Interesting answer to the big 3 dilemma...

[Gil BullyKatz]

While reading about how the CEO's of the big 3 flew in on private jets to beg for a bailout, I found this on another board... Thought I'd share.

Op-Ed Contributor
Let Detroit Go Bankrupt

Published: November 18, 2008

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

Mitt Romney

former governor of Massachusetts

 

[Deadman 94 xj]

I agree with the article. Old faces should be terminated and new faces brought in. You can not turn a company around with the same lower level management. Employees need to be motivated for a new direction also. These companies need to set big goals and follow through.

 

[WB9YZU]

Thanks for sharing Gil!

It is hard to justify to the average person a starting wage of $18/hour plus another $4-5/hour in added benefits for unskilled labor at an autoplant. Workers see Management pulling in 7 figures and wonder why that can't have a stake in that.

No, the article is right, "Detroit" needs to restructure, and I don't mean closing plants and tossing off the Unions. It needs to re-think it's worth in a global economy and adjust saleries acordingly.

The ridiculous salaries are not limited to the car industry by any means. Just look at higher education. Salaries of 6-7 figures are not unheard of for Deans and administrators. Is it any wonder that Teachers and TAs want a piece of that action. Every big 10 school has a private fund raising corporation attached to it feeding it money. Sports seems to get the most and largest donations, humanities the least. We need to re-evaluate what we value as a society and stop paying for mediocrity.

I'm not too worried about the ecomony as it is going. Prices are deflating to where they belong, and that's a good thing because most peoples saleries have not kept pace.

What I do worry about is our ability to bring the jobs we shipped out due to inflation and greed, back home so that we can start to rebuild our industrial infastructure and create jobs which will stick around.

 

[FlexdXJ]

I agree new faces are definitely needed to take the place of many of the upper management folk! I make around 30k a year whereas the vice-president makes god knows how much. I do get profit sharing, 2 weeks vacation, a union to back me up, and a check once a week. I still feel under payed but I do my job to the best of my abilities. I see so many stupid people working in my plant that don't do their job stay around forever. While on the other hand my team leader is in fear of losing her job for taking too many FMLA days when her son(who has CP) needs to go to the doctor or gets sick!

 

[wolfpackjeeper]

it has amazed me that the first thing people say when I told them my dream ticket was Mitt Romney, then either Ron Paul or McCain as VP, was "Why do you want the Mormon guy to win?".

Why: because of stuff like this. You can cover Foreign Policy with a good VP or Sec Def/State. But what America needs right now is a president who understands the economy as it is; not how it was, or how it should theoretically work, or how we want it to work, how it actually works in reality. Knowing that is the only way to help it in the direction we want. Scandal free, clean background in him and his family, no drunk driving, weed, or hits on cocaine. Solid as a Gov, and as a CEO. Yet he never had a shot, every question he was ask had to do with being a Mormon.

but instead when have a president and a congress who think the solution to a failing industry is to prop it up to fail again.

IDK, maybe he will run again in 2012...

 

[Gil BullyKatz]

it has amazed me that the first thing people say when I told them my dream ticket was Mitt Romney, then either Ron Paul or McCain as VP, was "Why do you want the Mormon guy to win?".

Why: because of stuff like this. You can cover Foreign Policy with a good VP or Sec Def/State. But what America needs right now is a president who understands the economy as it is; not how it was, or how it should theoretically work, or how we want it to work, how it actually works in reality. Knowing that is the only way to help it in the direction we want. Scandal free, clean background in him and his family, no drunk driving, weed, or hits on cocaine. Solid as a Gov, and as a CEO. Yet he never had a shot, every question he was ask had to do with being a Mormon.

but instead when have a president and a congress who think the solution to a failing industry is to prop it up to fail again.

IDK, maybe he will run again in 2012...

So...

Instead of blaming the republican party for a subpar candidate choice and a faulty campaign...

A cheap shot against the new admin is easier?

:cheers:

 

[5-90]

So...

Instead of blaming the republican party for a subpar candidate choice and a faulty campaign...

