Comments on Comments #28: Bailing out the Auto Industry is a Bad Idea

A few loose ends to tie up before I forget about them, I’ll respond to the more recent comments in a forthcoming edition.

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Gilligan left a comment in #27, most likely in response to continued discussion about Who Owns General Motors?

I liked this statement:

“Employees could purchase the company outright in a month, if they were so inclined.”

Brings up an interesting point. If employees had total ownership of the company, they could fire the management for their decisions to produce products nobody wants. … All the benefits of ownership and vested self-interest would apply.

I worked for one of the big 3 in the late 80’s. I could write a massive post about all of the waste that ranges from comical to tragic, but to nutshell it:

Please do so, I’d love to read it. I’ve heard horror stories from some consultants/six-sigma types that used to work with the automotive manufacturers and their suppliers. Like, “Corporate Jets for everyone!” horror stories.

Management (i.e. engineering) waited for summer students to arrive to throw overdue projects over the fence at them to complete. In the meantime, they used the companies facilities to run their home businesses.

The guys who were making out like bandits were the trades folk. The employee incentive program said that an employee that came up with and implemented X would be paid 10% of what it saved the company in the first year, up to a maximum of 20K. You should have seen the size of their paychecks. Deep into the 6 figures…whew. Senior management used to get outraged and would chew into the salaried engineers, “Why don’t you guys invent this stuff?” Of course, the incentive program did not apply to the engineers…’nuff said.

Where I work, most non-managerial employees are eligible for overtime pay. Once you become a supervisor, however, the OT pay stops, which could potentially result in lower income after your promotion. If you think about it, you only need to work about 3 hours of OT per week to make 10% more than your base salary. If you average 5-8 hours of overtime per week, you’re making a lot of extra money. If you get a 15% raise and promoted to a managerial position, you’ll probably take home less money and you’ll have to work more. Needless to say, the employee churn at the 2-3 year mark (when most people become eligible for this sort of promotion) is pretty staggering.

Papa G, who also worked in automotive, left a comment on A Bailout for Detroit

I hold the Big 3 management teams as the problems for the rust belt states and in particular, here in Michigan. Now they want a bailout…they made the mistakes and they want our money. So does Wall Street . If the Wall Street bailouts work out OK, will the government put some of the profits in the hands of the citizens of the United States….probably not ! If the bailouts of the Big 3 proves to be successful..will the government put the profits in our accounts. Again…probably not !!

As the lean fad took over in the 1980s and 1990s, GM under the leadership of F. A. Smith (and the others) began reducing the number of suppliers that they used to source parts. Some were forced out by GM’s pricing power, others were bought out or consolidated. When the dust settled, where there had been many small, independent machine shops and suppliers, now there are only a few. Some of them (like Delphi) are also bankrupt.

Before, if one supplier went on strike, or couldn’t fulfill the order, there were a dozen others who would fill it. Now, if General Motors’ single supplier of widgets goes on strike, the entire company is dead in the water, wasting through millions of dollars a day. This sort of top-down management has been disastrous for General Motors, as strikes become increasingly crippling.

Bailing out Chrylser twice in the past few decades was a bad idea. Bailing out General Motors so it can buy Chrysler which needs its own bailout is an EPIC FAIL.

There are parts of both companies that are valuable and salvageable, although probably not at any price approaching book-value. The rest of the organizations are junk. You’d practically have to pay people to take them off your hands. The junk needs to be written off, not subsidized, because it’s only dragging down the few strong points these organizations have left.

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Despite the fact that I thought it was probably going to be a boring post (too academic, perhaps), a number of people left comments on Entrepreneurs, the Firm, and the Knowledge Problem saying that they really liked the post and found it interesting. I’m glad to hear that, maybe I’ll do more of that sort of writing in the future.