General Motors Zombie Watch 19: You Get What You Don't Pay For

Robert Farago
by Robert Farago

OK, so, GM is a nationalized automaker. I know, I know: nationalization is for third world dictators. But there it is. Thanks to outgoing president George Bush, the feds used $50 billion from the Troubled Asset Relief Fund to bail out General Motors, in exchange for majority ownership. So no matter what W’s political successor says about his administration’s “hands off” non-management of Government Motors, he who owns the gold makes the rules. And when it comes to running a federal-funded organization, Uncle Sam plays by different rules than, say, any private enterprise extent. The bottom line is that there is no bottom line. Amtrak, the U.S. Postal Service, Medicaid—they’re all run at a tremendous, ongoing loss. Which means there’s zero sense of accountability. Which means they will never, ever be able to fully and fairly compete with privately held corporations. Why should GM by any different? Answer: it isn’t.

The truth of GM’s status was revealed the moment the then-head of the Presidential Task Force on Automobiles, Steve Rattner, fired failed GM CEO Rick Wagoner. If anyone on planet earth deserved summary dismissal, Wagoner was it. But as so often happens in life, an important principle was sacrificed on the altar of pragmatism or “political reality.” Yes, Wagoner needed to go. But the feds had no business running GM. Period. And even if you can get past that—which you shouldn’t—it’s not a good idea for elected officials and their appointed minions to decide who should be the head of a commercial enterprise. That’s like asking a serial killer to raise an an abandoned baby; no matter how good the intentions of all concerned, it’s going to end badly.

Yesterday, the aforementioned Mr. Rattner gave us a glimpse into GM prior to the automaker’s nationalization. For those of us who’d been following GM’s descent into bankruptcy, Rattner’s descriptions of executive incompetence and arrogance came as no surprise. Powerpoint mania and an elevator straight from the penthouse to the parking lot? Who knew? The real story here: the timing of Rattner’s so-called revelations. They arrived in the mainstream media the day before the staff of the federal government’s unelected “Pay Czar” let it be known that Kenneth J. Feinberg was going to cut the pay packets for GM’s top 25 earners, by some fifty percent. Connect the dots: crap managers, cut compensation. Fair enough?

Not, not at all. The problem is that the pay cuts only make sense if you accept the idea that it’s OK for the federal government to run a car company. Yes, I’m repeating myself. But it bears repeating: private enterprise and government represent fundamentally incompatible ideologies. The former requires financial accountability. The latter political. In the former case, a company must attract, retain and manage people capable of selling goods or services for more than it costs to produce them. In the latter case, politicians must convince people to vote for them. Put another way, politicians promise. Companies deliver. Or, in GM’s case, not.

Reducing executive compensation at GM will score political points, allowing Obama’s army to claim that its sticking it to the fat cats (that helped fund both his presidential campaign and the democratic party but don’t get me started). But limiting pay to $500k per suit per year (plus “shares” in a future entirely theoretical IPO) will do nothing for GM’s ability to repay its government “investment.” Or prevent further federal payments. Or forestall Chapter 7. Indeed, it will hasten the end of the end.

Limiting pay guarantees that GM will continue doing the same thing that’s brought it to this parlous state of affairs in the first place: hire from within. Make no mistake: GM “boasts” the mother of all inbred corporate cultures. The fact that it’s still led by lifer Fritz Henderson tells you all you need to know on that score. And speaking of scoring . . . Given the ongoing chaos at RenCen and the inviolable rules of supply and demand, GM can’t attract top turnaround talent from outside its shallow genetic pool unless it pays top dollar. In fact, GM would have to pay ABOVE the odds to hire anyone capable of keeping the artist formerly known as the world’s largest automaker from total self-immolation.

But that won’t happen. Can’t happen. Because commercial prudence and political acceptability are two different things. Which is why companies are not run as democracies and governments are not based on the profit motive (obviously). The wider point is also well worth making. The Pay Czar’s interference in GM’s management sets a dangerous if not entirely unexpected precedent. Although Feinberg’s pay and compensation mandates only apply to companies who’ve suckled on the federal teat, who “get what they deserve,” his rulings are a warning shot across the bow of executive suites across the country: a public proclamation of how much money is “enough” for the management class.

Thanks to America’s movement towards Bailout Nation, class warfare is breaking-out all over. In that sense, GM’s failure can’t come soon enough. Yes, I said it: I want GM to fail. I didn’t start from this perspective. I didn’t want to have this perspective. But I’m a proud American. This country was founded on the belief that government is the single greatest threat to an individual’s life, liberty and pursuit of happiness. The sooner GM’s “temporary” takeover collapses, the sooner we will realize that the Nanny State is not for us. It is, in fact, against us.

Robert Farago
Robert Farago

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  • Bigbadbill Bigbadbill on Oct 24, 2009

    Jeez, you guys are way over my head. I don't know a thing about what's happening in the corporate halls of GM. You guys sure know a lot. Well, I do know some guy, name of Rick got canned and another guy with a moustache took over. And another older guy who flies Czech (or maybe Slovak) fighter jets seems to be some sort of hotshot there. I think his name is Bob...that's it...Bob Goodwrench... or something like that. We sure do comment a lot about GM. I'd sure love to hear some corporate intrigue stories that go on at Toyota, Honda, etc. or do they keep a much lower profile. And their names are harder to spell. One thing I do know; they must be laughing out loud at the Americans.

  • Plugot Plugot on Oct 25, 2009

    GM's fall has been building for literally decades. If you're interested in seeing behind the curtain, pick up a copy of "All Corvettes Are Red" by James Schefter. What started out as a book about the creation of the C5 Corvette became a look inside a bloated, arrogant, and incredibly incompetent entity. Unfortunately, the disaster that was/is GM is mirrored in so many of the Fortune 500 corporations that it's become the norm. And as long as we only have 2 major political parties who suck back corporate monies faster than a Hummer at a gas tank, there will be no reason to expect the situation to change. Why should it? I mean I'd love to have it both ways too - when I make money I get to keep it all, and when I screw up so badly that I almost tank the global financial system Uncle Sam bails me out. Anyone really think that's going to change?

  • IBx1 Never got the appeal of these; it looks like there was a Soviet mandate to create a car with two doors and a roof that could be configured in different ways.
  • CAMeyer Considering how many voters will be voting for Trump because they remember that gas prices were low in 2020–never mind the pandemic—this seems like a wise move.
  • The Oracle Been out on the boat on Lake James (NC) and cooking up some hella good food here with friends at the lake place.
  • ToolGuy Also on to-do list: Read the latest Steve S. fiction work on TTAC (May 20 Junkyard Find)
  • 1995 SC I'm likely in the minority, but I really liked the last Eldorado best. That and the STS.
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