Tag Archives: gm

Review of “American Icon: Alan Mulally and the Fight to Save Ford Motor Company,” by Bryce G. Hoffman

I’ve read some books on disaster tourism and the collapse of Detroit — Detroit: An American Autopsy by Charlie LeDeuff and Sixty to Zero by Alex Tayler III are examples of the form.

But there is life, hope, and economic success in Detroit too. There are some who are alive. Who fight, and who want money.

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Bryce Hoffman’s American Icon: Alan Mulally and the Fight to Save Ford Motor Company is not an objective book. And Hoffman is not an objective author. Icon is clearly written with the cooperation of Alan Mulally and Ford. It is a pean to a genius CEO who notes obvious issues (executives don’t like to say bad things about themselves), implements industry-standard decisions that are de rigeur in many industries (tracking systems that can identify which worker but a specific faulty part in a specific product), and deceives his way to the stop (thru treatment of certain underlines, as well as the entire United Auto Workers).

But my point isn’t to drag Mulally thru the mud. It’s a fact that while Mulally’s American competitors were going bankrupt, Ford was able to ride out the financial storm. Indeed, the only competition that Alan Mullaly’s Ford has for the most innovative, most successful American auto company is certainly Elon Musks’s Tesla. Ford isn’t the leader in hybrids. But it is #2. And like Tesla, it’s building on successes.

It’s unlikely that Mulally will ever be the recipient of a cult like Steve Jobs. But nor is American Icon simply paid publicity, like Who says elephants can’t dance?. Rather, American Icon is like Dean Barrett‘s travel knowledge: proof that the writer is alive, the subject is alive, and all the faults of joys of human struggle are playing out on a healthy subject.

American Icon is a well written book, and Ford seems like a well managed company. In most cities and most industries, this would not be remarkable. But given the collapse of Detroit and the death of General Motors and Chrysler it is a celebration of life.

I read American Icon: Alan Mullaly and the Fight to Save Ford Motor Company in the Nook Edition.

Impressions of “Sixty to Zero: An Inside Look at the Collapse of General Motors–and the Detroit Auto Industry,” by Alex Taylor III

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To understand what went wrong in the American auto industry, one book and four videos will get you a long way

Who killed Vincent Chin? is narrowly a story of racism and murder, but broadly its a depiction of the unionized, schlerotic, and dead-end workforce that Detroit had bred even by the early 1980s. Who killed the electric car? veers toward conspiracy at times, but is really a story of the incompetence of the management and workers — of GM and the AW — when it came to adopting new technology.

This theme of incompetence is emphasized by Sixty to Zero. It’s written by what is known as a “friendly” or “captive” journalist, basically an a shill paid in access by the industry and in dollars by a periodical. There are plenty of shills across many industries, and this shill’s (Alex Taylor’s) Zhou Enlai-level debasement before the great and powerful allowed him much greater access to Detroit management than he would have otherwise had.

No individual leader, no specific reform initiative, seems that bad in retrospect. But they all were either defensive (reacting to change instead of making it), treating changing economic-political conditions (the market share popularity of small cars, and the political popularity of efficient cars) as irritants to be managed rather than as opportunities to drive profits in other areas.

The Tesla has a non-unionized workforce, outsells comparably priced BMW and Mercedes models, and has received political largess from both political parties. This more than a decade after GM’s bewildering attempt with the EV1. Instead of building up a business and reaping political benefits, GM’s bad management and political unpopularity led it into bankruptcy and now being shut out of the electric vehicle luxury market.

The importance on internal corporate politics, and the inability to recognize new markets, is not unique to GM or the American auto industry. Even generally lauditory books such as histories of Google, Apple, and IBM reveal these issues below the surface. But in GM, you had a company so captured by these problems that progress required waiting for the company ( and union) to burn down financial and regulatory until bankruptcy, to allow new competitors to be born.

Without the context of the films and videos Sixty to Zero is a list of names, dates, and personalities. But Sixty provides a context for these films and videos, a skeleton for the flesh, a reason for America’s auto industry’s descent into the ashes and (in Silicon Valley) a promise of rebirth.

