Automaker Antics
Abraham Lincoln once said, “Better to remain silent and be thought a fool, than to speak and remove all doubt.”
It’s become painfully obvious that no one at either Chrysler or General Motors is familiar with that particular pearl of wisdom. Either that, or they have already laid off the person whose job it was to prevent them from looking like fools in public.
First, Chrysler: Even as it plans to strip healthcare benefits from thousands of retired white-collar workers and force hundreds of dealers out of business, adding thousands of people to the unemployment rolls, the company announces it has found a way around the federal caps on executive compensation. What a public relations coup! Surely, nobody will view that as anything but good news.
Of course, as a member of the Obama auto task force told a representative for the retirees, Chrysler has only a moral obligation to provide healthcare to them. What’s a career’s worth of promises when you can pay your executives more money?
The $500,000 cap and other reductions in compensation for the company’s top 25 executives were a government-imposed condition on the billions of dollars in taxpayer-backed loans the company received at its own request. Admittedly, a half-million dollars per year is a far cry from the bloated levels of pay lavished on many American executives, but it’s a lot more than thousands of the people they have laid off are making and it’s seventeen times the $29,120 annual base pay for the new hires allowed under recent union contracts.
All Chrysler had to do to get out from under the government’s conditions was repay the loans. But even that’s too much: It’s fairly well accepted now that Chrysler won’t be repaying the initial loan it received from the Bush Administration and probably won’t be repaying the money it’s getting from the Obama Administration to fund its trip through bankruptcy. The plan now is for the company to repay the next pile of money the feds will give it when it emerges from bankruptcy as a new company. (In other words, the company is going to walk on two loans, but it promises to repay the third. You probably shouldn’t try this at your bank.)
So Chrysler has a nifty scheme to get around those pesky limits: it’s going to pretend senior Chrysler executives are really Fiat employees “on loan” to Chrysler. Fiat will pay the salaries (nudge, nudge, wink, wink) and the Chrysler brass won’t even have to learn Italian.
Ebeneezer Scrooge must be green with envy.
General Motors, on the other hand, is warning of the dangers of government involvement in its business. This is the company that has already received $15.4 billion in government loans and wants another $11.6 billion real soon. And maybe some more later. In return for our national generosity, GM’s own reorganization plan calls for giving the government a large stake in the “reformed” company in lieu of paying off the loans with actual money.
In a recent government filing, GM said that, as a majority owner, the U.S. government could make it difficult to compete and have a negative effect on its stock price.
In its report to the SEC, GM said it may “become subject to new and additional government regulations regarding various aspects of our business as a result of the U.S. government’s ownership in (and financing of) our business. These regulations could make it more difficult for us to compete with other companies that are not subject to similar regulations.”
While I know the government doesn’t exactly have a sterling record in the business world, it’s a bit hard to imagine it doing much worse than the gang currently occupying the Renaissance Center.
Is GM afraid the government will make it lose $82 billion in a matter of a few years? Will the feds use their controlling interest to demand another Pontiac Aztek? Perhaps they worry that President Obama will require them to try brand management again. Or any of the other blunders GM’s own management has made.
GM also said the government’s interests might conflict with those of other stakeholders. Would those other stakeholders be the United Auto Workers? Or the banks holding $27 billion in GM debt? Or the actual owners of GM’s current stock who will get to see their 610.5 million shares turn into one percent of the new company?
It’s difficult to comprehend the sheer arrogance of a corporation that argues against government involvement because the government might do to GM what GM already has done to itself. And they still want billions of additional dollars from the Treasury.
I wonder if they giggled when they sent the filing in?
Amazing. You can’t make this stuff up.
Wow, that’s unbeleivable. This just keeps getting uglier by the minute. Way to ramp up your support boys!
What were these guys thinking when trying to get around the executive compensation cap? Oh, they apparently weren’t thinking. Did they stop and wonder to themselves what impact this is going to have on the Obama Administration’s or Congress’ willingness to support them any further? Not to mention the bad taste is leaves in the mouths of the other employees and prospective customers! Bravo to the fools at FIAT that went along with this PR gaffe. So, this is how you’re going to re-enter the U.S. market, eh? Good luck.
I second that, ScottB. We don’t always see eye to eye, but actions like this – and GM’s decision to import much more from China and Mexico – make me wonder why we’re bothering. Maybe nationalization wasn’t such a bad idea – seems like government wouldn’t do any worse than the current schmucks. Take ‘em over, clean ‘em up, and do an IPO to get them back onto the market.
What’s really sad is that Chrysler could have a bright future if the executives weren’t so apparently aristocratic.
It just isn’t sinking in with those people at Chrysler. I’d feel alot better if they used that energy (”find ways around federal caps”), to figure out how to make Chrysler profitable without Fiat. They can worry about how to get their all-mighty raises and bonuses when all the loans are paid back. Time to get rid of those executives, because we all know what the first thing on their agenda is.
