By on June 13, 2009

I had an interesting conversation with PCH101 about New GM’s governance. Like many observers, the TTAC commentator is not ready to dismiss The Presidential Task Force on Automobiles (PTFOA) out of hand. I, of course, am. Have done. Will do. But before I do (again), consider PCH101‘s logic. He credits the PTFOA for clearing out the deadwood: finally ridding the failed automaker of the troublesome man who guided the company on its final descent into bankruptcy. He also believes that the 25-member PTFOA is a better bet for GM than the original plan for federal oversight: a car czar. “I remember a study in B-School that concluded a committee of managers without any direct experience in an industry made more effective decisions than a single autocratic insider.” With all due respect, crap. And completely irrelevant.

What’s GM’s single largest problem? Uncompetitive vehicles? Yes, well, there is that. Dead brands? Sure. Too many dealers? Doesn’t help. But it’s executive torpor that’s the root cause of the automaker’s longstanding inability to take in more money than it spends. The automaker has far too much bureaucracy, and all of it’s deeply dysfunctional. Ipso facto.

In fact, GM’s management ethos is so obviously broken it’s become a PTFOA talking point. Despite President Obama’s semi-pledge to kinda keep his distance from GM’s [hand-picked] executive team, PTFOA jeffe Ron Bloom recently promised to tackle GM’s moribund culture in a non-interventionist way (presumably).

Good luck with that. Before we calculate the odds, let’s be clear about the problem.

The majority of GM’s executives don’t care about the customer. They may pay lip service to the people paying the bills (before the U.S. taxpayer stepped in). But their day-to-day decisions are not motivated by a desire to provide GM customers with the best possible products and services.

Their single, over-riding concern is . . . themselves. Their career. Every decision that GM’s suits make is made with an eye to protecting and (perhaps) extending their territory within the automaker’s byzantine structure. CYA is their modus operandi. “Yes” is the operative word.

No surprise there. That’s how they got where they are in the first place. Case in point: VP of sales and marketing for GM North America Mark LaNeve.

From 1981 to 1995, LaNeve worked his way up Cadillac’s executive ladder. When he assumed the General Manager’s job, LaNeve knew Caddy’s survival depended on remaining resolutely upmarket. “Young people should aspire to owning a Cadillac,” LaNeve said back in the day. “They shouldn’t be able to afford one.” And then LaNeve joined the corporate mothership. He did what had to do: “modify” his beliefs. Go along to get along. STFU. Entry-level Caddies arrived without debate or delay.

Actually, it’s worse than that. GM’s suits don’t even care about the company. Yes, even now. Especially now. If anything, Chapter 11 means they’re even LESS motivated than before. Think of it this way: if GM’s overlords screw the pooch (again), what are the feds going to do? Declare bankruptcy?

PCH101 believes the PTFOA will, eventually, clean house. Even if we accept the idea that all the president’s men kept a GM insider at the helm in order to fire him in favor of a genuine reformer who will eliminate and/or replace, say, 25 percent of GM’s upper management, the bigger picture still sucks.

“Hands-off” or not, the 25-member PTFOA adds another level of bureaucracy above the existing GM bureaucracy. If each PTFOA member fires off fifty emails a day, that’s 1,250 more internal comms per day. The PTFOA also has a staff. Meetings. Agendas. Targets. Reports. Memos. The federal quango is a shadow governing body for a company that needs less management, not more.

True story: New GM is inherently worse than old GM. And it’s going to get worse from here.

At the moment, Ron Bloom and Steve Ratter are running GM well. I freely admit that President Obama’s minions are outperforming GM’s previous administration. (Of course, Captain Kangaroo could do a better job than the last mob, and he’s dead.) If the PTFOA orders the night of the long knives at RenCen, if they clear the forest of deadwood, I’ll publicly acknowledge the appointees’ collective wisdom.

And then what? By the time the PTFOA’s new brooms fail to sweep GM to a rapid turnaround—a virtual impossibility given the depth of GM’s decay and the car biz’s timelines—Bloom and Rattner will be long gone. Leaving . . . what? Administrative kudzu.

If President Obama wanted to save GM, he should have let it fail. There’s only one way to change deeply-ingrained habits: pain. GM’s management will not change its slavish devotion to its fundamentally inefficient way of doing business until and unless it’s more painful for them to keep doing what they’re doing than to do something else.

By making bankruptcy painless for GM’s upper echelons, by adding complexity rather than removing it, the President has effectively sealed GM’s fate.

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94 Comments on “Editorial: General Motors Zombie Watch 5: Cross-Eyed and Painless...”


  • avatar
    CarPerson

    General Motors’s biggest problem is it attitude. It has a seething, searing, burning hatred for its suppliers, dealers, and customers.

    GM doesn’t much care for cars or trucks either.

    Nothing since the Chapter 11 has indicated any change in that view of its world.

  • avatar
    postman

    I think the plan is to “postpone” GM’s death until the economy improves. If (and it’s a big “if”) we get to the point where the economy is humming again, people are back at work and spending money, GM’s final gasp won’t be quite as big of a headline.

  • avatar
    carlos.negros

    RF, please elaborate on your statement, “If President Obama wanted to save GM, he should have let it fail.”

    What would that failure look like? Would it involve a liquidation? Would all U.S. factories close? Would all of the assembly lines be unbolted from the factory floors and shipped to China? Who, by law, would pay the pensions? Who, by law, would pay the unemployment benefits and health benefits? How much would this cost? How would this impact home foreclosures in the affected areas? How would it impact banks?

    Tell us all about your idea to set an uncontrolled fire in the current economy and let it burn.

  • avatar
    ravenchris

    When will GM do something extraordinary to sell automobiles…?

  • avatar
    carlos.negros

    This does not answer my question about how much it would have cost to let the company liquidate now, or if it would have saved anything.

    Which other money losing industries should we let die?

  • avatar

    carlos.negros

    Without failure, there is no accountability. Without accountability, there is no failure. It’s an endless loop of mediocrity.

    To pull out of this death spiral, you have to introduce accountability. You have to allow failure.

    If I’m not mistaken, you’re asking if a “controlled” GM failure—as some believe this bailout to be—is better than abject failure.

    Worst case scenario: Chapter 7.

    Would all of GM have disappeared in a liquidation? I doubt it. Would the companies that picked up GM’s bit and pieces for pennies on the dollar have ended management complacency? Perhaps. Probably. Yes. Either that, or the companies employing them would face extinction.

    Will the government do the same? The government? PCH101 and others think so. I think not. So far, I’m right. And I’m saying that even if there IS a short term ass kicking by the feds, long term, same old, same old. Only worse.

    Capitalism—the worst of all possible economic system except for all the rest—is “creative destruction.” Whatever this is, it isn’t capitalism.

    And if we’re modifying the free market principles that made this country great for the sake of expediency (not my first, second or third choice), we should at least do so with a modicum of efficiency. How about paying every UAW member $500,000?

    In fact, if you’re asking me to prove a negative, how about you convince me that there wasn’t a better way to do this?

    As for “letting industries die,” it’s not for the feds to “save” industries by nationalizing them. As the Supreme Court told Harry Truman re: U.S. Steel.

  • avatar
    carlos.negros

    Churchill said, “It has been said that democracy is the worst form of government except all the others that have been tried.”

    Churchill said nothing about Capitalism. Capitalism does not require democracy, as China has demonstrated.

    To whom do you attribute your quote?

  • avatar

    carlos.negros:

    Myself. Paraphrasing.

    Now, can you address my queries?

  • avatar
    Robert Schwartz

    Robert: That was terrific, and spot on.

    Through me the way to the city of woe,
    Through me the way to everlasting pain,
    Through me the way among the lost.
    Justice moved my maker on high.
    Divine power made me, wisdom supreme, and primal love.
    Before me nothing was but things eternal, and eternal I endure.
    ABANDON ALL HOPE, YOU WHO ENTER HERE.
    These words, dark in hue, I saw inscribed over an archway.

    From Part I “Inferno” Canto III Lines 1-11 of the “Divina Commedia” by Dante Alighieri (1265-1321).

  • avatar
    PeteMoran

    None of it matters. The “problem” long since ceased being about what GM does or how they go about it per se but what they represent; loads of jobs at a time when rising unemployment must be kept at bay.

    Whether you have 1 government official as the all seeing eye or a group of 25, it doesn’t matter. The end result is pre-programmed. The slide may very well be controllable, however.

    The GM break up in a year or two will hive off the PRODUCTS that are profitable because they are compelling and that’s all she wrote (or needs too). Every other limb, bureaucrat, over-paid exec, bond-holder, stock-holder lost control years ago.

    Meantime, and I really really hope this is so, someone with the necessary political capital (POTUS?) will take control and say; those people of Michigan need a new direction. Auto manufacturer is NOT it. The industry won’t ever be as large as it once was ever again.

