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An Editorial by Howard W Penrose, Ph.D., CMRP How bleak are things… really? In general, it has been a little more difficult for a few people to obtain credit. Primarily, it has returned to when you had to provide proof of employment and have a good credit record in order to obtain major loans. We have watched a few mergers of large banks and creditors and a $700 Billion bailout of those same banks, with suggestions of another $1.2 Trillion, which included $170+ Billion to AIG, who felt it necessary to spend $100’s of thousands on parties. In the meantime, we find it necessary to drag our domestic automotive industry across the coals, demand changes in management, plans, change in transportation for executives, etc. for a COMBINED request for LOANs, not giveaways. This has already proven successful in the past with the automotive industry, but NEVER with the financial industry. As I remember it, the original purpose of the financial bailout was to purchase high risk loans from the financial community in order to improve the liquidity of the financial firms that had purchased them. How these floated through Wall Street was a lesson in bad ethics and convoluted business practices that were a wonder to behold. Yet, once the Bailout Bill (doesn’t matter that they tried to PC it by using the term ‘rescue’) was passed, the stock market tumbled to almost half where it was at the time. Yet the keeper of the keys who allowed the problem, and actually contributed to the problem, have been congratulating themselves on a great job. The original idea of having the Secretary of the Treasury, with no oversight and no repercussions, with full access to the $700B to do with what he wishes, to make these purchases was immediately and publicly… ignored. Instead, the funds are being handed to financial firms that are politically connected, with a number of other types of companies madly trying to be qualified as lending institutions so that they can qualify for their piece – and they don’t even have any of the bad loans in their portfolio. There is no requirement to eliminate upper management, no change to how they travel, no requirements for reduced income (only suggestions or they get some type of extra ‘tax’ on the additional income that is insignificant), no requirements to reduce employee pay, etc. etc. Instead, the US Government is buying non-voting stock in these companies. The result has been business as usual that has executive bonuses, employee bonuses, etc. continuing as usual with no rules in place and the suggestion that the program is expanded even more for an industry that DOESN’T PRODUCE ANYTHING! In the 1970s and 1980s, a number of corporate executives were killed, including in a mid-1990s flight in Africa that had government officials and business executives on board, hijackings occurred, and other issues that made commercial flying of company executives and key personnel a risk. Some companies changed the rules such that groups of key personnel and executives could not fly on the same aircraft and others added executive aircraft to their transportation fleet. The purpose was simply to reduce the risk that the key minds of the associated companies would be lost due to the quality of maintenance of aircraft of the commercial airlines. During the hearings, and thereafter, the suggestion that the executives should fly commercial, in the same aircraft or via ground transportation has been shouted, screamed, blogged, reported, etc. in such a way that it suggests that the executives are doing this out of arrogance instead of by company rules. Mind you, there should have been some thought – and one of those could have been a convoy of GM vehicles by supporters (the Million Car Drive?) traveling to Washington, DC. to ask for loans as the car manufacturers are unable to obtain short term loans because creditors are unwilling to free up the funds that the financial bailout was supposed to provide. Now, during the last hearings, and the ones coming up over the next few weeks, Congress and the Senate are demanding that the executives provide detailed plans, changes to the operations of the companies, how travel occurs, demands in reduced executive pay (don’t say anything yet, I don’t exactly disagree with this), make competitive information public, and that the government would have a direct role in their operations. The combined request of GM, Ford, Chrysler and the UAW International, was less than $25 Billion to be paid back once the ‘financial crisis’ improves and the companies continue their rapid adjustment. Shouldn’t these same requirements be placed on the financial industry which is withholding credit still but with a handful of companies who are demanding what appears to be upwards of $2 Trillion, so far, in free money from our taxes? One of the key items that also came up was the employee cost associated with vehicles and how the UAW and GM, Ford and Chrysler should re-open negotiations to reduce labor costs. To put things into perspective: In 1970 there were 395,000 GM UAW workers