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Car Guy
The Sweet Stench of Failure
Another $25 billion handout for the Big Three?
America’s Big Three want another $25 billion from the government — which means, from us taxpayers.
Maybe we have a right to ask for something in return?
The free market is a great idea; problem is, we don’t have one anymore. When the archetypical Joe the Plumber’s books don’t balance — when he’s not earning enough to stay afloat - well, he usually doesn’t. Time to try again. Or maybe not.
Let’s face it: Not every business is a great idea; not every person destined to “make it.”
That is the essence of free market capitalism — right?
So why do different rules apply to the big guys, like GM, Ford, and Chrysler?
They (more specifically, their management) made some horrendous decisions that have led directly to the current mess they find themselves in. Yet not only are the companies not being allowed to suffer Joe the Plumber’s fate — the people responsible for the decisions are allowed to profit from failure. While GM, Ford and Chrysler’s fortunes are swirling around the bowl, headed for the Great Big Flush, their CEOs are collecting multi-million dollar paychecks. Reportedly, Ford’s current honcho — former Boeing executive Alan Mulally — bagged $30 million… to preside over the biggest downturn in Ford’s business since, well, ever.
It’s a similar story over at GM — and what’s left of Chrysler. The top guys are “earning” millions every year even as their companies are losing millions every month.
Meanwhile, there is talk of doing a Lorenzo (remember him?) on retired Big Three workers, whose pension and health-care costs are — supposedly — ruining the business.
The claim being that these “legacy costs” are crippling American automakers’ competitiveness by adding (roughly) $1,500 to the final retail cost of each car they sell.
Of course, no one ever mentions the $30 million forked over to Mulally, et al. CEOs never take a pay cut — or lose a benefit.
And what, exactly, did Mulally and his fellow CEOs do to justify such boodle?
Hmmm.
If the automakers were raking it in hand over fist — record profits, expanding market share — then hey, bully for the CEOs. They would have, you know, earned their compensation. But in what la-la universe can you, on the one hand, say a CEO presiding over a sea of red ink and recurrent failure is entitled to more money in six months’ time than most of us will see in a lifetime (or three lifetimes)…while a guy who worked on the line for 20 or 30 years who receives say $1,000 a month in pension and health care benefits ought to do without?
Keep in mind, these aren’t entitlements or “welfare.” A guy signs on with, say, GM in 1965 and part of his employment contract — part of his agreed-to compensation package — is “x” dollars in pension/health care benefits. So the guy puts in his 20 or 30 years — and plans for his retirement in part on the assumption that those benefits will be there.
About the Author
Eric Peters is an automotive columnist and author of Automotive Atrocities: The Cars You Love to Hate (Motor Books International) and a new book, Road Hogs.
Letter to the Editor View all comments (24) | Leave a comment
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Pecos Pete| 11.11.08 @ 6:42AM
If the gubmint bails out the big three they should reduce management compensation to something like 10 times the lowest paid hourly worker. Capital provides assets, labor provides sweat, and management should provide ethical stewardship.
Eric, I think you are spot on. CEOs are grossly overpaid. You might have also said something about the board of directors who have failed in their responsibilities, particularly in oversight.
JAWilson| 11.11.08 @ 6:49AM
I'm liking the idea of punishing the CEO's for failure, a lot. That would wake up a lot of those arrogant dopes in Detroit. I grew up there and am elsewhere now. It was amazing to look back at the Detroit mindset and understand their hubris.
Chris Ayers| 11.11.08 @ 7:18AM
this new website format is terrible. I have to go through 4 pages of advertized downloads to read one column. If this stays this way I am going to remove this from my favorite. GREAT columns but not worth the massive download hassle.
John Donner| 11.11.08 @ 8:55AM
I have no problem punishing Detroit management. In fact as far as I am concerned you take them all out and string them up. The problem is that not cure anything. No one could make Detroit competitive under current circumstaces when faced with the UAW.
