Car Guys vs. Bean Counters - Bob Lutz [89]
On June 9, GM got a new board, with the aforementioned Ed Whitacre, the prototypical lanky Texan with a highly deceptive “I’m just a country boy” manner, elected as non–executive chairman of the board. The new board was half experienced, successful executives selected by the federal government (with one member representing Canada’s interest), and half more recent appointees to the former GM board—they, presumably, being less culpable in the lengthy decline of the company. It was to prove, initially, a contentious board, with the most aggressive questioners usually being those with the most absurd preconceived notions and the least knowledge of the structure and operation of a car company.
On July 10, barely six weeks after bankruptcy, the “new” GM declared itself open for business, with a new labor agreement; the Automotive Task Force wisely insisted that the UAW eliminate the last vestiges of the cost gap that still existed between the unionized “Detroit Three” and the nonunion Japanese and German operations in the southern states. Moreover, the dreaded “Jobs Bank,” the ill-conceived system of paying workers who were not needed in the production process, was abolished as well. The new GM had a low level of debt and a fresh $50 billion in new equity.
The latter caused an uproar among the country’s conservative pundits, with terms like “nationalization” and “government takeover” bandied about with reckless abandon. To this day, Rush Limbaugh regularly trashes GM products and suggests they be boycotted in order to preclude any successful outcome for “Government Motors.”
The granting of financial aid through equity, though, had nothing to do with “socialist ideology,” and everything to do with common sense. Harry Wilson, a member of the Automotive Task Force, was the originator of the plan, and he had, reportedly, a difficult time convincing his colleagues (and the federal government, which wanted no part in “owning” a car company) of its wisdom.
Luckily for everyone,Wilson prevailed, GM received over $40 billion in U.S. and Canadian government equity, crushing interest payments were avoided, and to prove the time-honored adage that “no good deed goes unpunished,” the Obama administration, a reluctant participant in the equity solution, winds up being pilloried by conservatives for “nationalizing” GM and “creating Government Motors,” for the purpose of “building the green cars nobody wants, but which the Democrats think we should drive.”
It should come as no surprise that the government wants to shed its ownership as quickly as possible, and environmental ideology takes a far backseat when it comes to emphasis on profitability leading to a successful initial public stock offering. GM is subject to the same (albeit onerous) fuel economy regulations as every other automaker, but if the company can achieve those numbers while also producing and selling Camaros, Corvettes,Tahoes, and Escalades, that’s seen as being to the government’s financial advantage, as well.
As of this writing, GM is solidly profitable, with a lineup of well-conceived cars and trucks which the public wants to buy, as opposed to being induced to buy via profit-sapping incentives. (GM Europe, for reasons mentioned, remains a weak spot.