Car Guy

The Sweet Stench of Failure

Another $25 billion handout for the Big Three?

By 11.11.08

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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.

We're talking about a legally binding contract here; the guy probably chipped in, too.

And now, this guy -- typically in his 60s and beyond his working days -- is going to be "asked" to accept either a reduction in the benefits he signed on for as a condition of his employment -- or a "buy out" that works out to pennies on the dollar?

Meanwhile, Mulally gets $30 mil?

For a year's "work"?

For real?

It is truly amazing that we haven't had a revolucion yet.

THE THING IS, GM's -- and Ford's and Chrysler's -- problems have next to nothing to do with so-called "legacy costs." Or even the CEO pay packages, as such.

The broader problem is that CEOs are reflexively rewarded (or more precisely, not punished) for failure. For making bad decisions.

Repeatedly.

Let me give you an example.

Toyota has been selling its Prius hybrid for a full ten years now -- anticipating the gas crunch by, oh, eight years. Not one of the domestics had a hybrid in production until after the gas crisis hit -- and even then, their versions were (and still are) primitive in comparison. GM's Volt hybrid electric car won't get here for another year, at least.

Inexcusable.

Want another? How about Chrysler sitting on its hands, allowing its once dominant position as seller of minivans to fade away into near-nothingness. Or its failure to build a successor for the Dodge Neon -- in the 1990s, one of the best-selling economy compacts on the road. Instead, Chrysler threw development money at the pretty but pretty useless Challenger muscle car -- a 12 mpg gas guzzler as unsuited for the post-crash era as its ancestor was back in 1973 during the last bout of economic ruin. Ditto the crop of Commanders and Calibers, Aspens and Patriots -- models that Chrysler can't get rid of even with "two for one" desperation tactics deployed.

GM? It didn't produce a small car competitive with the imports until about four years ago, when the Chevy Cobalt replaced the obsolescent and embarrassing Cavalier. It, too, poured R&D money into a retro muscle car -- the pending Chevy Camaro -- when it should have been pouring the coals to a Chevy competitor for the Camry and Corolla. Then there's the Aztek fiasco; the GTO. The SSR. Hummer. Six full line divisions divvying up a 22 percent market share.

Is someone on the pipe up there?

Similar issues at Ford -- which came up with the Lincoln Blackwood and Mark LT after cashiering the once-successful Taurus franchise. On and on it goes.

For this, they pay the Brain Trust seven figures annually?

Some kind of balance needs to be restored. If the free market applies to the average person -- to all us Joe the Plumbers out there -- maybe it ought to apply to automaker CEOs, too.

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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.