THE NEW YORKER, APRIL 27, 2009
The World of Business
The Road Ahead
Smyrna, Tn Vs. Detroit
By Peter J Boyer
At first, the Nissan plant produced only trucks. They had fewer parts than cars. Ishihara still wasn't sure about American workmanship.
Like many Americans who fought in the Second World War, Sam Ridley, a tank commander in Patton's drive across France, came home with big plans and a heightened sense of destiny. Within a year of returning to Smyrna, Tennessee, Ridley ran for mayor, and won. The town was just a tiny rural whistlestop on the Louisville and Nashville line, but the war had brought an Army airfield to its outskirts, tripling its population to fifteen hundred. Sensing opportunity, Ridley formed a partnership with his twin brother, Knox, and their childhood buddy Earl Coleman; they pooled their money and built the town's first drycleaning shop. As the years passed, the Ridley partnership bought a Ben Franklin fiveanddime, an insurance agency, and, eventually, the local Chevrolet dealership. There wasn't much left that Ridley didn't own, so he began buying up farmland and built Smyrna's first housing developments. Ridley served as mayor for forty years, winning ten terms, often without opposition.
Smyrna prospered, but in 1970, with the Vietnam War winding down, the federal government dosed the Air Force base. Other towns were traumatized by such closings, but Ridley insisted that great opportunity lay just ahead. Nashville, twentythree miles to the north, was undergoing a dramatic growth spurt — the beginning of the Sun Belt ascendancy — [Who ever imagined the Japanese would help the South rise again?! :)] and its geographic centrality brought the convergence of six interstate legs within its city limits. The same year that Smyrna lost its airbase, a new section of Interstate 24 was completed, putting Smyrna near the heart of a transportation corridor that reached to all corners of the country. Ridley hustled state and federal money for the construction of a huge cloverleaf interchange, designed for highvolume traffic, joining the interstate to Smyrna. It was, at the time, an interchange to nowhere, but Ridley vowed that Smyrna would someday have a fourlane road to attach to it.
Smyrna's fate, as it turned out, was decided in a boardroom in Tokyo, and by events in the Middle East. Americans were introduced to the reality of an oil crisis in 1973, when the oilproducing Arab states imposed an oil embargo on the U.S. in retaliation for its support of Israel in the Yom Kippur War. Oil prices quadrupled, and American drivers who had been paying thirtysix cents a gallon for gasoline that fall suddenly found themselves paying multiples of that price, and waiting in line to do it. They began to buy the small, fuelefficient cars being imported from Japan in increasing numbers. Detroit did not undertake a fundamental readjustment in response to the oil crisis, partly because, once the crisis passed, consumers demanded the big, comfortable cars to which they were accustomed. In "The Reckoning," David Halberstam recounted that a Ford executive introduced the company's 1978 line of new cars by proclaiming, 'Welcome to the year of the Whopper." But 1978 turned out to be the year of tumult in Iran, leading to revolution and to an even more severe oil crisis. This time, Japanese penetration into the American car market was significant, and permanent. That year, General Motors reached its peak as the world's largest automaker, and never again sold as many cars and trucks.
The proliferation on American roads of Datsuns, Toyotas, and Hondas led to a protectionist impulse in Washington, and by the end of the decade tariffs on Japanese imports seemed imminent. From the Japanese perspective, the surest way to protect its American market was to begin manufacturing its cars in the United States. Nissan Motor Company, Japan's secondlargest automaker, announced in 1980 that it would build a new automobile factory here. Nissan had long experience in America with its Datsun brand, having launched a vigorous export strategy in the late nineteenfifties that made the company, a perennial also-ran to Toyota at home, the first Japanese carmaker to rank among the top ten imports in the U.S. The young executive who had initiated that strategy, Takashi Ishihara, was now the President of the company. But Ishihara undertook the move to American production with trepidation. It was his view (and the common one in Tokyo) that Japanese automobiles sold so well in America not just because they were more fuelefficient but because they were better cars.
Ishihara had a low opinion of American manufacturing and workmanship. Detroit's management focused more on shortterm profit than on quality, and the antagonistic labormanagement relationship, governed by a tangle of burdensome workplace rules, seemed designed to frustrate efficiency. The high rate of absenteeism on the American assembly line was shocking to the Japanese. Ishihara wanted to make cars in America, but he was determined that Nissan would not become an American automaker.
To run the American project, Nissan hired Marvin Runyon, a Ford executive, and Jerry Benefield, another Ford man, as one of Runyon's top assistants. They were considered two of the best manufacturing men in Detroit, and sympathized with the Japanese critique of the American car industry.
Nissan proposed to transplant the Japanese method to the United States. It was a huge gamble — at five hundred million dollars, it would be the largest Japanese investment ever in this country. The critical question was where to situate the new plant: there would need to be proximity to rail and interstate connections; the site would be rural, away from the social tumults of the industrial cities; there would need to be a pool of potential workers who knew little about the American system of producing cars, and the unionism that came with it, and there had to be local civic leadership that could be relied upon to get things done. The U.S. was in a deep recession, and the governors of several states aggressively campaigned for the Nissan project. Smyrna emerged as the obvious choice.
The Japanese bought eight hundred and fifty acres of land at the edge of town (some of it from Ridley), and Ridley and the Tennessee officials provided everything Nissan asked for, including a rail spur to the L. & N. line, water and waste systems, and new roadways — one of them (the Sam Ridley Parkway) connecting to the I24 interchange. The factory that Nissan built was three million square feet under one roof, stretching for several blocks — it would become the largest auto plant in the country, and would eventually have the capacity to produce half a million automobiles a year, but when production started, on June 16, 1983, Nissan began cautiously, producing only pickup trucks. Ishihara still wasn't sure about American workmanship. "You couldn't blame him," Jerry Benefield recalls. "The quality of their finished product was a good bit higher than the domestic automakers'. That's why we started with the pickup truck — it had fewer components."
The plant began to produce passenger cars in its third year and soon became profitable, and through the nineteen-eighties it consistently ranked as the most productive auto plant in the United States.
Salaries were lower than those in Detroit, but many Southern workers, who had never had highpaying jobs, were attracted by Nissan's health benefits and pension plan. Every employee had the right to lease a new car from the company at a discount.
Smyrna attracted workers like Daren Shanks, who came from the farm town of Baxter, Tennessee. "I'd heard that it was a good place to work — they never laid off," he says. He remembers driving to Smyrna and, as he looked for the entrance gate, driving past two and then three traffic signals: "I'm going through the third red light and I’m still goin' past it. It was unbelievable." Shanks waited a year for the job after applying, and was glad to get it, working on the engine line. "It's given me the opportunity to do stuff for my kids that I'd never have had the opportunity to do," he said, like send them to college. "My oldest child majored in biochemistry." The job, he said, "gave my family a way of life that we probably wouldn't have had otherwise. Every year, we got a new lease car."
Other foreign automakers began to emulate Nissan's success, and a new Auto Belt emerged in America — centered in the South, stretching from Texas to South Carolina. Michigan has lost more than eightythree thousand automobilemanufacturing jobs in the last fifteen years, but the South has gained that many auto jobs and more.
The lasting significance of the Smyrna venture became clear last fall, when General Motors, Ford, and Chrysler went to Washington to seek money for the industry's survival. Opposition to a Detroit bailout came most forcefully from a group of representatives from those states which had foreignowned auto plants — "transplants," as they are now universally called.
The leader of this group was Senator Bob Corker, a Republican from Tennessee; his critics sometimes refer to him as "the Senator from Nissan." In two Senate hearings, and in private meetings with the Detroit executives, Corker framed their plight in dear and devastating terms: the Big Three were failing because of their own inefficiencies, and the success of the transplant factories proved it. The Senate rejected the bailout plan in December, and when the Bush Administration stepped in with a lastminute bridge loan to G.M. and Chrysler it was the Senator from Nissan who largely shaped its terms. If the domestic auto industry wanted taxpayer money, it would have to fundamentally restructure itself, reduce its debt, and bring its labor costs in line with those of the transplants. If Detroit was to survive, Corker was saying, it would have to become more like Smyrna.
