Detroit's Day of Reckoning (with Thanks to David Halberstam)
Well, it looks like the jig is up, the party's over, the lights are out and Detroit has left the building.
And instead of a $25 or $50 billion golden goose, it appears Chapter 11 bankruptcy, which allows a company to stay in business while they reorganize with a government overseer, seems to be where the Detroit Three are headed.
Today, predictably and correctly, the heads of the Detroit Three are being raked over the coals -- again -- not only for their performances at yesterday's Senate hearings, but how they got from Detroit to D.C. and back again for the hearings.
Each of them used corporate jet aircraft, and estimates of their round-trip costs are $20,000 for each Detroit Three leader. Keep in mind these were three men coming from the same place and going to the same place at the same times (and yes, we took note that something was wrong with the hearing's very appearance -- the entire panel of those testifying and everyone asking questions were white men, if I remember correctly).
(Left to right, Ron Gettelfinger, head of the UAW, Alan Mulally of Ford, Robert Nardelli of Chrysler, Rick Wagoner of GM and Peter Morici, a university professor who specializes in macro-economics and who argued with his fellow panel members).
Ford and GM each own eight corporate aircraft, and in the interests of security, safety and scheduling, their employment contracts often mandate the use of planes in these fleets when they travel. Whether to Washington for a hearing, Monterey, CA, for a round of golf at Pebble Beach or to check out the Tokyo Motor Show, these planes get heavy use for work -- and play.
But a Northwest flight which left Detroit for D.C. around 9am Tuesday had round trip coach seats going for around $300, and first class seats went for under $900. Still a lot less than $20K, and it would have looked a lot better to the American public.
First class apparently isn't good enough for these corporate titans, these masters of the universe.
Richard Wagoner (with henchman Robert Lutz right behind him), Alan Mulally and Robert Nardelli, leaders of GM, Ford and Chrysler, respectively, found themselves in front of a U.S. Senate committee where both Democrats and Republicans were in no mood to hand out more cash to any company.
(GM's Rick Wagoner with Robert Lutz behind him on the right).
The irony is that Detroit would probably have failed anyway; the recession just sped things up. And as many senators pointed out yesterday, not even one of the Detroit Three have developed rational, sensible and do-able plans for what they'd do with any monies they might get from Washington. Nor is there anything in writing which, if direct loans do happen, details how they'd pay the money back.
Chrysler's Robert Nardelli, when asked how his company would pay back any loans, said something to the effect of, "Well, we plan on selling a lot more cars, that's how." Well, ask a silly question, you get a silly answer, right?
(United Auto Workers' boss Ron Gettelfinger testified and sat at the same table as those who are usually his adversaries, leaders of the Detroit Three. When an entire industry is at stake, strange relationships can develop).
David Halberstam, the late, great American journalist, wrote a book in 1986 about America versus Japan in the car business, and called it The Reckoning. Detroit (specifically Ford) didn't look very good when Halberstam compared it to Nissan.
Called before the Senate's Banking, Housing and Urban Affairs Committee, chaired by Chris Dodd, America's carmakers found themselves in the hot seat, not an unusual location for Detroit leaders, as they've all fought almost every proposed government rule and regulation, especially those concerned with safety, improving fuel mileage and lowering emissions.
(Alan Mulally got a signing bonus of over $20,000,000 when he left the top job at Boeing to replace William Clay Ford as chief executive at the Dearborn, MI, carmaker).
The hearing signaled what looks like the ultimate day of reckoning for this country's once-great and world-dominating car making industry. All Americans are tired of the excuses, the explanations, the reliance on muscle and brawn rather than on brains and technology.
Detroit executives still possess huge egos, tempered with a big dollop of outright arrogance. Two of them, Nardelli and Mulally, tried to evade some questions claiming that they'd only had their jobs for a year or two, and couldn't speak to decisions made by their predecessors. It sounded like the adult version of, "A dog ate my homework."
(A member of Code Pink holds a "Shame" sign behind Chrysler's Nardelli during his testimony; this group of brave women are at every important Congressional hearing, making their case in imaginative ways).
What Americans saw through these hearings (which continued into today) was what those of us who have written about the industry for decades have seen -- and heard -- hundreds of times.
