Last week, I mentioned that Mitt Romney was making a lot of sense with his blunt, painful advice for the auto industry. Today, Paul Ingrassia, the former Detroit bureau chief for the Wall Street Journal, further explained the harsh realities faced by companies like General Motors on NBC’s Meet The Press.
I think what we probably need in a case like this is something that might be called hybrid bankruptcy. Or if that word is toxic, let’s call it hybrid restructuring. You need someone that has the authority to really cut through some of the ropes that are tied around this industry that really prevent it from being competitive and effective. The dealer franchise laws basically make it impossible for General Motors to really shrink its dealership network from about 7,000 dealers to about 1500, which it really needs to go down to. The union contract, just the master contract with the UAW and the car companies, is about that [fat] thick. Meanwhile, out in California, General Motors and Toyota have a joint venture called NUMMI, New United Motor Manufacturing Inc., that has a modern contract about that [thin] thick. Much less work rules, much less bureaucracy on both sides. And those kind of things have to be cut through with someone who has the, has the power to invalidate the union contracts and the dealer franchise laws so real restructuring can be done. . . . They [General Motors] have eight brands with about 20, 22 percent of the market. If you just do the math, they don’t have enough money to put behind marketing or product development for eight brands. They really need to get down to Cadillac, Chevy and maybe one other, maybe Saturn. But, again, to do that, it’s going to take someone who can really invalidate some contracts with dealers. . . . The union’s got to come to the party on this. I mean, even today, Tom, some of the Big Three car factories have to staff 20 percent above the staffing level that it would take to normally operate the plant because of absenteeism. I mean, you know, a simpler operating contract, the, the contract that they have out in California at the GM/Toyota joint venture, you just miss a certain number of days and you’re out. There’s no negotiating with bureaucracies about, well, is this an excused absence or not an excused absence? It’s a simpler operating agreement. And the template already exists. They should take the corporate jets and go to California and find it.
According to Bloomberg, Obama’s transition team is already investigating the possibility of a “swift, prepackaged bankruptcy” to save the industry. Meanwhile, Nancy Pelosi and the auto makers’ current management still reject the idea of a government-backed bankruptcy. Also, don’t miss the New York Times piece on the Chevy Volt, which suggests that the $40,000 car will be an advance for G.M., but not a panacea.
UPDATE: For more on the G.M. union contract, and why it is not as generous for current workers as you may think, see this fine article by Jonathan Cohn at TNR.