"Let Detroit Go Bankrupt" by Mitt Romney

[irishmick79]

NY Times Op-Ed Contribution

Let Detroit Go Bankrupt
By MITT ROMNEY
Boston

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.

posted without comment.

[KrauserKrauser]

Preach on Rev. Romney!

If Obama can somehow pull this or a plan similar to this off, I'll be very impressed. The cynic in me believes the Unions are too greedy to realize that these changes are necessary and will go ahead and continue chopping trees until Easter Island is deforested again. So, if Obabma can get the Unions and the Executives to basically take it up the ass for their very survival, this could work.

Using Chapter 11 protection, the executives could be required to step down as per the bankruptcy requirements so their replacement isn't as much of an issue in my mind as getting the Unions to detach from the teat they are currently sucking dry.

[Dahak]

I doubt that putting more money into a dying company will suddenly make it healthy.
We've seen it in Germany with a huge construction firm. "Bailout" money only prolonged the death throes.

[irishmick79]

WILX out of Lansing, MI is reporting that GM will be stripping production at 5 plants.

A highly-placed source tells wilx.com GM plans to strip production at five plants across the country. Those five plants have not been named yet but our source believes Grand River and Delta Township are on the list. "Stripping production means the plants will be making fewer vehicles. For instance, Delta was scheduled to churn out 3,600 Buick Enclaves in December. That number is now down to 400 according to our source. Stay with News Ten and wilx.com for more details on this breaking story as they become available.

Good God, this could absolutely crush michigan. The Big 3 have done a pretty good job of crapping the bed and I'm all for restructuring the industry, but if they implode Michigan could become a giant ghost town.

[Darth Wong]

"Posted without comment" is lame.

Anyway, he makes some good points. The UAW and CAW are ridiculous; GM alone has thousands of people sitting on their asses collecting paycheques because they still have to pay idled workers thanks to their labour contract. Labour costs are killing the Detroit automakers.

On the other hand, the automakers' new labour contract kicks in 2010, shifting retiree health-care obligations to union-managed investment funds and away from company coffers, so they'll be in a better position if they can limp along until then (of course, they would be in an even better position if the US had socialized health-care). And if the company declares bankruptcy, it won't just be the UAW that can't collect on its obligations: there are thousands of suppliers that will get stiffed, thus creating a shockwave that goes through a big chunk of the economy.

Moreover, I find it difficult to believe that so many people who supported the bank bailout are lining up now against the automaker bailout, which was more than ten times larger than what the automakers are asking for. Are any of you people feeling the benefits of giving hundreds of billions of dollars to Congress' rich banker friends yet?

It seems to me that the best solution here is for Congress to actually legislate a solution to the labour cost problem directly (ie- pass a bill to limit certain types of labour contract obligations, thus nullifying those portions of existing CBAs rather than pushing the company into Chapter 11). However, the UAW is a powerful political lobbying group, and would move to block any such action.

[Illuminatus Primus]

"Posted without comment" is lame.

Anyway, he makes some good points. The UAW and CAW are ridiculous; GM alone has thousands of people sitting on their asses collecting paycheques because they still have to pay idled workers thanks to their labour contract. Labour costs are killing the Detroit automakers.

So you are anti-union when it comes to Detriot automakers? Where is the evidence they have thousands of idle workers collecting paycheques?

On the other hand, the automakers' new labour contract kicks in 2010, shifting retiree health-care obligations to union-managed investment funds and away from company coffers, so they'll be in a better position if they can limp along until then (of course, they would be in an even better position if the US had socialized health-care). And if the company declares bankruptcy, it won't just be the UAW that can't collect on its obligations: there are thousands of suppliers that will get stiffed, thus creating a shockwave that goes through a big chunk of the economy.

Agreed. This is the "rest of the iceberg" that the "fuck'em" crowd seems to ignore. The obvious problem is American workers compete with workers in countries with sane social, health care, pension, and education policies, thus spreading the cost throughout the economy, and not like millstone around the neck of a couple employers.

Moreover, I find it difficult to believe that so many people who supported the bank bailout are lining up now against the automaker bailout, which was more than ten times larger than what the automakers are asking for. Are any of you people feeling the benefits of giving hundreds of billions of dollars to Congress' rich banker friends yet?

