Bailout, My Foot!

I found this article in the NY Times Op-Ed by Mitt Romney. When talking to friends, I've made comments very similar to his (although not nearly as eloquent), regarding the supposed "bailout" of the auto industry. It's nice to see someone else, with more experience than myself, saying the same things.


Let Detroit Go Bankrupt
by Mitt Romney

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.

You Must Use The Force

Welcome to the Presidency

An article in the WSJ showing that President-elect Obama will have his hands full from the beginning.


Russian President Dmitry Medvedev issued a chilly reception to the incoming U.S. administration, threatening to station missiles deep inside Europe and lambasting the U.S. for "selfish" foreign-policy and economic blunders.

Mr. Medvedev also proposed extending the term of the Russian president to six years from four, a change that may benefit his predecessor and prime minister, Vladmir Putin, who may run for president again in 2012.

Without mentioning U.S. President-elect Barack Obama by name, Mr. Medvedev said he hoped the new administration in Washington will take steps to improve badly damaged U.S. ties with Russia. But he suggested it is up to Washington, not Moscow, to improve relations.

"We have no problem with the American people, no inborn anti-Americanism," he said.

Mr. Medvedev's speech, his first state-of-the-nation address since he became president in May, bore few signs of a hoped-for softening toward the West, or of the authoritarian political system established under Mr. Putin.

Germany's foreign ministry called Mr. Medvedev's plan to deploy missiles in response to U.S. plans for an antimissile system "a wrong signal at the wrong time."

The Kremlin has repeatedly called on Washington to abandon the planned missile system.

"The steps that the Russian government announced today are disappointing," said U.S. State Department spokesman Sean McCormack. "But, again, this is not directed at them. Hopefully one day they'll realize that."

Analyst George Perkovich said the speech recalled the threats delivered in 1961 by Soviet leader Nikita Khrushchev to another newly elected U.S. president, John F. Kennedy, at a summit in Vienna.

"It looked like a clumsy effort to test the new president's mettle," said Mr. Perkovich, vice president for studies at the Carnegie Endowment for International Peace in Washington. "It's a psychological ploy the U.S. should not fall prey to."

Mr. Medvedev repeated earlier assertions of Mr. Putin that a realignment was needed in international politics, with a demotion of U.S. influence.

"Mechanisms must be created to block mistaken, egoistical and sometimes simply dangerous decisions of certain members of the international community," he said shortly after starting the 85-minute speech.

Mr. Medvedev said a "selfish" U.S. foreign policy set off the war in Georgia. He said the U.S. used the war as a pretext to send North Atlantic Treaty Organization warships into the Black Sea, and speed up its plan to deploy antimissile systems in Eastern Europe.

Mr. Medvedev said the Kremlin would deploy ground-to-ground missiles in its westernmost territory in Europe, the Russian enclave of Kaliningrad, bordering on European Union members Poland and Lithuania.

He said Russia would also electronically jam the U.S. system, parts of which are due to be deployed in Poland and the Czech Republic, and scrap plans to stand down three Cold War-era nuclear missile regiments.

He peppered the address with references to freedom and democracy but proffered only minor changes to an electoral system that has shunted aside opposition parties and turned parliament into a Kremlin-controlled body that rubber-stamps its decisions.

Mr. Medvedev announced plans to lengthen legislators' terms by a year to five years and make it easier for small parties to win parliamentary representation.

Sergei Mitrokhin, head of the Yabloko political party, said Mr. Medvedev's proposal to prolong the presidential term to six years "is a signal of the continuing bureaucratization of the country and that the government is heading toward stagnation and will be even more isolated from the people."

Mr. Medvedev, who came to power promising to curtail the encroachment of government on business, said his government will continue economic liberalization. So far, however, the Kremlin's economic bailouts in response to the global financial crisis have led to greater state control over industry and banks.

Go Vote!

Short and to-the-point...