Friday, November 21, 2008

Putting Detroit Back on the Road to Recovery

For twenty-five years General Motors, Ford and Chrysler have resisted common sense. Now, their leaders have flown into Washington, D.C. on their corporate jets begging Congress to give them billions in another federal bailout scheme. They just don’t get it. These auto giants are grossly mismanaged and misdirected from the top down. Their woes are self-inflicted. Under their current management apparatus the Big Three are unworthy of any federal bailout. Let them take the first step on the road to recovery by filing for bankruptcy.

Certainly, consumers don’t want these companies to go out of business. But, to provide them with billions of dollars from the federal government will only exacerbate the current problem. What Detroit needs is a leadership lobotomy -- from the head down.

For starters, the Big Three can eliminate many of the perks that are symbolic of management’s arrogance. I’m talking about the corporate jets, the executive dining rooms, and the huge bonuses senior management has received for over-promising and under-delivering to shareholders.

Secondly, the United Auto Workers needs to wise-up. As Lee Iacocca once remarked in the 1980s, “We have jobs at $40 an hour, but we don’t have any jobs at $75 an hour [adjusted for inflation].” The UAW needs to approve new labor agreements that bring workers’ costs in line with Honda, Nissan and Toyota which are capturing increased market share because their unit costs are considerably lower than the Big Three.

Retiree benefits must also be reduced so that the Big Three’s pension costs are in line with their foreign competitors. Workers deserve a reasonable wage, but under the current labor agreements, the Big Three cannot compete. Unless the UAW agrees to dramatic wage cuts its members will find themselves unemployed and Detroit will suffer.

Next, the boards of General Motors and Chrysler must bring in new management teams. The ideal leadership will come from outside the auto industry. They need to break the mold as Ford Motor Company did by hiring Alan Mulally from The Boeing Company. While Mulally is struggling, he is making progress and instituting long-overdue changes at Ford. Fresh thinking and innovation should rule the day at the Big Three. Quality must be rediscovered and incentives for eliminating defects should be instituted to inspire workers to build quality cars and trucks the first time!

The Big Three’s biggest challenge is to project into the future and understand what consumers want and need. That’s pretty simple according to most consumer surveys and the recent spike in gasoline prices. Consumers want options. Consumers want fuel efficiency -- and I’m talking about 50 miles per gallon not a measly 21 mpg. And, we want electric cars and other types of clean fuel-burning motors that don’t pollute the environment. These types of innovations will invigorate the huge supply chain that feeds off Detroit. Certainly, the thousands of suppliers deserve a chance to demonstrate their talents in terms of going Green and helping a revitalized Big Three enter a new era of auto-making. But, they will remain stuck in neutral as long as Detroit continues to think backwards.

Finally, shareholders and bondholders need to pony-up. They gambled on the Big Three and, frankly, they lost. Let’s not burden American taxpayers without first putting the onus on those investors who clearly understand the odds associated with any stock purchase. It might be smart to remind them of the old adage, “Sometimes you win and sometimes you lose.”

Ironically, despite their serious financial problems, General Motors, Ford, and Chrysler have an abundance of talented people throughout their ranks. These people have great ideas that should be solicited and implemented. Often times, it’s the workers who know best how to fix management’s mess. It’s time Detroit got some inspired leadership that abandons the re-treaded ideas of the past that have gone flat. What the Big Three desperately need is a plan for success instead of trying to further bleed American consumers and taxpayers with another ill-conceived bailout.

About the Author:
Thomas Hinton is president of the American Consumer Council. He can be reached at

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