Automotive News - November 24, 2008 - (Page 6) 6 • NOVEMBER 24, 2008 C O M M E N TA RY BAILOUT BATTLE In defense (kind of) of Detroit Peter Brown In their almost gleeful calls for the death of the domestic auto industry, some U.S. senators and other critics of the Detroit 3 have suggested rampant incompetence and utterly failed business models. “They’re not building the right products,” Sen. Richard Shelby, the Alabama Republican, said on NBC’s “Meet the Press.” “I don’t believe they’ve got good management. They don’t innovate. They’re a dinosaur, in a sense.” Let them go bankrupt, say Shelby, Mitt Romney and others. From time to time, I’ve been very critical of Detroit 3 management. But as their very survival hangs in the balance, I ask a question: Is it coincidence that every domestic U.S. car manufacturer is in exactly the same leaky boat? @ More opinions Jason Vines: March on Washington, autonews.com/vines Maryann Keller: Industry needed, not its leaders, autonews.com/keller Yes, they’ve made some bad decisions — but could there be a reason (think government policy) that the entire domestic industry is in exactly the same boat? generator of jobs, taxes and prosperity. So the state gave Daimler $253 million in incentives to build a Mercedes-Benz plant. Daimler invested $300 million and created 2,000 direct jobs. The state’s cost per automaker job: $126,500. The investment was so successful that Sen. Shelby’s Alabama has since given more than $400 million to Honda and Hyundai. Now Congress is being asked to lend $25 billion to keep the Detroit 3 and their 260,000 U.S. employees, plus their suppliers and dealers, alive. “It’s a road to nowhere, and it’s a big burden on the American taxpayer,” Shelby said. Even if, after a couple of years, the companies default, the investment would be less than $100,000 per Detroit 3 employee in the United States, and much less if you amortize it over the millions of people who depend on the Detroit and would have remained employed and insured. ALEXIS C. GLENN/UPI PHOTO/REUTERS Bailout Motors? Britain went down that road Edward Lapham Some of Washington’s bailout schemes have the same desperate elements that led to the creation of British Leyland in 1968. Forty years ago, British Motor Holdings was a collection of storied English automotive brands that had been rolled into an unprofitable cluster through mergers, acquisitions and business failures. It was teetering on the brink of oblivion. Leyland Motor Corp. was a smaller but profitable manufacturer. Back then, it seemed important for England to have a domestic auto industry. So someone in the Labour government reasoned that blending the two would make the new entity — British Leyland Motor Corp. — bigger, stronger, smarter and better able to compete with the likes of Ford and Vauxhall. It seemed a bloody brilliant move, except it never really worked. When stitched together, British Leyland had a whopping 40 percent of the market, but it couldn’t succeed. There were just too many factories, too many dealers, too many troublesome labor agreements and too many foreign competitors. There also were too many brands that needed new products and too many models that competed with each other. So in short order, brands such as Austin-Healey, Wolseley and Riley were jettisoned. Some, such as Morris and Austin, lingered. Others, such as Triumph and MG, were minimalized to near extinction. Factories were closed. Workers were made redundant. None of it helped. On the brink of bankruptcy in 1975, British Leyland Motor Corp. was reorganized as British Leyland Ltd., in which the British government became the biggest shareholder by virtue of its massive bailout funding. But even the nationalized automaker couldn’t make it. Along the way there were partnerships, joint ventures and more plant closings. Some brands, such as Jaguar and Land Rover, were hived off and sold. Some were resold. What remained of BL morphed into the Rover Group in 1986 and was purchased in 1988 by British Aerospace, which later sold the business to German automaker BMW. BMW soon cast off Rover and everything else except Mini. Eventually, the castoff MG Rover factory went out of business. Several of the traditional English brands have been purchased and are still around. Some of the vehicles are even produced in the United Kingdom. Overall, more than 1.5 million cars were built there last year. But the big brands and factories are owned by foreign compaies. There is no English-owned auto industry to speak of. But don’t worry. That could never happen here. We’re too bloody brilliant! Whose fault is this? Imagine that your home market is a large country whose energy policy can be summed up in two words: “cheap gasoline.” Would your vehicles reflect that? Then suppose that your government tried to regulate fuel economy amid this sea of cheap gasoline, and the regulations established a high fuel economy standard for one type of vehicle (say “cars”), and a very low standard for another (for example, “trucks”). Would your fleet reflect that? Then imagine that your