General Motors Death Watch 55: My Kingdom for a Horse

As our GM Death Watch series gains traction, I've taken to scanning the skies for black helicopters, stashing Glocks around the house and avoiding the fine city of Detroit. But I would have loved to been at RenCen to see the look on Bob Lutz' face when his boss sliced the Car Czar's salary by 30%. If you recall, Turnaround Tycoon Jerry York originally suggested executive pay cuts as a way to send a clear message to workers throughout the world's largest automaker: WE'RE IN DEEP SHIT. At the time, Maximum Bob responded to the suggestion with characteristic bravado: "I gave at the office." I guess he's learned that bankruptcy is the gift that keeps on giving.

To be fair, Mr. Lutz had something of a point. Although his employment contract isn't a matter of public record, much of Bob's compensation package is tied to the company's performance, both directly (through incentives) and intimately (through stock options). As GM bleeds out, shedding value like a dot com bomb, Bob's lost theoretical millions. OK, it's more than partially his fault. But as an employee stockholder, Lutz has GOT to be worried. Yesterday, Deutsche Bank took a hard look at the state of GM's finances and issued a Lutzian pronouncement: "sell."

The recommendation came despite the fact that a newly independent Jerome P. York finally joined GM's Board of Bystanders. (An SEC 13D/A filing for Tracinda Corp states that Jerry won't share confidential info with his capo, GM stockholder Kirk Kerkorian. Yeah right.) What's more, The Bored of Defectives ordered GM CEO Rabid Rick Wagoner to bring Mr. York the head of Alfredo Garcia. And so he did, making across-the-board cuts in accordance with York's rescue plan: trimming white collar pay, pensions and health care; reducing GM's annual dividend by 50% and, get this, signing-off on a significant reduction in The Board of Bystanders $200k annual "retainer." Message received?

Not where it counts. Let's be clear about this: the cuts will not stanch GM's massive wounds. The General lost over eight billion dollars last year. The largest measure in this package– the dividend reduction– will save GM $566m. Add up all the rest of the bits and pieces, double it and it still doesn't cover GM's losses. Or its recent "charges against earnings." Or the cost of keeping idled GM workers in the "money for nothing and your checks for free" Jobs Bank. And then remember that GM is about to fork over multiple billions in blood money to keep bankrupt parts supplier Delphi's unionized workers working.

Again, Wall Street was suitably unimpressed with GM's black February. More importantly, so was United Auto Workers (UAW) President Big Ron Gettelfinger. Lest we forget, convincing the UAW to take one for the team was the whole point of the exercise, as Rabid Rick quickly pointed out: 'I think it's clear, now more than ever, that we very much have a shared fate." Indeed they do. Unless GM can lower its union labor costs, alter union practices and sell some product by, say, last May, it's all over bar the filing. And… According to the Detroit Free Press, "The union chief dismissed any suggestion that [the cuts] set the stage for GM to push the UAW for more concessions." So, that's that then.

Reporter Daniel Howes over at The Detroit News says Big Ron's stonewalling is nothing more than a bit of pre-election, pre-negotiation posturing. In yesterday's editorial, Mr. Howes said the union boss called for "shared sacrifice" and claimed that "Union folks are smart enough to know that tough times demand tough calls, including concessions they never expected to give." I guess Mr. Howes would also see UAW Vice President Richard Shoemaker's same day statement that Delphi's insistence on pay concessions "will surely lead to a long strike, and that is true whether it involves other corporations or does not involve other corporations" as more posturing.

If Rick Wagoner is a religious man, I bet he's praying that Daniel Howes is right: the union will see sense and do what needs to be done to save the corporate host upon which they feast. Judging from his bankruptcy-proof pension, Rabid Rick's not a betting man. Which is just as well, because unions don't posture. They threaten. If you don't capitulate to their demands, they make good on their threats, come what may. GM has paid billions to the unions. There's no way the union officials that would lead the rank and file into a strike are going to miss a meal because of an anti-Delphi or anti-GM union action, short or long term. They have nothing to lose. As far as they're concerned, you can pay us now, or you can pay us later. Only thing is, white collar cuts or no, GM can't afford either option.