Camels are also fuel efficient
This week the leadership of the Big Three headed back to D.C. in a car caravan (vs. the previous corporate-jet fiasco) and promised to take $1 salaries and forgo bonuses in 2009. The cloying symbolic gestures did make me throw up in my mouth, but the substance of Thursday’s Congressional hearings leads me to believe we are heading towards a special, government-administered bankruptcy for the auto industry, a plan I really like.
GM submitted a 37-page proposal for restructuring the company. Anyone looking for a mea culpa, where GM admits its decades-long unwillingness to focus on fuel-economy as a big part of the current problem, will be disappointed: GM says their current difficulties are due to the credit crisis. In fact, at least 10 percent of the proposal touts GM’s leadership in fuel-efficiency. The report discusses eliminating product lines (on the block: Hummer, Pontiac, Saab, Saturn) and working with dealers to close shop. It fails to mention differing local laws are going to make it extremely difficult to break dealer contracts, leading me to believe GM plans to magically convince dealership owners to close voluntarily. GM remains adamant that bankruptcy will indelibly mar the company’s reputation, rendering restructuring pointless. At the same time, the company proposes the establishment of a Federal Oversight Board during the recovery, which will include a huge debt-for-equity program … so GM’s plan is like government-administered bankruptcy, only different.
Oh, and the Big Three are now asking for $34 billion. Are we to assume coming to D.C. with a plan is worth $9 billion, considering the industry asked for $25 billion when they were plan-less two weeks ago?
Cynicism aside, the UAW announced on Wednesday it is willing to accept large money-saving concessions, including ending the “job bank” program and allowing GM to delay the initial $7 billion deposit into the new retiree health-insurance program, planned since 2007. These concessions are more meaningful than car caravans and $1-salary overtures and give me hope the union can reinvent itself as a flexible and quick-acting advocate for workers.
Whatever happens — nothing, a straight bailout, a structured bankruptcy (or whatever the industry can bear to call it) — retiree health care must be addressed. I think any restructuring effort should jettison the plan to move GM retirees to a new, independent program and instead make GM retirees the first participants in Obama’s health-care program. The $7 billion GM was to use to establish the new retiree plan can be used to help finance the move and act as a generator of political and social capital for the company.
Finally, some quick-and-dirty observations and links:
- Republican opposition to bailouts is arguably less about free-market, creative-destruction ideals and more about dealing a fatal blow to organized labor.
- Arguments that bankruptcy will hang stockholders out to dry and therefore should be avoided are ineffective because the stockholders have been “drying” for some time.
- Existing corporate leadership (i.e., all those $1 earners) need to be fired, and since we likely will be calling “structured bankruptcy” something else, we might as well call “fired” something new, too … I suggest “on permanent sabbatical.”
- As usual, Andrew Leonard has good summaries of what’s going on with the Big Three. Educate yourself here and here.
I don’t think asking why the amount’s gone up from $25 billion to $34 billion over less than two weeks is necessarily cynicism. It leads to the question that they were directly asked during the hearings (I believe by New York’s Pete King): how do we know $34 billion’s enough, and how much do you really need? For that matter, I recall hearing on the radio that at least one person had testified they will really need more like a $100-$150 billion.
I can’t get the full GM proposal to load on my computer (I really need to get around to loading OpenOffice) so I can’t read it, but…
1) That mea culpa‘s important, and if it isn’t there, that in my mind is pretty damning about the likelihood that the plan will work. First step in solving a problem is, after all, to identify, acknowledge, and admit the problem.
2) The way I’ve heard Ford’s request described on the news makes it sound like they’ve asked for $9 billion to be standing by, not to Ford but to go to suppliers that also serve Chrysler or GM so that they don’t shut down and cut off Ford if Chrysler or GM stops buying from them due to their collapse. Is that accurate? I haven’t seen any details on Ford’s request.
3) Again, haven’t seen the details of the GM plan since I’ve got a software issue, so I don’t know which factories they’re planning to close, but I do know Saturn at least gets made in Tennessee. Tennessee, of course, is down in that region where a lot of the Transplant factories are. Are other proposed factory shutdowns in the same region? It seems to me like that would lead to even stronger opposition from that regional block, since that means the plan not only helps the competitors of some big employers in the Southeast, but now calls for shutting down other employers in the region.
4. With regards to the corporate leadership… “You know, in certain older civilized cultures, when men failed as entirely as you have, they would throw themselves on their swords.”
