Archive for March 2009

What’s Wrong With GM?

March 31, 2009

If you own a GM product or you have seen the 2009 new models, you might scratch your head and ask what anyone could see wrong with GM cars and trucks.  Some may be quick to say, “oh, they do not have any fuel efficient cars or trucks, no hybrids, and all they make are large cars with lousy quality”.  Surprisingly that is not true.

GM’s quality and product line up is very competitive and represents a good value for the consumer.  The problems with GM lie elsewhere.  The chronic problem is that GM makes too little money for each car or truck it sells to cover its overhead and put money away for a rainy day.

The selling price of GM products is largely set by competition who also make wonderful cars and trucks too.  The answer lies on the cost side where GM’s legacy costs, their current wage rates and work rules, and their breadth of models has driven up their unit cost.  New UAW contracts will help but they will not be enough.  GM must shrink their product pallet considerably in order to get inventories in line and to be able to concentrate better on fewer models.  While difficult, this will help a lot, but still not enough.

When we consider, however, legacy costs we find the sins of the past.  Retiree health and pension costs, once thought acceptable, are sinking the GM corporation today.  These costs are considerably higher than like industries and far more than what Toyota or Honda must pay.  Dealing with the reduction of these costs is a sensitive and King Solomon like problem.  When these costs are cut, someone else is gets the hardship.  Hopefully there is a lower level, more similar to like industries that GM can afford and will not over burden their former workers.

The more silent but dangerous legacy cost comes from the corporate bond holders who in the past financed “blue chip” GM’s rich life style.  When GM needed cash (for anything), banks and investors would come forward with plenty of cash but of course for a price.  GM was considered a safe corporate bond and trusted to pay bond holders under all conditions.  Often that came from selling more bonds in order to keep current on the current outstanding ones.  (Sound like a ponzi scheme?)  The total bond obligation today is eating GM’s cash supply and leaving too little left to run the rest of the business.  The Obama Administration’s talk about restructuring, if necessary, and wanting to see GM stakeholders with more skin in the game, targets these bond holders.  The message, “take 50 cents on the dollar or face looking at less”.

On top of all these systemic problems, GM, like all other car companies, is selling into a low demand market.  It will need government cash to weather this storm and survive until car sales go up again.  The key, however to long term success is to reduce these underlying costs and then compete upon quality, attractive models, and great customer service.

Should Ron Gettelfinger Be Next?

March 30, 2009

If the world was fair and full on honest and noble people, Ron Gettelfinger, President of the UAW, would step forward and resign.  Like Rick Wagoner, Gettelfinger’s resignation would not symbolize “his” failure but rather the long history of distructive “win-lose” UAW-Big Three negotiations.  In the end, all parties (union, management, bond holders, and dealers) will be losers.

The UAW celebrated often in the past about how good a contract they had negotiated.  UAW members came to believe that their healthcare, pay, work rules, and penion plans were the just do for very difficult work.  Sadly, union workers now are finding out that the benefits negotiated are far richer than the average American’s, and their work was no more difficult than most other industries.  The UAW, if it were to be honest with itself, would also realize that it did little or nothing to bring its members into the 21st century and prepare them for a global economy.

Gettelfinger’s resignation would be the first step in restructuring auto worker labor.  It is a lot to expect that Ron would be replaced with a reformist leader but frankly that is the only way for the Union to survive.  Chapter 11 can be harsh on unreasonable union demands.  Rebuilding GM (and probably Chrysler) presents a wonderful opportunity for both labor and management.

Rick Wagoner Has Gone

March 29, 2009

Rick Wagoner, CEO of General Motors, has done the honorable act and resigned as chairman of General Motors.  He has withstood pressure and negotiated tirelessly until he could present his best plan to the Obama Administration in pursuit of bail out bridge loans.  It appears he has been successful and in good Japanese style, he has fallen on his sword.

It must be made very clear that Wagoner is not the direct cause of GM’s problems.  He is, however, the CEO who could have done battle with the fire eating dragons but he chose not to.  The UAW, the calcified dealer distribution network, and the customer oriented non-responsive management team were things Wagoner could have and should have fixed but did not.

More importantly, Wagoner was the point person extracting concessions from the bond holders, the UAW, and the dealer network now.  As a result, a man of honor is duty bound to resign as a sign of respect for the concession of the others.  At the end of the day, Wagoner was a man of honor.


March 29, 2009

President Barack Obama heads off this week to the G-20 meeting in London.  Following 8 years of George W Bush empty rhetoric and open disdain for the other partners, President Obama should come as a promising relief.  First, Obama will listen before speaking and will stop short of insulting when firm words are needed.  Second, the Obama Administration has already launched the US on a far more sensible and pragmatic foreign policy path.   World economic development should experiece much less gratuitous disturbances from America’s neoconservatives.  This offers the chance of a neo-G-20 meeting.

Most of the G-20 countries will want to hear how the US will restart its economy, stamp out the problems with the financial services sector, and promise sufficient oversight to never let the recent collapse happen again.  They will not want to hear that most of their banks also bought the “free lunch” mortgage backed securities now dubbed “toxic assets”.  It just goes to show that greed is universal.  They will also not want to be asked to deficit spend as a means to stimulate their own economies.  They will point to their safety net of social programs and claim that controling inflation is their prime goal.  A wise Obama will listen and if he says anything, he should say don’t blame the US when its economy is humming again in a few years and yours is not.

