Big Mitten's 'lost decade' punctuated by big unraveling in autos
The drip, drip, drip of job losses in Michigan isn't close to coming to an end. By 2011, according to a University of Michigan survey released today, Michigan will have lost nearly 1 millon jobs -- more than a quarter of which were lost in the past year.
That's a whole lot of not good. What it should be, however, is a figurative club to the collective heads of policymakers who spend much of their time -- when they're not focused on the '10 elections -- fighting political wars to maintain a status quo that exists only in gauzy nostalgia and the retrograde minds of special interests. Time to move on, folks. But they're not the only ones.
Time, too, for Michiganders watching their communities stripped of commerce and school programs and municipal services to demand more of their government. To get behind the pleas issuing from business -- big and small business -- calling for a comprehensive attack on government structures, costs and revenue. To stop drinking the Kool-Aid flavored with denial and demand gutsy restructuring calls by risk-averse politicians worrying about their next job.
Yes, less than a week before Thanksgiving, things economic are modestly better in Michigan than they were in the dark days following the frantic bailout talks of December and, by late spring, the inexorable slide towards bankruptcy. Now, a new chapter. Time to recognize that the drift excerbating Michigan's predicament now is taking hold in Washington. That the instability and uncertainty loathed by business here is plaguing job creators nationwide. That the pols (and, yes, they're mostly Democrats) spend most of their political capital treating the symptoms of the economic malaise, not the causes.
Unemployment's rising? Extend jobless benefits. Health care costs up? Jam through a costly national plan that few understand and fewer still can explain. Energy independence sought? Push through a costly "cap-and-trade" bill that promises to raise energy costs for all business -- whenever those who control Congress can bring it up for a vote. Until then, business will have to guess at its fixed energy costs two, three and five years out.
Private-sector business -- you know, the people who provide the jobs that aren't funded by taxpayers -- crave stability and certainty from their government. But they're getting neither, from Lansing or Washington. What we're living through in Michigan is a step down, almost certainly permanently, to a new normal. It is likely to be poorer, less robust and more average; it's likely to be lighter on manufacturing, heavier on service-sector and knowledge jobs, and more dependent on the kind of educated workforce at a time when Michigan is gutting school and higher ed budgets.
The forecast issued by the University of Michigan predicts the state will lose 283,000 jobs this year -- the largest single year of job loss in 70 years. Another 85,000 jobs are expected to disappear next year, followed by the exodus of another 36,000 jobs in 2011. The unemployment rate would peak at 15.8 percent next year (compared to 15.1 percent today).
"If our forecast proves correct, the job decline that started in mid-2000 would bottom out in the summer quarter of 2011, with an aggregate job loss of 937,000 over that 11-year period, or about one in every five jobs that existed at the beginning of the period," George Fulton, director of U-M's Research Seminar in Quantitative Economics, said today in a statement detailing the forecast. "By the end of 2011, auto manufacturing in Michigan [will] employ just over a quarter of the workers it had on its rolls in mid-2000."
A "lost decade," indeed. And a legacy that history will confer on those who saw it coming, watched it land and yet trafficked in the same tired ideologies -- while everyone else paid the price that keeps on taking.
Peters does good, calls McCain's bluff on viability of Chrysler
Good to see that Sen. John McCain, Arizona's newest failed GOP presidential nominee, is still in the business of dumping on Detroit -- a leadership he pretty much held all by his lonesome among Senate Republicans until Tennessee's Bob "Nissan" Corker and Alabama's Richard "Toyota" Shelby came along during last fall's congressional inquisitions.
At issue is McCain's latest dump on Detroit, in which he said if "anybody believes that Chrysler is going to survive, I'd like to meet them." He continued, according to The Detroit News: "No, I don't think we ever should have bailed out Chrysler and General Motors. We should have let them go into bankruptcy, emerge and become viable corporations again."
Think that's what Team Obama basically did, senator, with a little twist designed to benefit the White House's stalwart friends in the United Auto Workers. Viability? Tougher at Chrysler than at General Motors Co., I'd argue, but they've got a shot if they can a)keep their break-even point low enough and b) deliver the refreshed cars and trucks quickly enough to buy time for the arrival of Fiat-influenced Chryslers, Dodges and Jeeps.
"I'd be more than happy to bring you to my district to meet with thousands of Americans who are working hard every day to design new and exciting vehicles and ensure the continued future of the American automobile industry ..." Rep. Gary Peters, D-Bloomfield Township, wrote McCain in a letter released today. "Hopefully then you might choose to be a partner in the continued success of an industry critically important to our country."
For a guy whose '08 campaign slogan was "Country First," you'd think the ol' warrior might embrace the challenge. Don't hold your breath. The halting, squinting emergence of GM and Chrysler into the light of a post-bankruptcy world is just another opportunity for the likes of McCain, among Detroit's sternest critics in the Senate, and other Republicans to use the club that is Detroit and bailouts to beat Team Obama and Democrats.
