American Auto Industry MUST Restructure

Boblutz by eschipul
A local auto dealer has an opinion piece in the Chronicle titled "Extend bridge loan to GM or the country will suffer" in support of an auto bailout. General Motors is using Paulson scare tactics with their "GM Facts and Fiction – GM Tells It Like It Is" site. From a PR perspective they lose ALL authenticity when they state things like:

And, due to supplier bankruptcies, domestic automobile production would
most likely fall to zero, even by international producers.

Really? Toyotoa and Honda who make cars profitably in the US will shut down as well? You lose ALL credibility taking such extreme positions. The Chron also has a great counterpoint on letting the automakers fail.

One article I read recently stated "US Auto Makers don't have a problem, US Owned Auto Makers have a problem." This is true.

The elephants in the room? Leadership and Labor. Labor says they have ruled out helping with the current crisis. If they won't even help themselves, why should we?

Here is the thing. High wages, 100% paid health benefits and a pension are things that the rest of America does NOT get. To ask American's to pay for your health care and pension is effectively using our tax dollars for your socialized benefits. Great for them, but not for my kids. The stats are painful:

…the average Big Three auto worker is paid
more than $72 per hour in wages and benefits ($150,000 per year,
compared to $48 per hour, or $100,000, for a Toyota worker), and where
union-negotiated work rules such as "job banks," a cute little
euphemism for paying large numbers of employees not to work, are

The counter point from a left leaning blog states on unions and auto manufacturer woes:

Unions do not deserve the blame placed on them by the right wing. In fact, unions have repeatedly made concessions to auto executives over recent years. Contrary to Kyl’s claim, new auto employees earn $25.65 an hour.

Did you see it? The part where they say "new auto employees". Employees who have been there a long time, the majority of them, still receive the $72 an hour in wages and benefits. UAW remains in denial – your success is tied directly to the success of the company.

How do we SOLVE the problem of the US Auto Manufacturers. A common sense blueprint:

  1. Bankruptcy Reorganization – this is a necessary legal first step.
  2. Eliminate the current executive team for the companies with pragmatists.
    1. Clawback provisions for all bonuses given in any year they did not make a profit. The goal of business is to make a profit. If you don't do that you failed. So be accountable.
    2. Renegotiate all management contracts for those you want to keep.
    3. Eliminate golden parachutes – no pay for failure.
  3. Replace the UAW leadership which has is not doing the membership any favors.
  4. Restructure employee contracts to:
    1. Pay for work only. No more job banks period. You work, you get paid. That's it.
    2. Pensions – reduce valuation on current obligations. New employees on self funded pensions or 401ks with minimum matching. We all know the auto worker pensions is going to roll over to the taxpayers anyway so do it now with as much transparency as possible, but also a lower payout.
    3. Eliminate job security – you have a right to work. And you have a right to lose your job if the company fails (see 2.1 above). This will make employees hold management accountable to innovate. And coincidentally its the deal almost every other worker in America has. We work, we get paid, nothing is guaranteed. Sorry. Life's not fair.
    4. Reduce average pay for ALL employees from $72 to $40 per hour. This brings compensation into line with American workers working for Toyota or Honda in the US.
    5. Employees pay 50% of all healthcare. If an employee does not participate in the expense they have no incentive to minimize costs.
    6. Stop lobbying AGAINST energy independence and higher fuel efficiency vehicles. This position is literally Anti-American. Our bailout dollars to lobbyists arguing against the long term health of our country is completely unacceptable.

Do I want the United States to retain its strong manufacturing base? Absolutely!

I am not against financial assistance of auto manufacturers, but first they must make the hard decisions that every other business makes. The days of CEOs coming in, giving the union everything they want, dancing off with their golden parachutes leaving the next one to "solve the problem" are over. Step up, be accountable, get it done.

Do I understand that unemployed workers are bad? That real families are hurt, that the struggle to find a new job is very difficult and that bankruptcy would irrevocably change the entire landscape of Detroit? Yes. Just as 9-11 changed the world, so too does this change everything. I wish it wasn't the case. But it is. May you live in interesting times.

Solution 1: New Management. New Lower Cost Contracts. No Guarantees. Build Good Cars.

Do that.

The photo?
Bob Lutz speaking to the PRSA International Conference. To one question he stated "Bankruptcy is not an option for GM" – sorry Bob, but it is. The GM leadership team has led the company down the path of the unthinkable. And this is what it looks like.