    Along the way, the USA needs to rediscover that money changing is a service, not an “industry” of itself that people should aspire to. Banks should service productive/expansive capital investment or functions, not speculation for 10% retained.

  • avatar
    50merc

    OK, here’s a practical problem: Let’s say we all agree to thin out the deadwood in GM’s executive ranks. Exactly how do you identify which of perhaps 500 executives should get the boot? Remember, the decision-making (non-making?) system and culture has operated for decades to blur lines of accountability. I suspect you’ll find each chair-warmer claims “Oh, I had great ideas, but my proposals always got smothered in some committee.”

    Well, the PTFOA could just have the managers draw straws. Or adopt the policy, “fire them all; let God sort them out.”

  • avatar
    pleiter

    What was the effect of Marchionne’s, ah, march through Chrysler, besides the 2 folks mentioned ? Total body count, please. Based on the march taking one week, maybe PTFOA could borrow him for a cleaning of GM. Recorders ON. If Marchionne’s action is effective, and PTFOA does nothing, the distinction in performance (no mo’ money) will serve to highlight by clear and time-correlated example the exact effectiveness of the PTFOA.

  • avatar
    BlisterInTheSun

    @ PeteMoran
    Now that capital flows are slowing due to the global recession, there isn’t as much cheap Asian money sloshing around in US banks. I think the American people are going to learn about the limits of this industry when they try to apply for credit for purchases they would have taken for granted just 2 years ago.

    @ Robert Farago

    Same as it ever was….

  • avatar
    educatordan

    Robert Schwartz :
    June 13th, 2009 at 11:15 pm

    +1

    Who should we describe with this quote? Obama, Henderson? Who?

    OZYMANDIAS

    I met a traveller from an antique land
    Who said: Two vast and trunkless legs of stone
    Stand in the desert. Near them on the sand,
    Half sunk, a shatter’d visage lies, whose frown
    And wrinkled lip and sneer of cold command
    Tell that its sculptor well those passions read
    Which yet survive, stamp’d on these lifeless things,
    The hand that mock’d them and the heart that fed.
    And on the pedestal these words appear:
    “My name is Ozymandias, king of kings:
    Look on my works, ye Mighty, and despair!”
    Nothing beside remains. Round the decay
    Of that colossal wreck, boundless and bare,
    The lone and level sands stretch far away.

    – Shelly

  • avatar
    maniceightball

    RF – I am on board with you as far as realizing the necessary feedback to make capitalism work, but I think the primary motivation behind people who support the bailouts or who feel that the government should intervene is that the destructive effect that you’re talking about has a social and economic cost that companies and individuals beyond e.g. GM have to bear, and it is precisely this cost that we are literally paying to avoid. “Too big to fail” is, in my mind, shorthand for “too high a cost to anyone involved in this company too fail.”

    The interesting thing is, I am not saying anything you aren’t aware of — in fact, you probably know more about this than just about any of the commenters here, and definitely know more than I do. Which is why I wonder how you’d approach all of the repercussions of an all-out GM liquidation, and if I’m not mistaken, I believe this is carlos.negros’ question too.

  • avatar
    maniceightball

    And if we’re modifying the free market principles that made this country great for the sake of expediency

    This country has only experienced short-lived bursts of a truly free market, and it never worked in its ideal form. Capitalism encourages companies to make as much money as possible no matter what and in the short-term only, and so corporations discovered that they could make quite a bit of cash by logistically obviating competition. Rather than fighting competition with better products (which is hard, and expensive), they outright shut them out. Hence the rise of the monopolies and resulting trustbusting.

    Remember, government intervention is a feedback mechanism itself — regulation doesn’t typically pop up at the whim of some bureaucrats bent on bloating the govt. It is a reaction to some problem in the market that the market and its players cannot fix themselves. It typically happens when capital interests clash with what’s best for the country.

    So, really, the Big Question here is on how to meter out regulation and intervention in order to secure a mostly capitalist economy. It’s one of finding the right balance, and I think RF and bailout opposers think this is too much (for good reason).

    (FWIW, I’m not terribly pro-bailout, but I do understand the need to mitigate the damage that GM’s failure would have caused. The philosophical damage of setting a bad precedence in the government, however, is another debate.)

  • avatar
    carlos.negros

    maniceightball, that’s it exactly. Anyway, I asked first. :)

  • avatar
    exdetroit

    GM and all the banks that gambled instead of invested should have failed. I agree with Robert. The profitable pieces of businesses would have been picked up by someone else looking to make more, and the unprofitable pieces would simply go away like the in-home funerals did.

    However, since we are ALREADY bailing these guys out shouldn’t we at least learn from it. How about keeping companies smaller? “Too big to fail” could be a litmus test we use when we break companies up for national economic security reasons.

  • avatar
    John Horner

    “And if we’re modifying the free market principles that made this country great for the sake of expediency …. ”

    Just like was done to win WWII. Command and control of the entire economy top to bottom from government boards in Washington was how it was done.

    Not to say that I’m all for the government running everything. My point is that this notion of a once upon a time in America everything was about free enterprise is simply not supported by the historical facts.

    Another example: High tariffs on imported manufactured products were the rule of the day during decades worth of the early industrial revolution as a way to support and encourage the development of US based manufacturing instead of continuing to rely on the at the time more advanced industrial manufacturers of England.

  • avatar
    ConspicuousLurker

    The only reason the government got involved is because a politically powerful group (UAW) was threatened. GM should have been pieced out in bankruptcy court, not had money tossed at.

    What’s the end game? How are they going to take on the rest of the market?

    All I’ve seen is them throw the same ‘ol cars and some political favorites (*cough* Volt *cough*) at us. If they weren’t viable before, how are they viable now?

    I know this has all been said before, but it amazes me how the politicians justify this and pretend like everything is going to be hunky dory.

  • avatar
    Dieseldude

    maniceightball Said:
    “regulation doesn’t typically pop up at the whim of some bureaucrats bent on bloating the govt.”

    You and I have been watching two different ball games for a number of years. Mostly these things regulate perceived problems. It typically happens when someone in the halls of power has a cousin who needs work, or there is a budget shortfall and we need to get out there and collect some “regulatory fees.”

  • avatar
    ajla

    Getting rid of Docherty, LaNeve, and Peper (just read his Fastlane webchat) sure couldn’t hurt anything.

  • avatar
    ruckover

    Dieseldude, I have to strongly disagree. This is a most cynical opinion, and one that would be difficult to support. But, since this is “watercooler” talk, I will take it in that spirit.

  • avatar
    carlos.negros

    RF: “Without failure, there is no accountability. Without accountability, there is no failure. It’s an endless loop of mediocrity.”

    This sounds like our health care system, our educational system, our food supply, and our FDA. Our national voting system seems pretty bad too. To that we can add our (former) investment banks, mortgage brokers, SEC (Bernie Madoff), war contractors and the list goes on.

    Which U.S. company or sector is your model for accountability and success? And, by the way, do they build cars?

    It seems you have a romanticized and sanitized view of capitalism. Capitalism is about amassing money and the means to make more of it, and the power to hand it out to create more power and influence. Political influence is a natural outgrowth of this power. Keeping the government weak makes it easier for powerful corporations to break employment and environmental laws, misstate their earnings to the markets, and make and take bribes. All which are profitable, none of which are ethical.

    Bringing this back to cars and democracy. Barak Obama campaigned precisely on the issue of whether he would allow U.S. companies to be liquidated and unbolted from the factory floor and shipped to China. He won an election fair and square. He is keeping his promise.

  • avatar
    WetWilly

    PCH101’s committee vs. autocrat argument is wrong on several levels:

    1) GM isn’t being run by a 25-member committee of managers; it’s being run by a 560-member committee primarily composed of non-managers = PTFOA + Congress.

    2) There’s nothing wrong with autocrats as long as you have a good one; not only that, there are times when autocrats are essential. I’d put Lee Iaccoca – a single autocratic insider – up against the PTFOA anyday when it comes to running a car company.

    3) If autocrats are such a bad idea, why did the PTFOA just hand Chrysler + $6 bil over to one – Sergio Marchionne?

    4) The wrong PTFOA is running the American auto industry. IMHO the Private Tea Factory Owners Association would do a better job.

  • avatar
    reclusive_in_nature

    Hmmm. Between an overly powerful government that seeks more control of what it’s people do, or overly powerful corporations that seek more money I think I’d be happier with the corporations. I can always boycott a corporation, but if I decide not to “buy” what the government is “selling” I get put in jail. I’ll take a hundred people that just want to be richer over one single solitary politician that’s seeking power to enforce his idea of “the common good” any day. (Even if I agree with the politician.)

  • avatar
    ruckover

    reclusive_in_nature :
    I seem to be a contrarian tonight, but so it goes. When a business/person wants to maximize profits, bad things can be done in the name of profit, and not buying from that company might not protect us from it.

