Opinion: Shared denial takes Big 3 to brink

[nadepalma]

SOURCE: Detroit News

Shared denial takes Big 3 to brink
Daniel Howes
Tuesday, December 2, 2008

The stakes could not be any higher -- for Detroit's automakers, the United Auto Workers, salaried employees, tens of thousands of retirees and communities around the country.

As GM, Ford and Chrysler today deliver their turnaround plans to Congress, preconditions for any action on $25 billion in bridge loans, they're implicitly acknowledging what their critics have said for years: That their survival depends on draconian cuts essentially amounting to a bankruptcy restructuring without the Chapter 11 filing.

General Motors Corp. is mulling the axing of several of its eight U.S. brands. Ford Motor Co. is poised to unwind its global luxury strategy completely now that its Volvo Cars unit is on the block again. Overall, greener vehicles will get fast-tracked, more plants will be closed, more jobs lost, more dealers cut adrift, more tax revenue gone.

All it took to make it happen was the harsh glare of national embarrassment, punctuated by mishandled congressional hearings and a skit on Saturday Night Live; a threatening, if misinformed, Congress more obsessed with the symbols of corporate excess than how Detroit actually has changed; and the worst financial conditions since the Great Depression.

It didn't need to come to this, like this. Detroit's Big Three and the UAW could have reached more competitive labor agreements sooner, but the we-won't-move-until-we-have-a-crisis culture doesn't allow such foresight. There would have been confrontation because there always was.

Detroit's engineers could have developed smaller, more fuel-efficient vehicles sooner, but their high costs (see labor model, product mix, brand portfolios and bureaucratic inertia) couldn't be covered. Comparatively cheap gas and the American appetite for bigger, heavier, more revenue-producing metal made it easier to do the same ol' thing and expect a different result. Until it wasn't.

The boards of directors at GM and Ford and whoever owned Chrysler LLC (The Americans? The Germans? The private equity sharpies?) could have long ago held successive managements truly accountable. Instead, bureaucratic incrementalism and improved product quality sufficed for progress, even as market shares declined, losses mounted and investor capital evaporated by the billions.

No, it didn't have to come to this, an automotive Waterloo legitimately exacerbated by a year-long recession, the credit crunch and plummeting consumer confidence. But the truth is that Detroit's dire predicament is worse than its rivals' because its balance sheets are so weak.

So it has come to this. The Big Three CEOs will return to Congress this week, chastened, forced to defend restructuring plans likely to clash with the we-need-to-protect-jobs crowd in Washington. Worse, the Detroit execs will be pleading their cases in a town whose policy making -- by Republicans and Democrats alike -- has tightened their financial squeeze.

For most of its eight years, the Bush administration has ignored Detroit's concerns, except when the automakers could help in the dark days after the Sept. 11 attacks. And southern Republicans, whose home-state automakers mostly hail from Japan, Germany and South Korea, are leading the opposition against bridge loans for Detroit.

The Democratic-controlled Congress, and it predecessors, expanded fuel-economy mandates even as it ignored increased federal fuel taxes to spread the financial burden. The lawmakers waited until last year to pass significant energy policy, and backed costly state-by-state standards on greenhouse gas emissions that are staunchly opposed by domestic and many foreign-owned automakers.

Hardly an admirable record for a government, right or left, whose leadership now is clamoring to help an industry teetering near collapse. The hypocrisy is as stunning as the faux outrage issuing from coastal Democrats and southern Republicans -- that, and the fact that such a disconnect between the core auto business and national politicians simply wouldn't happen in major European or Asian nations.

MORE HERE

[texassierradude]

The last paragraph sums up the entire problem. This has been a congressional dog and pony show from the beginning. The Congress postures last month as being tough, wanting detailed plans, when there is simply no alternative to helping the 3. Sen. Shelby and his ilk...please. It was all right to hand over billions of dollars of tax breaks and other incentives to MB, Honda, Hyundai, etc. from his home state. He has no credibility at all. And I don't think we need Reid, Pelosi, Frank et al designing cars and trucks.