When the chief executives of General Motors, Ford, and Chrysler first appeared before Congress, in November, they had reason to hope that their pleas for rescue would be met with sympathy. Bailout backlash had not yet spiraled into populist rage, and the automakers' plight was indisputably dire. General Motors, burning through more than a billion dollars a month, had just filed notice with the Securities and Exchange Commission that insolvency was imminent. Ford and Chrysler were also facing hard times. Unlike American International Group, which had sought federal financial assistance since September and left with about a hundred and seventy billion dollars in aid, the automakers had some claim on national sentiment. Few people (including some members of Congress) even knew what business A.I.G. was in, but everyone had once loved an American car. The Big Three executives said they needed twentyfive billion, a relative bargain.
The automakers, joined by the head of the United Auto Workers, Ron Gettelfinger, met first with the Senate Banking, Housing, and Urban Affairs Committee, chaired by Senator Christopher Dodd. Rick Wagoner, G.M: s chairman and C.E.O., in his opening statement, blamed the global economic meltdown for his company's crisis, and laid out what amounted to a "too big to fail case for a G.M. bailout. This is about much more than just Detroit," he said. "It's about saving the U.S. economy from a catastrophic collapse." Almost as an aside, Wagoner mentioned that G.M. had ninetysix thousand employees, and provided medical coverage for a million people. Wagoner meant to suggest his company's indispensability, but the healthcare statistic — more than ten beneficiaries for every active worker — indicated a company with deep underlying structural problems.
Those problems became the focus of the hearing, with Senator Corker leading the witnesses into testimony that illuminated some of Detroit's more egregious inefficiencies. At one point, striking a tone of incredulity, Corker said that he had heard that the auto companies sometimes kept their factories in production even when there was no demand for cars, because union agreements make it too expensive to idle a plant. Corker looked at Robert Nardelli, the chairman and C.E.O. of Chrysler, and asked if that was true.
Nardelli, his hand to his head, answered, "There is a contractual obligation that when we have to idle a facility that we do have to continue to pay wages at about ninetyfive per cent."
"That seems kind of problematic to me, I mean, just on the surface," Corker replied. "And it seems to me that you're asking us for twentyfive billion dollars to support a clause that in no other business in this country would be tolerated."
The exchange exposed the industry's predicament: the automakers and their workers were mired in arrangements made long ago that had ultimately rendered their businesses untenable. The situation that Corker referred to was the industry's infamous `jobs bank" program, which dated back to an agreement that G.M. had made with its workers in 1984. At the time, Nissan's Smyrna plant was entering its second year of production, and Honda had recently added an auto plant to its motorcycle operation in Marysville, Ohio. G.M. executives, responding to the competitive threat, wanted to modernize some of their operations with robotics and other efficiencies. The U.A.W., sensing potential job losses, won a contract provision designed to discourage layoffs: displaced workers were shifted to a jobs bank, drawing full benefits and nearly full pay. They were not obliged to seek other jobs, and, as the Detroit News reported a few years ago, many of them spent their days working on crossword puzzles at the local union hall. Such extravagant concessions seemed tolerable when G.M. still dominated the marketplace, and wished to avoid the disruption of a labor dispute. (Ford and Chrysler, in the Detroit tradition, also instituted the jobsbank program, which endured until last year.) The jobsbank plan made less sense as Detroit's share of the market shrank.
Sometimes, instead of paying employees not to work, a company kept its workers on the job, producing cars that didn't need to be built. This added to a chronic problem of overcapacity, which, in turn, encouraged a reliance on deep pricing discounts and marketing gimmicks (such as zeropercent financing) that moved inventory but lost money. [This short sighted move also created over production of vehicles resulting not just in a loss of value at retail, but a huge drop in value the moment a vehicle drove off the lot. Resale value was horrible, giving consumers further incentive to purchase an ‘import.’ The UAW had negotiated a deal that hurt everyone— the manufacturer, the distributors, the finance companies and ultimate the end user— but themselves.]
To an outsider, such arrangements sounded like managerial incompetence, an impression that the witnesses from Detroit (prodded by Corker) did little to dispel. When Corker asked the executives about their plans for the twentyfive billion dollars, they conceded that they didn't really have specific plans; they'd just decided to divvy up the money according to the market share of each company. "I was, in some ways, embarrassed for them," Corker later said on the Senate floor.
The next day, Brian Ross, of ABC News, reported that the three automobile executives had flown to Washington on private jets ("Even first class isn't good enough for those three"). The automakers found themselves pleading for survival in an environment that seemed inclined to let them fail. Senator Robert Menendez, a Democrat from New Jersey, seemed nearly as skeptical as Corker, insisting, 'They have to show a plan that shows that the twentyfive billion gets them to the point of viability. They have to show us a plan of how they're going to restructure their industry." The Washington Post wrote in an editorial, "The downfall of the American auto industry is indeed a tragedy, but the automakers and the United Auto Workers have only themselves to blame for much of it"The industry chiefs were mocked on "Saturday Night Live."
The hostility partly reflected the degree to which Detroit's natural constituency has fractured. The Democratic Party's ideological center of gravity had shifted from the bluecollar values of the industrial Midwest to the environmentalist imperatives of affluent suburbia and the West. In "An Inconvenient Truth," Al Gore excoriated Detroit for making gasguzzlers. In the years since, the sportutility vehicle has become a symbol, to some, of Detroit's lack of corporate virtue. (In 2003, the Sierra Club urged the Internal Revenue Service to audit S.U.V. owners who claimed to use their cars for business purposes.)
The rise of the S.U.V. represented another of Detroit's fundamental dilemmas. The vehicle came into being as an indirect consequence of a government policy that was partly meant to accommodate environmental concerns. The reformminded Congress of 1975, animated by the activist spirit of the socalled "Watergate class" of new, young Democratic members, had passed a law imposing emissions and fuelefficiency standards on automobiles. Vehicles built on truck beds were governed by lower standards, on the assumption that they would be used in work, and would bear heavier loads. The American auto industry exploited the loophole by ramping up production of big passenger vehicles that sat on truck beds. The minivan evolved into the extendedcab pickup trucks and S.U.V.s that proliferated during the next two decades.
The American public loved the big vehides, which were affordable because national energy policy made low gasoline prices a priority. The S.U.V.s and trucks were hugely profitable for the manufacturers, offsetting losses incurred partly because of laborrelated costs. Detroit's dependence on these vehicles, though, was. risky, as became clear last year when fuel prices rose steeply and the industry effectively crashed.
When Nissan broke ground on its Smyrna plant, in February, 1981, organizedlabor groups showed up at the site in force, protesting the nonunion project. A local labor leader, Jim Turner, predicted that it was just a matter of time before reality set in. 'We're just waiting for those who have never worked in an auto plant to find out what an assembly line is and what it does to you," he said. "People who are critical of autoworkers have never worked a moving assembly line day in and day out, year after year."
Turner and the others were proved wrong. The U.A.W. twice tried to organize the Smyrna plant, but workers turned them down by sizable margins. A third attempt was abandoned before it reached a vote. "We knew the people," Jerry Benefield, who is from Georgia, says. "They didn't have any preconceived notions about how you build automobiles, because none of them had ever done it."
Nissan didn't match the Big Three factories in wages, but the jobs paid well for the region. Workers were given a decent pension. "It was much less than the Big Three," Benefield says, "but we also had a 401(k) plan, which encouraged people to join by matching a certain percentage of what they put in, and then they could put more in." Employees participated in paying for their medical coverage. "We thought it was fair that they pay for part of their medical benefit," Benefield says. "We thought it was smart. We thought that it would keep them from misusing it if they realized that if the price of medical care went up the price that they participated in would go up." Nissan management also promised the workers that the company would avoid layoffs, even in slumps.