I read Sixth to Zero in the Nook edition. You can read an excerpt at NPR.

The 90% Tax

Every American who believes in limited government, the freedom of contracts, and the protection of citizens against arbitrary government taxation, should support the 90% tax on TARP-funded bonuses

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The greatest threat we face is rent-harvesting by large companies. Large companies have begun using their political influence to survive. GM and Chrysler are welfare argencies. AIG and Citi are zombie financial institutions. These companies are now farmers of corruption, harvesters of unjust enrichment.

Some degree of political corruption, favoritism, and lobbying has always made things move smoother in Washington. This is to be expected. But in spite of this, it once was possible for large companies with political friends to go bankrupt.

Enron is gone, because Enron is bankrupt. Enron is bankrupt because, even in spite of having personal connections to President Bush, at the time we still lived in a market economy. It was once possible for large companies to go bankrupt.

That is no longer possible. Welfare agencies like GM and Chrysler, and zombie institutions like AIG and Citi, now exist to convert political influence into operating capital and stock-holder value. At least as far as these politically powerful branches of the federal government go, the market economy is completely broken. They now operate in the world of political favoritism, where their lobbyists and connections help them burn through the Treasury’s cash.

Supporters of GM, Chrysler, AIG, and Citi, private companies that can only keep operating because of generous and limitless hand-outs from the federal government, argue that these institutions are too important to fail. Very well. We have lived in a world of companies that are too important to fail all of our lives. In fact, we have a word for such companies: utilities.

Unless we want these raids on the Treasury by big business to continue, we have to turn these zombie companies into utilities. Further, we should do so in a way that prevents anyone of the corporate officers and employees whose buy-in was vital for the raid on the treasury (the CEO, the high-ranking officials, high-paid employees who, if they had left, would have crippled the company, etc.) from benefiting.

In an ideal world, we would simply pass the ‘Utilization Act of 2009,’ in which AIG, Citi, GM, Chrysler, and the rest would be turned into utilities, the common-stock zeroed-out, all contracts renegotiated, and so on. Of course, we don’t live in an ideal world. The next best thing is to so cripple the ability of these zombie utilites to operate in the free-market that they become wards of the state, utilities who cannot function independent of the government and who lose any ability to earn a profit beyond what is given to them by the government.

In other words, those welfare offices (GM and Chrysler) and post office savings institutions (AIG and Citi) should be run along the lines of the Department of Health and Human Services, where the employees and officers are public servants who are remunerated and a public scale.

The 90% tax on bonuses paid from TARP-funded companies is a good step. So would a 90% tax on salaries paid from TARP-funded companies. And a 90% tax on capital gains from TARP-funded companies. The 90% tax on AIG bonuses is as good as we can get now to a Utilization Act, and may lead to further crippling of these companies in the future.

We have had 90% tax rates before. We have these so-called ‘retroactive taxes’ (meaning taxes that are collected for the tax year they are written in) all the time. There is no constitutional objection to the 90% tax on zombie bonuses. This 90% tax is not an enemy of the free market, but a friend of the free market.

The tax on zombie companies — this de facto Utilization Act — helps protect real contracts. All contracts rely on a functioning price system, a functioning market economy, to mean anything. But AIG, Citi, GM, and Chrysler do not live in the world of contracts. They live in the world of political favoritism. If AIG/Citi/GM/Chrysler get away with this rent-harvesting of the Treasury, it will encourage others to do so. Allowing these zombie institutions to get away with it make contracts meaningless, because only the politically weak are held to them, while the politically powerful can expect bailouts to save them from any inconvenient debt.

The tax on zombie companies – this de facto Utilization Act – helps protect us against arbitrary taxation. Whatever ‘taxes’ AIG ever paid has been more than made up for in federal bailout money. Taxes, in a TARP-funded world, are a simple accounting fiction. They may drive the politically weak to bankruptcy, of course. But for the politically powerful, like AIG, Citi, GM, and Chrysler, they do not matter. If you have political friends, you make money. If you don’t, you don’t. In the world of zombie companies, taxation is always arbitrary, and what the IRS says you owe has no relationship to whether or not you will receive or send cash to the federal government at the end of the year (if you are politically powerful).

