Auto execs shoot their companies in the foot
The Detroit Three CEOs stood before Congress today to plead their case. They insisted that their companies could not declare bankruptcy and survive, as posturing small-town-values hypocrite Senator Shelby insisted they should go bankrupt so they could put their retirees into poverty, break their promises to vendors and banks (putting many of them into bankruptcy), and, most important to any good “right-to-work-for-less” state’s senator, break the UAW once and for all. That apparently was far more important to Shelby than the nation’s welfare – since defaults by GM and its suppliers would require tens or hundreds of billions more in bank bailouts.
Now, Congressional and other opponents of the loan package had some points in their favor. The industry has had its share of mismanagement, though outside of GM, those responsible have largely left. Alan Mulally had little to do with the problems Ford is having. There are also concerns about “what industry will be next?” though no major industry is on the edge as much as automotive (nor are they likely to be.)
But these people had no problem with McCain’s mortgage relief plan, where the government would give people who got inappropriately large mortgages hundreds of thousands of dollars so they would not be “upside down” in their loans. (Fiscally conservative people would get nothing but a bigger tax bill.) That, I’ll add, was not “socialism.”
(Also, while politicians from transplant-factory states have been bad-mouthing the Big Three (we can still call them that as long as we understand that’s the Big American Three), Honda and Toyota representatives have both supported aid to the American automakers.)
(We could also point out that the automakers themselves were not quite as responsible for their current predicament as the banks – and that the banks have abused the rescue funds by using them for mergers, not loans.)
The people calling for the UAW to take more cuts – pushing entry salaries below $15 per hour for hard work under tough conditions – generally did not complain about executives’ compensation. Nor did this issue come at all when banks were getting their welfare legislation. Some Democrats pushed for limits on executive compensation, but they were hushed up and that was pretty much defused. Instead they got some language by which they could pretend to have limited salaries and bonuses, without actually doing so.
The leaders of the Big Three were no more rational than their critics, instead playing right into the hands of those who portray the Big Three as irresponsible spendthrifts. Yes, GM did post a good weblog on the lies of their critics – including that American automakers made cars nobody wanted (GM is still the biggest seller in the U.S., though not the world, and Ford is bigger than all but one Japanese company. Even Chrysler still sells cars.) Ford saw the rise in gas prices coming and started preparing long before the “gas crisis” by starting the work of bringing their foreign small cars to the U.S., but that takes years. And, of course, Chrysler was only created as an independent entity one year ago. If you go back before Daimler, they were working on good B and C class cars in the 1990s, and reportedly had designs ready to go – and killed by Daimler.
But actions talk louder than words.
Senator Levin, who is sympathetic to the industry, repeated Jimmy Carter’s suggestion that the executives offer to sacrifice themselves for the good of the company. Chrysler’s Riccardo did just that, paving the way for Iacocca to come in.
Only Chrysler’s Bob Nardelli said he would take a $1 per year salary while the loans were in effect, echoing Iacocca.
General Motors’s Rick Wagoner – the one who is still dithering about real cutbacks – only said he had taken a 50% salary cut already. Oh, and he lost the money he put into GM stock, just like the rest of us. (All those people, by the way, who invested in GM – for their 401(k) retirement accounts, or indirectly through retirement funds – may want to let Senator Shelby know what they think of this thoughts that all shareholder value should be lost, because, after all, those with .00000001% of the company are responsible for its actions.)
Sorry, Wagoner. Each million dollars is 33 autoworkers. Most Americans don’t think that a salary of $15 or more is a sacrifice. The median household income in the United States, for a whole family, is $48,201. Most people who were given $30 million in one year would probably be willing to go down to, say, what one of those fat, overpaid, lazy UAW workers we always hear about makes.
Ford’s Alan Mulally said he was “OK where I am.” That is, $21 million. He said “competitive compensation” was needed to keep top talent. Where else are they going to go in this economy, though? And why would Mulally taking a reasonable salary interfere with hiring other people? Nobody said everyone had to be paid a buck a year. Just Mulally, who apparently is so wrapped up in himself that he can’t figure out why these lowly Congressmen are suggesting he make a personal sacrifice. (A Congressman gets $169,300 per year plus an incredible number of fringe benefits. They weren’t paid at all until 1815.)
General Motors refused to agree to use the loans only to help the company to survive; Wagoner demanded the right to use it to buy another company. Chrysler, too, did not like that condition.
Above and beyond the insane salaries demanded by Wagoner and Mulally — keeping in mind that if salaries bought excellence, Rick Wagoner would have historic excellence, while Dieter Zetsche, Toyota’s Katsuaki Watanabe, and Honda’s Takeo Fukui would all be grossly incompetent — was the use of a private jet, filmed by ABC news and estimated at $20,000 per leader.
