- The Washington Times - Sunday, January 18, 2009

LANSING, Mich. | Jim Woodard retired as an executive from General Motors Corp. in March 2008 after more than 39 years, much of it spent in labor relations as a liaison with the company and its hourly union workers.

Watching at the production facilities in Lansing where he worked his entire career, Mr. Woodard, 58, saw car models evolve over the decades. He looked on as union contracts were negotiated. He winced as, in recent times, losses mounted and factories closed.

Mr. Woodard acknowledges that GM’s strategy over the years sometimes has been poor, but he thinks the company finally turned it around and now deserves a chance to return to profitability.

“When I first hired in for GM a couple of days after I turned 18, if you were a worker, you did what you were told and in a lot of cases you didn’t care what you did. You just wanted a paycheck,” he says of the past culture of blue-collar malaise that tainted the once-proud image of workers in the land of Henry Ford.

“But in the last few years, the environment there was so much improved- clean, bright, even the language on the floor had changed. I was proud of that. We were working as a team … and trying to make our best product. Our competition wasn’t Chrysler or Ford - it was the foreign transplants.”

That change is the result of a major shift by U.S. auto manufacturers to improve the quality of their vehicles and offer considerable wage concessions in their union contracts.

But the improvement is too little, too late, industry experts say.

The situation for the automakers grew dire last year as the economy declined sharply on rising oil prices and narrowing credit markets - a combination of events that forced the car manufacturers to seek federal money and consider bankruptcy. Even with the money, the long-term future remains uncertain.

Industry analyst John Bulcroft, president of Advisory Group, says bluntly that the troubles of the U.S. automakers are of their own making.

“Fat, dumb and happy - you can sum up what’s happened to them in three words,” Mr. Bulcroft says. “They got fat when times were good, dumb because they didn’t keep up with what was going on [in the marketplace], and they were very happy to give the union what they wanted along the way.

“I think what happened is, as they went along, they were selling products pretty well, particularly in the light truck/SUV category. And then they had to produce other automobiles - the smaller cars - in order to meet Corporate Average Fuel Economy standards. Well, they didn’t give a damn what their other small cars were like. They just had to make some, and they turned out a lot of crap and they just didn’t care.”

Their foreign counterparts, meanwhile, were making smaller vehicles of higher quality and establishing a reputation in that market segment - even as the lack of quality of American-made small cars began to hurt the reputation of the Big Three automakers in Detroit.

The U.S. automakers, Mr. Bulcroft says, were “making about $7,000 on some of these big trucks and losing money on their small cars.” At the same time, he says, they were showing significant fealty to the United Auto Workers.

“When the union said they were striking, they said, ‘Please don’t. We’ll give you anything you want,’” Mr. Bulcroft says. “So they got less and less competitive in terms of what it was costing them to produce an automobile. Over the past couple of years, they have woken up, but it’s too late.”

The Bush administration in December released $17.4 billion in federal bailout loans to GM and Chrysler.

The money came after auto executives pleaded to members of Congress for a loan, even as they flew into Washington on separate private jets. The result was a public relations debacle that for many seemed to illustrate perfectly the way the executives handled corporate decision-making: badly.

As the auto chiefs begin to make the detailed plans for restructuring by the March deadline required under the terms of their deal, the United Auto Workers union is considering how far it will go in reopening a contract the auto executives say is key to their long-term success.

The powerful union, led by the feisty and folksy Ron Gettelfinger, has in the public’s perception shared the blame with the Big Three for the automakers’ problems.

Key members of Congress attacked the union for high wages and benefits not aligned with their foreign competitors. One such benefit included funding a jobs bank that pays workers who get laid off while they await new jobs.

Labor industry experts are quick to defend the union.

“The UAW didn’t cause these problems,” says Richard N. Block, a Michigan State University professor of labor and industrial relations. “The reason they are taking it hard is there are certain legislators who don’t like the UAW and see this as a chance to paint the UAW in a bad light. The fundamental problem now is that we are in a deep recession exacerbated by the freezing credit markets.”