There is only the defense of limited government the power of contracts, and the protection of the citizens against arbitrary taxation. In order to protect our economy, our contracts, and our tax system, Congress must impose the 90% tax on AIG bonuses.

Why not just have the Department of Health and Human Services build cars?

Calculated Risk links to this Wall Street Journal article about how the Obama administraton is trying to help GM and Chrysler avoid bankruptcy.

Avoiding bankruptcy means less court review of the company (so less chance of criminal investigations), as well as not having to break the UAW (a major union that supports the Democratic Party).

If we really wanted to have make-work for UAW members, it would be more in keeping with our system of government to simply have the HHS build cars and suvs.

The Third UAW Bailout of 2008

The first was for $25 billion.
The second was for $17 billion.

And now, as predicted, GM and Chrysler (cash-conduits for the UAW) are back for more. The only surprise is that they managed to squeeze the third one into 2008.

As Treasury Bails Out GMAC, Is It Overdrawing Federal Bailout Funds? – BusinessWeek
GMAC might not be the end of it for auto financiers and manufacturers: Within a couple days, a Treasury official says, the agency will post guidelines for loans to auto companies generally. No word yet on how broad eligibility might be.

The federal government’s latest bailouts of GM and GMAC will be the Third (of 3) Detroit Bailouts in UAW, as opposed ot the First (of who knows how many) Detroit Bailouts in 2009:

In another curious twist, the GMAC bailout appears to include a loan to let General Motors increase its stake in GMAC — even as Federal Reserve banking rules appear to require it to shed ownership.

Of the $6 billion announced tonight, $5 billion goes to purchase preferred shares in GMAC (with an 8% coupon for the government, a nice bump up from the 5% banks are paying).

But the remainder, of up to $1 billion, is a loan to General Motors — a loan that allows GM to participate in a rights offering from GMAC. That rights offering, of course, is being presented as part of a make-or-break strategy by GMAC to refashion itself into a bank holding company and avoid bankruptcy. The Federal Reserve approved GMAC’s application to become a bank holding company on Christmas Eve — but GM, and co-owner Cerberus, has to give up control of of the lender to comply with bank ownership rules.

You won’t buy the products the UAW builds… so they’ll be taking your money anyway.

Bush Bails out the UAW

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I don’t doubt that the UAW bailout is good party politics; it forces then-President Obama (a Democrat) to decide between continuing yet another unpopular Bush policy or throwing yet more loyal supporters under the bus. It’s just bad for America.

Auto Makers to Get $17.4 Billion – WSJ.com
The White House announced a $17.4 billion rescue package for the troubled Detroit auto makers that allows them to avoid bankruptcy and leaves many of the big decisions for the incoming Obama administration.

In a statement, President George W. Bush said the administration decided against forcing a bankruptcy to compel cost-cutting, in order to avoid the risk that consumers would desert one or more of the companies and touch off an industry collapse, deepening the current economic downturn.

The economy is hurt, as unions and large companies learn if things get really bad, they can depend on the government (as long as they spend a fortune on lobbyists and unions: Enron, Arthur Anderson, Lehman Brothers, et al. were not so wise). Auto innovation is hurt, as dinosaurs continue to take funding and investment that could go to innovative start-ups instead. Our infrastructure is hurt, as we continue to pour money into the past. The American taxpayer is hurt, as some of this money will be turned around to lobby us for even more.

GM: Gaining the political benefits, and Making you pay

Courtesy of Economist’s View, David Leonhart’s article in the New York Times on the possible UAW bailout. David discusses the high costs of labor paid for by the Detroit 3, and seems to be arguing in general that it’s a good idea for the country to subsidize the lifestyle of Michigan democrats.

The interesting point is near the end, where he says GM is a victim of history in the choices those companies made in supporting the UAW:

Economic Scene – Figure Skews Debate of a Bailout for Detroit – NYTimes.com
The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)

The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.

The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so — and end up at roughly $70 an hour.

