Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.
+1 212 318 2000
Europe, Middle East, & Africa
+44 20 7330 7500
+65 6212 1000
Posted by: David Kiley on November 12, 2008
I am a huge admirer of The New York Times Tom Friedman. His books and the vast majority of his columns on the paper’s Op-Ed pages are insightful, and provocative.
But once in a while, he ventures into writing about the auto industry, and the wheels that always seem so solidly bolted on his Lexus hybrid get very wobbly very fast.
In Friedman’s column today, he takes on GM, the Michigan Congressional caucus and offers the shatteringly shallow idea of Steve Jobs running an auto company.
I have so many issues with Friedman’s column, that I am re-running it here starting with the second paragraph with my notes offered inside brackets-[…] after each point.
How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling S.U.V.’s and trucks.
[Tom: You have railed against the lack of an energy policy in the U.S. for years. You should remember your own words. Cheap gas stimulated an insatiable demand for Ford Explorers and Chevy Trailblazers for almost fifteen years. If you are a financial department planner at an auto company, and you see the company making $8,000-$12,000 on SUVs, and just hundreds of dollars per car off your assembly line, it’s a damnably easy choice to make about where to invest. Gas taxes, which I know you advocate, would have aligned U.S. demand for small vehicles along the lines of Europe and Japan. But we have never gotten there.]
Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, G.M. threw way too much energy into lobbying and maneuvering to protect its gas guzzlers.
[Tom…because that’s what the market incentivized them to do! In the absence of policy that runs at counter current to the market, companies follow the market.]
This included striking special deals with Congress that allowed the Detroit automakers to count the mileage of gas guzzlers as being less than they really were — provided they made some cars flex-fuel capable for ethanol. It included special offers of $1.99-a-gallon gasoline for a year to any customer who purchased a gas guzzler. And it included endless lobbying to block Congress from raising the miles-per-gallon requirements. The result was an industry that became brain dead.
[If what you are building are SUVs, then the market dictates that your lobbying be directed at boosting the sale of SUVs. And hang on…here you are criticizing automakers for making flex-fuel cars far ahead of the availability of E-85, but elsewhere in this column you want them to swear to do more of it. Hmmmm.]
Nothing typified this more than statements like those of Bob Lutz, G.M.’s vice chairman. He has been quoted as saying that hybrids like the Toyota Prius “make no economic sense.” And, in February, D Magazine of Dallas quoted him as saying that global warming “is a total crock of [expletive].”
[Yes, Lutz is colorful. And, like many others (not me) he doesn’t believe that climate change is being caused by burning fossil fuels. The truth is that Toyota developed the Prius for the Japanese market first. It didn’t sell very well, and Toyota took a flyer on selling it in the U.S. It struck a chord with some number of U.S. buyers. In truth, hybrid technology didn’t make much economic sense. And Japanese accounting is so opaque that it is hard to know just how much money the Japanese government channeled to Toyota to offset development costs. Toyota says none. But money is fungible. The Japanese government has funneled all kinds of money for all kinds of different things to its automakers, including billions in pension relief.
These are the guys taxpayers are being asked to bail out.
And please, spare me the alligator tears about G.M.’s health care costs.
[Tom: Let’s not forget that not only is Toyota’s U.S. work-force in the U.S. a lot smaller and younger than Big Three (GM is a 100 years old), but that Japan provides national healthcare in the home market.]
Sure, they are outrageous. “But then why did G.M. refuse to lift a finger to support a national health care program when Hillary Clinton was pushing for it?” asks Dan Becker, a top environmental lobbyist.
[Tom—Becker, of The Sierra Club, isn’t the last word. Going all the way back to 1993? You aren’t blaming GM for the failure of Hillary-care are you? Yikes. I don’t recall even Hillary calling out the automakers for that failure. I have heard GM CEO Rick Wagoner and Ford chairman Bill Ford advocate national healthcare reform many times. The UAW certainly does. And check GM’s PAC contributions, and you will find donations to “Friends of Hillary.”]
Not every automaker is at death’s door. Look at this article that ran two weeks ago on autochannel.com: “ALLISTON, Ontario, Canada — Honda of Canada Mfg. officially opened its newest investment in Canada — a state-of-the art $154 million engine plant. The new facility will produce 200,000 fuel-efficient four-cylinder engines annually for Civic production in response to growing North American demand for vehicles that provide excellent fuel economy.”
