Share the Pain; Avoid Road to Ruin

Commentary

Detroit is at a crossroads, and neither path looks inviting.

There’s the road through Washington that would provide the necessary cash for the immediate future but requires safeguards for spending tax dollars. That means Washington bureaucrats will join with top management in overseeing the companies and could have a say in what the next Chevy Silverado looks like, what kind of mileage it gets and where it is built.

Do members of Congress know how to run an auto maker? If they can’t balance the federal budget, how can they balance Detroit’s?

The other road ahead, without government intervention, takes Detroit’s three auto makers down a foreboding path to bankruptcy, liquidation, unemployment and grief for millions given the current miserable economy.

Either route appears to be a road to ruin. It doesn’t have to be like this.

Last week’s tortuous Senate and House hearings confirmed the problem: No one is listening to each other.

Congress says it wants the auto makers to fix their businesses as a condition of any assistance. It would be a reasonable request if Congress were not oblivious to the brutal downsizing of the past three years – the plant closures, job cuts and benefit reductions that have turned thousands of lives upside down.

Washington also ignores the massive health-care expenses General Motors, Ford and Chrysler have shouldered for millions of auto workers and their families for decades. That’s a burden Asian and European OEMs operating in the U.S. don’t share.

Detroit’s auto makers showed up in Washington shockingly unprepared to state their case for a loan from Uncle Sam.

In Detroit’s defense, failing banks and finance companies provided little justification for a $700 billion federal bailout willingly granted by Congress, so the bar of expectation was low before the private jets landed in D.C.

For GM CEO Rick Wagoner to tell Congress his company has more models than any other OEM that exceed 30 mpg (7.8 L/100 km) on the highway means nothing to a group of politicians who want every fleet to average 35 mpg (6.7 L/100 km) much sooner than the federally mandated 2020 deadline.

The smart thing for Wagoner to tell them when the next hearings begin Dec. 2 is that planned restructuring, the closure of truck and SUV plants in the near future and further downsizing of engines will allow GM to meet the corporate average fuel-economy target several years early.

If GM’s already at 30 mpg on the highway with so many vehicles, then 35 mpg as an overall fleet average shouldn’t be that difficult. If GM wants to be a leader, it needs to lead.

And then there’s labor. The United Auto Workers has made a name for itself by demanding world-class compensation in exchange for producing some awful vehicles in years past.

The union’s credibility is shot with Americans, many of whom will never enter a domestic showroom again, no matter how many quality awards UAW-assembled vehicles rack up.

UAW President Ron Gettelfinger is right when he tells Congress that extenuating circumstances tightened credit markets, ravaged the economy and sent vehicle sales into a downward spiral.

But Gettelfinger’s claim that UAW plants are more efficient than those of the Japanese transplants – although true in some cases – rings hollow to a skeptical public. If the plants are so efficient, why are Detroit’s auto makers standing at the brink of insolvency?

Gettelfinger’s biggest mistake last week was to tell Congress UAW members already have given up enough at the negotiating table.

While Gettelfinger spoke, hundreds of laid-off UAW members in the “jobs bank” were being paid an exorbitant sum not to do their jobs.

But good news came after the congressional hearings as Gettelfinger suggested the UAW would be willing, once and for all, to eliminate the jobs bank as a condition of the bailout.

Gettelfinger told journalists the UAW has been whittling away the jobs bank for years. Last week, union officials said the bank has about 1,400 workers each at Ford and GM and about 700 at Chrysler.

Ending the jobs bank would be enormously symbolic because it begins a dialogue that could save Detroit.

If the UAW can accept this concession, then top executives can surrender some of their perks – the country-club memberships, the personal travel on the company dime, the hundreds and millions of dollars paid over the years to executives who have piloted Detroit’s fortunes into the ground.

Should top brass work for $1 a year? It’s awfully tough medicine but the kind of good-faith gesture that resonates with America.

Don’t try to argue that generous compensation packages are necessary to attract and keep top talent. Pay is stagnant or going down for millions of Americans, and if an executive thinks another industry out there is immune to the economic upheaval, then the auto industry might be better off without him.

Detroit needs to align its pay with that of Japan.

Hourly wages and benefits for UAW workers already are going down as the 2-tier wage system, approved in the 2007 contract talks, lowers pay for new hires. When UAW compensation equals that of the Japanese transplants, on average, then the union need not concede any more.

Same with management. Once Detroit executive pay falls in line with that of Japan, then management has surrendered enough.

The Japanese succeeded in the U.S. years ago by diligently benchmarking domestic vehicles, studying the American market, applying a new lean mentality and beating Detroit at its own game. It’s Detroit’s turn to do the same to the Japanese.

All the stakeholders can contribute to Detroit’s resurgence.

If the three auto makers are sincere about reinventing themselves, then they need to relate to their parts suppliers more constructively, with prompt payments and a scaled-back emphasis on piece price.

In return, suppliers will deliver Detroit their best technologies, because the auto makers will pay for them and Americans will pay more for consistently high-quality, reliable vehicles.

Likewise, dealers must consolidate further. The volumes aren’t there, and the cost of floating hundreds of struggling showrooms is staggering.

Even the media can play a part. Expensive press trips to launch new vehicles are unnecessary. The only thing a journalist needs is to drive the vehicle and talk to the product planners and engineers. Stage one-day events in Detroit and other major markets.

All the parties involved can be more empathetic.

Washington, don’t be so quick to blame Detroit for continuing to make trucks and SUVs, while foreign brands gobbled up market share in small and midsize cars.

If Detroit, because of its labor contract, can’t make money on small cars built in the U.S., then isn’t it fiscally prudent to continue making vehicles that are profitable, so long as there is demand?

Granted, truck and SUV sales have fallen proportionate to escalating fuel prices, but millions of Americans still need those big vehicles for work, for towing and for big families, much as the Sierra Club doesn’t want to admit it.

At last week’s hearings, some members of Congress sought commitments from Detroit to source parts only from U.S. plants and to assemble vehicles only in the U.S.

That notion is foolhardy. The Japanese transplants import millions of vehicles and components into the U.S. for a reason: because it makes good economic sense. There should not be a double standard for Detroit.

And America must be empathetic to the workers. UAW assembly plants can be dangerous, scary places. The work is hard, morale often miserable.

Millions of Americans think “lazy” when they think of the UAW, but the fact is UAW labor has built more than 550 million vehicles in the U.S. since 1937, according to Ward’s data. Does a lazy workforce produce a half-billion cars and trucks?

A few weeks ago, the American people demonstrated an uplifting capacity for change by electing the first African-American president. Detroit auto makers and the UAW need to convince skeptical Americans they, too, understand incremental change is not enough to secure a bright future.

That means a truly competitive wage and compensation structure for the entire workforce; a dose of humility; a workable survival plan; and, of course, world-class cars and trucks.

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