He says the hourly auto work force has been cut nearly in half from 2006 to October 2008.

“People think that they are getting a lot of money, but it depends on how many you have working - and many are now gone,” Mr. Block says.

John Revitte, a colleague of Mr. Block at Michigan State, calls comparison of compensation of union and nonunion workers “bogus,” particularly when benefits are factored in.

“Almost all this fuss is about these legacy costs,” he said. “Well, there aren’t that many retirees in [foreign automaker] plants that are just five years old. No one has had time to retire.”

But Gerald C. Meyers, a former CEO of American Motors Corp. and now a crisis management expert, says he thinks the union bargaining process should be allowed to continue without interference from Washington.

“I hardly think [members of Congress] are trying to bring the union down or destroy it,” he says.

He calls the union’s current troubles amid the auto crisis “the chickens coming home to roost.”

“We can’t afford at this time the benefits and wages that have come about because of the UAW negotiations,” he says, noting that while the union once served a valuable purpose, its current power has stymied progress.

“This idea that if one company fails, they all fail, it’s nonsense,” Mr. Meyers said. “That is not true.”

GM, Ford and Chrysler all share similar problems, but GM’s precipitous decline is perhaps the most definable of the Detroit Three’s problems.

A reputation for shoddy quality, a reliance on large vehicles and a bureaucracy rivaling the government inside the Beltway combined to produce a Goliath-like collapse in the past several years.

According to financial reports, GM lost $38.7 billion in 2007, the biggest loss in industry history, prompting promises of layoffs and production cuts. But losses are nothing new for the company.

“GM market share has been on the decline for 45 years,” Mr. Revitte says.

The company lost $15.5 billion more in the second quarter of 2008. In an interview with Bloomberg Television on Aug. 1, CEO Rick Wagoner said GM needs “to move very aggressively to position ourselves” and that the cuts and retooling of finances “are the kind of action we need to take to get to a profitable level.”

The third quarter marked something of an improvement: The company announced it had lost $2.5 billion in the third quarter and spent $6.9 billion in cash. GM, however, had something new to blame: the global credit crunch and slumping U.S. auto sales. The company said its survival relied on factors outside its control.

In some ways, GM was right, despite a history of excuses for failure. But there were other factors, industry experts said. GM had lacked the foresight to see legacy costs - massive pension and health-care benefits due its growing retiree population. That was compounded by a swollen body of dealers and the general malaise of car buyers, who, when they do buy, have more choices than ever. GM also failed to take into consideration that cars last longer today. The median age of a car in 2006 was 9.2 years compared to 8.1 years in 1997.

Since 2002, GM’s North American sales dropped almost 21 percent through 2007. Toyota’s, meanwhile, jumped 49 percent and Honda’s increased 25 percent.

This year, virtually every automaker is experiencing large sales and revenue drops, including Toyota. But no company was more ill-equipped to deal with the situation than GM, once the king of carmakers, now on the verge of collapse.

If GM has any competition in the automaker implosion sweepstakes, it could be Chrysler, whose sales have declined 18 percent since 2005.

Private equity giant Cerberus Capital Management bought 80 percent of Chrysler from DaimlerChrysler AG for $7.4 billion in August 2007 and began reducing its work force.

Cerberus also eliminated several slow-selling models and positioned Chrysler as a company born anew, launching an advertising campaign that told consumers to “get ready for the next 100 years,” as if the brand was planning big things.

Cerberus, it seemed, wanted to quickly turn the automaker around and sell it. But a transformation wasn’t as easy as that.

Cerberus has tried numerous times to find a partner for Chrysler and even talked with General Motors in October about a merger, but nothing could be worked out.

Chrysler, seeking at one point to fill its need for a viable small car for the North American market, had planned to partner with Chinese automaker Chery Motors. The deal fell apart in December 2008 and leaves Chrysler with no plans for small cars even as more buyers seek vehicles in that category.