    I used to work for a great guy, a scout leader, who would have us burn dangerous chemicals because it was cheaper than safely disposing of them. We were to dump waste in streams instead of taking it to landfills. It is tough to boycott air and water that has been polluted by profit seekers.

    When I asked him about his actions, he just said “Business is about making money.” This was small scale stuff; I can only imagine what a powerful company might do.

  • avatar
    Canucknucklehead

    Watching the whole GM saga is like reading Louis Carroll. It just keeps getting stranger and stranger. I wonder what everybody is smoking. I can hardly believe it when I see Fritzie-boy telling us that we are all retarded because we don’t buy GM’s wonderful products.

    Last year I bought a Honda Accord EX 4 cyl 5 speed manual. I drove everything before I plunked down my own cash on a car. GM apologists can wail all they want but the Accord is better than anything GM makes. Yeah, sure, I could have had a Malibu for $5k less. But the Honda is worth the extra money.

    Doesn’t anyone at GM get this? Has anyone at GM ever driven an Accord? It’s poetry in motion. It is smooth to its 7100 rpm redline. It has wonderful resale. Blah, blah, but my point is why can’t GM do this? Why can’t they either come up with real product or admit their cars are simply cheap knock offs of cars people really want to buy.

  • avatar
    eggsalad

    GM stopped being a car company many years ago when they quit selling “cars” and started selling “units”. GM is among the many US-based companies that can’t be bothered to look past the next quarter, and what profits there are to be made.

  • avatar
    Detroit-X

    50merc: Exactly how do you identify which of perhaps 500 executives should get the boot?

    Exactly the thought that is my stumbling block. GM has a lot of smart people, but they are forced to conform to a terribly wrong system/culture. You can’t stand out. You can’t say no. You can’t take a stand for what’s right. You can’t make a decision. How can you sort them out?

    Further, most have been promoted beyond their skills, their interests, to a level of incompetence. GM is a 100 year old company being operated by 5-year (or less) employees, in skill, hire date, or job duration. That certainly explains a lot, doesn’t it?

    Via the downsizing, GM has already fired most of “the troublemakers.”

    Basically, GM “leaders” (cough-cough) are there for the easy cash and benefits.

  • avatar

    Detroit-X:

    Didn’t you hear? Fritz has formed a committee to examine GM’s failed culture (excluding themselves, presumably)

  • avatar
    jimmy2x

    ruckover :
    When I asked him about his actions, he just said “Business is about making money.” This was small scale stuff; I can only imagine what a powerful company might do.

    Think you might be surprised. After retiring from the Navy, I spent over twenty years in sales to the large pharm and chemical process industries – the large companies were as clean as a whistle. Not saying that this is all altruistic, but they certainly do not want bad publicity.

  • avatar
    Dynamic88

    “I remember a study in B-School that concluded a committee of managers without any direct experience in an industry made more effective decisions than a single autocratic insider.” With all due respect, crap. And completely irrelevant.

    You have a study to cite which comes to the opposite conclusion? Or are you just waving your magic ipso facto wand? Again. Still.

  • avatar
    shaker

    Cross-eyed and Painless by The Talking Heads — (Edited for effect)

    Lost my shape-trying to act casual!
    Can’t stop-I might end up in the hospital
    I’m changing my shape-I feel like an accident
    They’re back!-to explain their experience

    Isn’t it weird/looks too obscure to me
    Wasting away/and that was their policy

    I’m ready to leave-I push the fact in front of me
    Facts lost-facts are never what they seem to be
    Nothing there!-no information left of any kind
    Lifting my head-looking for danger signs

    There was a line/there was a formula
    Sharp as a knife/facts cut a hole in us
    There was a line/there was a formula
    Sharp as a knife/facts cut a hole in us…

    Facts are simple and facts are straight
    Facts are lazy and facts are late
    Facts all come with points of view
    Facts don’t do what I want them to
    Facts just twist the truth around
    Facts are living turned inside out
    Facts are getting the best of them
    Facts are nothing on the face of things
    Facts don’t stain the furniture
    Facts go out and slam the door
    Facts are written all over your face
    Facts continue to change their shape

    I’m still waiting…I’m still waiting…I’m still waiting…

    From “Remain In Light”, a great one.

  • avatar
    lw

    So far GM is still following the same goal they have had for decades. If I see action that doesn’t match the old goal, then I’ll get interested…

    Old/Current Goal:

    “To maintain the status quo by doing just enough for every group (internal and external) that interacts with GM to keep them from demanding any significant change.”

  • avatar

    Dynamic88

    PCH101’s reference was without attribution—he was making a main point rather than arguing stats. So I couldn’t investigate the methodology involved. Define effective. Sample size? Similar industries? Etc.

    Nor did I want to stop the flow to discuss what I considered to be a side point: PTFOA vs. Car Czar. How about no federal oversight vs. any oversight? (Assuming that the feds hadn’t take a stake in GM.)

    I believe that corporate structure is not as important as the organization’s dedication to the company’s BRAND. The promise the company makes to its customers.

    A subject for another zombie watch, but I might as well raise it here: where’s the movement on the branding front?

    The decision to keep GMC and Buick (a channel unto itself) was wrong. As the B&B know, Buick is a dead brand stateside and GMC is nothing more than badge engineering.

    Killing the two brands would have RADICALLY downsized GM AND its income. But why not? The company’s bankrupt. Living on the federal dime. Might as well use this opportunity to sort everything out.

    That’s not the GM way. Their “once and for all” is “now until next time.” Check out the dealer cuts. They’re already talking about round two. And reversing some cuts. Encouraging appeals. Someone lost his copy of Machiavelli: they should cut their excess dealers once and cut deeper than they need to. Take no chances. Leave no enemies behind. (A crap dealer is GM’s enemy. Always has been.)

    GM singularly, spectacularly fails to make the wholesale, painful decisions they need to make to survive. Instead, it’s a death by a thousand tiny, ineffective cuts, as usual.

    At some point during this fiasco, someone at GM needed to stand up and say “Gentlemen. We need $200 billion and ten years to sort this out. Otherwise, forget it.”

    Not to put too fine a point on it, the company has no balls.

    PS I do not wield my “ipso facto wand” to suggest something is true because I say it is. It means that something is true because the evidence is both obvious and incontrovertible.

  • avatar
    Happy_Endings

    GM’s biggest problem isn’t management, its culture, or its structure. It’s the fact they lose money on every vehicle they sell. That fact is only going to get worse in bankruptcy. People in market for a car are going to smell blood in the water and drive the prices down. Unless and until this changes, everything else is irrelevant. In order to be profitable enough to have a decent future, GM needs to sell their cars for at least $2,500 more and perhaps as much as $4,000 more. Does anyone really think this is going to happen?

  • avatar
    boosterseat

    Your point in the article about having 25 people sending out 50 e-mails per day, for an aditional 1250 e-mails is key here.
    It looks like the company is currently run, simultaneously, by:
    CEO
    Board of D.
    Management
    PTFOA
    Congress
    President
    President’s staff

    The amount communication, e-mails, copies & faxes between just these people would be difficult for a small team of auditors to track down.
    It must be stiflingly difficult for a decision to get made now, in and of itself. It seems to me that no other successful company in the world is run anywhere near this top heavy, so why try it here? Apple – a couple people in charge. GE – very clearly structured and one of world’s largest co’s. Microsoft – pretty much one guy. RIM – Two guys in charge. Exxon – CEO.

    Shouldn’t they have a short list of key objectives, say 5-10 and an exacting timeline to execute, with 1 person in charge & accountable? Wasn’t setting this up the role of the PTFAO?
    I agree, they are more screwed now, with more people, no plan and no way to MAKE a plan.

  • avatar
    mel23

    The only reason the government got involved is because a politically powerful group (UAW) was threatened.

    How do you explain the government involvement in the banking sector? No UAW there as far as I know. And it was Mr. Paulson who rode to their rescue, and it was W who made the first move in the auto sector. Since this ‘explanation’ of Obama’s motivation comes up so often, it would be interesting to read how this all fits together from someone who seems to see what others can’t. I’m not holding my breath for a response to this.

    As for the many benefits of capitalism, it might be worthwhile to review the history of Microsoft and their impact on the PC world. Recall they were sued by the DOJ in Clinton’s time with the decision rendered late in Clinton’s term. Microsoft was to be broken into two companies; one for the OS and one for applications with criminal penalties for breaching the separation. After a one-on-one, Ballmer to Cheney, the suit was effectively dropped and Microsoft walked away with a wrist slapping and we’re still under their control with most competitors dead or permanently maimed. Reading the Findings of Fact from the case gives lots of examples of how capitalism works in unrestrained forms. We’ve put up with years of software crap from MS due to their killing anything that looked like competition through whatever means available to them.

    http://www.usdoj.gov/atr/cases/f3800/msjudgex.htm

  • avatar
    Pch101

    PCH101 believes the PTFOA will, eventually, clean house.