in 165 facilities within the United States; by 1998 there were 210,000 workers building 5 million vehicles world-wide; in 2007, there were ~75,000 UAW workers at less than 64 facilities building over 8.5 million vehicles in the United States and a total of 9.4 million vehicles world-wide. The labor cost per vehicle is approximately 8%, including benefits, with an average of well over 50% of the cost of building a vehicle coming from energy costs. This does represent, by the way, more than 1.2 million GM vehicles over Toyota in the USA and over 3,000 vehicles than Toyota world-wide. In 2008, there are less than 70,000 hourly workers that have built 650,000 more cars than Toyota, so far. In the infinite wisdom of the US government, they continue to follow the precepts of the Theory of Constraints, a 1980s concept which suggests that if you are reducing operating costs you are reducing labor, going after pennies versus dollars, the same problem as their economist, Peter Morici, Economic Professor from the University of Maryland, who seemed to be lacking in a large number of facts from population to the income average per labor worker. One of the key issues brought up during the hearings was the supposed average income of the UAW workers being over $100 thousand. In reality, the combined annual wage and benefits was actually $83,000 per employee with a phased program reducing that number by about half and replacing them with workers making an average of $15 per hour. They also brought up the $105,000 buyout package offered to workers as part of their severance. I am unsure why Mr. Wagoner nor Mr. Gettelfinger did not bring up that the purpose of the buyout was to eliminate their pension and retirement healthcare benefits from the contract. This value varied per worker based upon a number of components including time with the company and wage. The purpose was to reduce legacy costs. Nor did anyone bring up that the reason why the US factory workers at the foreign plants are paid reasonably well with good benefits is a direct result of the potential of unionization of those plants. The number of vehicle sales, alone, and the leadership over all of the other manufacturers in the USA and abroad attests to the fact that people do want the vehicles that GM builds. This flies in the face of the constant suggestions that GM and the other members of the big three should ‘build vehicles that people want.’ Suggestions of reliability are also unfounded and leftovers from the 1980s up through the mid-1990s. J.D. Power Initial Quality Study scored Buick, Cadillac, Chevrolet, Ford, GMC, Mercury, Pontiac and Lincoln brands’ overall quality as high or higher than that of Acura, Audi, BMW, Honda, Nissan, Scion, Volkswagon and Volvo. Personally, I have had very few problems with any of the GM or Chrysler vehicles that I have owned over the years (although I have seen an awful lot of Toyota Prius’ on the sides of the road recently). Another point that was brought up during and after the hearings was that the big three had to build fuel efficient vehicles. In fact, GM, alone, has more vehicles available that get over 30 MPG than any other manufacturer and six existing with two more hybrid vehicle models available in February, 2009, and more to follow, as well as the GM Volt electric vehicle in January, 2010. These models include the Yukon, Tahoe, and Escalade, for large vehicles, the Malibu, Vue, and Aura, for mid-sized vehicles. The trucks provide all the power and size that many need with benefits of more power, faster acceleration/deceleration, and almost double the gas mileage of their standard partners (see http://www.motordoc.com/tahoe.htm for the Tahoe Blog, my experiences with my 2008 hybrid Tahoe and related adventures). In 2009, the Sierra and Silverado will have the two-mode hybrid system, bringing work trucks into the hybrid realm. The benefits are fantastic and Green(!) with the evidence that you do not have to give up comfort, size and ability to be environmentally friendly versus torture fitting into very small vehicles, for about the same cost as the standard vehicles with similar features (less all the extras that go along with the hybrid capability). GM and the other big three are actively taking part in the US Department of Energy’s assistance in the development of fuel efficient vehicles. GM and Chrysler partnered in the development of the 2-Mode Hybrid system, a system that provides a much higher power density than the foreign competition. At present, the standard is 300 Volts with Toyota discussing a 500 Volt system in order to increase their power. 300 Volts has been a concern with rescue workers, repair facilities and repair hobbyists with 500 Volts bringing this into a whole new safety realm. The work that GM is doing in the areas of fuel cells, hydrogen fuel, flex fuel systems and advanced work in future vehicles is quite interesting – and a subject for another time. However, it is important to note that not only has GM entered the arena, they have jumped in with both feet, even with reduced fuel costs (<$2/gallon versus almost $5 per gallon six months ago). I can personally attest to the fact that the auto manufacturers, in particular GM, are NOT hiding any technologies for better efficiency, especially in this environment, contrary to many conspiracy theories of the past (and a few new ones). So, what is happening to require the big three US auto manufacturers to have to ask for ‘bridge loans?’ This, in itself, is an important topic. First, I would agree to the idea that any executive for any company that is not profitable should be penalized in some way. The companies that have turned things around usually have had leadership that has income tied directly to profitability of their companies. Next, I would suggest some type of even playing field as the big three have been having to work against advantages provided to foreign car companies, including use of state tax funds. Globally, US auto manufacturers operate at a disadvantage, even though GM remains in the lead. Many of them get to take advantage of socialized health care and direct incentives from their own governments that our companies do not get to take advantage of. This reduces their cost per vehicle. In addition, there are no constraints on the treatment of their employees and the drive to reduce the manufacturing time of producing those vehicles overseas, as well as environmental/emission issues. Additionally, there are issues concerning US manufacturers running into significant tariffs and restrictions to US made vehicles entering into other countries. For instance, Japanese companies aggressively fought flex fuel vehicles from entering Malaysia, and, luckily, lost recently. General Motors also has to bear the full legacy cost of building plants in most places, especially here in the United States while taxpayer money goes to building foreign plants and training the employees of those facilities. A few examples: Alabama extended over $873 million to Mercedes-Benz, Honda, and Hyundai to build plants; Mississippi extended $363 million to Nissan including assistance in hiring and training workers, paid for water and sewer improvements to the plant site, and built a highway extension from the site to I-55; Mississippi also pledged $296 million to Toyota in 2007; and, Texas pledged $133 million to Toyota in 2006. It is extremely important to note that the primary opposition to the bridge loans are the representatives from the states that have provided funding to foreign manufacturers and those politicians that feel snubbed by the UAW’s support of Democrats in this past election. What is the impact of the loss of just General Motors? A loss of approximately 3 million jobs and related tax revenue, launching us into double-digit unemployment and a direct impact on our domestic defense as auto manufacturers are meant to double as military manufacturing during times of war. How does this impact our economy? The US domestic auto industry represents 4% of the US GDP – the US military represents 3% of the US GDP. The loss and impact would be staggering. (reference: http://www.youtube.com/watch?v=cQh2yzNfasw). Where can we go from here? First, the auto manufacturers need to begin to relearn marketing, especially of their advanced hybrid vehicles. They also need to broadcast the general energy and environment improvements that they are accomplishing – some of the best kept secrets include the number of energy star facilities, the joint UAW and GM partnership with the US Department of Energy’s Save Energy Now program, and a great many more. The foreign manufacturers talk about their handful of improvements meant for marketing purposes, GM, Ford and Chrysler have not discussed their huge improvements in these areas. I guess that just shows that GM’s commitment to the environment is sincere. The big three, especially GM, need to really broadcast their work in the area of hybrids and advanced vehicle manufacture. I am constantly amazed how many in the media, government and even within GM itself, are not aware that they have hybrids. My first experience was an interview with Fox News Brian and the Judge (excerpt: http://www.motordoc.com/temp/brianandthejudge.mp3). The reference from YouTube above shows the same thing. At the same time, Mr. Hannity of Hannity and Colmes (Fox News) brags about the great things he has been experiencing with his 2009 hybrid Escalade! So, should the auto manufacturers get their bridge loan? Yes, absolutely. We have to remember that this is not a bailout, that such loans to companies such as Chrysler have been profitable to both the company and the government, and that, compared to the financial bailout, in which it is a real giveaway that has no historical benefits, it will save jobs in an industry that actually PRODUCES SOMETHING! The auto companies are not going to Washington with tin cups in hand, they are going to request assistance due to a situation generated by the government, itself. Howard W Penrose, Ph.D., CMRP President, SUCCESS by DESIGN® Member, National Writers Union (UAW Local 1981) Editor in Chief, IEEE DEIS Web
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