Detroit's problem is that in a closed shop state, like Michigan, it is faced with a labor monopoly, the UAW. Like all monopolyies the UAW has raised prices (wages and benifits) to to levels that are unsustainable when faced with competition. This worked well until foreign owned automobile coampanies came into the US in the 1980s and later established US manufacturing in right to work states.
After 15 yers of competition Detroit is literally broke. They have sold every thing of value and poured the money into the Detroit black hole, the UAW. The current finaancial circumstaces have only highlited the issue. If you have owned a foreign car any time during the last 15 years you know it is much superior to a Detroit product.
Pouring moe money down the Detroit black hole will not fix the problem. Detroit must get its costs in line with the competition and this means the UAW must give up its gold plated wages and benifits. Without this life is over for Detroit.
Eric Edwards| 11.11.08 @ 9:09AM
The only people who can "punish" the CEO's are the stockholders of the companies; they should have the power to do something about the way these corporations are being run (into the ground). But it is not for the government or any other outside entity to decide compensation or "punishment" for CEOs that fail; if they drive their companies into the ground then they should simply be allowed to fail like any other business would. They should not be getting any special consideration or help from the taxpayers for their repeated missteps.
rachel cody| 11.11.08 @ 9:40AM
The unions aren't the problem anymore. Mu hubby works for Xerox in NYS. The main manufacturing force has dwindled from 10,000 workers to 1,000 workers currently. There are nearly 10,000 employees in the factory and the rest are all management. Xerox has more VP's than any other co up here. Kodak, which doesn't have a union is in the same shape. Hourly line workers are taking benefit cuts, pay cuts, all in the name of saving the company while the head honcho's get the golden egg of millions of dollars. The CEO's and boards need to be held responsible. Their golden parachutes save them while the workers crash with the company. Manufacturing is all going overseas and to mexico where "slave" labor is abound. It's the death of the American manufacturing industry that we once knew. There are still manufacturing jobs. High tech jobs that require college degrees which go unfilled here. The face of America is changing. Not necessarily for the better.
Bob S.| 11.11.08 @ 10:08AM
In my humble opinion, the "Big Three" got what was coming to them. Their biggest problem is their entitlement attitude. I have owned products from all three, and all three were unmitigated disasters. I am now the proud owner of a Honda Civic (212,000 + miles) and a Honda Odyssey (115,000 + miles), both American-made, and both running like the day they were driven off the lot. All of the Big Three manufactured cars that I've owned died shortly after 100,000 miles, in spite of being properly maintained. I could go on and on about this, but it appears that the Big Three do not have the desire to build a car that provides VALUE. Good riddance to bad rubbish!
Steve Church| 11.11.08 @ 11:03AM
I have enjoyed reading Eric Peters automotive columns in the past, but this week he has apparently been kidnapped and replaced by his populist and ignorant twin. First of all Alan Mulally's total annual compensation is less than 0.2% of Ford's last quarter negative cash flow. He could work for $1 and it would not matter a hill of beans. Further his pay was approved by Ford's Board of Directors including representatives of the Ford family. If they believe that he is worth it, who is Mr. Peters to argue? By the way, it was Mr. Mulally who brought back the Taurus nameplate that Mr. Peters seems to miss so desperately.
Peters says that the Toyota Prius hybrid was introduced 10 years ago, before the gas crunch, and not matched by US auto makers until after the crisis hit. This is a stretch at best and disingenuous at worst. Prius was available in Japan in 1997 but not in the US until 2001 and Ford released the full hybrid Escape in 2004, just three years later (the Escape's technology is by the away fully competitive with the Prius). As an industry "expert" Mr. Peters should know why other manufactures; US, European, AND Japanese have been reluctant to jump on the hybrid bandwagon. It is simple arithmetic, to make a hybrid you replace a conventional gasoline powertrain with another conventional gasoline engine, plus a large electric motor, a very expensive battery pack and combine it all with a complex and costly control system. Even the premium prices charged for hybrids come nowhere near covering costs. Cash rich Toyota can subsidize the Prius as a part of their Corporate communications budget, but hybrids can not be a major part of an overall vehicle line strategy even with $4 per gallon gasoline.