foreign competitors received huge subsidies to build greenfield plants in America to augment their imports to the United States. They have no retirees to take care of, and you have millions in the only major country where employers have to provide health care benefits. Then imagine that your home country’s financial system collapsed under essentially a huge pyramid scheme by banks and investors, drying up credit and sending the nation into a deep recession. Can we acknowledge that many of Bailout’s a bargain Is Shelby right that the Detroit 3 business model can’t work? Chrysler was the world’s most profitable mass-market automaker in the 1990s — until Daimler bought it and ran it into the ground. Let’s acknowledge that there are reasons that each of the Detroit 3 faces the same catastrophe. What are the odds that every Detroit 3 exec of last 35 years has been an idiot? You don’t have to forgive them all their errors to say that our government’s policies have helped lead them to where we are, and that millions of Americans workers deserve a chance. Anyway, compared to subsidies from Alabama, Tennessee and other states, the proposed bailout is a heck of a bargain. If we didn’t have a domestic industry, we’d say, gee, for $25 billion, we can earn more than that in taxes in the first year, even if they don’t live forever. It’s a pretty good deal in a pretty bad situation. Alabama Sen. Richard Shelby adamantly opposes helping the Detroit 3. Yet his home state pays more per automaker job than the federal bailout would. the problems of the Detroit 3 were not entirely their fault? Let’s look at one main criticism: Detroit stupidly became reliant on gas-guzzling SUVs and pickup trucks. Well, that’s true. But the Detroit 3 didn’t lead us to SUVs. The consumer, driven by cheap fuel and corporate average fuel economy regulations, pulled them there. In the early 1990s, after a huge investment in mid-sized cars, General Motors scrambled to convert car plants to truck plants to catch up to the American consumer. In those days, Toyota, Nissan, Honda and other competitors found themselves with inferior or no SUVs. But they did just fine in America with cars that worked for them elsewhere around the world. Meanwhile, they developed lots of trucks themselves. Alas, Toyota and Nissan developed huge pickup trucks and SUVs just at the end of the truck party and built huge Southern plants to make lots of them. Even Japanese automakers can make mistakes. But it’s a rounding error for Toyota, not core as it was for the North American automakers. Certainly, Detroit should not have battled increases in fuel economy regulation. And GM’s creation of the Hummer brand was almost criminal in its shortsightedness. $126,500 vs. $100,000 So Sen. Shelby says these knuckleheads should die, die, die. Detroit’s failed companies don’t deserve any help. Remember, he’s from Alabama, a manufacturing backwater until Daimler-Benz opened a Mercedes plant there in 1997. Why did the auto industry go to Alabama? Alabama recognized that a local auto industry was a huge CEOs could have pre-empted the grilling David Sedgwick Symbols matter. The Detroit 3 CEOs got slapped around in congressional hearings last week because they forgot this first rule of politics. Rick Wagoner, Bob Nardelli and Alan Mulally went to Washington armed to the teeth with information about layoffs, plant shutdowns, cash flow, fuel-efficient powertrains — you name it. Then they got hammered with a question about their corporate jets. Why didn’t you take a commercial flight, they were asked. Was that unfair? Sure. Was it predictable? Entirely. But the executives could have pre-empted this interrogation with a PR bombshell. The day before the hearings, all three CEOs should have announced a share-the-pain salary initiative. Let’s call it: “Bet Your Paycheck.” Back in 1989, Chrysler Corp. announced that 2,000 company executives would “voluntarily” give up 10 percent of their salaries in return for Chrysler stock. It was part of a larger $1 billion cost-cutting program intended to stave off a cashflow crisis. Sound familiar? Chrysler recovered, and the executives enjoyed handsome returns. If GM, Chrysler and Ford had announced such a program last week, they could have fended off the wolf pack — excuse me, the congressional committees — more easily. John Wolkonowicz, an analyst for IHS Global Insight in Lexington, Mass., said the three auto executives didn’t seem to have any concept of how to make their message heard in the circus atmosphere of a congressional hearing. “They were terribly unprepared,” Wolkonowicz said. “They came prepared to give a presentation to intelligent businessmen. That’s not what Congress is. Congress is an eclectic rabble.” After explaining their updated version of “Bet Your Paycheck,” each CEO should have offered a plainEnglish explanation of his five-year plan. But only one of them — Mulally — could easily have don http://www.autonews.com/vines http://www.autonews.com/keller