'We did everything we could possibly do to keep it from being a situation of them and us," Benefield says. "We wanted everybody to be on the same team, and we designed all of our policies to support that." Workers found that for the most part the talk was backed by deed. Management parked in the same lot as the hourly workers, ate in the same cafeteria, and used the same restroom facilities. Every employee, from Runyon down, was issued a Nissan uniform. Workers were encouraged to bring their complaints and their ideas for improving the cars directly to the top management. Line workers, called technicians, learned several jobs, allowing them to shift duties several tunes in a day — alleviating the numbing boredom of assemblyline work. They were encouraged by the company to pursue upward mobility. The guiding philosophy in the Nissan plan, and in Japanese manufacturing generally, was Kaizen — continuous improvement — and the workers bought in.
Nissan in Smyrna — and, later, Toyota in Kentucky, and all the other transplants — was able to build flexibility into the system. In Detroit, any move toward flexibility had to be negotiated with the union, usually at the price of taking on some other inefficiency. This wasn't because management was inept, or because labor was greedy, but because of the circumstances in which the American auto industry had developed.
The Bureau of Labor Statistics showed that in 1925 the average American autoworker had become three times more productive since the start of the First World War. In a 1927 article noting that development, and American industrial dominion generally, the Times credited the theories of Frederick W. Taylor, an efficiency expert with surpassing influence among his audience of American industrialists. Taylor developed a theory he called Scientific Management. Its central tenet was that, to achieve the greatest efficiency, "it is absolutely necessary for every man in an organization to become one of a train of gear wheels." Taylor's "science" was given its fullest application by Henry Ford, who measured his workers' movements on the assembly line with a stopwatch. Two years after the Times article praising Taylor's methods, the stock market crashed. In the New Deal era, the condition of the workingman was accorded more sympathy, and in 1935 Congress passed the Wagner Act, creating the National Labor Relations Board, and granting workers the right to unionize, to bargain collectively, and to strike.
Two years later, the newly organized United Auto Workers occupied a General Motors plant in Flint, Michigan, and held it for fortyfour days, effectively shutting down G.M. operations across the country. The world's largest and richest company yielded to its workers, giving the union the sole right to represent G.M. workers. The new union didn't reject the premise of workers as mere cogs in the company machine — the Japanese teamwork model wasn't even imagined — but, on the contrary, assumed that characterization as its bargaining premise. The union's view was that working an assembly line was brute work; in exchange for doing it, workers demanded better wages and benefits, and, especially, time away from the job. Company and labor were thereafter bound in a relationship that was inherently antagonistic, and largely remains so today.
Nowhere was this mutualism more starkly cast than in Flint, where General Motors was founded, and the U.A.W. gained its defining victory. For generations, the labormanagement duopoly flourished spectacularly, to the benefit of company and worker alike. In 1968, after graduating from Flint's Kearsley High School, a young man named Ed McClain rode his HarleyDavidson down to G.M.'s A.C. Spark Plug factory on the Dort Highway and applied for a job. When he got home that afternoon, there was a message waiting, informing him that he'd been hired. He was eighteen, and he worked at A.C. for the next thirty years, before retiring with full benefits. "You could walk in off the street and get a job back then," McClain recently recalled, reciting the names of G.M. factories that had once operated at full force in Flint: Fisher One (the body plant that had been the scene of the 1937 strike); Fisher Two; the Ternstedt bodyparts plant, four Chevrolet plants; the Grand Blanc plant; and the massive complex that produced Buicks. McClain's father had worked at Buick, a twohundredandthirtyfive acre sprawl that at its peak employed eighty thousand workers.
"It was a great job, it was a great time," McClain says. "And this a fact — the auto industry, along with the U.A.W., because of progressive gains in wages and benefits and taking care of people the way even God would have taken care of his people, created middleclass America."
Workers like McClain earned enough to send their children to college, and to buy a vacation home, and perhaps a pleasure boat — with five weeks off to enjoy it. The week of July 4th was dubbed Freedom Week, and employees worked only part time. Their health benefits were toptier, and a nationwide legalservices network provided workers with counsel on matters ranging from divorce to debt collection.
When, by the nineteeneighties, G.M. began to react to foreign competition, its response, constrained partly by labor obligations, was slow, and ultimately ineffective. The Buick factories were organized into a Buick City complex in 1984; fifteen years later, the operation was shut down. That was what happened to most of Flint's auto factories, and it is difficult now to imagine the town as the vibrant industrial community it was in McClain's youth. "They just knocked down A.C. Spark Plugto the ground," he says. "Fisher One does not exist anymore. Ternstedt was knocked down to the ground. Buick is knocked down to the ground, twothirds of it. Just nothing but miles and acres of land, vacant."
When McClain's stepson graduated from high school, he took a job at McDonald's. "That's all there is around here," McClain says. "Right now, you wanna know what's going on with the middle class? They've been pillaged. Their jobs have been out-sourced." McClain, who became a union leader at his plant, is inclined to blame corporate management for what happened in Flint. When I spoke with him, there were rumors that Rick Wagoner might be dismissed as G.M.'s C.E.O. "I heard Obama told Wagoner, `Get out, we don't even need C.E.O.s like you: And I thought, This guy Obama knows what's going on."
But McClain also knows that the fate of the American automakers was likely decided when the first foreignowned plants began producing cars in the U.S. "George Washington would roll over in his grave and call it treason for letting foreigners come in here and take away what we had built," he says. "We taught 'em everything they know. Why would anybody in this country put a foreign entity over ourselves first? It's all got to do with world order. It's a setup." [‘We taught them everything they know’ is such an unbelievably ignorant statement! We have forgotten everything we knew is more like it. They only maintained what we taught them. The UAW created a hostile environment that ultimately led to failure. No big deal. Russia fell under a similar rationalle.]
The fact that the Big Three couldn't run a factory the way Nissan did in Smyrna partly explains why, in the current crash of auto sales, Detroit finds itself in starkly more dire condition than the transplants. Nissan's sales have slumped, but it remains true to its promise of avoiding layoffs in Smyrna, instead putting its workers on a shorter week. Across town, the former Ridley Chevrolet dealership has filed for bankruptcy.
The auto executives left Washington in November without their bailout, and returned two weeks later a chastened group. General Motors placed a fullpage ad in Automotive News, confessing to a series of strategic mistakes, apologizing for violating consumer trust with inferior products and for biasing "our product mix toward pickup trucks and SUVs." The chief executives all drove to Washington, arriving at the Capitol in hybrid vehicles. Ford, whose President and C.E.O., Alan Mulally, had sold off a number of subsidiaries in recent years and effectively mortgaged the company to raise cash, decided that it could forgo the immediate embarrassment of asking for government money, but requested a government credit line of nine billion dollars. The G.M. and Chrysler executives brought detailed rescue plans.
Some Senate Republicans still believed that G.M. and Chrysler should be allowed to fail, but Corker was no longer among them. A millionaire businessman and former mayor of Chattanooga, he had come to the Senate, in 2007, under circumstances that were not propitious. He had survived a close and contentious campaign against Harold Ford, Jr., who hoped to become the first AfricanAmerican elected to the Senate from Tennessee. Toward the end of the campaign, an ad produced by the Republican National Committee mocked Ford as being out of touch with Tennessee values. It included an actress playing a blond bimbo, saying, "I met Harold at the Playboy party!" and whispering, with a wink, "Harold, call me." Corker renounced the. ad, but it sullied his victory over Ford.