Posted by Steve | December 6, 2008, 10:44 amYou’re 100% right about Republican opposition being about killing the unions…. I’ve taken to listening to this one crazy conservative talk show host, and all he does lately is yell about the UAW :(
Posted by Ames | December 6, 2008, 1:03 pmI think that GM has been looking for an excuse to ditch Saturn for a while. The Saturn experiment really didn’t sit well with GM, and they didn’t like how it started as more independent, with Saturn’s original CEO being a full president of GM as well and the Spring Hill workers using Japanese techniques, (while still being a UAW shop).
A lot of Saturn owners started seeing the writing on the wall when Saturn’s founder retired and GM replaced him with a VP instead. There was talk about bringing Saturn closer under GM’s umbrella. Saturns started being based more and more off of GM platforms rather than being independent. The final straw came when Saturn announced the trademark plastic body panels – which are WONDERFUL at avoiding parking lot dents, as well as saving weight, would be phased out and replaced with sheet metal. The shop at Spring Hill making them? Torn down. All the technologies that Saturn pioneered in their cars? Phased out in favour of being Just Another GM Marque. At last report, GM had planed for future Saturns to be rebadged European Opels.
GM couldn’t sweep Saturn under the rug like they did with the EV1 – but they did their level best to destroy Saturn. And now with the bailout, GM’s final excuse to dump their red-headed stepchild is complete.
Posted by Patrick McKinnion | December 6, 2008, 1:58 pmsteve … i can turn the GM proposal into a pdf, and perhaps we can have it available for download … i’ll check with ames …
as satisfying as a mea culpa would be, we aren’t going to get one. i believe that’s a function of politics … that congress won’t kick them when they’re down, but (god, i hope) they will make them swallow stricter fuel-economy standards. in fact, perhaps the amount of hot air GM expends in the proposal touting their environmental leadership means democrats have GM where they want them … after all, if the company is such a forerunner, then stricter standards should be welcome … if retooling is going happen anyway, GM shouldn’t hesitate to go whole hog on it to ensure capacity for high-fuel-efficiency production.
whatever money is discussed presently is definitely only a fraction of what will be needed. i think everyone is operating on that understanding … that the $34B is a bridge loan … some republicans are blustering about a guarantee that it be the final amount, but they know that is not the case.
i haven’t seen anything specifically regarding ford … frankly, GM is the big player in this, and because the supply chain is essentially the same for all three, if GM goes, the production chains for the other two are going to suffer, if for no other reason than the other two do not have the volume to sustain existing suppliers.
one thing that is interesting to note is chrysler’s presence … they are already owned by a private equity firm, and i think congress is right to ask what the hell they are doing asking for money when it is certainly the case their owners’ pockets are still very deep … but again, GM is the main focus, so the nitpicking about chrysler’s share is, well, just that: nitpicking.
patrick … re: saturn … GM really had an opportunity to forge a new path … a new biz model … new focus on fuel efficiency … but they totally effed it up … i don’t know if it’s a function of the inflexibility of the larger corporation … or the union … or some combo of both … but anyway, it’s a sh*ttin’ shame.
there is no discussion in the proposal of specific factory closures. in fact, they don’t talk about shutting down factories at all … all of the discussion of manufacturing improvements centers on cost reductions from recent negotiations with the uaw … not from proposed layoffs of closures.
i know they want to shut down dealerships on the coast, and focusing sales on the midwest, where dealerships have been most profitable, historically. when it talks about downsizing and restructuring, the proposal focuses primarily on stuff GM has already done in the last several years … for instance, they have closed about 1000 dealerships since 2004, and they are targeting another 1700 for closure by 2012.
a sick, sad fact is that the GM proposal says that hummer is under “strategic review” … which includes “the possible sale of the brand” … krikey, just stop making them!!! period!!! they suck, literally and figuratively … as in they suck in terms of quality and they suck the life out of the environment.
perhaps it’s too much to ask in this early “proposal” stage for GM management to grow some balls and take an unequivocal stand on something … and perhaps that will never happen.
so congress is going to have to do it … there are more reports out today … i haven’t read them, but i saw a headline that mentioned a compromise bridge loan in the amount of $14B … i’m cool with that, provided all the wonks are nose-to-the-grindstone crafting the terms of a special government-administered “bankruptcy” to go into full gear after inauguration …
really, it’s the most reasonable and manageable solution to this ginormous problem.
Posted by didionsmommy | December 6, 2008, 9:44 pm