Your economy stinks and it is getting worse. It is in no small way being influenced by The Big Three US Automakers. And it is about to be made dramatically worse. This is either going to be because GM or Chrysler or both go bankrupt or they merge. Merge is a kind word, it is really that Chrysler will be bought and the lives of people who have dedicated their careers to Chrysler will be devastated.
First, let me say that I agree with Governor Granholm that the merger is the lesser of the two evils and because that is true, it is what is going to happen.
Why is this happening? I know people will point to Wall Street and the financial crisis and the corporate greed and all of today’s headlines and there is some truth to that, but the truth is that both of these once great companies have been in decline for a half of a century and today’s headlines are the corporate equivalent to bird flu – the weakest of the population die. Period, end of story.
The truth is all of the indicators have been there and every one of you has examples in your area of companies that have done the opposite. Think Toyota and Honda. What is different? Three factors –
1) Toyota and Honda have a local supply chain to a much greater extent than the Big 3. The Big 3 have “saved” billions by going to an Asian supply chain. Wow, some savings. What they have really done is avoided the hard work of building a competitive supply chain locally. You, nor the leadership of the Big 3 can do anything about the sins of our forefathers, but you can make sure that any concession is you grant in the future guarantee the rebuilding of local supply chains. Read The Machine that Changed the World if you are unclear about the concept.
2) Toyota and Honda don’t have the “legacy” costs of the Big 3. True, but this should have been “pay as you go” and it wasn’t. GM, Ford, and Chrysler are on the hook for promises made decades ago and not funded or funded and lost in high risk investments. Toyota and Honda are paying a living wage to their workers; in fact you will find they are preferred employers everywhere they go. You, nor the leadership of the Big 3 can do anything about the sins of our forefathers, but you can make sure that any concessions you grant in the future come with a guarantee to “pay as you go” and low risk investment.
3) The cost of the leadership overhead. This comes in two forms, number of layers of management and executive compensation. Go look at the org charts of GM and Toyota, notice any difference in the number of levels? Five is ideal and has been documented thousands of places. The Big 3 (still) have a lot more. Executive compensation - G Richard Wagoner Jr. Total Compensation: $8.5 million 5-Year Compensation Total: $22 million – Alan Mulally $2 million base, $18.5 million bonus – Robert Nardelli reportedly $1, but let’s see what happens at the sale. Sorry Rick, Alan, and Bob - I believe that you deserve to be paid well but that’s obscene while you are presiding over the destruction of people’s lives that have dedicated their lives to your companies. In a reflection of Toyota’s team-oriented approach, its executive pay is paltry by U.S. standards. Analyst Ron Tadross at Banc of America Securities estimates the total annual compensation ofToyota’s CEO at under $1 million - about as much as a vice president at GM or Ford Motor Co. makes. At the risk of being rude, it’s time to stop the bullshit.
Governors Strickland, Daniels, Granholm, and Premier McGuinty; you are going to be asked for concessions by these companies. Think about the concessions you should be demanding of them. The Buck can stop here (in the mid Americas) and also not in just a few hands.
Gary
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