Too big to fail, but not too big to spank
General Motors and Chrysler are still both too big to fail. It is in the nation’s interest to keep them alive and solvent, with hundreds of thousands of jobs and America’s industrial future riding on their success.
That’s not to say we should reward their leaders’ greed or incompetence with loads of cash, though.
Rick Wagoner should have done more cutting long ago, instead of waiting for the last minute. Yes, GM has brought in some of its European cars, has been rationalizing its engineering for years, and has been working on fuel efficiency for years before Americans would accept a high-mileage car (most Americans still don’t want one unless it’s from Toyota or Honda). But its brand proliferation has long passed its “more useful than costly” point, the lack of discipline around brands and nameplates has made it difficult for anyone but the most dedicated GM fans to remember them all (much less figure out what the brands are supposed to be about), and the waste of money by GM executives themselves is sensational. Little has changed, it seems, since DeLorean wrote his scathing critiques of high-flying veeps and CxOs.
At Chrysler, the problems are more severe in some ways and less severe in others. GM has some excellent cars including the Malibu, the relatively high mileage Cobalt, the G8, and, well, you know the list; but Chrysler has just two serious brands, Jeep and Dodge, and much lower costs.
The government is considering subsidies for GMAC (51% owned by Cerberus) and a combined GM-Chrysler. Based on the armchair theories of overpaid analysts with tunnel vision and surprisingly little knowledge, the current plan, which has an air of inevitability, is to have the government chip in $10 billion or so to let GM and Chrysler merge. This will “eliminate redundant capacity,” or, in other words, let them lay off tens of thousands of people and shut down factories, whose capacity will be re-created by Volkswagen, Hyundai, and others.
It’s an insane plan. That’s not an original thought, of course. Most people find the plan insane.
In past economic crises, inventive ways were found to fix these problems. A ruthlessly patriotic president, one who cares more about people than party, might gently remind Bill Gates that Microsoft has already been convicted of some crimes which remain unpunished, and by-the-way, GM and Chrysler could use some help or a new owner. A bunch of bankers could be approached and given help to GM as a condition for a share of that $700 billion bank-rescue package. I’m sure there are other alternatives that don’t involve rewarding executives with golden parachutes, continued opportunities to mis-lead companies, and essentially handing billions of dollars to Cerberus.
Even with a government bailout, there are options other than mergers. The government could rescue them, dump the entire leadership team, appoint executors to run the company until they can get a new leadership team, at which point the company would get an IPO and be sold back to investors. Socialism? Well, sure. Just like Social Security, Medicare, the Veterans’ Administration, and the $700 billion bank bailout. Let’s not get caught up in names here. We’re talking temporary emergency moves, not moving to Cuba. The amount of money we’re talking about is pretty small by bailout and war standards, and yes, I realize that’s an invalid argument.
The thing is, in any bailout there must be numerous conditions:
1. It must be permanent, yet have a fixed cost that cannot be changed in the future. No cost over-runs!
2. Executives, while benefitting from taxpayer largesse, cannot make more than the CEO of Toyota or ten times the ordinary rank and file autoworker. A good executive is internally motivated. Look at Jim Press - he spent most of his career at Toyota earning a fraction of what he’d have made as a screwup at GM. Even Juergen Schrempp was shocked at the salaries of American execs.
3. That goes for perks, too. No more company planes.
4. The goal is to rescue American jobs, not wealthy investors. What’s good for Cerberus takes a back seat. They should get some incentive to play along but not a huge payout.
5. There must be a clear exit strategy that gets the government back out of private industry again, with definite triggers and no room for fudging.
I don’t know about you, but if $10 billion of my tax money goes into GM, I want it to come back out again someday. I want it to go to creating or preserving jobs, not destroying them. I don’t want $20 million to go to investment bankers, $50 million to go to lawyers, $120 million to go to executives, and $50 billion to go to Cerberus, while watching Chrysler die and the nation’s economy falter as 1 in 25 people lose their jobs. There’s plenty of money still around; you just have to go where the money is and convince the people who have it to invest it. That might mean organizations outside the auto industry. (Like that Kaiser guy).
We’re now getting the propaganda that a GM-Chrysler merger would be bad, but not nearly so bad as bankruptcy. That’s not a real choice; it’s a false choice, a straw man argument, a false dichotomy.
If GM and Chrysler can last a few more years, they’ll be back in the green zone. This recession is project to last just two or three years - after which the markets will be back and, if they positioned themselves well, they should be able to thrive.
I’m not saying the pair shouldn’t work together. It would make a lot of sense for them to collaborate and share, and a partial ownership swap a la Nissan-Renault would be very sensible. So would a partial ownership swap with Nissan-Renault. Chrysler really does not have the resources to do everything it needs to, thanks to Daimler and now thanks to Cerberus as well. However, in time, they can rebuild, if given a chance.