Democratic leaders in Congress, who at first seemed all too willing and eager to write a blank check to the Big 3 US automakers, figured out very quickly that the winds do not blow favorably on that methodology, and instead rightly demanded some sort of plan which demonstrates that the money will not be used on “business as usual” strategies. There is consensus now that any federal money has to be conditional, or it will almost certainly be wasted. Pumping money into failing enterprises without demanding improvement and accountability will only delay the inevitable.
The question now - just what kinds of conditions will bridge the gap and get a bill passed?
Mitt Romney wrote an interesting op-ed piece recently against auto industry bailouts. He said, and I wholeheartedly agree, that this is about labor costs. CEO’s who beg at the Capitol and then hop in their corporate jets are bad form and give us pause about these peoples’ judgment.
Nevertheless, the amount of money spent on executive compensation and perks pales in comparison with current labor costs and pension costs. Romney, son of George Romney - who was AMC’s CEO from 1954-1962 and then spent 10 years in public service - stated that these costs put US automakers in a $2000 hole, on a per-car basis, relative to their foreign counterparts. Assuming this figure is true, selling the consumer to either pay $2000 more for the same thing, or to get an inferior car to the tune of $2000 in missing features, is impossible over the long run.
It would appear to me that the US automakers’ (especially GM) only choice is to shed its labor contracts and negotiate something more closely aligned with what foreign manufacturers who have plants in the US are paying. If they need to go to the bankruptcy court for the leverage to do this, so be it - though many feel that the revenue side of the coin will be irreparably harmed by a bankruptcy filing, even if the case is dismissed soon after by way of a federally-funded solution. I think that taxpayers support saving the companies and saving the jobs - but not by way of paying far more than market wages and benefits. Senator Corker acknowledged the proverbial elephant in the room (apologies to the GOP symbol), and should be applauded for taking it on and making an issue of wage parity. I still believe that federal help for the Big 3 is possible - but it is becoming obvious that those who govern are going to have a hard time explaining to their constituents why they approved something that was a short-term fix, and did not address the core issue of the sustainability of the US automakers’ business model on the cost side of the profitability equation.
My final thought is that after labor costs are addressed, the product line of each of the Big 3, especially GM, needs to be scaled back to models that are true winners and emphasize the core competencies of these companies. For GM, that means Chevrolet and GMC trucks, a handful of coupes and sedans across the product line, and the Cadillac nameplate should survive. Ford should take a long hard look at Mercury (or maybe, more correctly, a short, swift look). Chrysler should emphasize trucks and sports cars, sprinkling in one luxury and one van offering. My opinion is that the extra, poorer selling products do not do much to enhance market share, and instead draw scarce resources to them for no good reason. At the same time, the product line discussion, while fair, is one that would likely be left to the will of the automakers’ management - without someone in Washington micro-managing them. The undercurrent of this entire interplay is how many preconditions and how much ongoing oversight would be written into a successful “bailout bill.”
What do you think?
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