15 billion, by 2011. Between 2003 and 2010, we'll reduce our U.S. hourly labor costs from $18 billion to $6 billion. As a result of these and other actions, we are now matching – or beating – foreign automakers in terms of productivity, quality, and fuel economy. By 2010, we’ll match them on labor costs, as well.”

You would think Congress might look positively on all of this, but obviously they don’t, for they're balking at throwing the former Big Three a $25 billion lifeline of credit, while the pundits keep saying “bankruptcy” is really the automakers’ best option.

[GM's Chevy Malibu, named the 'North American car of the year' for 2008 -- just one example of how far GM's come in recent years in terms of product quality.]

Wow! Talk about a tough crowd! Wish they’d been this tough on all the Wall Street money managers. Hell, if GM, Ford, and Chrysler file for bankruptcy, you’ll see far more “Main Street” pain in a hurry – the exact folks the Congress wants to help. And these companies MAKE things, too – cars and trucks that still sell pretty well, garnering 48.1% share of the North American market and some sizeable chunks overseas. They don’t push money around and talk mumbo jumbo – they DO things, some things that used to be prized highly by our country.

How ironic that no one seems to see things that way anymore.

About the Author

Sean Kilcarr 1 | Senior Editor

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