Providing some rationality to the next “gun to our head economic moment”, here’s Mitt Romney’s Op Ed piece from the Tuesday New York Times. Below the article, I’ve also posted the top five response comments as selected by Times’ readers. Obviously most of those readers are in disagreement with Governor Romney but I thought it would provide interesting counterpoint.
If you watched any of the sessions on Congress this week on C-Span like I did, you know the whole thing is an embarrassing circus. The automotive CEO’s had a constant look of helplessness- helpless to control their businesses that are already heaving under the weight of massive government regulation and union control, and will be under further control should they get some of yours and mine tax dollars. Sprinkled in with that was the Ford CEO occasionally breaking into a Broadway show/TV commercial singing the praises of “the Ford lineup”. Tasteful.
Never mind too that folks on both sides of the hill act like they’re sitting on a giant pile of money. Every discussion involves further deficit spending putting not only our well-being at risk, but our children’s.
As for some of the comments after Romney’s piece below, several people point to socialized health care as the solution. I think socialized medicine is great in theory, but in practice in other countries it’s flawed at best. Add to that clear evidence that our government hasn’t been able to manage any large social program successfully, bankrupting or nearly bankrupting each along the way.
Also, any discussion on health care can’t be complete without discussing controls on the spiraling costs associated with health care courtesy of our good friends- the trial lawyers. Without addressing the dramatic inflationary effect attorneys have had on health care and big pharm, universal healthcare will be DOA.
I don’t support “leaving workers high and dry” either as many on the left suggest of the right. I believe limited federal funds should be made available to those workers that are displaced. However, I support this with a degree of tough love as well. If these workers are as highly-skilled as the unions and the wages would lead us to believe, they should have no trouble finding similar work in related manufacturing fields. Sure they may have to pick up their family and move, sometimes that’s what it takes. It’s better than living in a cardboard box.
Also, the big three have been struggling for several years now. The workers of those companies surely have better insight into that struggle than people on the outside, so those folks should have been preparing alternate career plans all along via additional trade training, community college, whatever.
Finally, I feel bad for the retirees whom likely can no longer earn a living and are most dependent on medical coverage. But again, those people would have made choices throughout their employment career and should they have hedged their entire retirement on pension, even as pensions have evaporated over the last decade, than that’s a risk they took on with full cognition.
Also, and I guess this makes me a cold conservative, how big is their house? How big is their boat? How many nice cars are they driving? How big is their Winnebago? How big is their summer home/hunting lodge? I’d like to know before my income gets funneled to them. I lived in Detroit for two years and the dude that lived across from me was a union autoworker. He had a giant house (a “Parade of Homes” house), a giant boat, a gorgeous red corvette, a giant SUV, and a summer home. Joe auto worker has been living very, very well.
Here’s Romney’s letter to the editor:
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.
Scomd in New York City:
The cost of health care is estimated up to $1500 per vehicle.
In no other industrialized nation does the manufacturer bear the cost of health care for it’s workers (that cost inflated because the risk, therefor the cost, is not evenly spread through society).
Without universal health care, how can our manufacturers compete with any industrialized nation??
Craig in Springfield, Missouri
That’s the best you can do? The workers must suffer for managements sins as usual. I like the way the good old capitalists always compare the workers of other countries to ours but fail to mention that they have cradle to grave security with socialized medicine, real social security at a living income, maternity leave, 36 hour work weeks and all that stuff that none of you good old republicans want anybody to have because you don’t want to pay any taxes. Gee I wonder why our companies are going bankrupt trying to do what other countries are doing for their citizens.
You don’t even want to pay taxes for your Iraq war. Oh yeah, you include the management and truth be told we do need the management because the auto business is well, the auto business so it takes an auto executive. I agree with the poor management idea and I agree that there are some lazy workers who make too much money but if you really look at what it takes to live in our world you wouldn’t be so fast to keep pushing the workers down. The rich always seem to want to blame everybody else. How about raising your capital gains taxes and making sure that there is not such a huge incentive to trade stocks. Encourage real ownership not this roulette wheel that the stock market has become.
My solution buy some cars. The government should go out and buy lots and lots of the most fuel efficient and environmentally responsible cars and trade them to people with old tired gas guzzlers and scrap ‘um. Save gas, reduce pollution, create jobs, reduce crowding on the roads and recycle the old cars. People pay state and local tax, licence and insurance. We don’t have time for what you want to do. Detroit already makes some great cars but people just can’t afford them. Sure make the companies present a plan and stick to it to be on the list to sell a car of two or 200,000. $10,000 a car what a bargain for a bailout.
ToddA in Michigan:
Romney’s advice misses the point almost completely.
Yes, the industry’s costs are too high. We need national health care, as our competitor countries have, to unburden industry from this expense that we as a nation most bear for our fellow citizens. It is an economic and a moral imperative.
Second, it beggars belief that we should beat up the industry for providing just those vehicles that Americans wanted to buy. The fault lies not in their production decisions, it lies in the cowardice of our political leaders. The countries of Europe have for years imposed high fuel taxes that have both pumped money into mass transit and pushed demand toward small fuel-efficient cars. The American manufacturers we criticize for building the cars we wanted to buy here have been building the cars Europeans wanted (small and efficient) for the European market for years. It’s time for our self-righteous leaders to raise our fuel taxes at a steady rate until the price of a gallon is no less than $10. That is achievable by the end of the second Obama term.
Mr. Romney, please go back to Massachusetts and save your self-serving advice for someone else.
djlewis in Boston:
Sorry, but railing against a “bailout” is demagoguery. Exactly who gets bailed out is crucial.
Your plan would shield customers, which is necessary, and not reward stock and bondholders, which is correct. But shedding labor contracts and pensions would severely punish the equally innocent workers and retirees. Worse, putting people out of work and drastically cutting pay and benefits for remaining workers would not only hurt them, it would have significant secondary impact on the area and national economies when we can least afford it.
A bailout should go toward restructuring the companies, bringing in new management AND at least partially protecting workers and retirees with extra benefits to make up for the income they will lose. In other words, the government should assume at least part of the cost of those contracts and pensions granted when things were rosy.
It’s fine to invoke “creative destruction” but not for (a) retirees; (b) this massive a work force. The government should be the buffer.
There’s your bailout, Mr. Romney… not that the plight of workers and retirees would ever bother your head.
Oh dear, is this too much like socialism? Hmmm… I guess it is when it’s to help people… but when it’s to help rich companies and their owners/executives, it’s something else, eh?
Parker from Oakland, Michigan
Governor Romney, this is not your father’s economy. If the economy were merely anemic and not in Stage 4, the auto companies could borrow more capital to get them through this liquidity crisis, but they can’t. In case you haven’t heard, there is a credit crisis. The federal government is the last bank standing, thanks to the job your president has done the last 8 years.
You’re welcome.