[nadepalma]

He has some excellent points all around. Its hard to argue with much of it, in my honest opinion.

There's enough blame for everybody, that's for sure.

Originally Posted by texassierradude

The last paragraph sums up the entire problem. This has been a congressional dog and pony show from the beginning. The Congress postures last month as being tough, wanting detailed plans, when there is simply no alternative to helping the 3. Sen. Shelby and his ilk...please. It was all right to hand over billions of dollars of tax breaks and other incentives to MB, Honda, Hyundai, etc. from his home state. He has no credibility at all. And I don't think we need Reid, Pelosi, Frank et al designing cars and trucks.

Yes, government certainly can be a instrument for fouling things up. I honestly don't understand how it is that they believe they can solve problems when they continually cause more problems than they solve.

[pinyon]

Pretty well said. At least a journalist who spreads the blame around and calls out the faux outrage of the self interested politicians.

[osv_alero]

Originally Posted by nadepalma

SOURCE: Detroit News


Hardly an admirable record for a government, right or left, whose leadership now is clamoring to help an industry teetering near collapse. The hypocrisy is as stunning as the faux outrage issuing from coastal Democrats and southern Republicans -- that, and the fact that such a disconnect between the core auto business and national politicians simply wouldn't happen in major European or Asian nations.

MORE HERE

And this is part of the reason car companies from other countries don't have the issues ours has today.

[K-1]

Actually, it did have to come to this. Could you imagine the outrage from workers (white- and blue-collar), if the company, while profitable, said, "Sorry, we need wage concessions, layoffs, and to offload our healthcare obligations to ensure future competitiveness." There would most certainly be hell to pay.

[Ed Arcuri]

The worst is yet to come. We have changed the government from governing to "mothering." The process has been going on for years and has continued inexorably. Our grandchildren will pay the Piper for our profligacy.
The heads of our auto companies in the past have cowered rather than confronted whether it be in connection with the UAW or Congressional mandates. We dare not speak its name, however. While the automakers are begging for taxpayer money and, while Members of Congress are spouting the most risible shibboleths; we must pretend that to discuss it would be "politics" and, thus, unspeakable.
The crisis in Detroit is as much a crisis of governance and executive failings as is the so-called "credit crisis" and the mortgage crisis or as was the high-tech bubble or . . .
What we are seeing take place in Washington today is something of a Greek tragedy in that the people who have made the toughest calls are called on the carpet instead of their predecessors who failed these companies. Ron Gettelfinger and his members have stepped up, tough decisions have been made by the executives and who gets grilled by Barney Frank and Bob Menendez? Not the guys who really screwed things up. The guys who, despite their shortcomings, have tried to fix it.
Why aren't Daimler execs answering for Hoovering out all the cash at Chrysler? Answer: because they off-loaded the carcass on the "Masters of the Universe" at Cerberus and made a clean get-away. Thus, they have relieved themselves of having to answer questions of a Congress that doesn't want the answers anyway.
If we get good public policy from this current crisis, it will not only strengthen our manufacturing base, but may have the effect of strengthening our spines.
I hope so - I am skeptical - but I hope so.
Cheers,
Ed

[ericmvest]

Originally Posted by nadepalma

SOURCE: Detroit News

Shared denial takes Big 3 to brink
Daniel Howes
Tuesday, December 2, 2008

Hardly an admirable record for a government, right or left, whose leadership now is clamoring to help an industry teetering near collapse. The hypocrisy is as stunning as the faux outrage issuing from coastal Democrats and southern Republicans -- that, and the fact that such a disconnect between the core auto business and national politicians simply wouldn't happen in major European or Asian nations.

It seems like our Federal, state, and local governments have actually favored the foreign car companies.

During Japanese reconstruction World War II, our Federal Government allowed the Japanese Government to prohibit Ford and General Motors from restarting their prewar Japanese operations and place prohibitive trade barriers on imported automobiles. Before World War II, Ford and General Motors had plants in Japan and were the leading automotive companies. The Japanese automotive manufacturers had a protected home market while our Federal Government gave the Japanese automotive manufacturers free access to our market.