A cheap shot against the new admin is easier?

:cheers:

Dunno - looks more to me like he was throwing a shot at the outgoing administration (Bush the Younger) and the current Congresscritters (Democrats in the majority. Therefore, playing partisan politics with the current "lame duck." Should be interesting to see what happens if/when Obama decides to propose a recovery idea - although he'll likely propose a bailout vice a restructuring as well.

(Kinda funny to see one little factoid tho - I'd seen Mitt Romney's name in the press, but I'd never connected it to AMC CEO George Romney...)

 

[Mr_Random]

He supposedly did a great job at restructuring Massachusetts economy, and in my opinion; if someone as knowledgeable as Romney speaks about something economic, he probably should be listened to.

Funny thing is, though, that I was thinking the very same thing a week back, and yesterday morning (right?) when the big 3 (idiots) flew in on their individual private jets to mock, I mean, plead with our governmental system only solidified the thought that we should LET THEM DIE. Both I and my girlfriend, barely adults, concluded this with the tiniest bit of discussion, how can our representatives not see the same?

Here's an idea; let a private company come in and examine and optimize every facet of our governmental and market status. Like japan got in the fifties...

 

[5-90]

He supposedly did a great job at restructuring Massachusetts economy, and in my opinion; if someone as knowledgeable as Romney speaks about something economic, he probably should be listened to.

Funny thing is, though, that I was thinking the very same thing a week back, and yesterday morning (right?) when the big 3 (idiots) flew in on their individual private jets to mock, I mean, plead with our governmental system only solidified the thought that we should LET THEM DIE. Both I and my girlfriend, barely adults, concluded this with the tiniest bit of discussion, how can our representatives not see the same?

Here's an idea; let a private company come in and examine and optimize every facet of our governmental and market status. Like japan got in the fifties...

That would be simple - because we're still breathing full air (I don't think megacorps should get government bailouts without some drastic restructuring. I also don't think anyone should make more in a year than POTUS, but I digress...) while the air in Washington is, as we all know, rarefied. If you want to know what that entails, I highly suggest you look up the effects of oxygen deprivation - at WebMD, probably Wikipedia, or your local library.

Oxygen narcosis is a separate (but potentially related) issue - some of these yo-yos go too far in compensating for rarefied air and end up overloading on oxygen. Same problem, different solution, different results. Look that one up as well.

Hey - you wanna impress me coming around to ask for help? Start by trying to make me think you will actually use it, not piss it away. Flying in on a private or a charter will automatically blow your case - fly commercial, coach or steerage class. Take a train in. Show up with your hat in your hand, and be civil. Tell me how badly you need my help, not how badly I need you to keep screwing things up - or I'm really going to want to find out just how well I can do without you. Tell me that I need you, and I'm quite likely to work to prove you wrong.

Hm - Japan got all of the aid from us in the fifties because we plastered them in the forties. OK - clear all civilians and employees out of Detroit, let the execs and gangs stay. Bomb them back into the Stone Age and we'll start over. We rebuilt most of the production capacity for Mitsubishi and Nissan as part of restructuring Japan - why not do the same for GM and Ford? Chrysler's in Dearborn (although there is precedent - we pasted two major cities in Japan, not just one...)

 

[wolfpackjeeper]

I actually think the media had far more to do than the GOP in candidate choice. They chose the questions that are presented. McCain is one of the only people who got a decent chance. Guilanni was not able to get much of a word in, Ron Paul Was ignored, and Romney was hammered for his faith, while Thomson was praised for his.

Had a typo in the first post, should have said we have a President elect and a congress... Pelosi was leading the house in reconvening right the hell now to pass another bill. Bush seems to be trying to stay out for the moment. And No, I do not see Obama as much more than a puppet for the DNC. You do not get ahead in either party by speaking out, but the Dems are much stricter.

On my commute from P-cola to Maxwell AFB I pass the New Hundai plant, between Montgomery and Atlanta, there is another Car Plant being built. Toyota has great success with there operations here. The solution for detriot needs to be a new beginning, the UAW has too much power, the execs have the wrong goals, and the product line needs to be revamped. Romney is Right, Bankrupting them could possibly be the best answer.

