Beast of the Month - January 2009

Beast of the Month - January 2009
Rick Wagoner
CEO, General Motors

"I yam an anti-Christ..."
John Lydon (aka Johnny Rotten) of The Sex Pistols, "Anarchy in the UK"

For Americans living outside of Detroit worried about the USA falling into a major depression, be thankful at least you aren't a resident of the Motor City: it's already one there. It's bad enough for the city's rep that LA and New York hip-hop passed Motown as ground zero for African-American music. Michigan's great metropolis is now the poorest city in the nation. Unemployment has hit 21 percent and is still rising, while the average price of a home is down to $18,513. Indeed, the economic downturn is so bad, the notoriously violent city is no longer the nation's most dangerous, having been passed by New Orleans and Camden, New Jersey in 2008 thanks to the lack of worthwhile targets for crime. And to top it all off, the Lions went 0-16.

We bring this all up because naming the city's most powerful korporate executive, General Motors CEO and Chairman Rick Wagoner, The Konformist Beast of the Month seems almost like an excessive piling on overkill. After all, yes, Wagoner and his cohorts at Ford and Chrysler, Alan Mulally and Bob Nardelli, may have come off as clueless and arrogant after coming to Congress asking first for $25 billion and then $34 billion. (You gotta admire their balls, though: usually when you flub your first request for a loan, you ask for less the second time, not $9 billion more.) And yes, maybe it does seem appalling after the Wall Street bailout swindle to have another well-connected industry coming to DC begging for a handout while the working class hasn't received a dime in help from the financial crisis. And yes, for all their whining and moaning about needing help, none of the auto execs could give a convincing mea culpa and admit they have no one to blame for their crisis besides themselves.

(And yes, maybe it would have been at least symbolically wiser for the auto executives to have driven to Washington in good old fashion cars made by their companies rather than fly their in private company jets.)

But, on the other hand, the auto industry is a labor-intensive business that does actual manufacturing, unlike the parasitic, leeching deadweight at the core of Wall Street banks. That means if GM, Ford and Chrysler go down, estimates ranging from 3 to 5 million jobs will disappear with them, good quality jobs at that. And that's before any likely domino effect causes even more jobs to vanish. And while the vast majority of Americans are rightfully disgusted at the idea of another bailout after the Wall Street con, even $34 billion for up to 5 million jobs centered in the manufacturing sector is pretty damn cost-effective, and certainly not comparable to the $700 billion bankster black hole. Maybe Wagoner, Mulally and Nardelli are a bunch of incompetents creeps, but American auto workers shouldn't be left holding the bag for their screw-ups.

This is why The Konformist is awarding the prestigious BOTM prize to Wagoner after all. If workers shouldn't receive the punishment for the failures of Wagoner and his pals, neither should he receive a free pass for the plight of the people of Detroit.

And unfortunately, the auto worker ARE receiving the punishment for the auto executive failures, just as they have over the last 30 years. The framing of the debate was staged when right-wing propagandists repeatedly claimed the average worker gets paid $70-80 in wages and benefits. In fact, the average wage is $28: the grossly inflated figure is based on adding payments to retirees to current benefits and dividing the total by the current work force. But the damage has been done: the blame for the automobile industry crisis was laid at least partially on the feet of overpaid union auto workers, and the remedy was massive cuts in pay and benefits along with layoffs. These talking point barely challenged by the so-called Democratic Party. As Michael Moore rightfully put it with his usual share of deserved outrage: "After giving BILLIONS to Wall Street hucksters and criminal investment bankers -- billions with no strings attached and, as we have since learned, no oversight whatsoever -- the Senate decided it is more important to break a union, more important to throw middle class wage earners into the ranks of the working poor than to prevent the total collapse of industrial America."

Okay, so the auto workers are the predictable scapegoat here, but what is the real cause of the auto market crisis? In some ways, it's just a symptom of the bad economy. After all, Toyota announced in December that it would have an operating loss in 2008, the first time it has failed to make a profit since 1938. Meanwhile, Toyota, Honda and Nissan all had drops in sales last year, all averaging over an astounding 30 percent drop in US sales during December alone.

The problem with this explanation is that while the Japanese car companies are indeed slumping, they still are doing way better relative to Detroit. While the Japanese fell from 8 to 15 percent in US sales in 2008, Ford went down 20%, GM 23%, and Chrysler 30%. All told, the Big Three's US market share fell below 50 percent last year. As far as Toyota goes, it finally overtook GM as the world's largest automaker, and solidified its lead over Ford as number two in the US market. Honda nearly overtook Chrysler as number four in the US market as well, a ranking it should decidedly own in 2009. Meanwhile, GM saw its shares fall to their lowest level since 1950, and warned it could run out of cash the first half of 2009 without help. The Detroit auto companies have become so desperate, there have been talks of merging all three into one company, or possibly all three being taken over by Chinese auto firms (something which would have major national security implications.)

So if isn't evil unions or the economy, stupid, what is the real problem with the US auto companies? The Konformist diagnosis isn't an original one, and one we (and others) have been repeating for quite awhile: the Big Three are victims of their own lack of creative thinking. Since the nineties, the US auto companies have had their focus almost solely on the SUV fad as their meal ticket. It wasn't a bad idea: over half their profits have come from light trucks and SUVs, thanks to the vehicle's wider profit margins. "But now," as The Konformist warned five years ago when we gave the BOTM prize to the Hummer, "the US auto industry seems to be falling back in a lazy, self-satisfied pattern. By hiding behind the short-term lack in economy of scales in hybrid technology to justify the non-creation of economy of scales, the Big Three may have made one of the worst decisions in business history. Meantime, GM keeps pumping out those Hummers, which in the short term is indeed profitable. But somehow we suspect that the Hummer will soon resemble another Titanic, as a symbol of the great economic disaster that may soon fall the entire American auto industry if they don't rise to the challenge of the Prius and Insight."

