Romney says Big 3 should just go bankrupt

[hotrodalex]

http://www.nytimes.com/2008/11/19/opinion/19romney.html?ex=1384837200&en=3616fe7f95dd6a7b&ei=5124&partner=digg&exprod=digg

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 Romney, 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.

[GoCougs]

I don't agree on the "sanity" of salary and perks breeding resentment. If your employees are resentful of the top talent needed to run such mammoth operations as a Ford or GM, you're done for.

I don't agree that the federal government should "invest substantially" in basic research. Let the market figure out the "how much" and the "where."

[280Z Turbo]

If your employees are resentful of the top talent needed to run such mammoth operations as a Ford or GM, you're done for.

I've never met a factory worker who wasn't resentful of management.

[GoCougs]

I've never met a factory worker who wasn't resentful of management.

So much so that if affected said worker's work performance? If so, fire them. Bad workers can't be motivated by punishing others or otherwise catering to their insecurities. If that's most/all of them, tough luck, Detroit is done then.

FWIW, non-unions shops are much happier places in my experience.

[280Z Turbo]

So much so that if affected said worker's work performance? If so, fire them. Bad workers can't be motivated by punishing others or otherwise catering to their insecurities. If that's most/all of them, tough luck, Detroit is done then.

FWIW, non-unions shops are much happier places to work in general.

I don't know about that.

Most of them want to do a good job, but they feel that office workers and especially management are pretty much useless and get special privileges that they don't get.

[GoCougs]

I don't know about that.

Most of them want to do a good job, but they feel that office workers and especially management are pretty much useless and get special privileges that they don't get.

Of course they shouldn't get special privileges; why give the same treatment to different classes of employees? At the end of the day, some employees are more important than others, and they have to rewarded accordingly.

One of my experiences was a facility that hired primarily new immigrants; mostly from Asia. They were happier and content beyond belief - working 4 x 10, in a climate-controlled relatively safe work environment with some measure of benefits, but probably only $9-12/hour? I have similar experience from another facility that hired primarily immigrants from eastern Europe.

It was an indictment on the whole of the entitlement mentality that pervades American society; which is absolutely personified by the typical unionist. Those people were happier than could be. Sure they grumbled here and there, but they thanked their lucky stars every morning that they got up to go to work.

This is shy I've never had issues in firing factory and/or lower class employees. For ever dour, surly, malcontent there are a dozen others (who likely aren't native born) that will fill that job and be thankful to whatever gods they believe in for the opportunity.

[280Z Turbo]

Of course they shouldn't get special privileges; why give the same treatment to different classes of employees? At the end of the day, some employees are more important than others, and they have to rewarded accordingly.

They don't seem to understand that.

Most of the manufacturing jobs that I've had can be learned in a couple of minutes.

[Vinsanity]

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.

Fo sho. Chapter 11 is not the end of the world, and would accomplish much more than any bailout.

[S204STi]

One perk I heard is that GM could cancel any contracts, including those with the UAW.  Is that true?  If so, I'd say it's the best thing for them.  Fire the UAW and rehire only non-union employees at a lower wage, rather than go completely out of business and have a lot of unemployed people with no wages at all.

[the Teuton]

I agree with Romney completely...except maybe that executive pay thing.

[the Teuton]

Is this piece particularly fair for the Big 3?  Are corporate jets excessive?

http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=10744206

[Laconian]

Given the astronomical amounts amount of money these executives are paid, the jet probably pays for itself by reducing the amount of executive downtime due to airports and such.

[Soup DeVille]

Given the astronomical amounts amount of money these executives are paid, the jet probably pays for itself by reducing the amount of executive downtime due to airports and such.

Yeah, no.

I drove limos through college, and being in Detroit, I ferried a fair number of them to their little private terminals at DTW and Willow Run.

None of these were ever early flights (early being before 8 AM). Very few of them ever returned the same day, or the day after.

