It now looks like the Senate will debate an auto industry rescue package next week. The outline is a bit fuzzy but the bill is being prepared by Sen. Levin (D-MI), maybe with the help of Sen. Voinovich (R-OH) who is the co-chair of the auto caucus. Are we in favor of a rescue plan for the autos. Why? My premise is to help prop up the economy and preserve the few remaining good jobs that exist in the auto firms. So what should such a bill entail? Certainly there must be more than just a big check to GM, Ford and/or Chrysler.
Here is one scenario for GM in particular and we can use this as we look at the other two firms.
- All outstanding equity is nullified, just as if they were in bankruptcy. All Board members resign.
- New stock is issued to the US government and holders of existing debt in reasonable proportions.
- The new Board should also have representatives of labor and management from the firms, but the majority positions go to the shareholders.
- Any labor concessions should be compensated with equity in the restructured firm. There should be extended unemployment benefits (not three months but maybe two years) plus community college tuition for new jobs for anyone let go in workout downsizing.
- There must be a turnaround plan approved by a Financial Control Board made up of economists, business people and public officials with expertise in this type of effort and industry. The FCB concept worked for NYC and can work for the auto makers.
The strategy pursued by GM in the last two generations has been awful and should be changed as a requirement of the rescue. For instance, GM has six consumer nameplates...Chevy, Buick, Pontiac, Cadillac, Saturn and GMC. Toyota has three...Toyota, Scion and Lexus. Toyota has made a constant investment in quality so their safe and relatively boring cars (I drive a Hybrid Camry so I know what I speak, which I will happily trade for a Hybrid Chevy next year) still outsell the GM brands. GM pursues an expensive differentiation strategy that is not sound in the internet age. Basically people understand that GM is building the same car and spreading it across the various nameplates with minor variations. The market has rejected that approach.
GM's financial management has also been suspect. They have had many expensive stock buybacks and dividends over the years when they should have been investing in new product development and paying down their pension and post-retirement health care benefits.
The conservative noise machine has already been ramping up the volume about the problem of unions in all this. The concern should be the workers at GM and its suppliers and dealers. We should not fall into the silly trap of trying to use this occasion to blame the workers for something that is 100% the fault of bad management. GM's problem is not the cost ratio, it is that they built a company around the concept of being the world's number one auto maker with a giant market share and could not get out of their own way to prepare for the future which was more competitive. If GM won't agree then just offer the labor benefits to help displaced workers. Let them go into Chapter 11 and do their own workout and deal with the market.
OK, what else should we be thinking of here?