Corker was the only new Republican to enter the Senate in 2007, which was not a good year to be a Republican freshman. With Democrats in control, Corker found himself at the bottom of the Senate food chain, and after a few weeks he was miserable and wondering why he'd run. He called a meeting of his staff, and declared that if he wasn't going to have fun he would at least be heeded. He determined to become a Senate overachiever, making his way onto a committee banking — where a willingness to work hard might allow him to make his mark. The financial collapse moved Dodd's banking committee, along with Corker, to Washington's center stage.
When the automakers first came to Washington, the Southern Auto Belt senators, including Corker, had generally agreed about the proposed bailout. For reasons of ideology (let the marketplace rule) and selfinterest (the U.A.W. had donated heavily to their opponents), they were inclined to let Detroit fail. Corker's voice had been the most prominent in the first round of hearings, but when they ended he felt he still didn't know enough to advocate for bankruptcy. On December 1st, the beginning of the week that the second round of hearings was scheduled to be held, Corker flew to New York for a series of meetings with autoindustry analysts and G.M. bondholders. Among them was James B. Lee, Jr., the vicechairman of J. P. Morgan Chase. "I explained to Bob that you can get pretty clinical talking about bankruptcy, and you sort of do it in almost a theoretical way, even though you're talking about a really powerful event, and then, when it actually happens, it's pretty devastating," Lee recalls. "I think the Lehman Brothers thing sort of reminded us all of that, that if you bankrupt a big iconic company that touches a lot of parts of the economy you'd better be ready for it."
"The auto supply chain was incredibly fragile," Corker said. "And while Chapter 11 may have been the best thing for G.M., many of these companies were not going to make it." Also, he said, "there was the whole issue of warranties, which I think was a valid argument. Were people going to buy a car from G.M. when they knew it was bankrupt?"
When Corker returned to Washington, he began to work out an alternative to bankruptcy. G.M.'s most urgent problem was a crushing debt burden, much of it from its obligations to workerbenefit programs. The union workers had been promised lifetime pensions and full health coverage, and, after a 1970 strike, they were also granted the option of retiring after thirty years on the job. That meant that a worker who joined the company at eighteen — as Ed McClain did — could retire at fortyeight, and collect benefits for more years than he'd spent as an active employee. A hundred yearold company like G.M. has a lot of retirees, and the labor costs of a G.M. vehicle were roughly fifteen hundred dollars more than what it cost to produce a car in the transplant factories. In 2007, the U.A.W. allowed the automakers to move retiree healthcare obligations off the books as an ongoing cost and into a unionrun trust, the Voluntary Employee Beneficiary Association (veba), which would pay retiree health benefits. The three automakers had to fund the bulk of a sixtybilliondollar trust, with G.M. owing the largest amount; its next installment, of $7.6 billion, is due next year.
After the second round of hearings, the Bush White House, not wishing to add the auto industry's demise to its chapter in history, worked with House Speaker Nancy Pelosi to devise a shortterm fix. The House approved a fourteenbillion dollar bridge loan to Chrysler and G.M., but the bill went nowhere in the Senate. When Bush's chief of staff, Joshua Bolten, tried to sell Republican senators on the measure, he was laughed out of the room. "It was the most pitiful presentation I’ve ever seen," Corker recalled. "If they had six votes when they came in, they had three when they left."
Addressing the Republican caucus, Corker explained that the House bill required no specific action on the part of the carmakers to undertake a fundamental restructuring. He outlined his own plan: the union would be asked to accept half of its VEBA payment in stock, rather than cash, and the bondholders would be asked to accept a "debt for equity" swap, accepting thirtythree cents on the dollar for their bonds in exchange for G.M. stock. The companies and the union would also have to agree to drastically alter work rules and wage structure, making them competitive with the transplant companies by the end of 2009.
The Republican leadership asked Corker to introduce his plan as an amendment that would supersede the House bill, and Corker and Dodd began frantic negotiations with the union, representatives of the bondholders, and the automakers. Corker says that the union agreed to accept stock for cash for its VEBA trust, and key bondholders indicated that they would accept an equity swap. Alan Reuther, the U.A.W.'s Washington lobbyist, agreed to put his workers on a par with those of the transplants, but refused to commit to the 2009 deadline. The Republicans wouldn't support the bailout without that timeline in place, and the Corker amendment was shelved. The House proposal was debated that night, and it, too, went nowhere.
A week later, Bush announced that the Treasury Department would lend G.M. and Chrysler $17.4 billion, on terms that generally accorded with Corker's plan. "Look, I got all your stuff in there," Bush told Corker in a telephone call that day. In exchange for the loan, to be paid in installments, the government required G.M. and Chrysler to achieve the VEBA and bondholder debt reductions, and to have a plan by March 31st to bring costs in line with those of Nissan, Toyota, and Honda.
When Obama took the oath of office, he found himself overseeing the biggest industrial restructuring in history, largely on Corker's terms. "Obama has a tremendous opportunity," Corker said. "I think this is one of those defining moments for him." It was not an opportunity that Obama welcomed. 'The only thing less popular than putting money into banks," the President noted in a "60 Minutes" interview, "is putting money into the auto industry."
In the weeks following the election, Obama and his team were focused on matters other than the auto industry. There had been talk of the appointment of a "car czar," and speculation that the role would be filled by the investment banker Steven Rattner; but the Inauguration came and went, and nearly a month later no appointment had been made. (The hesitation might have been explained last week, when news reports revealed that Rattner's firm, the Quadrangle Group, is the subject of an ongoing Securities and Exchange Commission inquiry related to New York's pension fund, and that the Administration had been aware of the probe.) G.M., meanwhile, with relatively little guidance from Washington as it formulated restructuring plans to accommodate the terms of its loan, turned for guidance to Bush holdovers in the Treasury Department.
“We have been dealing directly with Treasury," Fritz Henderson, who was then G.M: s No. 2, told me. "I wouldn't say we are in touch with Mr. Rattner at all." Henderson grew up in the auto business. His father worked for G.M. for thirtynine years, selling Buicks. "My first car was a 1969 Buick Skylark, with a 350, two barrel, which I absolutely loved," he said. "That was my car in college. It was used, sixtythree thousand miles." Henderson was lucky with that car G.M. was about to enter a period in which it alienated much of a generation of car buyers with automobiles that were shoddily made and aesthetically wanting. 'We saw some less than noble efforts," Henderson said.
G.M. has since dramatically improved its product line, but now faces challenges far more daunting than workmanship and aesthetics. There is greater competition in a shrunken marketplace. "Nonetheless," Henderson went on, "our job is to maximize what we can get out of those markets"— even while burdened with legacy costs. 'There is nothing I can do about the past," Henderson said, and added, 'We invested more than a hundred billion dollars, over a fifteenyear period, to provide resources for both U.S. pension funds and U.S. postretirement health care. That is a staggering number. And the burden of that, basically, has been borne by our balance sheet. If you say, Where did the resources go?, they went to make sure that we funded our benefits in a way that met our obligations. That's O.K., but it means those resources weren't invested elsewhere, or they weren't provided as a store of value in the balance sheet, or didn't provide liquidity in the balance sheet for us to make investments or for us possible. It had happened in steel, and to withstand a moment like this."
The White House let it be known on February 16th that, instead of a car czar, Obama would appoint an autoindustry task force, reporting to Treasury Secretary Timothy Geithner. The next day, G.M. and Chrysler declared that they would need another twentythree billion dollars between them to survive.
The economist Mark Zandi had warned in a congressional hearing in December that a bailout of the auto industry ultimately could reach a hundred and twentyfive billion dollars. There was no support for an openended bailout, and Obama needed to reserve political capital for his economic program. But the auto workers and other unions had helped elect him (and had ponied up more than fifty million dollars for his campaign). In any case, he felt he couldn't afford to let the industry go under.