Toyota had a severe financial crisis during Japan’s first post war recession in 1950. Not only did the Japanese banks bail out Toyota, the Federal Government assisted by giving Toyota a contract to supply Land Cruisers for use in the Korean War. It was a small contract, but it helped Toyota get through this rough patch in its history.

Many state and local governments have given many incentives worth tens of millions of dollars to the transplants. In recent years the Big Three has receive similar incentives from state and local governments, but to not near the magnitude of the incentives that the transplants received.

The Federal Government also bares some responsibility for Detroit’s labor problems. The Big Three were organized by the UAW shortly after the 1935 Wagner Act (National Labor Relations Act) was passed that tilted too much power towards the unions. The Wagner Act was not moderated until the 1946 Taft Hartley Act. Many unsustainable labor practices were entered into during this period. Furthermore during World War II the War Production Board mandated binding arbitration to settle any work stoppage that effected war production. The FDR Administration appointed pro-union arbitrators who almost always sided with labor. Literally thousands of wild cat strikes were called by unions because they knew they would receive favorable decisions by the arbitrators. Some plants would have several strikes a month. Many uncompetitive work practices were set during this period. Needless to say, when Toyota and Honda set up their manufacturing operations in the United States they took great care to avoid these labor problems.

Our Federal, state, and local governments should be more appreciative of the Big Three for creating so much wealth and tax revenue over the decades, for being the arsenal of democracy, and most recently, implementing "Keep America Rolling" type incentive programs when President Bush requested the Big Three's help with the American economy after 9/11.

[motorman]

the money GM spent developing the ZR1 corvette and the STS-V caddy should have went into developing a great small car to beat the hondas and toyotas. the problem at GM no one is in charge and each litte fief doms goes it's own way. i think that is why tom wallace who ramrodded these cars made a hasty exit before the excrement hit the fan

[tgagneguam]

Originally Posted by texassierradude

The last paragraph sums up the entire problem. This has been a congressional dog and pony show from the beginning. The Congress postures last month as being tough, wanting detailed plans, when there is simply no alternative to helping the 3. Sen. Shelby and his ilk...please. It was all right to hand over billions of dollars of tax breaks and other incentives to MB, Honda, Hyundai, etc. from his home state. He has no credibility at all. And I don't think we need Reid, Pelosi, Frank et al designing cars and trucks.

Don't watch the Congressial hearings with Schumer, Frank and Dodd. In 2006, when they were receiving boatloads of cash from the too-big-to-fail financial institutions, they assured us "that everything is fine, and everyone in America, no matter their credit score, should own a home."

Then, when the institutions started to fail, and though they were still receiving boatloads of cash from these institutions, we were told that if we didn't bail them out, the economy would hit a significant recession, the stock market would collapse, and unemployment would hit historic highs. Thankfully, that didn't happen (ahem).

Then, when A.I.G. went on hunting trips and PNC bought National City with its welfare check, these same Senators were pretending to be all sorts of upset with the financial institutions. I guess it looked good on camera. After all, Frank was recently re-elected to office, presumably using more big financial money.

And now people think the Detroit bailout is going to play out any differently? I'm not that old, but I know better already.

[tgagneguam]

Originally Posted by ericmvest

...Our Federal, state, and local governments should be more appreciative of the Big Three for creating so much wealth and tax revenue over the decades, for being the arsenal of democracy, and most recently, implementing "Keep America Rolling" type incentive programs when President Bush requested the Big Three's help with the American economy after 9/11.

So, you think Detroit was completely altruistic in its support of the War, that it didn't act to rightfully profit from its endeavors? You honestly think GM launched its post-9/11 marketing to help Bush and the American economy?! Are you kidding me?

Business rightfully acts out of one primary interest: profit. Your post firmly suggests what happens when the government steps in either to put restrictions on business or when it attempts to help business. Government intervention tends to foul things up. It did so when it instituted renewed CAFE regulations, it did so when it launched tax incentives for folks who bought large SUV's (that very much helped Detroit, by the by), and it continues to fumble in other industries, like when it continues to hand over money to financial institutions with essentially no strings attached. I suspect this Detroit bailout will play out similarly.

