Let Detroit Go Bankrupt by MITT ROMNEY
- 11-19-2008, 04:16 PM
Let Detroit Go Bankrupt by MITT ROMNEY
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.
First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.
That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.
Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.
The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”
You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.
The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.
Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.
Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.
It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.
But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.
The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.
In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.
Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.
- 11-20-2008, 08:37 AM
I agree wholeheartedly. 25 billion is only going to delay the inevitable. Why donate taxpayer money so they can hold onto their jobs for another 6 months? Other businesses have gone into bankruptcy and come out much better off on the other side. I was part of such a company. They don't need more money, then need to restructure their style of management and the way they do business.
- 12-02-2008, 12:48 PM
agree 100% they do not need a bailout. I understand the employ people and if they go under SOME might loose there job but lets face it, Wal-Mart employes more then them.. would we bail them out? Have they even showed ways where they are cutting cost? Maybe drop a nascar sponsor, drop a public spokesperson, cut the cost of cars, end dealerships that are bad, cut middle mangement jobs that do completely jack ****, pay cuts across the board, re-negoiate with unions, and I am sure there is a TON more they can do
And even if they go bankrupt its not the end of the world, bankrupt does not mean they will close down.. look at the airline industry, after 9/11 a couple companies went bankrupt and they re-structured and came back and are doin ok.. why are we paying for others stuipidty, greed, and ignorance. Its not my fault they are making gas guzzlers and not more fuel efficent cars
12-02-2008, 12:50 PM
Capitalize profits and socialize loss... its just fuked up
12-12-2008, 11:30 AM
12-19-2008, 04:58 PM
The problem is the UAW too. I don't see why the US government would bail the 3 Detroit companies will not be competitive any time soon due to their union agreements.
JudoJosh, but when the government taxes the companies, doesn't it socializes profit? And when the company goes bankrupt, they don't socialize loss?
12-19-2008, 05:12 PM
Mitt Romney went to college paid for by his father and union wages. Typical ungrateful politician.
12-19-2008, 05:21 PM
As true as that may be, that does not make his argument irrelevant. Despite the fact I may break out in boils saying this: I agree with Mitt Romney.
12-19-2008, 08:30 PM
I agree with him as well. To bail out the auto industry undermines the whole industry and solidifies a very bad precedent that has already been set by the banking industry.
These automakers and our government are interconnected. I wouldn't be surprised if many of our politicians sit on the boards for these automakers. They will get their bailout, and everyone else who played fair is going to get dry shafted on the fresh wound that was the banking bailout.
What ever happened to free market economics? Let the losers fail. More innovative people/corporations will come through in the end anyway.
12-19-2008, 08:45 PM
yes. lets bail them out, so chryslers CEO can make 2 million next year too. oh, and his 7 million dollar bonus, because he did such a great job!
surely he DESERVES 173,076 per week in wages... that's YOUR tax dollars guys that will be going to pay him....
12-20-2008, 02:46 PM
socialism would be when the company profited so the country profits... and socialism is when the company losses money the country looses money..
these bailouts are borderline socialism and its whats essentially happening..we as a country are buying into and lending money to these guys.. but when they come back up I doubt we will see a profit but when it goes south we come in to save them???
“From each, according to his ability; to each, according to his need” - Karl Marx
12-22-2008, 05:36 AM
JudoJosh, it socializes part of the profit. So the government taking "only" 50% or whatever of what they make is good, while 100% is bad? And taxes don't represent wages. Those who worked for the profit get wages, not money from the government through taxes. I mean, I don't have anything against taxes when they're fair, but taxes should be a consensus between the services you get and how much you can pay. Right now they're based in the US on how much you can pay.
With Obama's 50% idea, does the one who pays over 100k in taxes gets any better service?
And another thing. Communism doesn't equal socialism. For instance, most of the Western EUs governments are modern socialist.
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