For once, couldn’t they have flown coach? It’s not as though anybody would recognize them and demand autographs. It would have been of great symbolic value.
Like taking a pay cut.
Idiots. It sounds like GM and Chrylser still want to combine (why else would they demand the right to buy another company?). They should take what they’re getting and be happy about it, any loan from the gov. should be used for survival purposes only.
As a Canadian, I can hardly believe the vitriol directed towards the American auto industry by the U.S Government. As a conservative, I can’t believe the lack of vitriol aimed at the banks and their use of the bailout money. No limits on compensation or how the funds are used, and they aren’t even loans. Yet the auto industry is asking for a short term loan to cover them because of the financiers self serving greed in the first place. I am so disgusted with this whole mess I’m ready to write them ALL off. Maybe I’ll buy a Mercedes next; at least the Krauts won’t let them go under!
I can easily understand the vitriol. It’s the same vitriol I hear from my fellow citizens. And given the behavior of Mulally and Wagner can you blame them?
I expected a heartfelt plea to save a 100 year industry, millions of jobs and a large sector of the economy. But there was no shame, no humility, no humanity. Instead of focusing on the workers or their customers, they flew in on their private jets, said “I’m good” when asked if they’d take a pay cut and then proceeded to beg for money.
This is why they will fail. There is no such thing as ‘good management’ with bad outcomes. And as usual the workers will be the ones who pay the price.
For James:
Many professionals make a lot less than auto workers make for designing electronics for the military. The guys assembling aircraft make lot less working for any of the big aerospace companies. There is a lot of vitriol to go around. Executive compensation is a sore point for a lot of us but is never going to change unless the corporate parents do it themselves.
The banks are a different issue. There isn’t a lot of feeling for them either but we need them more than the car companies for any businesses to survive – our employers included.
The fact that the big guys showed up in DC in executive corporate aircraft ticked off the congress critters. They fly commercial every time just like the rest of us.
Bob Taylor,
Thank you for a reasonable response on this posting. That’s good to see. Myself, I do not believe
the Big (American) Three are blameless here. Just don’t buy it. Even *if* some of their critics are
wrong or are liars, you can be damn sure they aren’t ALL wrong. I’m sure both the Big Three and the
UAW bear some responsibility for the present mess. You are correct that many people in other, and
perhaps more vital, industries make less that auto workers, yet the UAW still whines. I don’t know
what could be done. It’s obvious most are just out for what they can get, and really don’t much care
to see the big picture. I don’t necessarily disdain unions in general, as workers do need some sort
of bargaining chip to protect them from the predation of their employers. But frankly, the cure is
often as bad as or worse than the disease. What to do? Hell if I know.
It is to bad that these three executives did not at least “jet pool” to Washington. Having one jet carrying these three would have been enough. As for Nardelli, he should have driven in to Washington with the Electric Town & Country Van, (instead of sending it to the Los Angeles Car Show), and said this is what I am here fighting for. Everybody is trying to kill Chrysler off, and he could have shown that Chrysler is very much a viable entity, instead of some politican saying Chrysler is on life support now. I wish these executives would show a bit more “smarts” in the operation and survival of their companies.
Yes, it’s almost as though they thought their political contributions would have bought them some traction. The automakers’ contributions and those of their executives got them NOTHING.
Which brings another suggestion: a ban on political contributions by automakers, auto executives, and the UAW and its executives, while the loans are in effect.
“Which brings another suggestion: a ban on political contributions by automakers, auto executives, and the UAW and its executives, while the loans are in effect.”
Interesting if pointless. They don’t have much pull either way do they? It is a waste of good dollars, though.
What the auto companies need to do is communicate our need for them. Most folks are worried about their job and their lives. Bailout money for the auto companies looks so much to many people like another lousy bailout for an industry that wants to die and is stopped from being able to through government intervention. Never mind that the banks are getting 28 times that amount and abusing it. Never mind that these companies support a hefty chunk of the economy of the mid-west and then some. It’s another bailout of an industry that can’t cut it in the real world. Economic darwinism is ingrained into the American psyche like nothing else and for those of conservative leanings even more so.
For those so inclined I have a simple question: What would Germany do if Daimler and VW were in a similar predicament? How about Toyota, Honda and the Japanese government? Korea let a few auto companies live and let some die because there were too many chasing too few dollars. Is that where we stand? If we let these companies die as they are for whatever reason then what industry will take up the slack? It’s not like Microsoft, Boeing or Intel is going to hire these auto workers.
Once these companies are gone they are not coming back. The capitol and power of these companies is on the shop floors and engineering design offices. The point has been made that it isn’t in the executive suite. I’m sure I’d see some of them come into the aerospace field and would welcome them but wouldn’t it make more sense to keep them at work?