There is much opportunity for the G-20 to attack world poverty.  This objective makes sense from a humanitarian view but can be easily justified from a world security perspective.  Do you think there will be a lot of traction for this objective?  I suspect there will be words but not much in the deeds department since the poor regions of the world sit upon valuable resources and are often good customers for arms and munitions suppliers and manufacturers.  I wonder whether President Obama can cut through this fog and help a neo-G-20 shine?

Are We There Yet

March 28, 2009

The Obama Presidency is about 60 days old and the question this post asks, “are we there yet?  Where you might ask?  Well of course, have we regained the center, or are we on a fast bus to the left?

Sixty days is a relatively short time for measuring accomplishments.  Never the less, the right wing ideological pundits, along with the Republican Party leadership, have seen enough and have proclaimed President Obama a tax and spend liberal from the past.  Socialism is around the corner and the collapse of our economy is imminent.

These are the same wise men who worship President George W Bush and his policies and seem somehow not able to connect the sorry state of our world affairs, our economy, or the near disaster of the world’s financial services sector to our past President.  As a result I would not use these people as a gage for measuring the Obama Administration.

It is much too soon to measure whether Obama is heading for the center or just passing through.  What is certain is that President Obama is in the corner of science, common sense, and the reality on the ground.  While these qualities could have been cornerstones of the Bush Administration, pushing half baked ideology or social views that will not work is much easier if fantasy is used in favor of fact.

President Obama is determined to fix healthcare, invest in education, and attempt to narrow the gulf between the rich and the poor, or so it seems.  Depending where you are in your thinking, you may see this as an assault on your bank account.  If done correctly, everyone should pay a fair share but the idea that no one should pay and consequently we should avoid facing up to these obligations is wrong headed thinking.

For sure there is a chance that government mechinery will deliver poorly upon healthcare reform, education, and income opportunities for all, and if so, President Obama should be held accountable.  Attempting to deliver, however, is courageous and an act from the center.

Healthcare Reform

March 26, 2009

President Obama has promised that a center piece of his Administration will be the reform of our health care system and the inclusion of millions of people currently uninsured.  The President speaks of this quest as more a moral or ethical responsibility and see the exclusion of 40 million citizens as a stain on America’s image,  This reform will be easier said than done.

Any reform must take into account that our current health care methods are completely out of control with respect to cost.  American companies typically provide health insurance to their employees and are finding that their insurance premiums are making their products too expensive in the market place, case in point are GM, Ford, and Chrysler.

All the usual suspects in the current health care delivery system voice support for reform but they are dead set on maintaining their share of the profit.  Drug companies, insurance providers, trial lawyers, and hospitals all have reform ideas that preserve their economic well being.

The role of individual responsibility such as seeking preventive health care or choosing healthy life styles is rarely mentioned in reform discussions.  Without each citizen exercising far more responsibility for their own health, any reform of health care will result in opening the flood gates and another Government give away program.

I wonder what would happen if the Administration opened a dialogue on various options and what it will cost to achieve these options.  In order to facilitate this dialogue, the government might lay out with a few principles:

  • Everyone is entitled to healthcare coverage (no exclusions for pre-existing conditions).
  • Everyone should pay the same basic cost for the same basic coverage (the principle being that everyone must be fully involved with the cost of healthcare.  There can be reasonable tax code relief for those unable to afford full premiums).
  • Everyone should be able to purchase higher levels of coverage (for spa-like luxury treatments) or pay for health services at their selected point of use (like with private schools, those who wish to pay may select their preferred doctors and treatments.  Similarly the public system (today’s system of hospitals) must be kept top notch and provide services without unnecessary restrictions).
  • Anyone declining healthcare insurance coverage, not seeking preventive care, or engaging in unhealthy life styles will be restricted to emergency care service for life threatening situations.

These are starting point ideas.  The core thought is that healthcare is a universal right and it comes with individual responsibilities.  Unless individuals accept their responsibilities, society can deny access to healthcare beyond life threatening or ending conditions.

Reads Fast, Talks Slow

March 25, 2009

President Obama gave another “made for TV” news conference last evening.  He stuck  to his proven formula of reading from a teleprompter in dynamically making his main points.  Obama is so good at that that he looks like he is speaking to anyone listening.  Following the prepared remarks, he took questions and then we witnessed his “area for improvement”.  These extemporaneous remarks are delivered slowly with ample pauses as if President Obama is trying to select the best words to describe the answer.  The listener is left unsure whether he is trying to recall his previously coached answers or whether he was searching for new ground breaking answers.

These professorial answers are a bit dangerous in that they do not seem natural and are delivered completely differently from  the teleprompter answers.  For the present, this style is still new and Obama’s presidency is in its early days.  If events turn out as Obama has predicted (or promised), then there will be little damage and we will all get used to this style.  But one must expect some mistakes and a fair share of bad luck, and I wonder whether this pausing style will still communicate thoughtfulness or will morph into an image of uncertainty?

Last evening, if you had the stamina to wait out Obama’s response to reporters’ questions, one should have been impressed with the consistency of his message.  But you had to listen.

The weakest area, in my opinion, was his justification for the large deficits projected in his budget.  In particular, Obama attributed a large part of the deficits on “investments” aimed at saving money.  He pointed out how an investment in electronic medical records would help lower health costs.  There was no mention of the size of this investment nor an explanation of the size of the savings.  With so much evidence already at hand that medical costs are out of control due to a combination of use abuses such as emergency room use, high drug costs, and over prescription of tests to avoid malpractice suites, the role of electronic medical records certainly can not lie at the heart of the healthcare cost issue.

The budget issue and the size of the deficit is not going to go away.  Moderation and pay as you go must win out.