Romney says let the automakers go bankrupt

Discussion in 'Politics' started by insider trading, Nov 19, 2008.


    Let Detroit Go Bankrupt

    Published: November 18, 2008

    IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

    Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

    I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

    First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

    That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

    Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

    The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

    You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

    The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

    Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

    Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

    It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

    But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

    The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

    In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

    Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.
  2. I agree with this guy.If he had won the Republican nomination I might have voted for him.I would've given Mccain a second look if Romney was the Vp

    After comparing Romney's Educational and business background to Palins its ridiculous Mccain would pick Palin
  3. That was a well-written and thought-provoking piece by Romney.
  4. It's a real shame that the kook wing of the Republican Party could not get past this guy and his magic underware to nominate him. He would be president now.
  5. jem


  6. The Republican base LOVES retards, they identify with them. Romeny's loss is a democrat's win.
    I'm one of the few who's for Palin to stay around till 2012, we would be almost guaranteed a win in 2012.
  7. Alas, Romney is a mormon whereas the kook wing comprises devout morons. On a cheerier note, the US will once again have a thinking president.
  8. Perhaps members of that party's kook wing should choose their physicians and surgeons accordingly -- people with whom they identify...
  9. True...but Utah is gonna be a red state until Smith himself shows up with the gold translation plates"again". (see: magic underwear reference)? I was referring to the evangelicals.

    However for people like me a Romney v Obama ticket was a no brainer. Be that as it may, I sincerely do wish Barry fair sky's and following seas. We shall see.

  10. Romney is a very smart guy, and I would have preferred to see him as president over any of the other contenders. The fact is however that he didn't run a very good primary campaign. He went negative from the getgo and alienated all the other candidates plus a lot of voters. He should have emphasized his own considerable positives.

    He also had a hard time connecting to voters. For some reason, they seemed to resent the fact that he was rich, handsome, accomplished, intelligent and well-spoken. Maybe his problem was he should have been black instead of a Mormon.

    His thoughts on the auto bailout are both obvious and likely to be ignored. Maybe Obama should appoint him as czar of the automobile industry, with power to do whatever he deems necessary. We could do worse.
    #10     Nov 19, 2008