Taking On The NYT's Tom Friedman's Indictment of Detroit

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.

Friedman:
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.]

Friedman:
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.

Reader Comments

Paul (Vw)

November 12, 2008 4:25 PM

Friedman tends to be sloppy in presenting his arguments. He also tends to be late to the game. It sounds like you noticed it when he addressed an area of your expertise.

As for Steve Jobs? Spare me (Tom). At Apple he's in his environment. But he could never handle GM. The only person who comes to mind being capable is the cracker guy (Gerstner from Nabisco) who went to a computer company (IBM circa '92) and turned the company around. Iacocca comes to mind, but he's far too old.

"iCar"? (Friedman relies on catchy phrases to appeal to the readers' vanity) "Volt"? ($40,000?) Maybe Detroit should think "K-car" for tough economic times.

Dearborn Observer

November 12, 2008 4:52 PM

Amen David! You're absolutely on-target that Friedman and his ilk - while capable of insight on other topics - can spew absolute B.S. when it comes to their takes on the auto industry. Probably it is a rare individual out there who can marry the necessary deep knowledge of the automobile industry, politics, finance, environmental & safety law, and marketing to provide the thoughtful analysis that's required. Haven't seen that person yet (all due respect, of course ;-))

As for Friedman's prescription for who should run the Big 3, my own candidates combine the requisite vision, business acumen, leadership, and industry chops to successfully turn around GM/Ford/Chrysler - but they are already busy running Toyota and Honda!

adb

November 12, 2008 4:58 PM

Excellent points. I'll add my four or five cents...

1. Steve Jobs could launch an iCar in about a year? That statement in itself illustrates Friedman's startling lack of knowledge about what it takes to build a profitable, safe, desirable car.
2. "Not every automaker is at death’s door". Well, it turns out Honda is apparently the exception (although even they are rethinking their powertrain strategy regarding diesels and hybrids). Toyota's net profit last quarter dropped by two-thirds. Friedman's own newspaper reported, "While Toyota recorded growth in Asia and other developing areas, it was not enough to overcome steep declines in the developed markets of North America, Japan and Europe."
3. Friedman disagrees that "hybrids like the Toyota Prius 'make no economic sense.'" Depending on which analyst you talk to, the original Prius lost anywhere from $6,000 to $10,000 PER VEHICLE. At the time, Toyota had deep enough pockets to sustain that. I'm sure if GM claimed that kind of loss on the Volt, Friedman would no doubt decry that as 'bad business planning.'
4. Friedman supports GM being run by "a government-appointed receiver — someone hard-nosed and nonpolitical". Great. Take someone with no automotive experience with a reputation as a hard-ass with no people skills and put him in charge. Gosh, that worked great for Chrysler, didn't it?
5. Regarding flexfuel--Friedman conveniently ignores how difficult it is to find flexfuel stations nationwide because of oil companies' reluctance to be weaned off their gasoline-driven profits. How will he fix that?
6. "And it included endless lobbying to block Congress from raising the miles-per-gallon requirements." A bald-faced lie. Automakers--including Friedman's pet, Toyota--argued for less aggressive goals, not for keeping them flat.
7. As far as profiting from large trucks, Friedman again ignores the fact that other automakers--yes, including his pet, Toyota--saw this opportunity as well. Toyota built a brand spanking-new plant in 2006 to take advantage of this. Why? Because it's what the public wanted to buy.

Frankly, the blame for this travesty can be spread around to a lot of folks--including head-in-the-ground columnists like Friedman and Ingrassia who know so little about the industry they make inaccurate and irrelevant 'analyses' to justify their salaries.

Frank Loweser

November 13, 2008 10:24 AM

I don't get Friedman. Sure GM management in particular has made a lot of bad decisions over the years. But it's like his argument is rooted in 2002. The companies have done alot to restructure. The UAW has played ball. And the best kept secret in America is that vehicle for vehicle, GM and Ford's fuel economy is right on top of Toyota or Honda, or better. They get dinged on total fuel economy, because they sell bigger volumes of trucks and big SUVs. But car against car, truck against truck, crossover against crossover, Detroit does great on fuel economy against the Japanese.

MHS

November 13, 2008 10:56 AM

It's a real shame that people like Tom Friedman -- a writer who consistently shows little-to-no undertanding of the car business or its history -- is given an open mike to loudly voice a pile of half-truths and utter misunderstandings. He's only doing more damage to an industry that's already fragile.

I believe the core point here is critical: for 50 year, the Japanese car companies have worked in a world driven by a clear and predictable government-led energy policy. Fuel has never been cheap in Japan and consumer tastes have been shaped accordingly. It is no wonder Toyota (for a while at least), kept its business focused on small, fuel-efficient cars.

Interesting, though, that in the US Toyota has spent the past decade chasing exactly what the consumer has wanted (and acting a lot like Detroit): big Toyota Tundra, big Toyota Sequia, Bit Toyota Land Cruiser, big Lexus LX470... the list goes on.

Tom Friedman willingly trashes Detroit in his columns and neatly ignores the fact that his beloved Toyota has gone down the exact same path. Funny, that.

Funny too that Ford delivers more fuel efficient versions of the big vehicles -- F-150, better than Tundra; Expedition, better than Sequoia; Escape Hybrid, better than RAV4; and next week at the LA Show, a new Fusion Hybrid that will handily beat the Toyota Camry.

I work at Ford and am always dissappointed to see Tom Friedman talk about the auto industry -- clearly showing his pro-Toyota bias and his total misunderstanding of the factors that drive the auto business.