Obama’s creation of the task force offered an elegant solution. He eventually put Rattner on it, naming him senior adviser to Geithner, but his first appointment to the group, with stature equal to Rattner's, was an adviser to the United Steelworkers Union, Ron Bloom. The naming of Bloom comforted labor and signaled that a turnaround of the failed American auto industry might actually be possible. It had happened in steel and Bloom had been part of it.
Bloom like Rattner spent his early career at Lazard Freres, and went on to make millions on Wall Street in investment banking. Bloom, though, had come to Wall Street, and eventually left it, partly in pursuit of social justice. He had grown up in New York and Philadelphia, in a household whose conversation tended toward progressive politics.
After graduating from Wesleyan University in 1977, Bloom worked for the Service Employees International Union, where he realized that labor was badly overmatched in highly complex negotiations with corporate interests. He enrolled in Harvard Business School, where he read about a group of steelworkers from Weirton, West Virginia, who came to New York in 1983 desperately seeking money to buy their mill, Weirton Steel, which faced a shutdown. After several rejections by the big investment houses, the workers found someone at Lazard Freres, Eugene Keilin, who agreed to take on their project.
A year later, they owned the company, in what was at the time the biggest employee stockownership plan ever achieved. The workers had their mill, and Lazard made a killing on fees. In 1985, Bloom joined Lazard, where he worked closely with Keilin, and five years later they established their own boutique investmentbanking house, specializing in uniondriven restructurings. It was a lucrative niche, and Bloom's stature on Wall Street, and in labor circles, grew. "Ron understands finance better than anybody I've ever met," Michael Psaros, who worked with Keilin and Bloom, and is a managing partner of their successor firm, says. "Finance is what investment bankers do. That's the easy part. Ron understands mergers and acquisitions better than anybody I've met, but that's the easy part, too. The magic is to figure out how to turn around underperforming, highly distressed, and bankrupt manufacturing and industrial companies."
Then, in November, 1996, Bloom told his colleagues he was going to work for the United Steelworkers Union, as a special adviser to its President. "I'm very fortunate in life," Bloom told his partners. "I got to start my own firm, I’ve done what I loved. But I can help labor more from the inside." It was a secular version of finding God and entering a monastery, but Psaros says he was not shocked. "I have never met anybody less motivated by money than Ron. It's fundamentally not important to him."
Bloom joined the steelworkers just as iconic companies like Bethlehem Steel, shaped by practices from another century, were becoming fatally burdened by legacy costs from labor benefits they could no longer afford. Bethlehem declared bankruptcy in October, 2001; many other companies (including Weirton) came tumbling after, and the industry essentially collapsed. Bethlehem and several others were bought out of bankruptcy by the investor Wilbur L. Ross, Jr., and were merged into the International Steel Group. With Bloom's active participation, Ross restructured the companies after they had been freed by bankruptcy of their obligations (including pensions and other benefits due workers); his new operation had a much leaner work force and shed many of the old work rules and jurisdictions. The result was a more efficient steel industry that was soon turning a profit. Ross sold International Steel Group in 2005, making billions on the turnaround; the steelworkers got a revived industry, staffed by union labor.
Bloom is not dewyeyed about the hardwon benefits that get tossed aside at such restructurings. By the time he arrives at the table, the business has failed, and he is willing to acknowledge labor's role in the failure. His talent lies in helping to insure that labor is not asked to accept more than its fair share of sacrifice. "The term of art that was invented by the labor unions, and that we always use, is 'equality of sacrifice," Psaros says.
Bloom described his negotiating philosophy more graphically in a 2006 speech. "We are big believers in dentistchair bargaining," he told a gathering of insolvency lawyers and accountants. "For those of you not familiar with this approach, it is inspired by the story of the man who walks into his dentist's office, grabs the dentist by the balls, and says, `Now, let's not hurt each other."
A turnaround like the one achieved in steel is more easily accomplished in a formal bankruptcy proceeding, in which the failed company's liabilities are largely flushed away. But that option is problematic for the auto industry. The auto supply chain, though bolstered by a five billiondollar federal loan announced this month, remains fragile, and the repercussions of a freefall bankruptcy in a bleak economy could be calamitous. That's why most involved parties, from the union to Corker and the President, hoped somehow to keep G.M. out of Chapter 11.
The President's task force had to convince labor, capital, and management that the process they were entering was bankruptcy by another name. Bloom's characteristic approach, Psaros says, is to begin with a coldblooded reality check. "It starts with confronting the parties with the reality and the facts," he says. "This business failed. You cannot deny that the business has failed.' And then you present the numbers. The great thing about math is it's objectively correct and does not lie."
In late February, Bloom and Rattner began studying the industry, and what they learned was sobering. They learned, as just one example, that G.M.'s dealershipdistribution system is hopelessly out of proportion. Honda has thirteen hundred dealerships in the U.S., and Toyota — G.M.'s chief rival — has about fifteen hundred. G.M. has more than six thousand dealers, who are protected by state franchise laws. It will cost the company billions of dollars just to reach parity with the Japaneseowned companies.
Throughout March, Rattner, Bloom, and their task force met with financial analysts, labor leaders, car dealers, academics, and company management. The picture that emerged was of an industry that could be saved only by the most draconian means.
One of the groups invited to Washington to meet with the task force was composed of local officials from areas with G.M. plants, where towns will be directly affected by whatever happens to the company. Among that group was Ron Webb, the city council chairman of Shreveport, Louisiana, which has had a G.M. plant since 1981. The plant once employed more than two thousand workers, producing Hummer S.U.V.s and trucks as well as Chevrolet Colorado pickups. G.M. has said that, as part of its downsizing, it will drop the Hummer brand (as well as shrink Pontiac and divest itself of Saab and Saturn). Webb is a U.A.W. member, and has worked at the Shreveport plant almost since it opened. He is less than four years from retirement.
Webb said after the Washington meeting that he was impressed by the seriousness of the task force but he was not comforted by what he heard. He said that Bloom, wearing a sports jacket and a shirt with an open collar, listened carefully and took copious notes. Bloom asked a few questions, and at one point he mused aloud that he didn't see how G.M. could survive outside of bankruptcy. "He said this thing was going to get hairy and unpleasant before it was over with," Webb recalls. "From what he said, you could tell it was going to be serious. And it was going to get ugly."
Bloom's hint about. bankruptcy was an indication of where he and Rattner were heading. Corker had warned that, absent the binding deadline that would have been imposed by legislation, the union and the bondholders would try to outlast each other in negotiations with G.M., and that is what happened. The bondholders, who had been asked to accept thirtythree cents on the dollar, argued that the union, which was being" offered half of G.M.'s twentybilliondollar VEBA obligation in amortized cash payments, was getting a better deal. The bondholders were widely seen to be gambling that the government would eventually step in with a bailout, which would yield a nice payday for those who had bought the bonds at distressed prices.
The union, for its part, argued that autoworkers had sacrificed quite a lot in recent negotiations with the carmakers: among other things, they had agreed to a twotier wage system, allowing them to pay new hires half the rate earned by veteran workers. The union had also reached a milestone deal with Ford in early March, agreeing to accept half of Ford's VEBA debt in stock, and agreeing to wage and benefit concessions that would bring Ford's labor costs to just above fifty dollars an hour in two years — a compensation rate roughly on a par with that paid by the transplant companies.
But the union did not make a deal with G.M., and by the last week of March it was clear that G.M. would not be able to meet the terms of its federal loan by March 31st. It was also evident, however, that the government was not going to recall the loans it had made to G.M. and Chrysler, forcing immediate bankruptcy. The President had publicly declared that he would not let the auto industry fail, which may have encouraged union and bondholder recalcitrance. Yet, with public anger over bailouts intensifying, .the Administration knew it couldn't simply allow the companies to miss another deadline with impunity and collect more federal money — although that is essentially what happened.