Time for the engineers to take “the engineer’s car company” back over. Seems the brilliant execs can’t even get the PR stuff right…at least with an engineer, you get the truth, infinitely preferable to this absolute PR mess. Walter Chrysler and K. T. Keller are probably rotating at 10000 rpm right now over this.
Dave, the trouble with nationalization is like a game of Russian roulette. Sometimes it works (Conrail), sometimes it didn’t (British Leyland) and also have some ups and down (Hydro-Québec, Renault during the time there was nationalized from 1946 to 1995)
Between the US government and Renault http://www.allpar.com/weblogs/2006/07/05/general-motors-and-renault-another-bad-idea/ maybe Renault wasn’t all that evil lol
Fortunately, it seems someone at Chrysler had a sudden attack of common sense or decency or, more likely, realized what jerks they looked like and did some rapid face-saving. If Fiat gets approval to buy the Chrysler assets, the white-collar retirees benefits will be continued.
I can’t remember who hired Charles Kettering for GM. It might have been Walter Chrysler when he worked for Buick. I do remember that Kettering wasn’t moved by money. He was finally convinced to sign on with the promise of a laboratory with unfettered research, he then gave much of his money to charitable causes. Henry Leyland who started both Cadillac and Lincoln once went to jail for helping vagrants. What’s that line about this generation knowing the price of everything and the value of nothing?
Amtrak is often forgotten. It worked out in the end – though not to scale, so to speak. It’s hard to compete against a heavy subsidized competitor – the car (and for that matter, the airplane).
I think GM has a better chance under Fritz than Wagoner, but the move came far too late.
The ivory tower these folks live in is really quite amazing. What, we haven’t had enough stories about million dollar office makeovers for these folks to get it without being beaten with a 2 x 4?
Real confidence inspiring guys. You’ve already got Mt Everest to climb; let’s not add a trip to the moon on top of it, eh?
Memo to Chrysler and GM: In the eyes of a lot of people, you’re the Bad Guys. Best not to reinforce that, hmm?
The Peter Principle continues to prove itself. Obviously some total idiots remain left at Chrysler and, once it is learned just who is responsible for the releases about the “loopholes” should be fired and sent to work for GM so they can be fired there too.
A lot gets said by the lower members of the food chain about who is going to come out smelling like a rose when a company is going under. Been there, done that. While there are usually a few unscrupulous types that manage to feather their nests with velvet they make good their escapes before the bitter end (witness GM’s top execs dumping their stock). The guys still there at the bitter end (read bankruptcy) have to deal with their own level of the quagmire. Nardelli’s remarks today concerning the possibility of the soon-to-be former execs still raking off huge salaries is likely much closer to the truth. Frankly I don’t see Marchionne wanting anyone so egotistic as to risk the displeasure of the Obama administration on his team.
The health care benefits for salaried employees release was (sadly) factual but not at all well put. Those people should be made to answer the former salaried employees’ benefits hot line.
Rich, you hit the mail on the head…the most fundamental root-cause problem with companies that lose their way (like Chrysler and GM, and yes, even GE and the other “successful” companies) is the gap between the top execs and the folks actually doing the work. Pay and benefits are the visual, outward signs of that gap, but the “understanding gap” is the core of the problem. When an exec is so insulated from the realities of daily life in the organization he leads, his ability to make informed decisions declines drastically. I remember a study mentioned in my college days (30 years ago…) to the effect that when the compensation gap between the lowest paid employee and the top exceeded about 10:1 in the companies studied, the organization eventually failed due to poor decisions made at the top. The pay itself wasn’t the issue, it was an indicator of “insulation from reality” of those in charge at the top, the “understanding gap”. There is also a body of thought that there is an upper limit to the size of any organization in a given industry, the limit beyond which an organization becomes excessively bureaucratic and inflexible. Maybe GM hit that limit?
John – Agreed! Though I think it possible that the release was a trial balloon, to see if anyone would notice or care.
Lane, I think you’re right. One of the problems is that the execs end up having a completely different social circle. Also, of course, they have to justify their bloated compensation by pushing themselves higher – if they’re just one step removed from the engineers or line workers, how can they justify getting fifty times the comp?
Looks like the greed in this country is going to keep pushing until someone gets killed. How long before some laid off or fired workers taken it on themselves to straighten these people out? The idea is to get the company back on its feet, in order to do that, every employee must take a drastic reduction in wages/benefits; or, be out of a job entirely.
Amazing, simply amazing. I own both a Chrysler GM products, but it’s corporate greed like this that makes you not want to buy American. If they won’t support the American worker both current and retired, why should we support their companies? Just listen to “Shuttin’ Detroit Down” by John Rich.
