A blog by Barry Edelson


The Best Hope for Detroit?
New Management

For those among us who have not been anointed as one of the sage trustees of the national wealth, it is customary to begin an essay about the economy with the humble phrase, "I am not an economist, but..." However: since the armies of economists employed by Bear Stearns, Lehman Brothers, Citigroup, Standard and Poor's, AIG and the Treasury Department have hardly proved themselves adept at keeping the nation's financial system afloat, and since trees are being felled even as we speak to reproduce the opinions of even Joe the Plumber and Sarah Palin, and as the word "but" in this context negates the first part of the sentence anyway, any natural tendency towards restraint seems a needless self-indulgence.

So here goes.

First, cars. There are two options on the table for Detroit, both of them terrible: (1) let General Motors, Ford and Chrysler go bankrupt now, or (2) inject tens of billions of your tax dollars into them so they can go bankrupt next year instead. If we as a nation truly believe in laissez-faire capitalism, we must allow them to fail. Yes, that's easy for me to say. I don't work for them or for any industry remotely dependent on them. I don't live in any of the myriad cities and towns that would undoubtedly be devastated by the closure of their factories or those of their suppliers. But no one would be entirely immune from such a blow to the North American economy, and everyone seems to know it. Even many of those voters who bought into John McCain's brilliant analysis of Barack Obama's "socialistic" economic proposals are clearly now scared to death of what will happen if the government doesn't step in and effectively nationalize the Big Three (still under the steady Bush stewardship, I might add).

Then again, maybe there's a third, slightly less horrible, option: bail the auto makers out, but only on condition that we can fire the entire executive staff of all three companies. Let them have the same deal they give to their laid-off workers: no severance pay, no pension, no health benefits. (To add insult to a justly deserved injury, we should allow them to keep their stock options in their virtually worthless corporations.) I'm not talking about only the CEO's and their immediate underlings, I mean every single non-union, salaried manager in the entire industry who works in design, marketing, accounting, operations, human resources, you name it. Why? Because the problem with Detroit has never been on the assembly line. Every single Honda that my wife and I have driven, all the way back to our first Accord sedan in 1984, has been manufactured in Ohio. Countless millions of Toyotas and Nissans have also been built here in the last two decades. American workers have long proven that they can make excellent cars, provided they are not saddled with a clueless management culture that doesn't understand the difference between building brand loyalty through quality and service, and indulging customers' worst instincts for short-term profit. The only hope is to utterly reshape not just the way these brain-dead companies operate, but the way they think.

A case in point: In an interview 20 years ago, an owner of a dealership in one of GM's brands described how his customers complained that his cars didn't offer many of the features available in competing (i.e., Japanese) models. When he brought this information back to the manufacturer, he was told that if he couldn't sell the cars he was given, then he wasn't a good salesman.

I rest my case.

Fire all the

By the way, why do we insist on calling it the "car industry" when the manufacture of everything but plain old cars is precisely what got Detroit into the mess we are in? All through the fat years when oversized pickup trucks and SUV's big enough for families of 15 were sailing out of the showrooms, the Big Three habitually repeated the mantra that they were merely giving the customers what they wanted. Never mind the countless dissertations that have exposed customer choice as a perverse illusion; the auto makers have apparently focused all their market research efforts on figuring out ways to convince the buying public that its sub-standard products were exactly what it was looking for. John Kenneth Galbraith famously said that the object of industrial production is to create a need which it then fulfills. If Detroit had never invented 4x4's, would the public have ever cried out for them? Foreign car companies are not immune from this criticism, either. The advent of the minivan killed off the station wagon at Honda, Toyota and virtually every other company except Subaru and Volvo. Sure, people bought minivans, but how much choice did they really have? By the same token, there is little doubt that cars getting 100 miles per gallon, even with gas prices collapsing, would now find an enormous demand in the marketplace. So where are they?

We should apply the same just desserts for the stiffs who have been running Detroit into the ground to the suits at the financial firms who have lately been pocketing huge dollops of government cash, largely to keep their own paychecks coming. The government is ill-equipped to run any of these firms, but there must be hundreds, if not thousands, of aspiring executives who couldn't do any worse than the incumbents. And they would certainly be more open to charting a new course. How many successful stock traders and shop foremen have been muttering to themselves for years, "I could run the company better than these bozos"? Well, I say, let's give them the chance. The last thing anybody wants is for the geniuses in Congress to micromanage Wall Street firms or auto manufacturers. That's a recipe for a decade or more of the kind of malaise Japan is just now emerging from, with half-dead companies propped up by a government that just doesn't know what to do with them, all the while eating up scarce capital that would be better served to stimulate innovation elsewhere in the system.

Our best hope to turn Detroit and Wall Street around is for the Federal government to sell its equity stakes in private industry back into private hands as quickly as possible, and for those hands to bear no resemblance to the ones that have been selling out the country for the last few years. If that sounds like a revolution, what would you prefer: new blood at GM and Citigroup, or real blood in the streets?

December 7, 2008

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