To be fair, some proposals call for disbursing the funds from those already allotted for the bank bailout. Of course the free market Republicans who suddenly found their principles after getting drunk on pork packed with the bailout while simultaneously pitching for their kill-the-pork POTUS candidate should shut the fuck up.

It seems to me that the best solution here is for Congress to actually legislate a solution to the labour cost problem directly (ie- pass a bill to limit certain types of labour contract obligations, thus nullifying those portions of existing CBAs rather than pushing the company into Chapter 11). However, the UAW is a powerful political lobbying group, and would move to block any such action.

Fucking union assholes. What they want is de facto welfare for votes. They want to collect a wage regardless if their labor makes their employer productive or anyone wants to buy the products, unlike the rest of us.

[irishmick79]

"Posted without comment" is lame.

I'm really torn on bailing out detroit. I perfectly understand why people don't want to bailout the automakers and I see the legitimate economi interests of letting them crash, but I have a lot of family in MI who will be hurt badly if the big 3 go down.

[Solauren]

Personally, I agree that laws limiting contractual demands and obligations would be a good idea.

Also, limited the salary/$ per hour of a lot of jobs would be a good idea. I'm sorry, I've worked on the line at a car manufacturing plant, as well as in the offices, and even the lab.(let's here it for Summer Co-ops).

No one deserves $20 an hour for picking up a 2 pound part off one assemble line, and putting it on another. Hell, alot of the people they have working there would be better off if they had there wages cut, it might motivate them to get off there asses and educate themselves.

[General Zod]

No one deserves $20 an hour for picking up a 2 pound part off one assemble line, and putting it on another. Hell, alot of the people they have working there would be better off if they had there wages cut, it might motivate them to get off there asses and educate themselves.

How exactly are they supposed to afford to educate themselves if their wages are cut? $20 an hour really isn't all that much, especially if you're living in an expensive city.

Regarding the OP, wasn't Romney originally in favor of the Wallstreet bailout?

[Illuminatus Primus]

No one deserves $20 an hour for picking up a 2 pound part off one assemble line, and putting it on another. Hell, alot of the people they have working there would be better off if they had there wages cut, it might motivate them to get off there asses and educate themselves.

How exactly are they supposed to afford to educate themselves if their wages are cut? $20 an hour really isn't all that much, especially if you're living in an expensive city.

Regarding the OP, wasn't Romney originally in favor of the Wallstreet bailout?

Probably. He was CEO of a management consulting firm and co-founder of a private equity firm, Bain Capital.

[Solauren]

Give them advanced warning of the pay cut. Say 'effective the start of the year' or something.

Plus, in Canada at least, there are programs for people that have lost there jobs recently to get new skills to get new jobs.

[Darth Wong]

So you are anti-union when it comes to Detriot automakers? Where is the evidence they have thousands of idle workers collecting paycheques?

http://www.detnews.com/2005/autosinside ... 351179.htm

It's called the "Jobs Bank", and it's a longstanding part of the UAW's collective bargaining agreement dating back to the 1980s.

As for being anti-union, yes I am. Those unions enrich their own members at the expense of everyone else in the entire industry. There are suppliers whose margins have been shaved to nothing because the automakers squeeze their suppliers in order to pay for their labour obligations while trying to remain competitive.

Fuck the unions. What they do is nothing more than extortion. They were necessary once, long ago. That time has passed; the worker protections they fought for are now written into law, and their protection hinges upon political lobbying, not strikes.

[General Zod]

Plus, in Canada at least, there are programs for people that have lost there jobs recently to get new skills to get new jobs.

No such institution exists in the US on any kind of dependable scale. Oh, and good luck trying to live off less than $20 an hour in, say, San Francisco or New York.

[Darth Wong]

Plus, in Canada at least, there are programs for people that have lost there jobs recently to get new skills to get new jobs.

No such institution exists in the US on any kind of dependable scale. Oh, and good luck trying to live off less than $20 an hour in, say, San Francisco or New York.

Why would a laid-off autoworker be living in San Francisco or New York City?

[Tribble]

And if you think the UAW and CAW unions are bad, you should take a look at the Ontario Teacher's union, who's pension fund has net assets worth over $108.5 billion dollars! And yet taxpayers STILL pay money into that pension fund!