Obama was scheduled to give a speech about the auto industry on March 30th, a day before leaving for Europe. Obama's team decided that his speech assessing the automakers' progress "would not sugarcoat it," as someone close to the matter put it, and that the President would specifically mention the prospect of bankruptcy.
The President's speech required a certain rhetorical sleight of hand; one view of events was that G.M. and Chrysler had failed to meet the terms of their government loan but the government was going to give them more money and more time anyway — thirty days, in the case of Chrysler, sixty days for General Motors.
But Obama's team had already insured that the parties involved, and the public, got the message that the Administration was serious. On the previous Friday, March 27th, G.M.'s top executives — Rick Wagoner, Fritz Henderson, and the company's chief financial officer, Ray Young — met with the task force in Washington. Rattner asked for a oneonone meeting with Wagoner, and told him that he needed to resign. Fritz Henderson would now be running the company.
Wagoner was being made to take the fall for the refusal of the union and the bondholders to relent, partly because the task force believed that it didn't have the option of firing Gettelfinger. The task force felt that it was management's job to resolve the issues with its debtholders, and that G.M. under Wagoner had failed to do so while burning through more than thirteen billion dollars of taxpayer money and pleading for much more.
The bigger problem with Wagoner, as the task force saw it, was that his exalted view of General Motors as an indispensable institution made it impossible for him to credibly threaten impending doom. The Administration intends to have the U.A.W. issues resolved before G.M.'s fate is decided, in bankruptcy court or out. This maybe the best course for the autoworkers, because in bankruptcy court there is always the possibility that the company's obligations to the union will be all but wiped away. The government wants the union to grant concessions even greater than those it granted to Ford earlier this year; by agreeing to such terms, the union may win in the long run if the government effectively nationalizes G.M.'s pension or healthcare debts. But the best leverage in forcing the union to agree, in the task force's view, is the threat of bankruptcy (whether or not that is the actual intention)— the threat that Rick Wagoner couldn't credibly deliver.
In the weeks since Obama's speech, the press has been filled with stories about the likelihood of a "surgical” bankruptcy for General Motors, from which a new company, shorn of its debt and troubled assets, would quickly emerge. Among those who increasingly spoke publicly of such an eventuality was Fritz Henderson. Reporting on the company's progress last week, Henderson said that he hoped to avoid bankruptcy but was preparing for it; he also said that G.M. would require another $4.6 billion in aid this quarter.
Obama said that his ultimatum to General Motors and Chrysler was based on the analysis of his auto task force, which had been to Detroit only once, in an allday cram session three weeks earlier. Bloom, Rattner, and their party had spent the morning of their Detroit visit at Solidarity House, the national headquarters of the autoworkers' union, and then headed out for meetings with G.M. The company's headquarters was just three miles down Jefferson Avenue, in a glass andsteel skyscraper complex called the Renaissance Center, but G.M. had arranged for the session to be held at its Technology Center, in Warren, Michigan, twenty miles north of Detroit.
The Tech Center was dedicated in 1956, midway through an American century that General Motors had done much to define. The engineering and research facility, designed by Eero Saarinen, was considered a triumph in the Internal Modem style, with its low glazedbrick buildings and interiors that featured suspended granite stairways with stainlesssteel spindles. The chief designer's office is like something from the set of "Mad Men," with rolledwood paneling, builtin sofas, and a glasstopped coffee table that can be raised and lowered by pushbutton command. The facility was an homage to G.M.'s tradition of technical innovation, begun by its first research director, Charles Kettering, whose inventions included the electric starter. G.M.'s research teams had pioneered the use of the catalytic converter — a partial solution to emission pollutants — and its investigations in the material sciences often found applications far beyond the automobile (one of the first mechanical hearts was built by G.M.). Kettering, who was seventynine in 1956, attended the center's dedication, which was addressed, via live closedcircuit television, by President Eisenhower, who interrupted a visit with Indonesia's President Sukarno for the occasion. "This particular center is a place for leadership in furthering new attacks on the technological frontier," Eisenhower said. “Beyond that frontier lie better and fuller employment, opportunities for people to demonstrate yet again the value of a system based on the dignity of human beings, and on their free opportunities in life."
The auto task force spent two hours with G.M.'s top executives in one of the center's conference rooms, going through the dreary arithmetic of insolvency. When the session ended, the executives played their best remaining card: they escorted the President's party out to the center's grounds for a test drive in the Chevy Volt. The center's Larry Burns, the director of research and development, has spent most of his life at General Motors, at a safe remove from such matters as VEBA payments and debtforequity swaps. He and others believe that the automotive industry is on the verge of a dramatic transformation — not the sort involving bankruptcy reorganization but something akin to that of Henry Ford's a century ago. Burns talks of the industry's "new DNA," which is already producing technologies destined to supplant the internalcombustion engine.
The Volt is G.M.'s big bet on that new DNA, a car meant to be an affordable, massproduced, allelectric vehicle that can be recharged by plugging it into a household outlet. In 2007, G.M. pledged to take the vehicle from concept to showroom in less than three years, putting it in consumers' garages by the autumn of next year, an undertaking that company executives likened to the Apollo moon project. G.M. had invested nearly a billion dollars in the Volt. As the company found itself increasingly in the business of pleasing Washington, the Volt assumed ever greater prominence in G.M.'s projections for the future. Rick Wagoner had mentioned the Volt in his congressional testimony, and it was the car he arrived in on his return trip to Washington. The company's viability report to Congress proclaimed, "Volt represents a fundamental re-invention of the American automobile industry."
It was an ambitious assertion for a car that has not yet been fitted to its body, but the Volt's progress so far warrants some optimism. (Obama's stimulus bill provides rebates of up to seventyfive hundred dollars to anyone who buys a Volt or other plugin vehicle.) The car is powered by a huge lithiumion battery, formulated with new chemistry for automobiles, and in rigorous test runs in extreme climates. The prototype Volt has not encountered a glitch big enough to throw it off schedule. If the Volt redeems even a portion of its promise, it will be a remarkable, and most unlikely, achievement, both for G.M. and for the car's creator, Bob Lutz.
Lutz, the vicechairman and head of product development for G.M., is a throwback to a type once known in Detroit as a "car guy," a charismatic executive with an intuitive feel for the qualities that give a car allure. Lutz, an exfighter pilot, began his career at G.M. in the early nineteensixties, then helped to run operations at Ford, BMW, and Chrysler, where his signature creation was the highperformance muscle car the Dodge Viper.
In automobile circles, Lutz was known as Maximum Bob, the person least likely to be associated with the development of an environmentally sensitive vehicle (he had once referred to global warming as "a total crock of shit"). The greening of G.M. was the last thing on Rick Wagoner's mind when he brought Lutz back to G.M. in 2001, at the age of sixtyeight. G.M.'s product line at the time was notable for its lack of style, a collection of forgettable vehicles that filled the carrental fleets; Lutz insisted that every new vehicle begin with eyecatching aesthetics, with engineering to follow. He was responsible for developing the Pontiac Solstice (a dashing little roadster, whose sales ultimately disappointed), the Cadillac CTS, and a re-imagined Chevrolet Malibu, which was named last year's Car of the Year.
Five years ago, Lutz became an advocate of "ecocool," as he terms the drive for fuelefficient cars, by acting on a competitive impulse. Toyota had introduced its gasolineelectric hybrid vehicle, the Prius, and the car became a sensation. At G.M., the leap in innovation by its
Japanese competitor stung badly. Lutz, who has a master's degree from Berkeley in marketing, was particularly annoyed. "If you'll remember, in the national media a few years ago Toyota was the company that could do no wrong," Lutz recalled. "I mean, everything was better at Toyota. The food in their cafeterias was healthier, their executives were smarter, their workers were happier, the ships that they shipped the cars in were cleaner. I mean, they were like deities. And all because of this Prius, which was a good technological achievement but above all a brilliant, brilliant move from a standpoint of changing your corporate image."