 

[Rod Knee]

In all this talk about bailouts for the auto industry I haven't heard much or really anything about what the companies would be willing to put up for collateral. I understand helping them, but why do we just have to do a give away? Or am I just not understanding the conditions of the bailout? I know socialism is a dirty word to alot of people that use this forum, but personally I'd rather the fed govt. buy out the auto companies on the taxpayers behalf than give them however many billion they think they need without substantial security.

 

[Root Moose]

I'll counterpoint a few things here that I find to be somewhat disconcerting.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

I do not agree with this argument at all.

I don't know about in the U.S. but what is considered an equivalent car from a "non-domestic" here compared to a GM/Ford/ChryCo is much more than $2000. I would hazard a guess that the difference is $5000. Even factoring in the cost of money on the International market this is much more than $2000. The farther upmarket you go the difference in price is even more. A Toyota minivan sells for a $10k premium over the equivalent domestic for example.

If the domestics put that $2k-$3k of "quality" into the cars they'd have an equivalent product that could be compared on their own merits AND still be a couple thousand cheaper.

And what, last quarter these "non-domestics" had sales higher than the same period of the previous year. Funny that.

For the record, I put "non-domestic" in quotes because these non-domestics are built in North America so that makes the point that for the most part the work force is not the problem. Neither is the parts supply chain. Even if it were, are you telling me that the Japanese, Germans, etc. don't have the same level of benefits, protections or work environment compared to the autoworkers in the U.S. or Canada? Get a grip.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

I agree with this to a point. It is all well and good to pull talent from other industries as long as you don't pull a Microsoft. What do I mean by that? Ask a top tier exec at Microsoft what they do. The answer will likely be "we sell operating systems and software". Bzzt! Wrong answer. The correct answer should be that "we sell microcomputer systems and solutions." What is the distinction? One treats the R&D process as a widget generating path, the other takes pride in providing end purchaser satisfaction. Big difference. It also explains the hole that Microsoft has dug themselves into with Vista.

The way I see it, the problem with the "domestics" is that they don't sell a product that anyone wants to buy. The automobile has moved forward from the mid 1990s. Look at product from BMW, Honda, etc.

I went to a hockey game at Scotia Bank Place a few weeks ago and they had a Pontiac G8 on display. "Hmm, looks sharp" I said to myself. Looking it over a little more closely, it seemed alright but the interior was dated (think BMW E46 3 series circa ~2001), and the quality of the materials seemed a little iffy. I know, not a direct competitor with a 3 series BMW but still, it wouldn't be a car that I buy in spite of being in love with the Gen IV SBC and really digging cars in general. The G8 strikes me as a car that was rushed to product in the vacuum of not following what is chique in design circles, that is, developed as a knee jerk reaction by people out of touch.

I stand by my conclusion about the auto industry: They would do a lot better if they made cars that people want to buy.

Around here you buy "Big Three" because that is what you can afford, not because it is a car you want to buy. The only exception that I can think of being full size trucks.

They are talking bail out up here as well. I am 100% against that. The main reason being that all it will do is make those industries weaker. The other being that I have a philosophical problem with giving tax payer money to any Corporation. It was all "government is evil", "let us compete" and "Capitalism rulez!" when the times were good but now that times are bad look who's bellying up to the trough.

Top tier exec perks are definitely over the top. That said, if you feel those perks are out of step and you feel you deserve them just as much as the next guy, what's stopping you, go out there and get them.

 

[XJEEPER]

We really need a President with business savvy, integrity and balls. Perhaps after 4 years of Obama, the retards that voted for him will gain some wisdom and perspective and elect someone like Romney who actually posesses the skill set to run our country and represent the will of the People.........if we are still allowed to vote by 2012.

Mitt's right about the Big 3, they need to file now, restructure, and do it on their own. "Too big to fail" is BS, look at the recent history.......all this means is that the politicians that are willing to take more money from us to fix their screwups are getting a cut of the action.