Detroit Auto Execs Lay An Egg

The CEOs of Detroit’s “Big Three” automakers (GM, Ford, and Chrysler) made their pilgrimage to Capitol Hill on Tuesday, to make a plea for their own bailout from the federal government. You’d have to say that their show was a flop; media coverage afterwards included accusations of “tone deafness”, together with particular scorn for the fact that the execs had each traveled to Washington to beg for public money on their company private jets.

The foreign press was watching this performance, too, and from the pages of France’s leading newspaper Le Monde, Dominique Dhombres did not even need any mention of the private jets to quite effectively skewer the auto-bosses with an article entitled Ask for pardon? Out of the question!

“After the bankers, now the auto-makers!” Dhombres announces at the very beginning of his piece. It was, he writes, an “extraordinary spectacle”:

They had a quaver in their voice. If they are not lent immediately, right there, right now, the money that they need, then there is nothing left to do but lock up the gates! They are short of funds, they are on the brink of bankruptcy, they have the knife at their throats and they would quite like to be treated with as much consideration as the bankers. They are asking for the trifle [“la bagatelle”!] of 25 billion dollars . . .

“Touching, no?” Dhombres then rhetorically asks, perhaps a bit insincerely. But the Senate Banking Committee remained unconvinced. The Senators there wanted to hear some contrition, some regret from these top executives for putting the American auto industry in the parlous state that it is in today. “But contrition is not their strong side!” he declares. “They prefer to play on fear. If they are not aided, millions of jobs will disappear. If they sink, it’s the whole country that sinks with them!”

Catalytic Converter

It’s fairly vicious stuff. We can all have our own opinion as to whether this criticism is in fact merited, but it is St├ęphane Lauer, Dhombres’ colleague at Le Monde, who in an accompanying and somewhat more-sober article (Automobile industry: the reasons for the crisis) makes a good case that, indeed, management at these companies rather messed things up.

For the fact is, as Lauer takes as his piece’s central thesis (and as most of us will remember anyway), that the American auto-makers were in rather bad shape even before the credit crisis came along in the autumn of this year. That emergency only acted as “the catalyst to a myriad of problems which, if they had been treated before, would not have led the Big Three to the edge of bankruptcy.” These included:

  • An emphasis, since at least the 1980s, on offering large 4X4 vehicles (i.e. SUVs, although Lauer does not use that term) rather than smaller, fuel-efficient ones, whose production was left to the Japanese. But now large cars are out, small cars are in, and they have a couple decades to make up in that small-car market against the competition.
  • Consistently poor management, highlighted by the strained and unsuccessful attempt at Ford from 2001 to 2006 to accommodate William Clay Ford, Jr. as CEO, just because he was the great-grandson of Henry, and by the failed takeover of Chrysler by Daimler-Benz – and by the continuing losses at GM generally.
  • The build-up over time of an unsustainable cost-structure, whose obligations in wages, health benefits, benefits to surviving spouses, etc. eventually combined to add $1,400 to the cost of each car manufactured compared to their Japanese rivals.

So there it is: if Messrs. Wagoner, Mulally, and Nardelli (GM, Ford, and Chrysler) did not gain much sympathy from the members of Congress during their Washington sojourn, maybe they did not deserve it in the first place.

On this same subject of coverage of the auto CEO hearings from Europe’s leading papers, let me briefly add to the discussion a piece by Katja Gelinsky in the Frankfurter Allgemeine Zeitung: Auto bosses in cross-examination. Gelinsky’s piece for the most part merely passes along the same reporting of what went on before the Senate and the House committees that the US media fully provided, but then does make one interesting point at the end. It was mainly Republican members of Congress who showed themselves to be most skeptical about granting any bailout to Detroit, and leading the way in this was Senator Richard Shelby of Alabama, ranking minority member of the Senate Banking Committee. Gelinsky reminds us that Shelby has some auto interests of his own to defend, for in his very own state there are production facilities for not only Hyundai and Honda, but also Mercedes Benz – all of which employ non-union local labor at rather lower wage-rates than those which have contributed to landing the Detroit automakers in serious trouble.

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