Wagoner Didn't Deserve It

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When GM negotiated a new $14 hourly wage for many future auto workers, ABC Radio chose to use something I said to sum up this situation brutally: "For the first time since before the First World War, we will have auto workers who can't afford to buy the vehicles that they produce." If anyone believes that's a winning strategy for growing our economy, you would be wrong. You cannot improve an economy by making consumers poorer.

Read Before You Write

One possible reason for the country's fallacy-filled financial viewpoint is that so many writing about Detroit's problems have no sense at all about the history of the auto industry in this country.

Yes, everyone remembers GM's legendary chairman, Alfred Sloan, and how he created the modern American corporation. No one points out the fact that Sloan took over during a period in which GM was as close to failure as it is today. Yes, Sloan made all the right moves; but fixing that smaller, simpler organization's problems and creating the fabled GM of our past took him years.

Likewise, many have written about GM's troubled car divisions and how they need to downsize or eliminate unprofitable brands. That makes it clear that not one of these writers and pundits has ever read Sloan's biography. In it he stated flatly that at no time in GM's history did all five of their divisions make money at the same time. That's right, even in GM's Golden Era they couldn't make everything profitable at once.

Think Before You (Don't) Ask

In the numerous recent stories published about Obama's auto task force, one key question that they badly need answered was reportedly: "When could we possibly see an improvement in the overall car market?" This proves that they are not only human but disconcertingly out of their element in forecasting the eventual turnaround. You might as well ask when peace will settle on the Middle East.

Of course, no one with the auto industry can make that forecast either, because the industry came to a dead stop last summer—the public slowed down on buying new cars as gasoline shot past $4 a gallon (unless they were buying the most fuel-efficient vehicles). And then, once the meltdown of our financial system was announced in September, car sales all but collapsed. Until Americans see a light at the end of the tunnel, with might actually be starting to take place right now, there is no answer to when car sales will truly improve.

But the very fact that Japanese auto production has fallen in half— with Toyota (TM) President Katsuaki Watanabe saying last week that he sees no end to the bottom as of yet—means this issue is far more than just a Detroit problem.

Media Not Asking the Right Questions

It should also be noted that making this announcement on the weekend shows the Administration has no clue on how the American public behaves. Because the last 10 days have shown a remarkable improvement in showroom traffic and sales, so why would they announce this before the month was over. Any bets they stopped the last two days of car sales dead in its track?

As for the financial media, it appears they still aren't asking the right questions. To understand why the financial system failed, one needs to ask why the Federal Reserve continued to maintain that inflation was not happening in this past decade, when the prices of homes, food, energy, and gasoline were becoming outrageous. Why did no one challenge them to explain why—if the economy was really doing as well as stated—why then the middle-class incomes, except people over 50, were falling?

Why was everyone so incredibly focused on the cost of auto workers' health care and wages, when Detroit's biggest uncontrollable expense was actually rebates and incentives? And even now, why is the financial media back pointing to the rise in the stock market as proof that things are getting better, when car sales continue to lack any normal sort of recovery? In 1930 the stock market recovered 20% from the October 1929 crash, but as a predictor that told us nothing about what came next for the world.

Scapegoat Understudy, Five Minutes!

I've been around GM since 1973, and most of its CEOs I thought were little more than pretenders to the throne. Wagoner, though he made some truly horrendous mistakes, was a decent, honest person; he was a competent executive, and he thought more like Alfred Sloan and where he wanted GM to be in 20 years than anyone has given him credit for. He brought back styling and quality to the company, he hired the right people to steer GM's ship. But the milieu has changed over this past decade: All of the profits and asset appreciation in America have been wiped out. It's gone. And it was in that environment that Wagoner was trying to save GM.

This entire decade has been one great financial fantasy; if you doubt that, just look at your 401(k) plan today. But in the President's mind, someone had to be publicly crucified—sacrificed to pay for the sins of others. So Rick Wagoner is gone, so no one asks why others, such as Vikram Pandit of Citigroup (C), gets to keep his job, pay, and bonuses.

But GM didn't bring down the American economy last year. The guys that did still have their jobs—or even better ones, working in the Administration.

Return to the Auto Bailout Special Report Table of Contents

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Ed Wallace is a recipient of the the Gerald R. Loeb Award for business journalism, given by the G. and R. Loeb Foundation, and is a member of the American Historical Society. His column leads the Fort Worth Star-Telegram's "Sunday Drive" section. He reviews new cars every Friday morning at 7:15 on Fox Four's Good Day, contributes articles to BusinessWeek Online, and hosts the top-rated talk show Wheels Saturdays from 8 a.m. to 1 p.m. on 570 KLIF.

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