Kiley, you are right. A smart, predictable, long-term energy policy in the United States would benefit not only businesses, but also consumers.

Thanks for playing truth squad. We need it.

Neil Whiteford

November 13, 2008 12:58 PM

Please note that according to Bryce G. Hoffman of the Detroit News in his 11/13/08 piece entitled "The Inside Story: Ford's roadmap for survival" the Ford Motor Company meets all of the survival requirements noted in David Kiley's commentary.
URL to the exclusive article is below:
http://www.detnews.com/apps/pbcs.dll/article?AID=/20081113/AUTO01/811130413/1148

RJ

November 14, 2008 12:17 AM

About Friedman's suggestion to call in Steve Jobs [noteworthy last name J.O.B.S.]:
Let’s see… My 2003 iPod is inscribed with “Designed by Apple in California Assembled in Taiwan”. My 2008 iPod is inscribed with “Designed by Apple in California Assembled in China”. Is Mr. Friedman suggesting that American cars come inscribed with similar language? “Designed by GM in Michigan Assembled in China”. How about our homes: “Designed by Toll Brothers in Pennsylvania Assembled in China”? How about our airplanes: “Designed by Boeing in Washington Assembled in China”? How about our food: “Designed by Kraft in Illinois Assembled in China”? How about our government: “Designed by US Government in Washington, DC Assembled in China”? How about Friedman's editorials: “Designed by New York Times in Maryland Assembled in China”?

Sam Hasler

November 15, 2008 8:40 AM

Thank you for a very good post. I am from Indiana, former GM town. I am also another who usually finds Friedman an interesting read but not this time. On the other hand, GM's management problems seem to go back back to the early Seventies. American automakers never seemed to have come to grips with foreign competition - which is truly odd since GM Europe seems to have been a very profitable division.

Frank Turkovich

November 17, 2008 5:12 PM

Great response. I tried to do this on a similar column but I was crucified. This was the best comment:
"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.]"

Thanks for some truth and common sense.

Patrick Costello

November 17, 2008 7:19 PM

I don't agree with Kiley defending the big three for wanting to stick with the vehicles that have a huge markup. I am not an auto executive and don't pretend to be, but there is a very basic economic fact of life. When people produce things that are bigger and more costly than one needs, ultimately, there is going to be a crash. Read the history of the depression. I have been harping on this for years, I could see it coming. Detroit did one thing really well, they convinced the gullible buing public that they "need" a big SUV or pick up truck when surveys have shown that 75% don't need such big vehicles. It was disgusting watching the NFL games on Sunday where Ford and Chevrolet were pitching their big trucks. There is nothing wrong with Ford Ranger, or a Chevy Colorado, which get close to 30 mpg. Don't waste time criticizing Friedmann, keep the focus on the short sighted and greedy Big Three Management.

Michael

November 17, 2008 11:32 PM

When was the last time Friedman was right?

This is the guy that said we'd invade Iraq, and they would just have to "suck it up." That was 4,000 dead ago.

He recently said that Google and Microsoft were both incredibly innovative firms. Google yes, but Microsoft is a marketing firm that buys technology when it needs it.

Diane Tucker

November 19, 2008 12:24 AM

Good post! My recent interview subject, author Peter DeLorenzo, agrees wholeheartedly, and adds a couple of new twists. Here's the link:

http://www.huffingtonpost.com/diane-tucker/journalist-to-gop-youre-1_b_144481.html

Pete

November 19, 2008 6:09 PM

The problem with Detroit is they dont make vehicles for Americans, they make vehicles for mid-westerners. With a few exceptions they cannot design and execute vehicles that people want outside of the midwest. This is not going to change even with $50 billion in investment. Lets save out money, let them go bankrupt and hopefully come out stronger with a new less arrogant attitude...and new management!

Brian

November 21, 2008 12:37 PM

Dave, you had me until you started dumping on GM management. Yes, they have made some mistakes, and they have made some good calls as well, some of which you note. And do you really think Wagoner and Smith were worse than Roger Smith and company? Come on.

DeLorenzo has it right below. Seems not even BusinessWeek columnists/bloggers are immune to overstating things.

From the Huffington Post interview cited above...

As for General Motors, CEO Rick Wagoner isn't the culprit. Did GM stink up the joint between 1979 and 1999? Yes. Are we talking about the same GM today? No, not even close. Under Wagoner, GM has extended its global reach, a strategy that is keeping the company alive today. Much to the surprise of critics who say GM is stuck in 1985, the company has designed dazzling new products like the Chevrolet Malibu, which is the best mainstream American car of the last 35 years, and equal to the vaunted Toyota Camry and Honda Accord. The Buick Enclave is the finest luxury crossover available. And the Chevrolet Corvette ZR1 is one of the finest sports cars in the world, at any price.

Then why is there a lack of respect for U.S. vehicles? Is it due to poor fuel efficiency?

Do the critics mention that GM offers more than 30 vehicles that get over 30 mpg? No. Do they mention that more fuel-efficient vehicles are on the way with each passing quarter? No.

Currently GM is developing an extended-range electric vehicle -- the Chevrolet Volt -- that will be a game changer for the entire industry. Bad management isn't the problem. The problem is America's crushing financial crisis that has decimated the credit industry, the lifeblood of the car business.

From Kiley: I think that GM managers have been too incremental in the changes they have made. Wagoner gets points for hiring Bob Lutz. DeLorenzo is often right, I agree.

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