During one meeting, Lutz suggested that G.M. trump the Prius with an allelectric car. He had spent a brief period before returning to G.M. as the chief executive of a battery company, Exide Technologies, and he believed that advances in the lithiumion battery might make it suitable. The response from senior leadership, Lutz recalls, was an emphatic rebuff. "One or two of them said, Bob, we lost over a billion on the last electric car — do you want us to lose another billion?' "
G.M.'s first electric car, the EV1, had caused one of the greatest corporate publicrelations disasters since the New Coke. G.M. built the car largely to satisfy a 1990 mandate from the California Air Resources Board requiring that two per cent of an automaker's sales in the state meet zeroemission standards by 1998, and ten per cent by 2003. G.M.'s response illustrated both its technological prowess and its institutional hubris. Two years ahead of the deadline, G.M. sent into the market, on a limited basis, the EV1, a sleek twodoor coupe, with that peculiar feature of the electric vehicle — rocketride torque that has to be geared down to avoid whiplash. (Zero to sixty in under six seconds is not particularly remarkable in an electric vehicle.)
The vehicle was never for sale. Eight hundred EV1s were made available through lease to customers in California and Arizona, and several of them ended up in the garages of celebrities (Tom Hanks and Mel Gibson each had one), who formed the core of a devoted cult following. But G.M. said that the car could not be commercially viable. Each vehicle cost about eighty thousand dollars to produce, and company research showed that the broader public was put off by "range anxiety"— fear of running out of power before reaching the special charging unit at home. G.M. recalled all the cars, despite protests from EVI aficionados, and sent them to the crusher The company explained that it couldn't allow any of the cars to remain on the road because of legal liability. The electric car's fans saw it as evidence of a conspiracy between G.M. and Big Oil which provided the theme for a documentary film called "Who Killed the Electric Car?"
Lutz persisted, and launched a skunk works project for his idea, hoping to test whether a batteryoperated car could overcome the rangeanxiety factor. The big breakthrough came when one of his engineers, Jon Lauckner, convinced Lutz that the answer was not in finding a battery that could provide a range of several hundred miles — which would make the car prohibitively expensive — but in giving a battery extended range by recharging it as the car was being driven. The car would have a battery with a range of about forty miles — the distance of most daily commutes — plus an onboard generator powered by a small gasoline engine. The car would be powered solely by the battery, and the gas engine would kick in to generate electricity only when the range was exceeded. A commuter driving the car less than forty miles wouldn't burn any gas; even on a long trip, the car would have a range of about three hundred miles, at a fuelefficiency rate of more than a hundred miles per gallon.
G.M. debuted the concept at the 2007 Detroit Auto Show, assigning it to its Chevrolet division and giving it the name Volt. The automotive press swooned; Toyota executives said the battery was impracticable.
Lutz had planned to stay at G.M. until the Volt's introduction, but an environment of government supervision does not suit his nature. "You'd be insane not to be mildly depressed with where we are, both in terms of the general economy and General Motors' status," he says. "The absence of regard in which we are held by our elected officials, all of this, of course, is mildly depressing." In February, Lutz announced that he would retire at the end of this year, leaving with the satisfaction of knowing that Toyota is now pursuing its own allelectric car, powered by a lithiumion battery. "They have announced they are going to do something like this in 2012," he says. "I'd say we have a twoor threeyear head start on everybody."
One question that Lutz will leave unanswered is that of the Volt's commercial viability. G.M. plans to make ten thousand of the vehicles in its first year of production, and up to sixty thousand annually within five years. But for a compact car the Volt will be expensive, costing perhaps as much as forty thousand dollars — half of that possibly for the battery alone. The American market for pricey envirocars is fickle, as Toyota has painfilly learned. When gas prices reached four dollars a gallon last summer, Toyota dealers ran low on their stocks of Priuses, and some charged a premium for the hybrid; when gas prices fell, the stockpile grew to an almost threemonth supply, and sales remain at a virtual standstill. Mike Jackson, the chief executive of AutoNation, a national chain of dealerships, has said that only about five per cent of car buyers are in the market for a car for its environmental virtues; the rest buy on price, and other appeals. Lutz, the former antienvironmentalist, has suggested that the government needs to motivate buyers with a comprehensive energy policy that will stabilize gas prices in the threetofourdollaragallon range, by means of a fuel tax.
Larry Burns believes that, as with most technologies, the cost of the lithiumion batteries will go down with each generation. "You can't go into Home Depot and pick up this battery," he says. G.M. worked with more than three dozen cell suppliers before choosing LG Chem to produce the Volt battery, and if the Volt and other electric cars stay in production he expects competition for the battery business to drive the prices down. "The technology game is all about living to play to the next generation," Burns says.
Obama, in his speech on March 30th announcing his plans for G.M. and Chrysler, spoke of the auto industry in tones not dissimilar from those employed by Eisenhower more than half a century ago: "This industry is, like no other, an emblem of the American spirit; a once and future symbol of Americas success." The President also said that he has one overriding goal for the industry: "The United States of America will lead the world in building the next generation of clean cars."
Burns imagines a transportation grid of interconnected electric cars, able to drive themselves, and even to repair themselves, through software downloads. Burns believes that G.M. could lead in achieving Obama's goal. "It just takes somebody to be first," he says. But Bums has also made a study of periods of cataclysmic transformation in American business, and he knows that G.M.'s chances are not good. "The literature I've studied about incumbents and mature industries facing the transformational possibilities that I see right now, they usually don't come out of it the winner," he says.
There will be a bankruptcy of one sort or another, and it can't be known whether the Technology Center, or even the Volt, will emerge on the other side. "There's a saying — once you've seen a scary movie three times, its not so scary anymore," Bums told me. "This movie that we're living through right now is a different kind of scary movie."
by:: Hansel Z Clydesdale
Since reading this article I have had a hard time sleeping. The information contained herein answered so many questions that have bothered me for years.
The New Yorker is a notoriously liberal source of information. Therefor, it is necessary to apply other knowledge when gleaning information from this source. The liberals (the Republicans are the new Liberals and the Democrats the Marxist / Cuban Fascists), want to Deify B. Hussein Obama. But, any time the Government “interferes” with the private sector, even if it seems to be a help, constitutionally, they overstep their bounds. Today, the legal system, which is a constitutional requisite, has so greatly become part of doing business that we are living in a judicial state. It too has exceeded its authority enormously. So, when the “President” wants to step in and be a hero, I say boo!
All the “President” SHOULD do is make sure the battles waged in court are fair, nothing more, nothing less.
Here’s what I got from the article:
First: The folks at Nissan are unsung hero’s. They gambled, pioneered, and succeeded the way our early American settlers did. They had the courage to share their Japanese corporate culture with us. It worked. They succeeded.
In so doing, they proved our method of doing business was fundamentally flawed. There is no room for animosity in the workplace.
Ford and Toyoda were friends. Toyoda learned from Ford. All the Japanese did was apply what they learned with their cultural twist. That’s not even true. It was an American named Demming who the Japanese recognized as brilliant that made them great. They just brought American teachings to American soil and applied what American manufacturers rejected a few generations ago.
Second: A vision came to mind. Can a host actually be killed by the parasites who feed on it? In the south, at the beach, at the wrong time of day, mosquitos can cover your body with such ferocity that any exposed skin literally turns black with the swarm of pests. People have died as a result of these attacks. This may be a bit extreme, but heart worms in a pet comes to mind as a sort of parasite that literally sucks the life out of its host. Tape worms do the same, preventing the host from getting nutrition.
Other examples are many. Over development of farm lands caused the dust bowl exasperating the great depression, over population of an island where all the resources are consumed and the entire group of animals parishes for a lack of sustenance. I once rescued a kitten that had so many fleas it didn’t scratch any more. Where would it begin?