Ford, one of the nation’s most all-American brands, has stood sturdiest among the Detroit Three, publicly declaring it did not need the bailout funds for which GM and Chrysler were pleading.

But Ford suffers from the same union agreements, poor sales and thick layers of management as its peers.

Ford’s North American sales through November were down 20.6 percent compared to the industry’s 16.3 percent. Last year, Ford lost its No. 2 slot for U.S. sales to Toyota after 76 years of dominance.

But Ford has shown great improvements in quality, rising in industry surveys and studies, and it still produces the best-selling vehicle in the U.S. of the last three decades in the F-150 pickup truck. Initial orders for the restyled 2009 F-150 model have been solid enough that Ford restored two shifts to its pickup plants in Missouri and Michigan to meet demand.

Ford continues to tout its innovation - the company on Dec. 30 announced it would produce a new automatic parallel parking system for its Lincoln MKS sedan and MKT crossover models next year. The system is intended to compete with foreign luxury brands like Lexus, which feature similar technology.

The parking innovation was announced a week ago at the North American International Auto Show, which draws automakers and car enthusiasts from around the world who descend on sagging Detroit for an annual industry public relations event.

The scaled-down version of the show last week - several companies pulled out - took place as the Detroit automakers work quickly to restructure and meet federal government timetables agreed upon in exchange for the loans.

Jim R. Fouts, the mayor of Warren, Mich., Detroit’s largest suburb and home to more than 30,000 auto workers and thousands more retirees, says the nation must do some patriotic purchasing to salvage a great industry - and honor its manufacturing tradition.

If the auto industry goes, his city would need to seek its own bailout just to provide services for residents. Mr. Fouts held “Buy American” rallies during the auto show to draw attention to the need for U.S. consumers to reconsider their loyalties to American-made goods.

“People have no appreciation for the what the auto industry has done for the country,” he says. “If stereotypes continue, that will be the end of the auto industry and one of the last great manufacturing sectors of the United States because of the whims of the consumers. I want to save the automobile manufacturing companies because I think they are worth saving.”

Mr. Fouts adds with some pride that his 2001 Chrysler Concorde still is in mint condition and fabulous driving shape.

“I don’t believe in protectionism, but the people themselves should take a second look at American-made products,” he says. “I’m advocating economic and consumer patriotism because I don’t want to see us depend on everything foreign-made.”

Mr. Woodard likewise sees the danger to the Big Three automakers as a part of America potentially going the way of the Model T.

Losing the U.S. auto industry “would be a very negative thing for our country,” Mr. Woodard says with a tinge of sadness.

Virgil Bernero, the mayor of Lansing, traveled to Washington to make a passionate case for the loan package, and he says the U.S. automakers are a sector worth saving as the industry moves into the modern age.

Mr. Bernero has watched as plants in Lansing closed but cheered as new factories have opened with state of the art technology.

“This is our heritage and history,” says Mr. Bernero, whose father is a GM retiree. “We see a bright future. We are not living in the past. We want to be the place that makes leaner, greener automobiles for the world. I have seen the transition, and our cars are better than ever. I just think we are going to have to be open to doing a lot of things differently.”

Mr. Bulcroft, the industry analyst, is not so optimistic.

He says that, despite the loan package from President Bush and the additional funds likely to come from the Obama administration and the new Democratic Congress, the prospects of a quick fix are not good.

“There is no way that they can turn this around by March,” he says.

The forecast, he says, is grim.

“They would have been much better served to go into a structured bankruptcy,” he says. “It was purely a political move, the loan. The president didn’t want to let the car manufacturers go bankrupt while he was president - he’s got enough to be unhappy about. I see little hope for restructuring within the next year or so.

“I think the unions will drag their feet as long as possible and hope that Senator Reid and Nancy Pelosi will pull them out. They are praying the economy comes back and they can sell some cars. If it stays in the toilet throughout 2009, I can’t see them forestalling bankruptcy, and that’s the way it should happen. Things should fall out like they will.”

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