[Tom…have you been reading the newspapers? How about Businessweek.com and this blog? Ford is coming to market with Eco-boost engines, and the version that will be on the Ford Fiesta will, I am pretty sure, beat Civic for fuel economy. The new Ford Fusion Hybrid beats Toyota’s hybrid Camry for fuel economy. The 2010 Ford Explorer with EcoBoost will beat the Toyota Hybrid Highlander on fuel economy. The Ford F Series pickup is more fuel efficient than the Toyota Tundra. The Chevy Volt will have an electric range of 40 miles, while Toyota’s will have a range of around 12 miles. Even today, The Honda Accord gets 22/31 mpg, while the Chevy Malibu gets 22/33. The Civic gets 26/34, while the Ford Focus gets 24/35. Ford’s ECOnetic Fiesta, a turb-charged diesel car launched in Europe this Fall is rated at about 65 mpg according to European fuel efficiency testing.
The blame for this travesty not only belongs to the auto executives, but must be shared equally with the entire Michigan delegation in the House and Senate, virtually all of whom, year after year, voted however the Detroit automakers and unions instructed them to vote. That shielded General Motors, Ford and Chrysler from environmental concerns, mileage concerns and the full impact of global competition that could have forced Detroit to adapt long ago.
[Imagine, legislators in Michigan acting on behalf of Michigan companies and workers! I'm shocked that there is gambling going on in this establishment. It is not, and never has been, the job of Michigan Senators and House members to set national energy policy. If either the Clinton or Bush White Houses had the political nerve to introduce real fuel efficiency targets, gas taxes and other marketplace incentives for consumers to buy small cars and crossovers, I doubt you would have seen opposition at GM or from Dingel. If GM could count on gas being above $5.00 a gallon in their home market, like Toyota and Peugeot can, they would have built all the small cars you want. At $1.50 a gallon, SUVs sell and small cars don’t unless the government policy forces you to buy them.]
Indeed, if and when they do have to bury Detroit, I hope that all the current and past representatives and senators from Michigan have to serve as pallbearers. And no one has earned the “honor” of chief pallbearer more than the Michigan Representative John Dingell, the chairman of the House Energy and Commerce Committee who is more responsible for protecting Detroit to death than any single legislator.
[If we let Detroit die, the funerals will be of towns, neighborhoods and families already financially on death’s door.
O.K., now that I have all that off my chest, what do we do? I am as terrified as anyone of the domino effect on industry and workers if G.M. were to collapse. But if we are going to use taxpayer money to rescue Detroit, then it should be done along the lines proposed in The Wall Street Journal on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.
“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity.[ Agreed]
And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible.
[While I admit that GM management has been inept at many things, the CEO you want doesn’t exist except on your computer screen. Better that a hard-nosed outsider serve as a czar who makes sure the automakers don’t have mission creep after they get the loan money]
That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company [So, you are going to over-turn state franchise laws that protect dealer investments? The UAW has already been to the table, giving up a great deal of the benefits and security they used to have. Come 2010, GM's cost of sales will be about 25%, the company predicts, which will be better than Japanese carmakers today.]
Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.” [Agreed. No blank check.]
I would add other conditions: Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol.
[Converting to flex fuel is a very cheap measure, about $50 a vehicle. Tom…the problem isn’t that Ford and GM aren’t adding flex-fuel capability to their cars. They are. It’s that the ethanol infrastructure in insufficient to support the cars—again that’s a Washington (where you live) problem, not a Detroit problem.
Lastly, somebody ought to call Steve Jobs [Tom, this is where the wheels come off your argument. Ask people who have worked with Steve Jobs and you will find out that Steve Jobs running GM would be a worse nightmare move than “The Thing”], who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the G.M. iCar. [See Chevy Volt].
In conclusion: Tom…I’m no defender of Detroit CEOs. I think, and have said, that the generation of management that has run the Big Three in the last fifteen years has been the worst in U.S. Industrial history. They have been incrementalists. Their idea of a long-range plan is 5-7 years. Toyota and Honda’s idea of a long-range plan is 25 years. They do have one advantage, though, in that they have a very predictable government energy policy to plan around. Have these managers shown an astonishing lack of vision, creativity, foresight and guts? Absolutely.
But you really need to hone your prosecution better.
Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.