    Well, let’s clarify that. I believe that the task force is trying to find a new operator that will clean house.

    I think that you need to look to what happened with Chrysler to get a sense of what they’re trying to do with GM. They filed bankruptcy, to get rid of debt and some of the excess dealer network. They found a new company to run it, and it’s the new business that will make the management changes.

    If you assume that an effort is being made to find a new operator for GM (Nissan), then you have to accept that the new owner is going to hire and fire the management. There’s no point in the task force doing it, because Carlos Ghosn is going to make his own decisions, anyway.

    Nobody outside of GM would take the CEO right now, because nobody wants to take the job for a few months. Until it’s clear what is going to happen with GM, you have to assume that Henderson is just a placeholder, just as Nardelli became once the Fiat deal was being put together.

    My main point here has been that the GM situation is a work in progress, and it’s a bit early to judge the management outcome. If it is Nissan’s job to fix it, then the task force has to stay out of making management selections until Nissan takes over. That’s what happened with Chrysler, and heads began to roll before the ink had dried on the transition paperwork.

    If the Nissan deal dies and there is no Plan B operator to come in, that’s when you will be able to start judging what is going on with GM management. Until then, I think that you’re jumping the gun.

  • avatar
    jpcavanaugh

    I just finished re-reading Going For Broke – a book written in 1981 about Chrysler’s decent into disaster and the beginnings of the Iacocca revolution. This book should be required reading for anyone interested in today’s GM mess. I draw 3 main points from the book today.

    1. The Chrysler of early 1979 reminds me a lot of the GM of 2008. Chrysler developed a management structure and culture that completely prevented success. It was much worse on the inside than it appeared to anyone on the outside at the time. The descent of the US economy into an economic disaster sealed the company’s fate. Fixing it required fresh blood and lots of it, led by someone who knew what he was doing. Iacocca basically had to rebuild the company from the ground up.

    2. It is also instructive that in 1981, GM was still believed by everyone on the outside to be an impregnable fortress. It still held a market share of about 45% and had oodles of money for new product at a time when Chrysler’s (and Ford’s) continued survival was in doubt. The lesson here is that while Chrysler and Ford had to remake themselves between 1979 and, say, 1983, GM continued along the same trajectory.

    3. Finally, How times have changed in the last 25-30 years when it comes to government assistance. Chrysler went for help during the Carter administration and a Democrat dominated congress. Direct aid was out of the question, and a loan guarantee package which required a herculean effort by Chrysler in order to meet its requirements was the only possible option. Chrysler was saved with no outlay of federal money.

  • avatar
    Rod Panhard

    RF, I can’t believe you dissed Captain Kangaroo on this one. The guy was brilliant. He always set up Mr. Greenjeans to take the heat, which was a hail of ping-pong balls, using a puppet moose as the foil.

    Now, if that isn’t the PERFECT metaphor for the PTFOA, then I really don’t know what is. Meanwhile, Grandfather Clock will keep running, and running and running as Bunny Rabbit keeps chiseling Captain Kangaroo out of more and more carrots.

  • avatar
    geeber

    carlos.negros: This sounds like our health care system, our educational system, our food supply, and our FDA. Our national voting system seems pretty bad too.

    It seems you have a romanticized and sanitized view of capitalism.

    Only problem is that not one of these represents pure capitalism in operation…and anyone who holds our government-run education system out as an example of capitalism in action needs to learn something about how it really works. It is as far away from capitalism as one can get.

    carlos.negros: Bringing this back to cars and democracy. Barak Obama campaigned precisely on the issue of whether he would allow U.S. companies to be liquidated and unbolted from the factory floor and shipped to China.

    In which case, he was doing nothing more than using hysteria and voters’ ignorance to gain votes. GM and Chrysler were never going to be shipped to China. Parts of them are still viable – just not under present management, or with the UAW contracts in place. The rest are worthless. Not even the Chinese want them.

  • avatar
    Happy_Endings

    I place that number two behind the retiree problem.(of course they lose money because they have less than 50k people working and a million more collecting benefits while adding no productivity)

    They were losing money on every vehicle even before the retiree problem is added in. Their operating expenses were $5B more than their total revenue in 2007.

  • avatar
    carlos.negros

    Geeber, your usual selective quoting.

    The next thing I said was, “To that we can add our (former) investment banks, mortgage brokers, SEC (Bernie Madoff), war contractors and the list goes on.”

    Let’s at least try to be honest.

    And you said, “he was doing nothing more than using hysteria and voters’ ignorance to gain votes.”

    Nice. I see how much you respect democracy. Now you are calling the American people ignorant because you disagree with them.

    The last time I looked, Obama still commands a clear majority of support. Those, like yourself, who want to see him fail, represent a fringe.

  • avatar
    Happy_Endings

    They were making massive retriee payments in 2007. This has been hurting them for a long time.

    No society or company can afford 30 years work and then a rich retirement.

    Those retiree payments had nothing to do with operating expenses. On top of that, those retiree payments are largely out of GM’s hands now. But those operating expenses aren’t changing much.

    It’s as simple as this; if it costs you more to produce your product than what you get in return, you have huge problems. At this point, everything else is secondary.

  • avatar
    dzwax

    Would someone please provide an accurate P&L with supporting documents for GM? In my naivete I believe that we could easily trim the fat if we just knew where all the money went.

  • avatar
    Canucknucklehead

    Everything Chrysler and GM is selling is at a loss. So Ford is going to need to match the price and they will also be dragged down.

    There is one problem with this argument. The fact remains that consumers are still willing to pay more for what they perceive as better product, something that gives them real value for their money.

    For example, here in Canuckistan, you can get a nicely equipped Cobalt for $6k less than a Civic. But the Civic is still the most popular car in Canuckistan and has been for years. People willingly pay the difference and Chevies have such a stigma attached to them that most owners are embarrassed to drive them. The only reason they do is easy (government sponsored) financing.

    This is an extremely difficult dilemma for GM; they are going to have to come out with a car that consumers want just as much as said Civic. It has to perform at least as well, be as least as reliable and cost much less. Hardly a recipe for profits.

    GM has absolutely destroyed it’s reputation. How many times have we heard about the “New GM” and it’s latest “Import Fighter?” This is not something that GM is going to fix with PR and ad campaigns.

  • avatar
    Happy_Endings

    Unless you think the government giving GM tens of billions takes the retiree payments out of their hands. Government Motors still needs to make those retiree payments and it is the main reason they won’t be able to make a profit.

    So what? They’re losing money before retiree payments! It’s irrelevant. They’re losing money on each vehicle sold because it costs them more to make than what they get in return. Losing money on top of that doesn’t make any difference, it’s just a higher number.

  • avatar
    Pch101

    Government Motors still needs to make those retiree payments and it is the main reason they won’t be able to make a profit.

    If you actually took the time to look at GM’s financial statements, you would see that this is an inaccurate statement that caters to your hatred of unions, rather than actual facts about the business.

    GM already has costs below those of its competition. Its main problem is that the products and branding have been poor enough that they can’t sell cars at high enough prices to clear their operating costs. Most of those operating costs consist of parts, not labor or benefits.

    It’s hilarious to see Wagoner et. al. drag on about legacy costs, while completely ignoring the incentives gaps and the discount pricing. Domestic incentives are typically a few thousand dollars above those of Honda and Toyota. GM has to sell its luxury 8-cylinder sedans for less than what BMW, Mercedes and Lexus charge for 6-cylinder equivalents. If you can’t see that pricing is a critical problem, then you just don’t want to see it.

  • avatar
    adonasetb

    OMG I’m actually agreeing with Robert Farago!!! Good article.

  • avatar
    Canucknucklehead

    GM has to sell its luxury 8-cylinder sedans for less than what BMW, Mercedes and Lexus charge for 6-cylinder equivalents. If you can’t see that pricing is a critical problem, then you just don’t want to see it.

    My point exactly. GM cannot compete with these makers at a price point that generates profits. It should not even try.

  • avatar
    Dynamic88

    PCH101’s reference was without attribution—he was making a main point rather than arguing stats. So I couldn’t investigate the methodology involved. Define effective. Sample size? Similar industries? Etc.

    Fair enough. I thought you had an extensive conversation in which he detailed the study, or at least attributed it somehow.

    A subject for another zombie watch, but I might as well raise it here: where’s the movement on the branding front?

    I agree. The branding still seems confused and ill considered.

    PS I do not wield my “ipso facto wand” to suggest something is true because I say it is. It means that something is true because the evidence is both obvious and incontrovertible.

    It’s not obvious and incontrovertible that the PTFOA is making things worse at GM. In fact, the evidence seems to show just the opposite – decisions are finally being made that should have been made by the private sector decades ago. They’ve gone C11, they are reorganizing, they are culling dealers, and so on. The PTFOA has done in a few months what the private sector failed to do in 3 decades.