[Soup DeVille]

Is this piece particularly fair for the Big 3?  Are corporate jets excessive?

http://cosmos.bcst.yahoo.com/up/player/popup/index.php?cl=10744206

Are corporate jet excessive? I don't know. The could certainly be misused. All I know is this:

You don't show up at the government bread line wearing a custom tailored Armani. If nothing else, its bad form.

[the Teuton]

Are corporate jet excessive? I don't know. The could certainly be misused. All I know is this:

You don't show up at the government bread line wearing a custom tailored Armani. If nothing else, its bad form.

Yeah, it was overdone a little.

[GoCougs]

The media stink of the jets and suits shows how out of touch most people (including politicians) are with the ways business.

Keeping top talent requires top pay and top perks. Detroit CEOs could walk tomorrow and get jobs elsewhere that paid as much or more.

Further, Detroit ain't broken because of a $10,000 flight or a $5,000 suit. Restricting such things won't save Detroit.

[280Z Turbo]

The media stink of the jets and suits shows how out of touch most people (including politicians) are with the ways business.

Keeping top talent requires top pay and top perks. Detroit CEOs could walk tomorrow and get jobs elsewhere that paid as much or more.

Further, Detroit ain't broken because of a $10,000 flight or a $5,000 suit. Restricting such things won't save Detroit.

Those were my thoughts as well. It's a drop in the bucket.

[Soup DeVille]

The media stink of the jets and suits shows how out of touch most people (including politicians) are with the ways business.

Keeping top talent requires top pay and top perks. Detroit CEOs could walk tomorrow and get jobs elsewhere that paid as much or more.

Further, Detroit ain't broken because of a $10,000 flight or a $5,000 suit. Restricting such things won't save Detroit.

You consider the people running GM to be "top talent?"

[280Z Turbo]

You consider the people running GM to be "top talent?"

I don't think the guy working on the floor, bolting fenders on pickup trucks, could do it.

[Soup DeVille]

I don't think the guy working on the floor, bolting fenders on pickup trucks, could do it.

Maybe not, but GM's middle managment is the most arrogant and intellectually inbred bunch of people I've ever had the displeasure of dealing with.

[the Teuton]

Maybe not, but GM's middle managment is the most arrogant and intellectually inbred bunch of people I've ever had the displeasure of dealing with.

I do think for all of the flack I give them that if you mixed the passion of Lutz with the skills of Mullaly and throw some "youth" in there somewhere, you'd probably almost have Carlos Ghosn.  I definitely think those two are the best America has right now.

[Onslaught]

I don't think the guy working on the floor, bolting fenders on pickup trucks, could do it.

What? Run them into the ground?

[sportyaccordy]

LOL @ top talent.

[GoCougs]

You consider the people running GM to be "top talent?"

By definition, absolutely.

[FlatBlackCaddy]

The november numbers will be horrible.

I wonder if someone will crack over 60% in sales loss.

I watched some of the hearing the other day and wagoner is a bumbling moron, he is no doubt the leader of this "rat pack".

[FlatBlackCaddy]

 

By definition, absolutely.

That's sad

[the Teuton]

So Wagoner needs to go.  Nardelli just got there, but after a $130 million golden parachute from Home Depot, he's not really struggling.

I think America's strongest at the moment is Ford.

[SVT666]

The biggest problem with Chapter 11 that everyone seems to forget is that the majority of the buying public will steer clear of any Ford or GM dealer lot because they will think GM and Ford are dead or dying.  Perception is reality.

[Laconian]

Perception is already shot IMO. The media coverage surrounding the bailout can't be good for Detroit; it demonstrates that the Big 3 are losers that can't compete on a level playing field.

[ChrisV]

Perception is already shot IMO. The media coverage surrounding the bailout can't be good for Detroit; it demonstrates that the Big 3 are losers that can't compete on a level playing field.

Yup. It wouldn't matter if they restructured and built the best cars on the planet at a reduced cost. This situation will keep people away, and added to the decades old perception of building crap (even if mostly undeserved for teh last 5-10 years) AND a credit crunch making it harder to buy ANY car, and it's simply a fact that there won't be enough buyers for their products to keep them afloat even if they do everything right vis a vis a bailout and restructuring.