"We're right around the corner from success!" "Don't look too closely at this year's models, but wait until you see what we have for next year!" "Americans will eventually tire of buying cars from all these foreign companies, and they'll come back to our products!" "These foreign outfits get all sorts of help from their governments that we don't get here, so how can we even try to compete?" "What could we do? The American public was demanding bigger, more spacious, more comfortable and more powerful cars and trucks, and naturally we have to build what the customers want!"
As an update, President Bush won't allow Detroit access to any part of the $700 billion bailout fund. Barack Obama says he is committed to saving Detroit, and favors the companies' original request for not $25, but $50 billion.
But if Harry Reid continues to push his Detroit Three bill, we'll see no government oversight of any money given or loaned nor any mandate for improving fuel economy. Detroit could wind-up like a kid with mom's credit card in the auto parts shop downtown. A Senate vote on the bill has been delayed as negotiators from both sides try to craft an agreement. No matter what they produce, the Detroit Three will look very different a year now.
(From left, Senators Chris Dodd of Connecticut (D) and Richard Shelby of Alabama (R) both asked tough questions and often got less than complete answers from the leaders of the Detroit Three).
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Kill the Messanger,
You said, :Your numbers are made up..."
From the EPA website: (highway estimates)
GM Toyota
Malibu 33mpg Camry 31 mpg
Cobalt 35mpg Corolla 35 mpg
GMC Acadia fwd 24 Highlander fwd 24 mpg
You said"
"GM workers were never middle class. They were called middle class to make them feel better. The classic definition of a middle class person includes tertiary education and a professional degree. Unless GM employs holders of masters degrees and PhDs on the assembly line it employs working class people for workers like everyone else. That it pays them too much is stupid, but it does not elevate the workers above their true status in society."
So we all have to have Ph.Ds in order to deserve a good salary? The market dictates that. I've met plenty of people that had secondary degrees or better and were completely worthless. Maybe the market does dictate that they earn more regardless of whether they earn that salary. Our salaries in the U.S. are partially based on 200 years of reforms to keep people from being abused. I know we need to be compete, but I also don't want 14 year old girls working in sweatshops in our country making shoes. There has to be a compromise somewhere. I don't want to see the middle class vanish.
Don't get me wrong. I am not dissing the working class. But I can clearly see what differentiates it from the middle class. In many of my posts I emphasize how important college education is. You say you don't want to see sweatshops. Well, you will not see them because there are a hundred million 14 year old girls in the world who will be happy to work in one because it is BETTER than being hungry. We can not win the race to the bottom. So we have to stay on top. And that means we have to de-emphasize our working class (but be honest about its size) and convert as much of it as we can into real middle class. At the same time we have to make sure that the sons and daughters of factory workers will be college educated or better. That's not optional. It's not impossible, either, we just have to let go of the false pride of manual labor. There is nothing great about it.
Your comment is seminal to the problems we are facing now. If we were more interested in emphasizing and supporting education, we would much better off and would not have to rely on the less educated working class, furthermore, because we live in the best country in the World, why shouldn't everyone strive to take advantage of the opportunity. Granted, college tuition calls for parent's to have higher paying jobs. The auto union has made it possible for many working class families to educate their children. What we do need is now is an educated labor force so that we can continue to compete in a global economy. One cannot continue to do the same things, expecting a different outcome...that is the definition of insanity. China has made an offer to buy the Big Three, that would certainly ensure that the other automakers moving plants here to the US to build their cars, like Kia has done with its plant in Georgia rolling out its fleet next week. We could use the work!
Guess what - it is not just the factory jobs that will disappear with the death of Detroit. In fact, the factory jobs can largely be replaced by transplants, though they will pay lower wages and the workers will have less buying power, thus accelerating our trend of a wider disparity between the very rich and the working class. No, what we will lose are all the technical jobs that go with the auto industry -- the design, the engineering, the prototyping, the testing will overwhelmingly stay in Japan or Germany. So, please tell me how this helps us to stay on top in a world that is more and more dependent on technical know-how.
If we all became brain surgeons, most of us would starve. That is because only a small percentage of people will need brain surgery. In what jos will all of these college-educated workers be placed? If you can put down your autobiography of Alan Greenspan for a moment you might learn a lesson from the demise of the steel industry. No only were the blue-collar workers let go when the industry tanked, so were engineers, marketing people and accountants.
Our Prius now does 48.1mpg in the real world (not EPA) and even when the car was new it was better than 47mpg at all times.
Sorry, low 30s is not particularly efficient and I wouldn't even bother looking at cars that can't make 50+ mpg after 2010.