The bottom line is that the United States automotive industry is arguably the most complex industry in the history of the world and it is very easy for outsiders with 20/20 hindsight to criticize past "mismanagement". We are all trying the weather a "perfect storm". As one that has been around the industry for more than thirty years, I am not sure anyone could have led us to a safe port given all that has come before.
Raoul Bloodworth| 11.11.08 @ 11:22AM
Pension security? Tell it to the airline employees who took it in the shorts over the last 10 years. Most are getting 25% of what their contracts specified.
Guess what? If the company goes belly-up then no pensions get paid.
One more thing... The Volt is a plug-in-electric, not a hybrid.
Katelyn| 11.11.08 @ 12:29PM
Please, please, PLEASE do not ever mention "Joe the Plumber" again.
megapotamus| 11.11.08 @ 12:53PM
We are told ad nauseum that GM, AIG... basically anyone with a ticker symbol, is Too Big Too Fail. Whew, if only that were true! What they mean is that they are too big to suffer from their failures. That has a certain appeal except that without feeling the consequences no one is ever too convinced of their own failures. Any moron could have predicted the sub-prime nodoc disaster and plenty did. If you explain what occured to anyone with a pulse the response is the same, "You can't run a business that way." Of course the mtg industry was not considered a business by those who drove it into the wood chipper. Rather it was considered first an arm of White Oppression, keeping little black babies out of their cribs through racist malice and once cured by Fannie's interventions it was declared an agent of benign redistributionism. Who cannot tell the difference? Apparently damn few Republicans and NO Democrats. Well recess is over. Reality has rung the school bell.
saleboter| 11.11.08 @ 1:35PM
Please tell me WHY I should pay more taxes so that someone who makes WAY more money than I can continue their lifestyle?
BUY AMERICAN, BUY HONDA
Josh F| 11.11.08 @ 2:03PM
When the Internet bubble burst in 2001, where was the government to bail out all the useless dot-com companies? There were plenty of two-bit CEOs back then who thought their fictionally profitable companies deserved another shot. These myopic doofuses (doofi?) running GM, Ford, and Chrysler need to be put out of their misery.
Pat| 11.11.08 @ 6:26PM
A good passionate rant, but it's all about politics now, manufacturing is irrelevant, so is "fairness". The Big 3 are too big to fail or so the story goes. Detroit is using the "if we go down, the rest of the nation goes down with us" argument. That argument is highly exaggerated but the political ramifications can't be ignored, at least not by the next administration.
When politics intrude into a solution, entirely different parameters apply. The Dems and UAW have been joined at the hip for decades and the Dems want the UAW to get their money's worth. Suffering through the spectacle of watching Michigan implode isn't something on Obama's dance card.
Are the Big 3 competitive, irrelevant. Is executive comp. too high, irrelevant. Should the industry suffer a restructuring and shed costs, both variable and fixed, irrelevant. Politics is all that is relevant now. If you don't believe that, try to stop this bailout, emotion is in control and behind the wheel of a shiny Cadillac Feardorado.
st louie mo| 11.11.08 @ 7:01PM
Over 10 years ago Caterpillar saw the writing on the wall with the foreign competition starting to chip away at it's franchise. They successfully broke the UAW and currently produce world class products and local folks have jobs. The UAW was able to successfully play the Big 3 off each other an can stew in the result.
Regards the employee with an unfunded pension, he should sue his union for not insisting the pension got funded at the time instead of taking now worthless promises. The bosses are culpable but the they were all in bed together.
Regards, Mullaly, he did show the foresight to raise significant cash before the credit crises hit by mortgaging asset, retained Ford Motor Credit, and has a successful foreign product line to introduce into the US. Ford is best positioned right now to benefit for when the labor contract gets rewritten.