    The PTFOA won’t make flawless decisions, but they will make decisions, which is already a step up on the private corporate pros who’ve been running things into the ground for 30 years.

    True story: New GM is inherently worse than old GM. And it’s going to get worse from here.

    That doesn’t strike me as incontrovertible. New GM will have no debt, no legacy obligations, and a smaller dealer network. They do have some good cars and some good design/engineering talent. If a new owner can be found, it’s possible to make something of it. It’s not a given it will succeed, but I don’t see the incontrovertible evidence of it getting worse.

  • avatar
    Happy_Endings

    Well if you think GM can pay out tens of billions to retirees and still make a profit so be it.

    Even if they had no retiree payments, they’d still be losing billions. Retiree payments are a red herring.

  • avatar
    ttacgreg

    reclusive_in_nature . . .

    1. How do you boycott a monopoly?

    2. Our system of govenment as it is outlined in the Declaration of Independence, and the Constitution, is in fact We The People. It seems your view reflects the belief that government is imposed upon us. It is only to the degree that We The People abdicate our roles as citizens and participants, thus allowing less than altruistic agents to fill that vacuum.
    I may be naive and or mistaken, but I do think it is entirely possible to have government of by and for the people, rather than of by and for the tycoon, trillionare, bureaucrat, despot. We just need to pay attention and be engaged, and cast intelligent votes.

  • avatar
    CliffG

    At the risk of being off topic or something, I believe the question that RF was attempting to answer, was “Can a 25 man committee solve the problems of a dysfunctional culture better than one crazed autocratic man/woman?”. As a proud holder of an MBA Finance, let me be clear, shoot the committee now. While I am firmly in belief that a democratic republic is mankind’s highest achievement in government, a company may find that method an excellent path to failure. You know, like GM right now.

    While I do not have total esteem for Piech of VW/Audi/Porsche fame, I do remember one story about him from his early days at VW: Wandering in to the design studio he saw a clay mockup of a new VW dash. He hated it, went over to a bench, grabbed a hammer and totally destroyed it. He told them to do a better job,it was unacceptable. THAT approach is what has to occur at GM right now. And in bankruptcy someone could do that. Except it isn’t a “normal” bankruptcy, it is bankruptcy in which 535 legislators, innumerable people in the WH, a special committee, and a huge intact corporate bureaucracy are all vying for their piece of the pie. It cannot work. What GM needs is a passionate (about cars!)and ruthless leader, something it cannot get at this point.

    Oh yeah, the death of American industry is directly related to the idea that a bunch of MBAs and lawyers can run anything. Widgets, cars,banks,the government,whatever. Shakespeare was right.

  • avatar
    Happy_Endings

    That is government economics. You have not backed up your statement with any numbers.

    2007 numbers:
    Operating expenses: 185.5B
    Total revenue: 181.1B
    Difference: 4.4B

    You cannot just pretend the tens of billions in pension costs doesn’t exist. It is a very real part of the expenses and it must be covered by revenue.

    You cannot pretend that losing $5B even before all other expenses doesn’t exist. If you are losing money just making the product, everything else is irrelevant.

  • avatar
    ttacgreg

    bluecon
    It seems retirees is an issue with you. Did they do something wrong? How would you propose their situation be resolved?

  • avatar

    CliffG:

    While I do not have total esteem for Piech of VW/Audi/Porsche fame, I do remember one story about him from his early days at VW: Wandering in to the design studio he saw a clay mockup of a new VW dash. He hated it, went over to a bench, grabbed a hammer and totally destroyed it. He told them to do a better job,it was unacceptable. THAT approach is what has to occur at GM right now.

    Exactly. I didn’t like him too much either, but he turned the company around. It was a morass of quality problems. It was run by managers who didn’t understand cars and who bought anything the engineers told them. Piech, an engineer, didn’t buy into it. But he himself complained about the “Lehmschicht,” the “layer of clay” even a Piech wasn’t able to penetrate.

    As far as committees go, all they are good for is to slow everything down. The saying at VW still goes. “Wenn man nicht mehr weiterweis, gründet man nen Arbeitskreis” – if you are totally stuck, launch a committee.

  • avatar
    paulie

    John Horner
    “Not to say that I’m all for the government running everything. My point is that this notion of a once upon a time in America everything was about free enterprise is simply not supported by the historical facts.”

    This is true.
    So what? It is true only in the pure fact of the statement, but in its spirit.
    For free enterprise has been the basic engine of this country.
    The fact that government has meddled, and sometimes for the better, does not mean all bets are off and let er’ roll attitude for government interference.

    carlos.negros

    “Which U.S. company or sector is your model for accountability and success? And, by the way, do they build cars?”

    Is this a trick question?
    Are you that far removed from the American business world not to have any idea of the successful American companies or their business model?
    Then let me help you.

    For JUST 2009

    Apple.
    Johnson and Johnson
    Proctor and Gamble.
    Southwest Airlines.
    Microsft.
    General Electric.
    FedX
    Xerox.
    Sun.
    Dell.
    WaltDisney.
    Cisco, Qualcom.
    Adobe.
    Intel.
    Invidia.

    This list can and should go on not only to give this anti US business crowd a spanking, but to revive the spirit missing in the minds and hearts of many.
    Look, this anti US company bias is showing your ignorance of the American free enterprise system AND our culture.
    Why has this country not only been the world leader for 100 years but will continue, regardless of the currant downturn in the economy?
    It’s because we have had and will continue to have the ONLY truly diverse culture IN THE WORLD.
    No matter which country you point out in Europe or the so called awakening GIANT Panda…these are never going to be open and diverse cultures.
    No country will lead if it cannot squeeze every bit of creative juice for a variety of people and cultures.
    ONLY the United States has this.

    Now, YOU name me the government programs that have proven as profitable and as successful as these companies listed above have.

  • avatar
    Dynamic88

    “Can a 25 man committee solve the problems of a dysfunctional culture better than one crazed autocratic man/woman?”. As a proud holder of an MBA Finance, let me be clear, shoot the committee now.

    I’m not questioning your right to express your opinion, but is there anything concrete to back it up? Seems to me one autocratic Czar can at times be wrong (Henry Ford) but w/o any feedback.

    Are Japanese companies (we may as well look to successful companies for models) run by autocratic Czars who hand down decisions they’ve made on their own?

    As far as committees go, all they are good for is to slow everything down.

    It may be good to slow down. Making a good decision is more important than making a quick one.

  • avatar
    ConspicuousLurker

    @mel23:

    And the banking sector isn’t politically powerful? You should examine the influence of Fannie Mae, Freddie Mac, and the former CEO of Countrywide. They had PLENTY of influence…

    Your spiel about capitalism, Microsoft, and monopoly rings hollow. This is about GM and how they abandoned their capitalist instinct decades ago: they crapped on their customers, their shareholders and bondholders, and laughed all the way to the bank; when the gravy train looked like it was going to come to a crashing halt, they got the rest of us to pay to keep it moving.

    How this somehow serves the greater good is beyond me. All I see is us subsidizing the gross inefficiency of a single player in the market and delaying its inevitable collapse. If you believe this as “capitalism,” then I don’t think we’ll ever see eye to eye.

  • avatar
    Pch101

    Seems to me one autocratic Czar can at times be wrong (Henry Ford) but w/o any feedback.

    I guess that the answer is that “it depends”, but majority-rule decisions are better more often than autocratic ones. Here’s an example of one study that reaches that conclusion (although you could be forgiven for dozing off while trying to read it): http://www.garylilien.info/publications/55%20-%20Using%20single%20informants….pdf

    The theory is that groups run by majority rule will use more information than autocrats in order to make decisions. The premise, of course, is that better decisions get made with more information (and presumably with some debate mixed in for good measure.) That’s probably true, at least to a point.

    We’ll see how the task force works out, but in my opinion, the more important takeaway is that this notion that the task force is managing the auto companies appears to me to be incorrect. It appears to me as if they are leaving the management to new operators; they are not acting as managers here.

    They did learn enough about the industry to know that the restructuring plans previously submitted by Wagoner and Cerberus were BS, and that something more drastic was required. In effect, they are doing what a DIP lender or board of directors should do, which is to determine whether there is any shot that the proposals will work. It wouldn’t make sense to hand over all of this cash, only to not pay attention to how it is being spent.

  • avatar
    paulie

    Pch101

    Capitalism isn’t pretty.
    Democracy isn’t pretty.

    They are results of arguments and sacrifice.
    As a novice of American history, I am humbled by the unstable and fragile early beginning years of this country.
    How did we make it, I will never understand.
    And very likely, we haven’t.
    And there have been great autocrats through history, but it was still not freedom.
    And freedom, our democracy, is still an experiment.
    We more than likely will fail, or at the very least pay dearly for the learning process.

    And the auto manufacturers should pay for their failure as well.

    US automakers began a disastrous turn in the sixties that mirrored a business movement in many companies and still rules boardrooms through to this day.