"So we all have to have Ph.Ds in order to deserve a good salary?"
No. But if you have a tertiary degree you are a lot less dependent on large scale employers like the automobile industry. That relative independence is one sign of middle class. Working class people, on the other hand, are almost completely dependent on employment by others. Look at the coal and steel industry for example. People are still complaining that the demise of both has wiped out whole regions. The same argument is now made for the automobile industry. That problem is real. But if you had 3 million middle class people working for the big three and all their suppliers, you would see a couple million small businesses and self-employed people happily innovating the day after Detroit closes. Good luck with that one. It won't happen, instead you will see these people apply for unemployment and social security and cry about their fate and develop all kinds of weird theories of how they got screwed.
Germany went through similar developments two and three decades years ago. They had to shut down coal mines and heavy industry in the Ruhrgebiet, West Germany's industrial center:
http://en.wikipedia.org/wiki/Ruhr_Area
The people were furious. They said we couldn't afford to shut down these old industries (in reality we couldn't afford to subsidize them) and the unions were raising hell. Economics won, the old factories closed down. The state spent enormous amounts of money on environmental cleanup measures and one by one the old sights were reclaimed as offices, R&D facilities and centers for arts and humanities. Where people used to make canons they now play Shakespeare and orchestral music. Today parts of the Ruhrgebiet are known as centers for innovation in technology and arts. What was once poor and dirty has become a thriving area and people like to live there now.
If you go to the London Docklands, you will see the same thing. What was desperately run down is now a pleasant and artsy playground and economic area which makes you feel like you are anywhere but the gray London of the past. All of this was possible because governments made the right choices and invested in areas that had been neglected for so long.
We need to do the same. If Detroit is disfunctional it needs to be reinvented. The car might or might not play the key role in that.
Chapter 11; reorganization and termination of the executive staff without bonus pay outs - that's captialism.
If you don't like the rules you need to go to... well... hmmm... not many options left here... how about Cuba?
:-)
If you haven't noticed something has beating the USA's so called Big 3 to a pulp all of the time since 1958. The Big 3 are now nothing more that bloody stains & puddles on the floor. The Big 3 can't get up to do anything anymore. Maybe that capitalist favorite, the invisible hand which regulates capitalist markets, has been in on the beating on the Big 3. What ever or whom ever destroyed Detroit, Detroit will die in a few months, bailout or not. Save the bailout money for the workers who will be out of their jobs. The Big 3's executives will get other jobs. A 50 year old auto worker in Flint, Mi isn't ever going to get a job that pays $50.00 an hour. A job at Mickey D's is the fate of auto workers, if they are lucky, after their factory closes.
Some strong words. But true to the core.
So how is it that GM has led the world in vehicle sales for 77 consecutive years? If that's beaten to a pulp, then Toyota would love to change places. GM was the first country in US history to earn one billion dollars in a year. The Big 3 were instrumental in builiding enough tanks and planes to win WW2. For many years, GM built the most advanced locomotives in the world. GM is now developing the most advanced plug in hybrid in the world - a car that uses so little gasoline that it makes a Prius look like a Hummer.
All you people who start with this colloquial notion that US car manufacturers are bad businesses are starting off with ignorance and going downhill from there.
"So how is it that GM has led the world in vehicle sales for 77 consecutive years?"
And during how many of those years has it lost money?
"If that's beaten to a pulp, then Toyota would love to change places."
No, it wouldn't. Toyota filed their quarterly report a couple days ago and they are still profitable. Meanwhile GM is shooting bundles of money out of T-shirt guns.
"The Big 3 were instrumental in builiding enough tanks and planes to win WW2."
WW II ended in 1945. You missed the news.
"For many years, GM built the most advanced locomotives in the world. "
That stopped around 1950, if it was ever true. They might have built the strongest locomotives, but certainly not the most advanced ones. EMD has nothing that could compete against a modern electric design on any level. They make legacy products for non-electrified railway lines.
"GM is now developing the most advanced plug in hybrid in the world"
You mean they are developing the most advanced plug-in loss leader. It's so advanced that they have already announced that they can't sell too many of them for years because it would bankrupt them.
"a car that uses so little gasoline that it makes a Prius look like a Hummer."
Actually, when running its ICE, the Volt will use almost as much gas as the Prius. GM seems to have trouble with efficient ICE designs, even for battery chargers.
