In the last two entries on this blog I discussed what got the American auto industry into this crisis, as well as debunked the myth that the problem is based on SUVs. That’s all well and good, but how do these companies get out of this mess?
If GM is losing $6 billion per month, then part of a $17.4 billion hand out isn’t going to help very much.
I think there are a number of things they need to do:
1. Reduce corporate bloat by selling off assets
There is a reason that GM owns so many brands worldwide. It helps them produce fewer vehicles for global consumption. Take the Opel Astra, for instance. About the only country in which you can’t find an Astra is probably the Sultanship of Brunei, and that’s just because it hasn’t struck the Sultan’s fancy.
This seems like a great idea. Reduce the number of vehicle platforms, reduce the parts chain suppliers, etc. But it hasn’t worked. The one-size-fits-all approach has resulted in numerous problems including difficult type approvals due to wildly varying regulations in different countries, increased costs of shipping parts from single suppliers, and many others.
So, my message to GM: Sell off Vauxhall/Opel, Holden, and Saab. And Ford, you need to spin-off Ford UK and Ford Germany. By maintaining a 25% interest in these companies there is still enough of a tie to keep the effective parts of the World Car approach working, but the liabilities won’t be as far-reaching as they currently are.
Next, sell off the parts-chain suppliers. The good news is that this is already happening. AC Delco is going solo soon, and this is a good deal for them. With more autonomy they can focus on more manufacturers which means increasing the number of engineers they hire as well as being less burdened by the economics of their parent company.
2. Break up the UAW’s monopoly on the labor force
The UAW did the exact same thing the shareholders did: Focus on profit for today instead of planning for the future. Part of the problem is that the UAW has to provide for darn near every employee in the auto industry. That means sheet-metal fabricators are protected under the same clauses as electrical component specialists. This is a big part of how the UAW has held the auto industry back (and this ties to the SUV problem as well).
So, split the UAW into separate unions for each grouping of labor force. I’m not talking about locals, I’m talking about completely separate entities. Let the drivetrain guys figure out the best approach for their segment of the industry. Don’t let the suspension specialists hold back the electrical specialists.
This also has the advantage of breaking up the monopoly. If you are a member of the sheet-metal fabricators union and you don’t like what’s going on, it’s not a huge leap to go over into the suspension union and change jobs.
The current plan with the bailout is that the UAW must pay compensation that is equivalent to the Japanese companies’. That’s too blunt of an approach, in my opinion. This across-the-board approach just slashes wages but doesn’t really resolve the core problem. Yes, the compensation is currently out of line with what people should be making, but this is due to the monopolistic status of the union. So cutting wages will not fix this.
3. Allow individual factories to vote on union membership or not
Management is hamstrung by the unions, at this time. Admittedly, things are changing with the bailout, but one thing that’s not changing is that an American car company factory must have the UAW in it. This retards business practice innovation.
So, let the factories decide whether they want to join the union or not. Right now it won’t make a lick of difference. If you put it up to a vote today, everyone’s going to say yes. But if management is given the opportunity to work without a union, they may be able to make new innovative business moves. You know, like the ones Toyota made 40 years ago.
4. Elect a shareholder representative to the Board of Directors
This won’t resolve the issue of long-range planning, but what it will do is keep executive compensation on the right path. The boards of these companies are so far removed from the shareholders and their labor force that they might as well be managing another planet. Maybe that’s why they called it Saturn.
5. Tie pensions and health benefits into stock prices
Right now pensions and health benefits are cash-based, and those benefits are set in stone. Well, until the bailout changed some of these things. The bailout package already has the requirement that health benefits are tied to stocks, but pensions need to be as well.
This might seem cruel, but it is very important to note that the workers at the Big Three are not invested in their work. They can do an absolute shit job and get paid exactly the same for the rest of their life. It’s cushy, but look where we are.
6. Get rid of Employee Pricing programs/fleet sales
First off, everyone knows that no one buys American, so why would we want to buy a car at the same price as the guy who didn’t care about building it?
The fleet sales operate at a loss just to pump up the sales numbers. Stupid.
The employee pricing programs simply devalue the cars on the market. It has the subtle effect of saying, "Our cars aren’t worth it."
7. Insist on non-confrontational workers conflict resolution
The antagonism between management and labor has been fostered through too many years of confrontational resolutions. It’s preposterous that this relationship exists in the first place.
THEY ALL WORK FOR THE SAME COMPANY.
So, get management and workers together to resolve these issues. That will also engage workers more in the business. Trust me, the workers probably know how bad their cars are. If management listens to them, maybe things will get better.
8. Get rid of the executive perks
The executives are so completely distanced from this business it’s ridiculous. Not only are these people not car-guys in any way, but they don’t have a connection to the actual products they build.
So, get rid of the executive offices and move their desks down to the middle of factory floor. They can have a glass enclosure, if they like. But yes, it will be called "the fishbowl," and yes, workers will pretend to feed you fish flakes. Suck it up, because you need to see what’s going on on the floor. Also, you need to be able to walk from your car through the factory and see WHAT THE HELL YOU ARE BUILDING.
Second, cap salary and compensation at a multiple of lowest employee salary. Twenty times that salary seems pretty fair to me (that’s about $7 million a year).
Third, no more chauffeurs. You drive your own company’s cars, and you switch them out every month. Agnelli at Fiat did this. The Toyodas do this. Fukui at Honda does this.
9. Stop looking at stock prices
Unless you’re looking for investment funds, don’t watch the market. It just keeps your reactionary business model going.
And that will be the start of a new generation of American automobiles.
I hear you saying, "But what about the long-term business plan? Isn’t that the main problem?" Well, much like the SUVs, it’s part of the problem, but it’s not the only one. Until the core business can change, the business plan issue can’t be resolved.
There are way too many fiefdoms and "silos" in the American auto industry. The approach above might help break them down and create a more united industry.
Let’s hope for the best.
Yr fthfl bddy,
Mike