    GM, Chrysler and Ford decided to work for the investor rather than the future of the company.
    Suddenly, the shared platform not only was a way to save investment and production cost, it became incest!!!
    Chevy begat a GMC begat a Pontiac begat a Buick.

    Instead of the engineers being produced in our colleges and universities, we crank out the MBAs.
    The lawyers.
    OMG!

    Yes, there were still winners from the internal fights as to where R&D money should be spent.
    Once in awhile, an engineer did win the day.
    Once in awhile money was put towards an idea, a new concept, but not usually.
    Instead, the decisions were made after determining the quickest return and how the books would look for the shareholders
    .

  • avatar
    paulie

    Is it just my opinion, or does it seem to others as well that our universities crank out professionals who are better designing ways to make money than things?
    I mean, it seems that most investemts are called “vehicles” or “products”.

    And we wonder why companies lose the picture.

  • avatar
    agenthex

    Without failure, there is no accountability. Without accountability, there is no failure. It’s an endless loop of mediocrity.

    To pull out of this death spiral, you have to introduce accountability. You have to allow failure.

    GM has already failed, and the capitalism system allowed it. But I guess we need more failing, because everyone likes more fail.

    Capitalists never like to discuss the external costs of their little system. Make your own judgment whether this is ignorance of the willful type.

    The river is already polluted, the question is whether it’s worth cleaning up. Until people get from under the pathetic worldview that the universe operates on their self-determination (ie ideology), a rational discussion on a solution is mostly a waste of time.

    Also, it’s clear at this point that the capitalists like all good backwards traditionalists are more concerned about punishment than resolving the problem.

    Capitalism—the worst of all possible economic system except for all the rest—is “creative destruction.” Whatever this is, it isn’t capitalism.

    Of course it’s not, because capitalism doesn’t work. Smarter people have thus learned from its historical failure and instead defer to the mixed econs we have today. This is like arguing the efficacy of “democracy” to the mutual exclusion of autocratic decision-making (hey this sounds familiar, as if someone was just championing it) or the republican compromise.

    I’ve already issued the challenge many times. Find examples of successful free market economies. The reader can decide whether NO challengers have stepped forward thus far is because of the lack of such examples or the inability of their proponents to find them.

  • avatar
    John Horner

    To follow up on agenthex’s bit: The most successful economy in the world today from a growth and development perspective is China. China remains a highly centrally directed economy and the government at various levels is deeply involved in the ownership of the majority of large companies.

    This fact flies in the face of the “we don’t want to end up like the USSR” diatribes normally thrown about by the all-government-is-bad true believers.

    To me the real question is how to find the best balance of private and government involvement in various situations and at various times. Pure communism doesn’t work well. Pure capitalism doesn’t work well. We are left then to muddle through figuring out the best mixtures and compromises. Doing so is beyond the ken of dogmatic true believers in either pure capitalism or pure communism.

  • avatar
    agenthex

    I guess that the answer is that “it depends”, but majority-rule decisions are better more often than autocratic ones. Here’s an example of one study that reaches that conclusion (although you could be forgiven for dozing off while trying to read it): http://www.garylilien.info/publications/55%20-%20Using%20single%20informants….pdf

    I guess it’s interesting people would study business mathematically, but do the studies have to be this worthless?

    I hope this is an isolated example and the cited sources for the models are not as bad.

    You’d think they’d at least try to plot off # decision makers vs. efficacy, and normalize for total information used since that is most related to cost (and I take that to be important for businesses).

    Their data presentation in general is confusing as hell; looks like it’s optimized to impress business folk.

  • avatar

    agenthex

    I’m not an ideologue. Yes, it’s a sliding scale, from “pure” capitalism to complete state control.

    My philosophy: the LESS government interference in private enterprise, the better.

    When GM first proffered the begging bowl, I suggested that the feds could (not my first choice, but a choice) offer DIP financing for GM’s C11. I did NOT contemplate nationalization. Or federal oversight (i.e. command and control). I also recommended federal support for the dispossessed (pensions, health care, retraining, etc.).

    What we have here is a non-bankruptcy bankruptcy. Non-failure failure. As a pragmatist, surely you can see that this isn’t working, and stands little chance of working.

    As for the refrain that the current arrangement is better than a theoretical total meltdown, I’m sorry, but I find this a specious argument. Plenty of large companies have gone belly-up without federal intervention. Yes, it was incredibly painful. But the world kept turning, the economy—local, state and national—recovered.

    I believe that the argument that the auto industry couldn’t survive without GM alarmist and, well, silly. There has been no cost – benefit analysis (save the specious CAR report) that’s shown that this nationalization is better than what would have happened.

    And there is PLENTY of evidence that nationalization—an inherently abhorrent concept to most Americans—doesn’t work. Which is one compelling, reason why it shouldn’t be attempted.

  • avatar

    Command and control of the entire economy top to bottom from government boards in Washington was how it was done.

    And those government boards had significant input from business. The War Production Board was run by Charlie Wilson, then president and later CEO of General Motors. Wilson is the father of America’s dedicated defense industry and was later Eisenhower’s Secretary of Defense.

    Also, while the gov’t may have picked some winner and losers (see TTAC’s recent piece on the history of the Jeep), much of the war material (materiel?) procurement process involved competitive bidding.

    It should be pointed out that the close gov’t controls on business during the 1930s did not alleviate the Depression appreciably and may have made things worse.

    BTW, one of the characteristics of fascism is to treat everything as the “moral equivalent of war”, so as to keep the citizenry mobilized.

    It’s interesting how some of those who were most outspoken against the previous administration’s national security efforts during wartime want to take a martial approach to managing the economy.

  • avatar

    Pure communism doesn’t work well. Pure capitalism doesn’t work well.

    I’m not convinced pure capitalism has ever really been tried. Even in the 19th century and the era of the robber barons, the heavy hand of gov’t was busy taking graft and choosing winners.

  • avatar
    agenthex

    My philosophy: the LESS government interference in private enterprise, the better.

    When GM first proffered the begging bowl, I suggested that the feds could (not my first choice, but a choice) offer DIP financing for GM’s C11. I did NOT contemplate nationalization. Or federal oversight (i.e. command and control).

    The capitalist goal of privatizing profits and socializing loses in this case essentially means paying for DIP and getting jack squat ownership. Remember capitalism is about making or avoid losing money. Why clean up metaphorical toxic waste when the taxpayers will do it? This is the lesson people should’ve learned from our Non-TARP friends instead of “broken laws” that never actually get specified.

    On the specifics of influence, it would’ve been much better had the government interfered to prevent the poor strategy of d3 much earlier instead of this expensive last ditch attempt.

    It’s also already been pointed that Chrysler was a trial and template for GM. Your precious “private” managers are plotting for the best deal right now.

    Plenty of large companies have gone belly-up without federal intervention. Yes, it was incredibly painful. But the world kept turning, the economy—local, state and national—recovered.

    Yes and no. Yes, plenty of large companies have gone down individually and their employees, society, and the gov bore the cost.

    No, because widespread economic devastation is extremely expensive to recover from. Just ask our friends in England how well effected areas recovered from your hero Margret Thatcher. Would you consider a price to prevent Katrina? Sane non-ideologues would.

    Again, the pond is already full of toxic waste, and the real question is a cost/benefit analysis entirely dependent on context instead of a philosophy. No, you don’t get to divide the price per UAW member.

    It’s an incredibly complex question with widespread consequences. I serious doubt it’s even possible to do at anything other than at a very broad macro level, and even then there are many possible interpretation of short and long term repercussions. How would rapid unemployment ripple out? How tied are local businesses to the auto industry? How soon would the auto market (or ever) recover to a point where the value/expertise destroyed in a chap7 be worth something?

    I would agree as noted prior that the cost is high, but so are the possible repercussions. At the very worse, we find out this was insurance not worth the price.

    Furthermore, not all future decisions and consequences are visible at this point. However it is clear that the “government commission” has acted competently on the decisions it has made, and that competence should reflection something.

    The best lesson to learn going forward is to recognize the lesser evil choice we had to make, and to avoid the sequence of events that led up to it, and that includes the hands-off approach we’ve taken to big industries.

    It’s interesting how some of those who were most outspoken against the previous administration’s national security efforts during wartime want to take a martial approach to managing the economy.

    Smart people want competence, not ideology. When traditionalist backwardness shows itself to be competent, we’ll bring it to the table for discussion.


    I’m not convinced pure capitalism has ever really been tried.

    No, it’s been tried and in effect in many underdeveloped places. Its proponents just don’t like the results so they ignore it or disqualify it based on some technicality; they’ve been waiting for their utopic example to prove them right ever since they first had the idea a long time ago.

  • avatar
    agenthex

    What they did wrong was to believe their union leaders.

    So now they are top heavy with a huge number of retirees and no matter what they do it will fail in time.