"Save the bailout money for the workers who will be out of their jobs. "
Thank you.
These execs have done nothing but take money, and Gettelfinger's worthless. If the industry goes down, they'll be fine. It's the workers and the pensioners who will be in a world of hurt. Whatever is done, I'll be okay with it as long as the workers and pensioners are taken care of.
Remember, even in the bestest bestest of times, the car makers were rolling in dough, fabulously wealthy, and never good TO US or FOR US.
In the worst of times, the people at the top are still pulling in major bucks, and their actions/existence may be the ruin of us all (pollution and fossil fuel addiction).
No matter WHAT the benefit to the workers, the entire endeavor is tainted and will not be a NET POSITIVE for the country.
I am not a believer in "markets" or free markets or unseen hands, but I do believe in supply/demand relationships. I do believe if Big Three will not give the public what they are clamoring for, someone else will. And with their long, long record of killing the world for a profit, and criminal neglect of the public weal, betting that Big3 will do a 180 is a sucker bet.
Quality from big 3 is FINE TODAY.
Low fleet mileage has simply reflected buyer preference when fuel costs have been artificially low. That is, pump price hasn't included the geopolitical/environmental costs of our fossil fuel dependency. Automakers have no incentive, per se, to depress mileage efficiency. Quite the contrary.
Big 3 are "not competitive" because of legacy commitments to living wages/benefits.
Anyone here remember when workers' wages were expected to cover living costs for him/herself and family?
Today's model is some 3 jobs per household.
How's that working out for ya?
why, it's all so simple.
all so easy.
if only Jumperpin could ascend to the wheel
and steer us all thru
with his farseeing mind
and vision. dignity on his brow, and power in his hands
he alone knows that AutoMakers are without blame. it is everyone else's fault. corporations are good....at worst they are neutral. only doing what we WANT them to do. it is our fault actually. we wanted this, at least subconsciously. silly fools. craven mortals. DOWN ON YOUR BELLY! worship the pretty-good-but-mostly-neutral inhuman corporation....so much more than you will ever be, foolish man. our industries are founded on a strong base of damaged vertebrae and fouled lungs and crushed dreams, mixed with toxic river water. toxic river water that YOU wanted, ha ha ha ha ha ha hahaha. in time, you too will join the matrix.
You got me there. Eliminate workers and corporations altogether and our river waters can eventually assume their native fecal ridden "purity".
Quality? Quality doesn't matter at 18mpg.
"Automakers have no incentive, per se, to depress mileage efficiency. Quite the contrary."
If they don't have an incentive, why did they do so for years? Are we speaking with forked tongue here?
"Today's model is some 3 jobs per household."
On average there are less than 3 people in a US household. You need to get your statistics straight. Or just lay off the Rush, it will provide immediate relief from misinformation.
I have to agree, many households are working not one but 1.5 or 2 jobs per person to make ends meet.
No wonder so many children are left unattended.
If it weren't for the collateral damage that would result, I would let the American auto industry die off.
If the Republican's kill MoTown they are extinct. Their core of Republican LowInfomrationVoters watch detroit cars go round and round a track on Sunday, buy SUV's which don't fit in parking lots, and put stickers in the back windows of their trucks disparaging other trucks-- for them the television ads are true, its trucks, guns, and flags. The Washington Bubble apparently has no idea how people feel about their gas hogs.
If the Republicans pull out the core of these people's being... put a fork in the republican party.
Be mad at the Car execs, and to be sure they don't buy another plane, use the bailout to provide health care for all the autoworkers and auto related industry. Take an actual expense away from the industry, as a running start toward universal health care.Maybe foreign car makers won't go to Canada either.
Republican AND DEMOCRATS not from MI are doing a very good job of convincing us here in Detroit that they are 1. Anti-Union 2. Anti-Domestic Industry 3. Would like to see only 49 stars on the flag
Oh, Lou, the world is bigger than Michigan. Get used to it.
The Big Three' must not have invested in lobbyists like the Banks and Wall Street did.
I wonder why. They must've thought that they were an institution.
These two thing have to happen before any deal is passed.
1. The auto have to have some kind of gaurantee that alternate energy vechicles will have some protection for lowering oil prices. The cartels lower the prices just long enough to destroy the competition. The auto dealers and solar power industries were just gearing up when the oil cartels of Bushco came in and lowered the prices.