TH| 11.11.08 @ 9:02PM
We have lost our edge in the automotive industry and are too far behind to catch up and be competitive. We need to become innovative once again and create green manufacturing opportunities in other areas. I'm not a fan of the service-based economy. I believe in free trade , but the Chinese are polluting the planet and saturating the market with cheap disposable goods . We need to start manufacturing quality products in a responsible manner in the US. I'm not in favor of bailing out the auto industry again.
Paul Petersen | 11.12.08 @ 1:32AM
If any of these 3 companies are to survive this they must all go in Bankrupcy, Reorganize. The government should bail out the union pensions and get a significant share in the new stock and sell the rest on the open market to recapitalize. Employees should be offered reemployment at market rate paid by competitors in the states. Let all the stock holders of the worthless stock sue the previous boards and UAW for their losses.
Robert| 11.12.08 @ 9:08AM
Blaming Alan Mulally for Ford's current troubles is a lot like blaming President Bush for 9/11. Mulally was brought in by the Ford family to fix what had been broken over the span of decades and it is unreasonalbe to expect anyone to be able to turn around overnight a business which requires 4 years at best to bring new products to market. Mulally has done an admirable job so far of shaking up the hidebound corporate culture the once permiated the ranks at Ford. So for arguments sake let's say we "punish" Mr. Mulally for "his" failure and mandate he only be paid say 10 times the highest paid factory worker. Do you think that he would just meekly accept that and soldier on? Of course not. Some other board of directors, recogizing the spectacular turnaround he engineered at Boeing, would offer him his old salary and then some causing him to flee Dearborn before the blue oval knew what had hit it. Limiting executive compensation, no matter how obscene it may seem, is no recipe for competent leadership.
If Congress and the Hopemeister are really serious about helping the Big 3 then they will stop with all of this rubbish about forcing them to build "green" cars. This will only make their business model even less sustainable. Toyota STILL sells the Prius at a loss but can afford to do so unlike GM who will begin selling the Chevy Volt plug in hybrid next year also at a loss, even at 40K a copy. This as they approach Pelosi & Friends, hat in hand, for more of your money. A better approach would be to lift the antiquated two fleet rule which forces Detroit to count the mileage of it's offerings built in foreign factories separate from those of their domestic fleet for purposes of the corporate average fuel economy (CAFE) standards. Doing this would force the UAW to compete globally to build smaller cars which currently can only be built profitably in lower wage, overseas factories, or in right to work states. This is why foreign auto factories are popping up like weeks across the South.
Howard| 11.12.08 @ 11:49AM
I read with some cynicism Steve Church's comments about the auto industry. I guess if the US auto industry is the most complex in the world, than Japan and German must have the simplest auto industry in the world. It seems these foreign simpletons are able to manufacture interesting, well made and fuel efficient vehicles. I'm not saying they are perfect. But it seems our "complex" US industry hasn't mastered it yet. The main reason is that the foreign companies have a philosophy of building quality vehicles all the time. The US companies goal is to make money. In this case the US companies hit a daily double, bad cars (with some exceptions), and severe financial bleeding. Of course they are the complex auto makers.
J.A. Davis| 11.13.08 @ 12:57AM
Eric Peters is often fun to read, but he shows very little knowledge of the auto industry with this one. While mismanagement is always an issue, it's certainly not the biggest problem (Mullaly hasn't been there long enough to screw up!). I suggest reading Holman Jenkins in the Wall Street Journal to get a real understanding of the plight of the Big Three. And, by the way. If Toyota's management is so brilliant, why did they spend hundreds of millions of dollars on a new truck as oil prices were rising and demand for trucks falling?
Ms. Know| 11.15.08 @ 8:14PM
I can't believe that the elitist illuminati are even thinking about giving these people more money. The bailout was a mistake in the beginning, and I have always said so.