    Yes, wouldn’t it be great if we had smart and competent people think this through ahead of time and balance the demands the demands of capital vs labor instead of the cluster we got now?

    I certainly don’t recall the government forcing the D3 to pay out elaborate pensions, nor the UAW to adopt dumbsh1t work rules.

    Hey, maybe most humans were idiots with poor individual planning facilities before the government came along, and in fact they started forming larger collectives in the first place to better survive in the long run because the smartest of them had better ideas than each of them.

    But this means we should start electing leaders based on their intelligence and vision instead of their merit as drinking buddies. Hells no.

  • avatar
    Pch101

    GM, Chrysler and Ford decided to work for the investor rather than the future of the company.

    That’s actually not true, as we can see from the results. The investors got wiped out.

    As for the rest of it, capitalism just is, and we can either make it work for us or stupidly allow it to implode in our faces, just because. It’s supposed to be a tool that we use to our advantage, not a religion to be used for self-martyrdom.

    And there is PLENTY of evidence that nationalization—an inherently abhorrent concept to most Americans—doesn’t work.

    If we’re going to be a DIP lender (an idea that didn’t thrill me, by the way), then there needs to be some control over the company and how it manages its affairs.

    (Arithmetic of the day: Money – Strings = AIG. That was the result of the hands-off attitude of the Bush approach to bailouts, and nobody wants a repeat.)

    If we are going to hand out billions, then we must control the business until we’ve recouped what we can. The equity and the board seats are there in an effort to get it back. We can debate whether bailouts were sound, but if we were going to lend in cash, then there needs to be something more than a promissory note to increase the likelihood of partial repayment.

  • avatar
    paulie

    John Horner…
    …and anyone else who speaks well of China.
    You ever been there?
    I have.
    4 times.
    North, south and inland.
    I have seen the dreadful slavery and the waters filled with pollution.
    I have been sitting at fancy restaurants while getting email updates on what foods were listed on the daily warnings for contamination.
    I visited the rivers where people were cooking downstream from where people were washing.
    I have visited the factories surrounded by ghettos of cement slavery housing for the poor shipped in from the rural areas for cheep labor.
    I won’t stand for another remark about the grand economy of China.
    This talk is plain stupid.
    Its madness.

    And please listen to what RF is talking about.
    Nobody speaks of PURE capitalism.
    It’s a SYSTEM.
    A form of economy based upon the simple belief that when YOU work hard, YOU succeed.
    When you don’t work hard, you don’t succeed.
    When you buy something, YOU own it.

    Does anybody understand the American Dream?????

    Our entire country was founded upon this.

    Yes, we know there are problems with business like there is weakness in the mind of man.
    That’s why we have civilization and laws.
    But its a ridiculous step to go from there’s sin in man’s heart to man has no heart.

    agenthex

    Capitalism is NOT only about making money or losing it.
    That’s a naive and narrow minded definition.
    Its about private ownership.
    Its about work and success.
    Inventors don’t invent to make money.
    They invent because they THINK.
    And their inventions are the results of their thoughts, trials and sweat.

    And yes, in the capitalistic world, they OWN their thoughts.
    And they can profit from their work.

  • avatar
    ihatetrees

    Have their been comparisons and contrasts written about the GM culture vrs a Toyota or Honda culture?

    For a while, it seemed as if the imports/transplants had a much faster model makeover – and a lot of business publications were critical of GM (and Detroit) because of it.

  • avatar

    Gentlemen,

    As you rightly point out, the DIP deal with GM puts Uncle Sam between a rock (our money headed into a black hole) and a hard place (the need to stop that from happening).

    As I said before, government funding was not my first choice. But I would rather piss away billions without federal control.

    Seriously. Write GM a check for, say, $100 billion. Tell them: sort your shit out. If you don’t, oh well. You had your chance. We lost our money. That’s life.

    Two main advantages to this strategy:

    1. The government wouldn’t be running a car company
    2. It has an end point.

    [Bonus! It delays THE CRASH that so many TTAC contributors are sure would have occurred without the DIP funding]

    Of course, the first round of bailouts was supposed to be just that: a big old bunch of money with no strings attached. (It wasn’t.) But at least those “bridge loans” had an expiry date. This nationalization without limits puts us on the road to nowhere.

    You may believe that the PTFOA will save GM. I’m sure THEY believe it. GM will believe anything to stay alive. But for the reasons stated in this article (!) and five years of close observation of the U.S. automotive market and GM place within it (including driving over a hundred vehicles from all manufacturers), I don’t share that optimism.

    As Benjamin Franklin said, it’s better to be a pessimist and pleasantly surprised than to be an optimist and constantly disappointed. That’s doubly true when it’s my money at stake.

  • avatar
    agenthex

    I have seen the dreadful slavery and the waters filled with pollution.
    I have been sitting at fancy restaurants while getting email updates on what foods were listed on the daily warnings for contamination.
    I visited the rivers where people were cooking downstream from where people were washing.
    I have visited the factories surrounded by ghettos of cement slavery housing for the poor shipped in from the rural areas for cheep labor.

    The complete lack of effective regulation would be the capitalist part you’re so proud of.

    BTW, those aren’t slaves, they’re wage competitors free to leave if they wish but forbidden from unionizing.

    Capitalism is NOT only about making money or losing it.

    It is to the people who pay massively for the PR to propagate the ignorance which sustains it as religion.

  • avatar
    agenthex

    But I would rather piss away billions without federal control.

    We’ve seen how competent the old capitalist management was about bankruptcy.

    We’ve seen how competent the new communist fascist imperial democrat management was about bankruptcy.

    You choose A, I choose B.

    Look, sometimes nationalization works, sometimes it doesn’t. I know Sweden’s bank crisis in 92 will worked out a lot better for their taxpayers than ours will. Like most things, the quality of results depends on the quality of work. There’s nothing magically apolitical about private management. In any case it’s a lot less transparent, so as a practical note, there’s going to be lot less for you to write about.

  • avatar
    ruckover

    Paulie, if I might comment on your point that capitalism is “a SYSTEM. A form of economy based upon the simple belief that when YOU work hard, YOU succeed. When you don’t work hard, you don’t succeed. When you buy something, YOU own it.”

    I just do not buy the premise, for I know many people who work very hard, yet they do not succeed. I know several people who do not work hard, but they do succeed (it is very important to choose the proper womb to be birthed from if you want to succeed without trying). I know this is the great American Mythos, and it dates back to Cotton Mather and Jonathan Edwards, but it just is not true and it smacks of social-Darwinism.

    Your claim that our entire country was founded on the principles of capitalism, again, seem a bit far fetched. The founding fathers’ focus was on creating a political entity that might protect the rights of its citizens. Clearly, Locke’s concerns with the protection of private property influenced the founders, but free-market capitalism did not yet exist. Much of their efforts went to assuring that minority political views would have a fair hearing, not that capitalism would be our dominant economic system.

    Your central claim, that hard work creates success, seems to be aimed only at the inventor/capitalist. Why should workers not have success if they work hard, also?

    Heck, Jefferson even had good things to say about the ideas of communal ownership, but he did not believe that communalism could work in a large scale setting.

    I do not see capitalism as an evil thing. It is an economic system that can create great wealth, but it needs to be well regulated to make sure that capitalists do not do shady things to maximize their power and wealth. At the very core of Adam Smith’s work was the belief in the capitalist as a Christian/moral being who would work, to some degree, as a benefactor of society. Since I do not have Smith’s faith in the inherent goodness of capitalists, I believe government must act as the counter-weight to the power of businesses. It is not that business is bad, it is that people act in their own self-interests, and society need some communal good if we are to continue to thrive.

  • avatar
    agenthex

    At the very core of Adam Smith’s work was the belief in the capitalist as a Christian/moral being who would work, to some degree, as a benefactor of society. Since I do not have Smith’s faith in the inherent goodness of capitalists, I believe government must act as the counter-weight to the power of businesses.

    Actually Adam Smith understood the good v bad of capitalism and a lot of economic things fairly well. He tends to get misrepresented a lot (as are many historical economists or figures in general) through selective quoting by groups which like to promote ignorance and take advantage of undereducated people.

    This has resulted in generations of “conservatives” who are far narrower thinkers than this one dude who lived in the 1700’s. When I say ‘really backwards’, I do not exaggerate, at all.

    For people who can’t be bothered to read the original because it’s long and fairly archaic (I didn’t complete it either), you can find many good summaries of it. I didn’t read this one, but amazon says it’s good:

    http://www.amazon.com/Authentic-Adam-Smith-Ideas-Enterprise/dp/0393329941

  • avatar
    boosterseat

    Honestly, they would be better off to just beg someome to take over complete control, someone with a proven ability to squeeze money from a rock. If Jay-Z was in charge, I’d feel better. He’s made more profit personally in 2008 than GM has from 2000 to now (they wrote off $60-some billion in one quarter, I believe).