The crucial point, though, is this $15 isn’t mainly a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You’d never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the “$73/hour” pay of Detroit’s workers with the “up to $48/hour” pay of workers at the Japanese companies.

These retirees make up arguably Detroit’s best case for a bailout. The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies — as opposed to all of society — must shoulder much of the burden of paying for retirement.

Of course, this is absurd. Not every industry was, and is, unionized to the extent that the Detroit 3 are. Not all of them have these level of benefits for retired workers.

Rather, the Big 3 wanted political favors (such as bailouts and protection from competition) and spending future income on future workers seemed like a good trade to them.

GM, Chrysler, and Ford are failing in part because of their foolish attempts to manipulate the government into protecting them from the market.

General Motors, the stock of the future!

From the September 30, 1916, edition of The Economist:

A Boston correspondent writes: Bethlehem Steel’s amazing market rise has been eclipsed. This week General Motors stock sold at $697 per share, the highest price at which any stock ever has sold on the New York Stock Exchange, with the exception of Northern Pacific. The latter issue sold on one occasion at the record price of $1,000 per share, but this was a forced price during the corner of 1901. The record high price for a stock on the Boston market is held by Calumet and Hecla, which brought $1,000 per share in 1907. The stock market career of General Motors stock has been spectacular in the extreme, surpassing even the rise of Bethlehem Steel. In 1913-14 it sold as low as $25 per share; for many months after the market soared as a result of munition and motor orders, it lagged behind other issues of its class. Even in 1915 it sold for only $82 per share. Then it began to advance under steady buying, and its low point for the present year never went below $405. The advance on September 12th last was an experience to which even old-time traders were unused. The stock rose $52 for the day. Just by way of comparison, Bethlehem Steel, hitherto the premier war stock, gained 24½ points the same day, to 524½, a new high record. Next day General Motors rose $55 per share, to $697, making a gain of $107 for two days, and Bethlehem Steel gained $30¾, to $555, per share, a rise of $55¼ for the two days. The General Motors Company has under way a recapitalisation plan that calls for a 400 per cent stock dividend on the common, equivalent to five shares of non-par value stock for each share of the present capital stock.

If you have access to LexisNexis, there is a fascinating article how the United Auto Workers will sign a radically reformed contract to save the American auto industry. 2001: A union odyssey. (1985). Newsweek, August 5, pp. 8, 50-54. From the article published a generation ago:

The United Auto Workers took on a strong semblance of the union of the future last week when it agreed to a contract for the new General Motors Corporation Saturn plant, where GM will try to build small cars at a profit. The UAW agreed to a drastic reduction in the number of job classifications at the plant, allowing each worker to perform several tasks. And once the plant is in full production, the workers will make just 80 percent of the industry wage — with the gap potentially filled by pay based on such things as profit at the plant and product quality. In return, the workers will have a voice in making decisions from the shop floor on up and an unheard-of measure of job security. The initial Saturn employees will be guaranteed jobs for a lifetime; 80 percent of those hired subsequently will get that guarantee.

The UAW’s approach is a far cry from the “solidarity forever” activism of 50 years ago, when many people saw the union movement as the vanguard of social transformation, but labor may have no choice but to change. “The unions can adapt to the new concepts and prosper,” says David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan, “or they can disappear.”

GM is a company whose best days may have been 90 years ago. GM and her union have been talking about wrenching changes for a generation. Nothing comes of it. The bad actors (shareholders and unionists) are rewarded, against and again, by the federal government in the form of bailouts, protectionism, and hidden subsidies.

Let GM go bankrupt.

How much does the $25,000,000,000 bailout of Detroit cost?

(I’m talking about the proposed second bailout. We already gave Detroit a $25 billion bailout in September.)

Over the next few years, several Plugin Hybrid Electriv Vehicles (PHEVs) will come on the market, from Toyota, Nissan, and other manufacturers.

(You’ve heard more about the Chevy Volt than any others, in a desparate attempt by GM to make up for lack of innovation with an expensive marketing push. We were making plug-ins a century ago, when they competed against flex-fuel vehicles. GM’s position on innovation is better shown by the EV-1, where GM threatened to sue Western Washington University for driving theirs)

So how much does the $25,000,000,000 bailout of Detroit cost?

