Bankruptcy, Not Christmas Bailouts, For The Unholy Trinity

The Free Press    December 18, 2008

If there is one thing we have learned about Big Business in this country, it is that bigger is not necessarily better. Yet our government continues to support the legislation, mergers, trade regulations, tax breaks, and financial assistance that create, and protect, mega-companies, no matter how poorly they are managed. Survival of the unfittest.

Exhibit A: Those sacred icons of American manufacturing, the Big Three Automakers. The Unholy Trinity. Ford. GM. Chrysler. The domestic remains of the 500+ entrepreneurs who have added "horseless" to "carriage", and beyond. The turbocharged poster-children for greed at all levels, from the assembly line to the boardroom. And the folks who we are being asked to bail out.

Ford had losses of $2.7 billion in 2007, a significant improvement from the $12.6 billion of red ink in 2006. GM went $38.7 billion in the hole last year, the biggest loss ever for an automaker. You don't have to look far to find the reasons. Relatively unskilled, uneducated, union workers make more than $42 an hour, including benefits. Management has backed itself into the corner of having to pay an additional $31 per hour per worker to cover "legacy" expenses - medical payments and pensions for union retirees. Ford CEO Alan Mulally was paid $28 million last year, not including benefits and perks. GM CEO Rick Wagoner's salary and other compensation rose 64 percent in 2007 to $15.7 million. Meanwhile, foreign competition like Toyota, which is not saddled with antiquated plants, old technology, and obscene union contracts, is producing a better product for less money - in 13 locations in our country! It recently surpassed GM as the world's largest automaker, with reported profits of $16 billion in 2007.

Why? How? There's plenty of blame to go around. Here's an update of an old parable: Toyota, and an American company (take your pick: GM, Ford, Chrysler) decided to have a rowboat race. The Japanese used their $1000 state-of-the-art boat, designed to be fuel- and cost-efficient, manufactured in their state-of-the-art plant in Kentucky. The Americans had to row the less-efficient boat that they were still trying to market. It cost $2500, using old technology, union labor, and billions in advertising to assure the American people that its boat was as just as good as foreign boats.

On the big day, the Japanese won by a mile. The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A team made up of senior management was formed to investigate and recommend appropriate action. Their conclusion was that the Japanese had eight people rowing and one person steering, while the Americans had eight people steering and one person rowing. All members of the investigative team were paid six-figure bonuses for their efforts. The rowers' union demanded across-the-board pay raises to keep pace.

Feeling a deeper study was in order, American management hired a high-priced consulting company for a second opinion. They advised, of course, that too many people were steering the boat, while not enough people were rowing. Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to four steering supervisors, three area steering superintendents and one assistant superintendent steering manager. They also implemented a new performance system that would give the one person rowing the boat greater incentive to work harder. It was called the Rowing Team Quality First Program, with meetings, dinners, T-shirts, and a certificate of completion for the rower. There was discussion of getting new paddles, boats, other equipment, and extra vacation days for practices.

Meanwhile, the union objected to any modernization of the boat plant if it required a downsizing of the workforce. Management responded by creating a "Job Bank", so employees who were not actively rowing would be paid 90 percent of their wages for doing nothing.

The next year the Japanese won by two miles. Humiliated, the American management blamed the American government for allowing the Japanese to come here and hire better rowers for less money. The union refused to grant any wage concessions to help management restructure the company. Management then laid off the rower for poor performance, halted development of a new boat, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the senior executives as bonuses, and the next year's racing team was out-sourced to India. The CEO then flew to Washington in his private jet to ask Congress to simply give management the $34 billion that consumers had refused to spend on the overpriced, inferior American product.

Back in the real world, lest we blindly accept the Unholy Trinity's excuses of the economy being the culprit for their astronomical losses, consider this: Those same companies, with modern plants in other countries, are making enormous profits outside the US. Volvo, owned by Ford, is the world's second-largest truck maker, and earned $798 million in the second quarter of this year alone. GM itself set sales records in Europe in 2007. Ford, with one of the world's most technologically-advanced factories, in rural Brazil, posted a pre-tax profit of $388 million in South America, along with $582 million in Europe, and $50 million in Asia/Pacific/Africa. Saab, owned by GM, recorded profits of $384 million.

Any bailout plan won't be bailing out the "auto industry"...we will be bailing out the United Auto Workers Union, and the private-jet corporate executives. The greedy, overpaid workers, and greedy, overpaid execs, who have the most to lose if any of the companies reach bankruptcy. Yet bankruptcy is probably the best thing for the companies themselves, allowing independent, court-appointed overseers (not a government "car czar") to shed bad contracts, bad leases, and bad union requirements. Retirees could be required to pay their own health care, saving billions. The suppliers who rely on the industry would still be suppliers - but at more reasonable rates. The restructured auto companies wouldn't disappear - they would come out stronger and healthier - without government interference, or our tax dollars. It worked for the airlines, and the steel industry.