To use Darth Wong's analogy, unions have become a massive "brain-bug" in western society. They started off innocently enough, but they've grown, and grown and grown, and are now just a giant mass of diseased tissue making our society that much more difficult to function.

[cosmicalstorm]

Well from what I gather they are going to fork over the money to these corporations regardless of what anyone else thinks.

What is the probable future for these companies if they get the money? How long will it keep them afloat?
I've heard people comparing it to giving booze to an alcoholic hoping that that will solve his problems...

[General Zod]

Plus, in Canada at least, there are programs for people that have lost there jobs recently to get new skills to get new jobs.

No such institution exists in the US on any kind of dependable scale. Oh, and good luck trying to live off less than $20 an hour in, say, San Francisco or New York.

Why would a laid-off autoworker be living in San Francisco or New York City?

I suppose it doesn't make as much sense as I thought it did when I posted it.

[Coyote]

Chapter 11 would be best; many employees can be scooped up by non-union plants run by Toyota, Nissan, BMW, etc that build better cars and can fill the void left by a collapse of Detroit Dinosaurs.

Meanwhile, the Detroit plants will still be there, and perhaps an actual innovative company like Tesla Motors can be allowed access to the plants to start turning out useful cars in bulk. It would require government help to re-tool the factories in some cases (electric drivetrains instead of standard) but I'd feel like there's more of a "plan" that way than the way the companies are doing it now-- "Give us money and we promise to make better cars. We promise. Really, we do"

The big thing here is the massive job loss-- no politicians wants that on his books. Romney is taking a gamble here if he has plans for 2012, but as stated he does have some very good points.

[Illuminatus Primus]

My impression is the only reason why foreign companies build in the U.S. now is because of tax incentives to remain competitive with Detriot's already-subsidized product, and without Detroit they'd pack up and leave. And of course, there's the whole parts, dealership, and other economy associated with a genuine domestic automaker that would evaporate, and a couple foriegn automaker plants here would do nothing to help.

[Tribble]

What the politicians need to be doing here is convincing the public that both the unions and management (who will no doubt start screaming at the top of their lungs when their benefits and pay are threatened) are wrong and that drastic measures are needed.

Without strong public support on this, there's no chance of the Big Three recovering.

That's the 1st step needed to be taken: winning strong public support.

[Admiral Valdemar]

There have been murmurs that the Chinese would like to buy the Big 3. Of course, these guys aren't stupid, and inheriting a load of debt from a worthless company (well, trio of companies) is not good practise. The IP, however, is very nice to have, albeit, not the military stuff GM would produce which won't go anywhere.

Curiously, GM's only profitable section is in China. It's the rest of the company that sucks. If these guys get to Chapter 7, then the Chicoms will pick apart what's left and be off with it. It's no different to what happened to the British auto-industry, and if you think that didn't hurt the economy, think again.

America's auto-industry days are at an end.

[Julhelm]

What the politicians need to be doing here is convincing the public that both the unions and management (who will no doubt start screaming at the top of their lungs when their benefits and pay are threatened) are wrong and that drastic measures are needed.

How powerful are the unions in US politics? If you were to try that here it'd be nigh impossible due to how entrenched the unions are in the public mindset.

[General Zod]

What the politicians need to be doing here is convincing the public that both the unions and management (who will no doubt start screaming at the top of their lungs when their benefits and pay are threatened) are wrong and that drastic measures are needed.

How powerful are the unions in US politics? If you were to try that here it'd be nigh impossible due to how entrenched the unions are in the public mindset.

The problem is unions can be fairly influential with a politician's base. Hillary managed to get a sizable number of votes thanks to Union workers during the primaries, and if they threw their weight against someone they'd quite possibly cost them re-election.

[KrauserKrauser]

Let's just say that if Obama has the brass balls to actually slap down the Unions as required to make the changes necessary to save or at least work towards saving the Big 3, I will vote Democrat for the next ten years. Also I'll eat a hat. And a shoe.

[Jade Falcon]

The British car industry was pretty badly hurt by the Unions, but that wasn't the whole story. Quality control really hit hardin the 70's and early 80's. Look up the whole history of BMC and British Leyland, and cars such as the Austin Princess, the Maxi, and the Allegro to see what happened.

Are the Unions still as much a pain in the arse over there? I thought their power had been pretty much reduced or is that not applicable in the case of the car industry?