In Exchange For Bail Out, Auto Makers Must Clean House — New Directors, Managers, Labor Contracts

Paul Ingrassia, writing in The Wall Street Journal, Detroit Auto Makers Need More Than a Bailout,says that in exchange for a bail out of Detroit auto makers, the government should insist that a completely new board of directors and new management replace the boards and managers currently in charge of the auto industry, and that all labor contracts be torn up and new ones made. Excerpts from his article:

  • Let’s assume that the powers in Washington — the Bush team now, the Obama team soon — deem GM too big to let fail. If so, it’s also too big to be entrusted to the same people who have led it to its current, perilous state, and who are too tied to the past to create a different future.
  • In return for any direct government aid, the board and the management should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible.
  • That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others, and downsizing the company. After all that, the company can float new shares, with taxpayers getting some of the benefits. The same basic rules should apply to Ford and Chrysler.
  • Giving GM a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake. The company would just burn through the money and come back for more. Even more jobs would be wiped out in the end.
  • The current economic crisis didn’t cause the meltdown in Detroit. The car companies started losing billions of dollars several years ago when the economy was healthy and car sales stood at near-record levels. They complained that they were unfairly stuck with enormous “legacy costs,” but those didn’t just happen. For decades, the United Auto Workers union stoutly defended gold-plated medical benefits that virtually no one else had. UAW workers and retirees had no deductibles, copays or other facts of life in these United States.
  • A thorough housecleaning at GM is the only way to give the company a fresh start. GM is structured for its glory days of the 1960s, when it had half the U.S. car market where they fix catalytic converter— not for the first decade of this century, when it has just over 20% of the market. General Motors simply cannot support eight domestic brands (Cadillac, Buick, Pontiac, Chevrolet, GMC, Saturn, Saab and Hummer) with adequate product-development and marketing dollars. Even the good vehicles the company develops (for example, the Cadillac CTS and Chevy Malibu) get lost in the wash.
  • If public dollars are the only way to keep General Motors afloat, as the company contends, a complete restructuring under a government overseer or oversight board has to be the price.
  • That is essentially the role played by the federal Air Transportation Stabilization Board in doling out taxpayer dollars to the airlines in the wake of 9/11. The board consisted of senior government officials with a staff recruited largely from the private sector. It was no figurehead.
  • Wiping out existing shareholders would end the Ford family’s control of Ford Motor. But keeping the family in the driver’s seat wouldn’t be an appropriate use of tax dollars. Nor is bailing out the principals of Cerberus, who include CEO Stephen Feinberg, Chairman John Snow, the former Treasury secretary, and global investing chief Dan Quayle, former vice president.
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One Response to In Exchange For Bail Out, Auto Makers Must Clean House — New Directors, Managers, Labor Contracts

  1. Stan Hirtle says:

    Places like GM have been behind the Japanese and now even the Koreans in building quality, reliable and affordable cars for decades. Conservatives like to blame unions for the problems but this is obviously a problem of management and the legendary dysfunctional corporate structure of GM.
    Why is it so bad that working people have decent pay, health care and retirement benefits? We have been transferring income to the wealthiest 10%, even the wealthiest 1%, but everyone else has been taking a hit. In the meantime we have been funding the consumer economy we depend on with borrowing. That doesn’t work. Much of it ended up in mortgages and created the mortgage mess, in part by “spreading around” peoples home equity to mortgage professionals and investment banks.
    We need a consumer economy that is paid for by decent wages that are earned by working people, even if owners, managers and investors get less. Instead we transfer all of this to the rich, who go running amok looking for the highest yield investments, inviting crooks to rip them off and bring down the system. First it was Enron and dot coms, then mortgages. What is next.
    Anyway the corporate culture of GM shows no sign of changing its ways. So a bailout should make some demands.
    Should the government force them to put 90% of the CEO pay into trust accounts for 5 years and if GM has a decent percentage of their cars highly rated by consumer reports they get paid?
    Or we could treat them like conservatives want to treat “failing” urban schools, dismantle them and let some people from Toyota come in and hire totally new staff.
    We can also get them to convert plants like the one here to make fuel efficient hybrids that we need, instead of closing them down and build new plants in other countries.

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