In this case the Auto Workers Union (UAW) had such a strong hold on GM that it literally consumed its host. Absolutely fascinating. Eye opening.
Does the Government need to interfere? Certainly not. Are bail outs necessary? No. No, and no. When Schwinn Bicycle Company went thru this in the early 1990's my Sales Rep and friend ‘Scottie’ Dunn was destroyed financially.
Scottie had been with Schwinn since moving to this country. A naturalized American with about 40 years on the job, he began sweeping the floors of the warehouse and packing parts orders. He knew no other employer in America but Schwinn.
When Zell/Chilmark bought his employer out of bankruptcy. He was offered no bail out money. Sadly, situations like this occur all too often and people are left to fend for themselves. Some die, others choose to live. Scottie chose life. Scottie and his fellow employees were left to fend for themselves. His wife left him, setting their home on fire as she left. I had lunch with him once after his life began to crumble, but I have never heard a peep from him since. He moved away severing all ties with his past. As far as I know nobody ever stepped up to help him.
In this case, the Union should be exposed as the villain, the parasite that, like a cancer selfishly, voraciously and mercilessly consumed its host. Should they be rewarded with bail out money?
Third: We, as Americans, should look to other countries with an eye toward growth and improvement here at home. The fact that the Japanese beat us on our own turf comes as no surprise to me. The motivation to manufacture in the US had two distinct advantages: in part, it was a reaction to increasing tariff taxes designed to protect domestic manufacturing. Now, all good Americans should stand before reading this next line: U.S. manufacturing was a competitive move allowable by a free market. By importing only the engine and transmission, Nissan could maintain technical jobs at home while creating an opportunity for jobs in the U.S.
I salute the pioneers at Nissan for a bold, compassionate success. By avoiding the need for Unions they delivered a better quality product at a more competitive price than they would have been able to had they not invested in our country.
I think George Washington would be proud to have allowed such a free market environment.
Every time Congress, who is supposed to be serving the whole population, not just the special interest groups like the UAW, raises tariffs on the importers of automobiles and automobile components, they do so under the auspices of protecting domestic manufacturers. In theory, by forcing higher prices thru taxation of the importers, the US Manufacturers will have a price advantage.
The reality of the situation is quite different, however. As tariffs forced importers to raise their prices thru taxation, the domestic manufacturers raised their prices accordingly. All congress did was cost the very people they allegedly served more money and fatten the coffers of those who put them in office. The public was not served in any way. In fact we were all hurt financially when Congress “helped.”
Higher tariffs encouraged complacency on the part of domestic manufacturing. Believe me, if the domestics had exploited their home court advantage, we as consumers would have to think long and hard about buying a Honda at a 50 or 60 percent higher price than a Chevy, Ford or Dodge. But the UAW would not hear of it and Congress played along! When prices are the same, given the vast chasm in quality, and the fact that both are essentially manufactured in the same place, who wouldn’t choose the more reliable vehicle with greater resale value?
Fourth: As far as price is concerned, I remember an interview in the 1980's of the President of Toyota USA. He was complaining that every time congress raises tariff taxes on imported cars, the American manufacturers raise their prices as well. He said, “If congress were protecting the consumer and ultimately US Manufacturing, when taxes increase, they should encourage the domestic manufacturers to maintain their pricing structure, giving them a decided advantage in the market place. But that’s not what happens. When our price goes up theirs does too and by the same percentage. All Congress is doing is driving up the cost of automobiles.”
I have never forgotten his words.
After reading this article— it all becomes so clear to me. Congress has never had the best interest of the public in mind. Every increase in tariff taxes, every increase of minimum wage has done nothing but protect the now obsolete Auto Workers and related Unions as well as the now bankrupt manufacturers in the rust belt.
Fifth: GM says they provide Health Insurance for over a million U.S. Citizens- another reason they should be bailed out. How about me? I am self employed. I get no breaks on insurance and I don’t complain. I don’t drink beer or any other alcohol with any regularity. I don’t smoke. I avoid over the counter medications. I don’t even trust the water supply (chlorine is proven to cause heart disease). I get exercise, rest and I take vitamins. Do you hear me complain? I don’t need or want anything from the U.S. Government but much, much less of it. And how about the Scotties out there? Who’s gonna help them?
Sixth: Unions as we knew them are obsolete. Period. However, if they hired me, I could give them a new image; I would re-invent them. All the top Union fat cats who, like our Congressmen and Senators, have been lining their pockets would be first on the chopping block. Then I would re-organize the Unions as “Practical Universities.”
If you want an electrician, a plumber, a boiler-maker or any other tradesman, there is no doubt that the best in the industry are Union Craftsmen. No doubt. The education the Unions offer goes far beyond what any university can offer because there is a five year apprenticeship program attached to every aspect of their trade programs. Hiring a Union trained worker would be assurance that you are getting the best, the most qualified worker available. He assuredly knows his craft inside and out. By the same token, he is worth more.
If you hire a Union Trained craftsman, he should get paid extra if part of his responsibility is mentoring. I have a vision of a Boy Scout type program, or even like a Church Outreach type program that actually invites trainees and assures employers. I see huge potential value, like that of rankings in the Nursing Industry. But as I see it, Unions as they stand today will take the biggest hit when the Big Three topple. They single handedly took them down. Who can’t see that?
I conclude: The one thing, the single thing, the only thing the U.S. Government does well, consistently, is absolutely nothing, every single time. On this single observation, it seems the best thing B Hussein O could do for the citizens of the United States is to stay out of the peoples business. Let the chips fall where they may.
Solution #1: I have faith in the country we used to call a Capitalistic, Free Enterprise, Republic. I have faith that if we eliminate 25% of all Government programs on every level immediately and another 25% over the next 5 years and then another 25% over the next 5 years, we will be fine as a country financially.
Solution #2: The founding fathers intended for us to throw out all laws and programs with each new generation and re-assess the direction and needs of our country. Imagine if that were allowed to happen....
Laws and contracts passed in the 1970's & 80's would be gone. UAW contracts would be dissolved as well. GM and the others may have stood a chance. The greatest beauty is that under such a system, the UAW may never have over stepped their bounds. That would truly be a best case scenario.
Solution #3: Make the Military a for profit organization. That’s easy. All we need, Constitutionally, is a defense force. Provide that. Then, anything else has to sustain itself thru taxation. Most assuredly, if our Military had to turn a profit, they would have been finished in Iraq within 12 months. They would have crushed opposition and installed a new Government and given the people a save environment to work. By the same token, after providing such fine, efficient service they would expect to be paid. Germany, France, Italy, England, Japan, and more should be paying a small tax to the United States for having to whip their butts or bail them out (whatever the case may be). England had the rite idea that it should be a small tax, enuf for re-payment and a modest profit, payable over the next 100 years. Does anyone remember the lease expiring on Hong Kong in 1999? Does anyone remember what that was all about? We need to stop wasting money on occupation troops. Our military technology would allow us to fight a war from almost any Juniour High School Gymn during recess or PE classes using pimple faced kids used to beating each other bloody with their Nintendos. It’s time to re-invent our out dated military and make it a global peace keeping force for hire. Period.
The bottom line. Dear Uncle Sam, Leave us alone. We don’t appreciate you or need your interferance. Do your constitutional duty and go home. Oh, by the way, by sticking with constitutional duties you can lower all our taxes by about 85%. How about it?
a recent e-mail:
"BAIL EM OUT! ????
Back in 1990, the U.S. Government seized the Mustang Ranch brothel in Nevada for tax evasion and, as required by law, tried to run it. They failed and it closed. Now we are trusting the economy of our country and our banking system to the same nitwits who couldn't make money running a whore house and selling whiskey!?"
I rest my case.