    If he did nothing other than go from building to building and ask “what do you do here?” “Does it make us money?” “What do you need us to change?”
    and to kill each car model that sucks, at the drop of a hat, they would be off to a better start.

  • avatar

    BTW, those aren’t slaves, they’re wage competitors free to leave if they wish but forbidden from unionizing.

    Even that story is untrue. There is the All-China Federation of Trade Unions which is even giving Wal-Mart headaches. There are people who call the ACFTU “useless”, but there are other people who call all unions useless. The ACFTU has the proud title of the largest trade union in the world with 134 million members.

    Paulie may have been in China 4 times. I have lived here for 4 years.

    1.) I’m alive and well, I eat Chinese food and drink the water every day.
    2.) Looking out of my window, I can see the horizon on all sides of Beijing ( a recent phenomenon)
    3.) Slavery? Please help me find some slaves. The folks at my office command decent salaries.
    4.) By law, I have to pay their social security benefits, health insurance, OSHA type insurance, I even pay 10% of their salary into a housing fund which they can use to buy a home. This law – in place for all employed – has been instated a year ago, it may have escaped the attention of the occasional tourist.
    5.) Would you believe it, there is even minimum wage in China, adapted to cost of living in their respective provinces or cities? Minimum wage in Beijing is $125 a month, but I’m having a hard time attracting employees for that kind of money.

  • avatar
    agenthex

    There are people who call the ACFTU “useless”, but there are other people who call all unions useless.

    Except in this case it’s true. The ACFTU is the government’s instrument (as the ONLY legal union).

    Much of what paulie says is also true, tho it doesn’t make the point he thinks it does. The gov there is hopelessly corrupt, and the only laws that are consistently enforced are ones where profits (also, bribes) are involved.

    Any citizen not part of the new, visible middle class is treated like shi1t and paid accordingly. The reason why it’s so nice where you are is because the central planning committee deemed it necessary to focus all their money on some areas because:

    1. Desire to create a new face to the world
    2. It’s where they live
    3. They were paid off handsomely to do it

    Granted I guess at some level it’s better than remaining an econ of subsistence agriculture, but think again about promoting it as some admirable model of social equity.

  • avatar
    shaker

    Seems that China is an enigma – an experiment. Unbridled capitalism under the umbrella of a communist regime. This dichotomy serves the purpose of the govt. at this time (as the formerly poverty-stricken agrarian foment of dissent is re-directed into the cities to build an underclass, but at least one that’s centralized and closer to the seat of control).
    Like bacteria in a Petri dish, it will be interesting to see when the researcher decides to end the experiment, or whether the “bacteria” will eat the door seals (a la “Andromeda Strain”) and escape the lab.

  • avatar
    paulie

    ruckover

    This is why many of you are better at one liners than in depth analysis.
    To pick out certain words I used to emphasis a point, you totally miss the point.
    Slavery?
    Of course they don’t have slave trains coming in from the mountains.
    You missed the point.
    Totally.

    Bertel

    I am glad you lived in China 4 years, ate the food and are still here to talk about it. However, IF you want the more aware in this group to act like the economy of China, the freedom of its people, the safety of its food supply and the legitimacy of its R&D is to be revered and applauded, you are asking to much.

    When I said that, if you work hard, you succeed and enjoy the benefits.
    But of course there are those who work hard and NEVER make you make it rich like the others.
    But damn it, that’s not the point.
    You have to be intuitive.
    You have to be creative.
    And yes, you have to be lucky.
    Why do we continue this circle of garbage?

    You seem socialist enough to think that those who drop out of school, or while in school are lazy, yet work hard as ditch diggers…why don’t THEY make it?
    Why can’t THEY buy an Audi or send their kids to college?
    They work so hard every day.

    I guess we should spread the wealth.

    I’m gonna stick to talking about cars.
    Now, that’s not subjective.

  • avatar
    Geotpf

    postman :
    June 13th, 2009 at 9:38 pm

    I think the plan is to “postpone” GM’s death until the economy improves. If (and it’s a big “if”) we get to the point where the economy is humming again, people are back at work and spending money, GM’s final gasp won’t be quite as big of a headline.

    This is the correct answer. Obama almost certainly knows that GM and Chrysler are unfixable. He just doesn’t want them both to go splat when unemployment is already at 10%.

  • avatar
    wsn

    carlos.negros :
    June 13th, 2009 at 9:41 pm

    RF, please elaborate on your statement, “If President Obama wanted to save GM, he should have let it fail.”

    What would that failure look like? Would it involve a liquidation? Would all U.S. factories close? Would all of the assembly lines be unbolted from the factory floors and shipped to China? Who, by law, would pay the pensions? Who, by law, would pay the unemployment benefits and health benefits? How much would this cost? How would this impact home foreclosures in the affected areas? How would it impact banks?

    ——————————————–

    Here are my answers to your questions:

    Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees. Go ask Enron employees.

  • avatar
    wsn

    paulie :
    June 14th, 2009 at 10:15 pm

    And please listen to what RF is talking about.
    Nobody speaks of PURE capitalism.
    It’s a SYSTEM.
    A form of economy based upon the simple belief that when YOU work hard, YOU succeed.
    When you don’t work hard, you don’t succeed.
    When you buy something, YOU own it.

    ————————————————-

    I don’t agree with your version of capitalism. Here is my version:

    Capitalism = free trade

    Bailout is not Capitalism, because tax payers are forced (not free) to “buy” properties that they have no say anyway.

    Fed setting interest rate is not Capitalism, because that disrupts market trade of loans.

    Monopoly is not Capitalism, because it uses non market force to attack a potential competitor.

    TARP is not Capitalism, because banks are forced to make new sub-prime loans.

    But, prostitution is Capitalism, because the buyer and the seller are doing so willingly.

    You get the idea.

  • avatar
    wsn

    Robert Farago :
    June 14th, 2009 at 10:23 pm

    Seriously. Write GM a check for, say, $100 billion. Tell them: sort your shit out. If you don’t, oh well. You had your chance. We lost our money. That’s life.

    ——————————————–

    I completely agree. But Chairman Obama won’t do it because:

    1) $100B is not enough. His minions want something like $10B per quarter forever.

    2) That would reveal the truth about this political favoritism. Most Americans, even though against bailouts, didn’t know that the money can never be recovered, yet.

  • avatar
    agenthex

    Capitalism = free trade

    Bailout is not Capitalism, because tax payers are forced (not free) to “buy” properties that they have no say anyway.

    Unless you can price in all future externalities, this is a moot exercise.

    It’s pretty interesting to what conservatives try to figure out rules on first principle. I highly encourage it because some basic financial education will eventually be necessary and there is certainty they’ll end up with something akin to what we have now, and see how wrong their assumptions were.

    It’s win-win. Therefore I highly recommend.

  • avatar
    FleetofWheel

    Industrial collectivists like agentex and ruckover don’t see or care about all the opportunity costs of govt intervention with the auto companies.

    The opportunity costs of:

    1)All the taxpayer money being put into GM/Chrysler/UAW, the most obvious cost. All this money could have been invested elsewhere.

    2)Crowding out possible other entrants to the industry. Small niche players at first like Tesla, then other firms later.

    3) The bizarre non-market signals it sends to other US industries.

    4) The extra-legal takings against bond holders who had their ownership rights dozed over and the chilling effect of this action on future investors.

    5) Giving other nations justification to engage in further protectionism.

    6) The unfair reduction in Ford’s competive advantage vis a vis it’s failed domestic competition.
    All the distortions created by this govt chaos will be seen as more justification for new govt control. It’ll be another occasion to “never let a crisis go to waste” as Rahm Emmanuel, Hillary and other statists have expressed.

  • avatar
    agenthex

    4) The extra-legal takings against bond holders who had their ownership rights dozed over and the chilling effect of this action on future investors.

    As previously noted, this clearly shows the commenter is copy pasting talking points (ie. lies), rebuttals for which are readily available including on this site, and thus has fallen into that trap designed to waste everyone’s effort.

    Next time I’d suggest tackling existing arguments in the thread first to at least show there’s some activity going on upstairs, and has the full benefit of reducing the amount of partisan churn that many were complaining about in the “flaming” tread.

  • avatar
    geeber

    carlos.negros: Let’s at least try to be honest.

    Yes, and you can start by not casting the public education system as an example of capitalism in action. It’s anything BUT capitalism in action.

    carlos.negros: Nice. I see how much you respect democracy. Now you are calling the American people ignorant because you disagree with them.

    I seem to recall Democrats and those on the left doing this for the past eight or so years (check their reaction to the results of the 2004 election). Your newfound dedication to the will of the people is touching – at least, to those who have no memory of events prior to 2009.

    To the rest of us, however, your protests ring hollow.

    carlos.negros: The last time I looked, Obama still commands a clear majority of support. Those, like yourself, who want to see him fail, represent a fringe.

    All of which is completely irrelevant to the discussion at hand. Might help to stay on topic.

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