Table of Contents Feed for the Digital Edition of Automotive News - November 24, 2008 Iacocca tip: 'Equality of sacrifice' Ch. 11 would hit dealers hard â fast Detroit 3: Bankruptcy = doom Down the road and a continent away Used-vehicle demand shrivels O'Neill will lead Power GM tweaks production plan Mitsubishi: No to Detroit Ford will cut more output Nardelli: Chrysler is running on fumes GMAC on brink of bankruptcy, S&P warns Off with their heads! (But whose?) In defense (kind of) of Detroit Bailout Motors? Britain went down that road CEOs could have pre-empted the grilling Ford: We still want Mazda expertise Imports clog ports as sales plunge Volvo's N.A. boss will resume leases to boost volume Nissan expects Chrysler pickup deal will survive Toyota: Venza is a trendsetter, not a crossover It's time to put partisanship aside; Detroit needs help What GM needs is GMAC.2 'Buy American' talk won't help industry Readers weigh in on auto industy woes No one bailed out Oldsmobile It's time to move to mass transport We still need manufacturing Bankruptcy is a bet Let's get wages under control Will America be better off? First step: Bring the jobs home America owes it to GM to help The answer is simple: Leasing What about dealerships? Detroit 3 CEOs must offer to quit Oct. truck sales fall 17.4% Honda plant adds parts center They're sold on Camaro Drawn to Ferrari Japan poised to control key batteries Europe's worst month hits all automakers Dealers BMW: Diesel 7 series could come to U.S. Honda's FC Sport mixes green and go Infiniti G37's hard top retracts in 30 seconds Redesign of Lexus RX series hard to see Mini electric: Jolt comes from sticker Ford hybrid sedans aim at Camry After only 3 years, Ford revamps Fusion Hyundai plans new crossover, turbo engine Restyled Mustang: More refinement, horsepower Honda: Don't count on CR-Z gasoline variant '09 Nissan Z delivers more of what fans like Mazda3 gets new look, powertrains Nissan Cube joins the box brigade Infiniti upgrades powertrains Lincoln MKZ gets a makeover Porsche won't stall Panamera 2010 GLK priced below rival Bentley's Azure T gets 500 hp Detroit 3 squeezed by credit, cash â politics Waxman could mean trouble for Detroit GM formulates a 'Plan B' if it doesn't get federal loan Infiniti replaces Igo Sharks vs. Jets, D.C.-style What's good for â uh, how'd that go again? Mazda deal imperils Ford training ground More like Toyota, Honda? Careful what you wish for Maybe he's Buck-a-year Bob now Romney: Bankruptcy, not bailout Automotive News - November 24, 2008 Automotive News - November 24, 2008 - (Page Intro) Automotive News - November 24, 2008 - Detroit 3: Bankruptcy = doom (Page 1) Automotive News - November 24, 2008 - Detroit 3: Bankruptcy = doom (Page 2) Automotive News - November 24, 2008 - Ford will cut more output (Page 3) Automotive News - November 24, 2008 - Off with their heads! (But whose?) (Page 4) Automotive News - November 24, 2008 - Off with their heads! (But whose?) (Page 5) Automotive News - November 24, 2008 - CEOs could have pre-empted the grilling (Page 6) Automotive News - November 24, 2008 - CEOs could have pre-empted the grilling (Page 7) Automotive News - November 24, 2008 - Volvo's N.A. boss will resume leases to boost volume (Page 8) Automotive News - November 24, 2008 - Volvo's N.A. boss will resume leases to boost volume (Page 9) Automotive News - November 24, 2008 - Toyota: Venza is a trendsetter, not a crossover (Page 10) Automotive News - November 24, 2008 - Toyota: Venza is a trendsetter, not a crossover (Page 11) Automotive News - November 24, 2008 - 'Buy American' talk won't help industry (Page 12) Automotive News - November 24, 2008 - 'Buy American' talk won't help industry (Page 13) Automotive News - November 24, 2008 - Detroit 3 CEOs must offer to quit (Page 14) Automotive News - November 24, 2008 - Drawn to Ferrari (Page 15) Automotive News - November 24, 2008 - Japan poised to control key batteries (Page 16) Automotive News - November 24, 2008 - Dealers (Page 17) Automotive News - November 24, 2008 - Dealers (Page 18) Automotive News - November 24, 2008 - Dealers (Page 19) Automotive News - November 24, 2008 - Dealers (Page 20) Automotive News - November 24, 2008 - Dealers (Page 21) Automotive News - November 24, 2008 - Dealers (Page 22) Automotive News - November 24, 2008 - Mini electric: Jolt comes from sticker (Page 23) Automotive News - November 24, 2008 - Restyled Mustang: More refinement, horsepower (Page 24) Automotive News - November 24, 2008 - Bentley's Azure T gets 500 hp (Page 25) Automotive News - November 24, 2008 - Bentley's Azure T gets 500 hp (Page 26) Automotive News - November 24, 2008 - GM formulates a 'Plan B' if it doesn't get federal loan (Page 27) Automotive News - November 24, 2008 - Infiniti replaces Igo (Page 28) Automotive News - November 24, 2008 - Infiniti replaces Igo (Page 29) Automotive News - November 24, 2008 - Romney: Bankruptcy, not bailout (Page 30) Automotive News - November 24, 2008 - Romney: Bankruptcy, not bailout (Page 31) Automotive News - November 24, 2008 - Romney: Bankruptcy, not bailout (Page 32)
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