[ericmvest]

Originally Posted by tgagneguam

So, you think Detroit was completely altruistic in its support of the War, that it didn't act to rightfully profit from its endeavors? You honestly think GM launched its post-9/11 marketing to help Bush and the American economy?! Are you kidding me?

Business rightfully acts out of one primary interest: profit. Your post firmly suggests what happens when the government steps in either to put restrictions on business or when it attempts to help business. Government intervention tends to foul things up. It did so when it instituted renewed CAFE regulations, it did so when it launched tax incentives for folks who bought large SUV's (that very much helped Detroit, by the by), and it continues to fumble in other industries, like when it continues to hand over money to financial institutions with essentially no strings attached. I suspect this Detroit bailout will play out similarly.

When Big Bill Knudsen resigned as President of General Motors in 1942 to become an U.S. Army Lieutenant General it was to help the United States with war production, not to enrich himself. Edsel Ford worked himself to death getting the Willow Run B-24 Liberator bomber plant up and running because he wanted to help the United States, not to enrich himself. Profit was a factor during World War II with the Big Three and the Independents, but to dismiss the patriotic angle of this massive effort is very cynical and historically inaccurate.

Probably the biggest government interventions to mess up the Big Three are the labor laws I mentioned above. The favorable treatment of the Japanese manufacturers received is certainly a factor. The Federal Government was so desperate to rehabilitate Japan into an ally it gave them too many advantages. Ford and General Motors restarted their German operations after World War II and they should have been allowed to restart their Japanese operations. Furthermore, the total mismanagement of energy policy (no new refineries or development of proven oil reserves), and the subprime mess (mismanagement of Fannie Mae, Feddie Mac, and the Community Redevelopment Act) during a massive restructuring of the Big Three did not help.

The Federal Government has done many things to hurt the Big Three. Given this undeniable fact, the Federal Government helping the Big Three over this rough patch is in order.

[vcs2600]

Originally Posted by K-1

Actually, it did have to come to this. Could you imagine the outrage from workers (white- and blue-collar), if the company, while profitable, said, "Sorry, we need wage concessions, layoffs, and to offload our healthcare obligations to ensure future competitiveness." There would most certainly be hell to pay.

When were they profitable? 15 years ago or something? It's been a long time since GMNA was in good shape financially.

They never took on the UAW because they couldn't afford to. Not just because of the financial costs of a long strike, but because union members are one of the few loyal customers for domestic vehicles left.

[AMERICA 123]

Originally Posted by osv_alero

And this is part of the reason car companies from other countries don't have the issues ours has today.

Yep.

He missed two biggies .

The Yen Subsidy, and the Unlevel Playing Field - both are which an American Government 'Policy' problem and not a Japanese one per se.

Worth noting as well, is the auto industry is really the last consumer goods manufacturing industry still standing in America.

[MaxLegroom]

Originally Posted by motorman

the money GM spent developing the ZR1 corvette and the STS-V caddy should have went into developing a great small car to beat the hondas and toyotas. the problem at GM no one is in charge and each litte fief doms goes it's own way. i think that is why tom wallace who ramrodded these cars made a hasty exit before the excrement hit the fan

The money spent developing the ZR1 Corvette and the CTS-V are peanuts compared to what it costs to properly develop a small car. Both of these piggyback on other programs. In order to sell cars, it doesn't hurt to something to draw people to the showrooms, does it?

GM has been capable of developing such cars in America, and has toyed with the idea several times. Chevrolet could have had a compact just after the end of WWII, but the car was nixed due to cost reasons (it cost little less to build than a full size Chevrolet), and due to internal politics.

Some of the cars GM builds may not necessarily appeal to what Congress would like to see, but they make good business sense. They may not like big trucks, but a fair number of people still buy them who don't really need them. Let's face it, gas is cheap at the moment, and people have short memories. I still see people around here in new, expensive trucks often.

Toyota may be able to get away with a showroom full of boring cars (most are exactly that, really), but GM's brands probably can't. That's why cars like the Corvette and CTS exist.