2. All of the manufacturing must be done in America. All, including parts.
Yes!!!!
Yes, this.
Barack Obama would not have been elected if it weren't for unions like the UAW and industries like the AMERICAN auto industry.
That's nonsense. Barack Obama had an overwhelming support from intellectuals. But he did not get much support from white, working class males. Don't pat yourself on the back, just, yet.
If the UAW alone backed McCain, McCain would have won MI, OH, WI, IN and possibly PA and WI.
GM/Ford/Chrysler has been making big fat junkmobiles long after the handwriting was all over the wall. LET THEM FAIL - THEY DID IT TO THEMSELVES.
Those "big fat junkmobiles" made Ford a profit in the first quarter 2008. They didn't do it to themselves, $4 gasoline drove people away from their "big fat junkmobiles", and no consumer credit for car loans drove people away from the rest of their product.
$4 gasoline has been on the horizon since 2002. If you need proof that it had been coming for six year, please look at oil price charts.
Lou, you need to think about the world a lot harder before you can make any claims that actually make sense.
The carmakers are economically self-destructive the way a drug addict is self-destructive. They don't *want* to change, and until they do, people who try to help will just get dragged down with them.
Chevy Volt (100 mpg on a 80 mi daily commute) 2010, Chevy Cruze (40 mpg) 2010, Ford Fiesta (40 mpg) 2010. The Big 3 just need a bridge loan that will sustain them for ONE YEAR. People like you who know nothing about the AMERICAN auto industry are dragging them down, the people who NEED them to get the help are WORKING CLASS PEOPLE.
Has anyone thought that maybe there are enough cars out there already?
Sorry, but a reckless, rapacious, against-the-people industry....as important as the auto industry.....just cannot be allowed to thumb their noses at us and stick it to us decade after decade.
These companies have proven that they will lie, steal, and cheat.
Who Killed The Electric Car?
Synopsis: Due to California's Zero Emission Initiative sometime in the late 80s/early 90s mandated that some percent (20%?) of all autos sold in CA must be zero emission. GM makes a couple thousand of these awesome, 100% electric cars. For some reason, many went to Hollywood types, and the scope seemed limited to around LA.
GM joined the Oil companies and other Pro-Business (anti-people) groups and lobbied using EVERY dirty trick and pro-business judicial help, overturned the Zero Emissions Mandate. GM quickly, quietly, with as little fuss as possible, unleased all the existing vehicles and SHREDDED them.
Oh, and the battery technology that was emerging as really viable, really improved.....was bought by an Oil company.
THis is just one example. They have done this every step of the way. And bailing them out is only going to end up funding more of the same.
It is the difference between a home-wrecking, life-wrecking junkie who at least makes his own money.....and a homewrecking, lifewrecking junkie who is leaching directly off YOU.
Did you read the article? Every year they say "Wait until next years models" The same thing happened in 1979 and did they change?
It will be for much more then 1 year we are in the middle of a huge recession maybe even a depression. I'm still for giving them the loan with lots of things they have to do to get them, the big one get rid of those jets and huge salaries and bonus these top people get.
I would also put at least a $1 tax on gas so this country begins to move to renewable energy and we can use the money to create new green jobs, fix the infracsture and force our people to deal with reality not like last time just forget about the problems until it happens again and it will unless we follow the Europeans taxing of gas. It's the only way to make the auto industry and Americans change their ways permanently.
A new model, especially with a new technology, takes about a decade to build sales volume, recap R&D cost and become a mainstream vehicle.
Lou, I thought you knew Detroit and the industry? Obviously, you do not. So unless you are telling us that we need to feed GM until 2020...
This is the season for fat greedy buggers looking for bail outs.
Many years ago the answer to most of Detroit's problems walked up and knocked on their doors. That was Dr. Edward Deming. The automakers told him to go away, and he did - straight to Japan, where they listened and put his ideas into practice. Toyota and Honda are what GM, Ford and Chrysler could have been.
You are right about one thing. The Detroit "Three" will look different a year from now. Given the ineptitude in the White House and congress, it does appear that next year there will no longer be three large American Automobile companies.
Please get your facts straight. Mulally was not CEO when he was at Boeing. He was President of the Commercial Aircraft division, and was passed over when the current Boeing CEO was hired.
Mulally was also the only one at the table who could legitimately claim to be successfully restructuring. Should Ford succeed, he will have more than earned that 20 million.
JMHO
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