Meanwhile, the head of Toyota not only did not demand a huge bonus for losing all that money and market share, but he hung his head in shame and resigned – despite having had numerous years of growth and incredible profit.
Dave, that’s what is missing in American society at many levels: shame. I believe in the “pay for performance” model and that should apply to corporate execs. Somehow Boards of Directors have allowed execs to negotiate lucrative golden parachutes and bonuses that have little to do with corporate performance. When a guy like Iacocca steps forward and says “Pay me a $1 salary and I’ll take the rest in stock.”, you know you’ve got a person that has full confidence that they have what it takes to run a Fortune 500 company. If you can find a better CEO, hire them. If a CEO is willing to bet their future on raising the value of the stock (and that usually means the company is back on the right track), you know they have plenty of skin in the game.
Today, we have CEOs that make no apologies for failing. They just take their pre-negotiated package and laugh all the way to the bank with little concern about the carnage they may have left behind. As long as that practice continues with American corporations, I predict we will become less and less of a player on a global scale. There is no incentive for the CEOs and other execs to make a company prosper, be innovative, or deliver world-class products or services.
If I were on the Board of Chrysler, for example, I’d have the management team’s compensation tied at a minimum to improving product quality and market share (especially in the car segment). I’d be willing to have profitability take a backseat to those two for awhile.
Scott, I agree with you again. I’d argue that a large part of the lack of shame comes from the absurdly high compensation.
1) It separates CEOs and executives from everyone else because they can live separately, have completely different experiences, send their kids to separate schools, etc.
2) They have to justify it (mentally) by making themselves seem more superior to others than they probably are, which brings all sorts of other problems. (One issue I always had with those who always insisted that the individual is superior to the crowd is that most seemed to believe those who are most fit to rule should seize power by any means necessary. However, who chooses those who are most fit to rule? I’d rather see the ancient Chinese system of civil service exams combined with job performance, or the Adams system of not letting those who are hungry for power have it, than the sleazy lie/cheat/steal methods used today. I agree that some people are very definitely more suited to lead than others, but it’s not usually those who end up leading. Our current corporate ascension systems seem more geared to re-creating the British aristocracy circa 1917 than setting up a strong, vital industry. It seems that CEOs are mostly chosen based on the kind of familiarity and training one gets as a lawyer or accountant from an Ivy League school than any other criterion – and that the operational people, no matter how strong they are as leaders, have little chance against the MBAs/lawyers. I’m mainly talking about large, established corporations… obviously it’s different at smaller firms and newer firms.) BTW, I wonder how Dauch got established…
3) Along with #1 and #2 comes a greater degree of voluntary separation as they get separate lunchrooms (or always dine out on their expense account), dedicated parking spaces, brand new cars maintained by dedicated staff, etc., etc.
Certainly more shame and more identification with the greater society would help our long term prospects. That said, a wise businessman recently suggested to me that at some point, we’d re-start domestic manufacturing, once our natural resources declined to the point where it no longer paid to export them for manufacture. I personally believe that a nasty OPEC-induced oil crisis would, long term, do more good than harm at this point, because we’ve already seen that when petro prices spike, shipping everything to/from China is no longer economically feasible.
BTW, now that the Chinese government has ALL our technology blueprints and diagrams and manufacturing skills, I wonder whether we can ever extricate ourselves, even if we choose to.
Dave,
The only thing they have is the IP of companies doing business with them. They have enough to succeed on their own without us but there are a lot of technologies we have that they can not replicate. I’m willing to bet (even though I have no choice in the matter) that the technologies being pushed by the green crowd will even the playing field against them. There are a lot more things than that. Electronics manufacturing is a lot more than cheap PCs, CD players and TV sets.
The problem is that we will have them building the new green technologies, too. What does the United States currently produce that is not shared with China, other than, perhaps, the most high-end computers?
Current design avionics and RADAR systems, Space launch technologies, biotech industry data and procedures, high end material science, supercritical wing design and the high level software and databases required to design them, microwave MMIC design, “throttleable” rocket engines, hypersonic aircraft design along with a few working articles, fifth (sixth?) generation nuclear reactor technology, freedom to tinker.
They may be able to steal this stuff but an open society is required to invent, improve and produce this with any efficiency. We didn’t even invent all of this but the current generations of each are best made right here. Silicon Valley, Houston, Boston corridor, the 270 (VA, MD, DC) corridor, Oxford & CERN are not about to be replicated in China. It is not a lack of data, hardware or time but attitude. I think we not only have plenty to offer each other and the world but that us (the US Canada and Europe) doing so is inevitable. They may yet get the technology to replicate the Green cars the government is after and then they may have to pay hefty royalties and patent fees to do so.