The issues? The details? The implications of letting either or both collapse into a conventional bankruptcy? Not important when there's political advantage to be gained and when the supplicants are not from the senator's back yard. Tells you everything you need to know.
GM throws Opel sale into reverse, raising transatlantic questions
Guess the Germans didn't get what they wanted after all. Just weeks after the busy-bodies at the European Union questioned the fairness of the German government's bias in the GM-Opel-Magna-Sberbank deal, GM's new board of directors late today said it would chuck the whole deal.
The Detroit automaker (and effective ward of the federal government) won't sell a majority stake of its Adam Opel GmbH unit in Germany to a consortium of Canada's Magna International Inc., Russia's Sberbank and Opel's employees. Can't imagine who's angrier right now -- the German government, which had pledged to front $6.7 billion to finance a deal to save German jobs (if at the expense of the Belgians and the Brits)? German union leaders at IG Metal who saw in GM's bankruptcy a chance to separate their beloved Opel from the dolts in Detroit? GM management, who worked the deal with Magna-Sberbank because keeping Opel was said to be a less savory option -- and then got reversed in a boardroom reappraisal that wasn't expected, I was told by people close to the situation, to go this far?
"We understand the complexity and length of this issue has been draining for all involved," GM CEO Fritz Henderson said in a statement released late today, following a meeting of GM's directors. "This was deemed to be the most stable and least costly approach for securing Opel/Vauxhall's long-term future. While strained, the business environment in Europe has improved. At the same time, GM's overall financial health and stability have improved significantly over the past few months, giving us confidence that the European business can be successfully restructured."
I can see the business logic in wanting to retain total control of Opel, the heart of GM's operations in Europe and a central cog in its global engineering and product development. But the political, personnel and PR ramifications? Potentially pretty extensive.
Did GM's 12-member board -- seven of which are new to the board and the auto industry -- overrule Henderson and his deal team, signaling a friction that could be de-stabilizing? Does the reversal imperil GM's relations with a new German government and create a minor diplomatic issue for the Obama administration? Or does GM's decision to go it alone go down easier with the new center-right coalition of Chancellor Angela Merkel, even if the looming restructuring may end up being more draconian than it otherwise would have been?
What about Opel's employees? From the earliest stages of this slow, painful divorce, a prevailing mood among the Opelistas was, in essence, "Great. Now we can get back to being a German automaker." But now the new boss will be the same as the old boss. How long can the existing top management at Opel expect to be kept around? Not long, I'd guess.
And, finally, how realistic is GM's assessment that the global conditions are stabilizing enough to justify keeping Opel? I've long thought -- especially after being based four years in Germany, the shadow of Opel -- that the value of the brand and some of its core competence was under-appreciated in Detroit. Can this apparent reunification, coming just days from the 20th anniversary of the fall of the Berlin Wall, open a less dysfunctional chapter in the long GM-Opel story? It should, given the difficult year just passed. But I'm not sure it will.
Detroit chamber offers boost to would-be casinos -- in Ohio
Michigan mortgage mogul Dan Gilbert and former Detroit Mayor Dennis Archer aren't the only deep-dish Detroiters pushing Ohio voters to green-light casinos for the Buckeye state.
Comes now the chief operating officer of the Detroit Regional Chamber, Tammy Carnike, who offered this in response to questions from a Cleveland TV station: "What I can tell you is that the three casinos of Detroit have brought in about $1.3 billion annually," she told WKYC, the NBC affiliate there. "Of that, there is a wagering tax that goes directly to the city of Detroit as well as the state of Michigan. It's about a 20 percent total tax that occurs on the revenues and of that about 55 percent goes to the city of Detroit the other 45 percent goes to the state of Michigan."
Now, casino gaming experts might quibble with the numbers, as I hear they already are behind the scenes. They may question Carnrike's motives, which a few already have considering a) her position and b) the fact that Detroit's casinos are members in good standing of the regional chamber and c) that Archer also is a former chairman of the chamber. Critics also may be over-reacting, partly because Carnrike's list of particulars is little more than a collection of boiler plate economic development facts churned out by any chamber in answer to questions like those posed by WKYC.
Bigger issue, it seems to me, is the symbolism of all this. Some of the key drivers behind the Ohio casino initiative are Detroit boosters, as I detailed earlier this month. And among the most prominent is Archer.
Does that stick in the craw of, say, the Ilitch family, for now the only local owners of among Detroit's three casinos? They aren't saying anything publicly, but they're known to be more than mildly irritated by Archer's position as a potential investor with Gilbert. Nor would they be, it's probably safe to say, keen to see a chamber official perceived to be touting the benefits of casinos to a down-at-the-heels Great Lakes city.