You would think, at this point, we would get some sort of smug satisfaction out of being once again vindicated by history. But frankly, The Konformist doesn't really enjoy having to say "I told you so" repeatedly like we're Jose Canseco discussing steroids, especially in this case where the victims are hard-working American union members. Unfortunately, the numbers pretty much confirm our prediction: SUV sales peaked in 1999, back when the price of oil was $16 a barrel. With the cost of oil passing $140 last summer (and over $4 a gallon at the gas pump) after the 2000-2008 oil price spike, even the most vain of yuppies and soccer moms had enough of the gas-guzzling behemoths. Here are some of the most noted drops in 2008 US sales: at Ford, the SUVs Explorer and Expedition fell 43% and 39%; at Chrysler, the Jeep Grand Cherokee 39% and the Dodge Dakota pickup 48%; and, perhaps most telling, GM's Hummer brand sank at 51%. Even with the recent stunning drop in oil prices, US consumers are decidedly too gun-shy to drink the SUV Kool-Aid anymore.

"How will the economics of hybrids ever match that of the internal combustion engine? We can't afford to subsidize them." This was Wagoner in a 2002 quote from Business Week, a quote that symbolized the view of Detroit executives. The Japanese took another viewpoint, and the results are now in. Put it all together, and there's a reason why Japan is replacing Detroit as the center of the automobile universe. In retrospect, Motown's double down on SUVs is a "IBM letting Microsoft own MS-DOS" kind of business blunder, rivaling as this decade's worst biz decision the AOL-Time Warner merger, Vince McMahon's XFL and Wall Street's plunge into subprime mortgage loans.

Of course, even as Detroit abandon's the SUV craze faster than you could say "Disco sucks!" in 1979, they still have an extremely difficult road ahead. Simply put, US autos are deemed decidedly inferior in quality and reliability compared to those made in Japan by consumers. The difference is highlighted by the view of Japan making more hi-tech, fuel-efficient cars. This is what happens when Japan markets the Prius and other hybrids as the symbol of their creativity. Had GM not squashed the electric EV1 (covered meticulously in the 2006 documentary Who Killed the Electric Car?) they would have something besides the Hummer to showcase as their vision.

The punch line is Detroit is actually making some excellent cars. GM hit a home run with the 2008 Chevy Malibu (named the North American Car of the Year) and the Corvette is still dollar for dollar the best sports car on the planet. The ultra-economical Ford Focus gets 35 MPG. Even the most clueless of US auto companies, Chrysler, has in the PT Cruiser wheels with a cult following usually associated with Apple Computers and The Big Lebowski. (Not to let a good thing be used wisely, Chrysler has decided to kill the Cruiser off.) But these exceptions almost seem to prove the rule, and are deemed too little too late by most American car buyers.

What could change Detroit's image quickly? As usual, Konformist ally Michael Moore presented a pretty good plan last month: making any government bailout of Motown conditional on them producing hybrid and electric cars, as well as mass transit such as trains, buses, subways and light rail. The kind of moves that also would help cure America from its oil addiction while creating millions of blue-collar construction jobs. It's also the kind of move that would be a great change of pace for the Big Three, who long have battled increasing MPG standards and any new environmental laws. (Earlier this year, GM Vice Chairman Bob Lutz dismissed global warming as a “total crock of shit" while speaking to reporters.)

Naturally, the establishment ignored Moore's idea, and instead embraced a different modest proposal: massive layoffs and wage cuts for auto workers, of course. There should be no surprise in this prescription, as it has been the game plan since the 1970s. And no surprise Cerebus, the geniuses who took over Chrysler in 2007, would embrace such a plan, as they already slashed jobs by 24K their first year. (The private equity firm has long been a champion of the "strip and flip" profit strategy: handing out pink slips to "right-size" a korporation for a turnaround sale.) And there should be little surprise GM plans to dump 31,500 jobs (nearly a third of its workforce) and Ford has already eliminated 57,000 North American jobs over the last three years. (GM laid off over 3000 workers on December 23 alone. Merry Christmas.) And little surprise that already UAW contracts cut new worker wages to $14 an hour, or half of what they currently make. (As Business Week remarked, "for the first time since World War I we will have people building automobiles in America who won't be able to afford the vehicles they build.") And none should be surprised that opposition to bailing out Detroit in Congress came not from Democrats protesting the attack on American workers, but Republicans (such as the rabidly anti-union Bob Corker) who felt that workers weren't getting the shaft enough.

How will this all end up? Well, Detroit got its money, but with the expectation they screw the autoworkers yet again. Perversely, the huge number of job cuts, combined with the same fixed cost of retirement benefits to former workers, will only increase the "wage and benefits" costs per labor hour, thus giving right-wing propagandist even more bogus ammo to justify future cuts in jobs in wages. It seems the downward spiral will only continue, unless the working class finally responds in a mass rebellion. Of course, considering the economic crisis Team USA is currently in, anything is possible...

In any case, we salute Rick Wagoner as Beast of the Month. Congratulations, and keep up the great work, Ricky!!!

Sources:

Special thanks to the World Socialist Web Site ( WSWS.org ) for help in this article as a research resource.


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