Well, consider than such a plug-in electric vehicle can achieve greater than 100 miles per gallon in normal driving conditions. Swap out the standard gasoline engine with one capable of running an 15% ethanol blend (E-85), and you should get about 500 miles per gallon of gas (with the bulk of the power typically coming from either electricity or ethanol).

So how many vehicles capable of 500 miles per gallon could we subsidize with the funds needed for the $25 billion bailout? How many PHEV-E85s could we help America purchase for the money that is going to go into saving the skins of people ot put the Detroit Three in this mess?

If we make the provide a subsidy of $1500 for each plug-in ethanol-burning electric, that means we could subsidize the purchase of 1,666,667 500 mile per gallon of gas vehicles for the cost of the Detroit Bailout.

President George Bush and President-Elect Barack Obama have a choice: investing in saving GM and the UAW, or invest in freeing ourselves from foreign oil.

Bush’s job seems easier: all he needs to do is hold tough through January 20, by which time GM should declare bankruptcy.

Obama has to choose between investing in the future or investing in the latest and greatest in 1950s ideas.

I hope both of them are up to the job.

The Detroit Push-poll

Courtesy of Gas 2.0 and Hybrid Car Blog, I found the Peter D. Hart Research Associates poll on a bailout for auto-makers.

It is a push-poll.

The poll sensible begins with demographic information, and as expected with a poll of “landlines” is demographically skewed. The modal age group is 30-34 yera olds, with 35-44 year olds being dramatically underrepresented. The poll undercounts both blacks and hispanics, and has a shows more respondents as indicating being black than hispanic.

Question 4 begins the substance of the poll, and asks

How important do you feel the American automobile industry is to the American economy–extremely
important, very important, somewhat important, not important, or not at all important?

Sensible enough. However, consider the next two questions:

If the American automobile industry no longer had the resources to produce vehicles, how much harm would
it cause to [America’s manufacturing job sector / The American economy / America’s standing in the world / Consumer choice for America’s car buyers ] a great deal of harm, quite a bit of harm, just some harm, or very little harm?

And Question 6, which is the first of the serious of “do we bail out Detroit” questions:

Do you believe that the government should or should not provide loans to America’s automakers so they have the money to manufacture vehicles?

Question #5 is what we call a “Prime” It is a stimulus that changes what responses will be elicted. So for instance, if you ask a question emphasize harm to the American economy, and then ask about things that might reduce that harm, you of course get resposnes skewed to “doing something.”

In the same way, if Question #5 had been

If the American government began bailing out industries that were no longer able to pay their bills because they had made unwise business decisions, how much harm would
it cause to [America’s manufacturing job sector / The American economy / America’s standing in the world / Consumer choice ] a great deal of harm, quite a bit of harm, just some harm, or very little harm?

The answers would have been dramatically different.

There is an easy way to correct this problem: randomly vary the order in which questions are asked. Then you can examine what effect, if any, your prime has. If it has an effect, then you can be safe by reporting the unprimed result: if it does not have an effect, so much the better. However, the method section…

The accompanying poll results are from a survey conducted by the polling organization of Peter D. Hart Research Associates for General Motors on November 11 and 12, 2008. The survey was conducted by telephone among a cross section of 804 American adults.
The national sample for this poll was drawn in the following manner: 350 geographic points were randomly selected proportionate to the population of each region and, within each region, by size of place. Individuals were selected in accordance with a probability sample design that gives all landline telephone numbers (both listed and unlisted) an equal chance to be included. One adult, 18 years old or over, from each household was included, selected by a systematic procedure to provide a balance of respondents by sex.
The data’s margin of error is ±3.5 percentage points for 804 adults at the 95% confidence level. Sample tolerances for subgroups are larger.

… provides no indication that this was done.

The poll, titled “Study #8877: Auto Industry Survey” displays results in percentages, but does not appear to indicate how many participants kept answering questions. It people surveyed were against the bailout and recognized the biased nature of the questions, they may have ceased responding, causing the sample to skew to those who are in favor of a bailout anyway.