But, then, this is all about business -- as some of Detroit's shrewdest business moguls (which would certainly include the Ilitches and Gilbert) understand better than most.
Testy Ford-UAW contract vote spawns bad info, lame arguments
Detroit Auto may be missing a lot of things, but the ability to summon misdirected rage amid a contract ratification vote ain't one of them. We're midway through the voting on the third concessionary contract since the national agreement was iced two years ago this month, and it still looks like Ford Motor Co. and the leadership of the United Auto Workers could see this thing go down. And go down big.
Yes, old Detroit does, indeed, live, as I wrote in the column yesterday. Again, come half-baked analyses that conflate disparate elements, half-truths and conspiracy theories into something masquerading as facts; there's lots of heat, but not much light. Again, I get e-mails calling me names, suggesting I must have been one of those kids who had his lunch money stolen, accusing me (the Democrats around here will love this) of being a "liberal" member of the "mainstream media" -- and that's just for starters.
I've had people say we should just cut the pretense and pay everyone 20 cents an hour because that's what America wants, even though no one is proposing any such thing. I've had people blame NAFTA; argue that Ford should file Chapter 11 bankruptcy if it wants to reduce its heavy debt load; contend that management has given "nothing" even as it asks UAW-Ford members to agree to $1,000 bonuses, no raises, binding arbitration in some cases, a circumscribed no-strike clause and countless other things in what is, yes, the third contract reopener in roughly two years.
By any standard, that's a whirlwind of change for an institution whose members measure change in four-year increments. But it's not a race to 20 cents an hour.
What UAW-Ford members aren't being asked to approve is a cut in their base pay rate, as several UAW members confirmed to me. Nor to swallow mid-contract changes to their health-care cost-sharing. And yet, a repeated theme in the rhetoric is that "management" has agreed to give up "nothing" -- which isn't true, I confirmed(again), after re-checking the details of a preliminary proxy statement Ford filed with the Securities and Exchange Commission last March 24.
Over the same period as the current UAW contract, much of it coming in the past 12 months, Ford's salaried employees, including top executives, have:
Lost the company-match for 401(k)s accounts; lost bonuses this year for work in 2008 and next year for '09, including CEO Alan Mulally and his top execs; and lost merit raises. Health-care premium sharing is now in the mid-30 percent range, compared to less than 10 percent for the hourlies. Mulally's salary was cut 30 percent to $1.4 million from $2 million for this year and next, a cut of $1.2 million over two years; Ford's directors are taking no cash compensation; and the company has cut its white-collar workforce by 25 percent in two separate waves, a portion of which were involuntary separations.
Just a little perspective. And here's one more, offered by Peter DeLorenzo at autoextremist.com.
Calling Ferdinand Pecora ... a smart reading of '30s history
The telling thing about the political jihad unleashed this week on the bankers blamed (alone, it appears) for the global financial meltdown, is how blithely folks accept the notion that bureaucrats at the Federal Reserve are preparing to insert themselves into the pay practices of "any" institutions they regulate.
Not the seven companies, including General Motors Co., Chrysler Group LLC, Citigroup and AIG, who are essentially owned by American taxpayers -- as I argued today. But everyone else. Wake up, people, and go read your history. At least back in the 1930s, as author Ron Chernow recounts in an op-ed in today's New York Times, the narrative was clear, the villainy was obvious and the need for a regulatory response was more obvious. Now? Not so much.
"Far more dangerous is yesterday's announcement that the Fed plans to impose new pay guidelines on all of the banks it regulates," The Wall Street Journal argues in an edit today. "While the Fed imposed no pay cap, and it was at pains to say it didn't want to impose a 'one size fits all' standard, the implication is that any large single-year payouts will be frowned upon by regulators. The irony is that judgments about what constitutes 'excessive risk' at banks will presumably be made by the same Fed regulators who let Citigroup put hundreds of billions in [Special Investment Vehicles] off its balance sheet. That certainly looks 'excessive' now, though apparently it didn't amid the credit mania. The point is that Fed officials aren't likely to have a clue what kind of risks warrant tighter compensation rules."
But at least they'll look like they're doing something. Which apparently is preferable to emulating the example of Ferdinand Pecora, chief counsel to the Senate Banking Committee in the early 1930s, and assembling an exhaustive narrative of how political pressure from Congress, legislation pushed by successive White Houses and the get-rich-fast ethos of Wall Street conspired to push Main Street into today's funk. It wasn't just the bankers, folks, explaining the precise need to make it look like they are the only ones to blame. Accountability should be more than a one-way street -- but it isn't.
Pile another embarrassment on heap: DTW pols pay for support
Jai-Lee Dearing, the serial candidate for City Council, is right about one thing -- political interest groups demanding cash as a pre-condition to support particular candidates is all about Detroit's "culture," as he said in an eye-opener in today's Detroit News. Which doesn't make it right.
What does it say about the poorest major city in America, a place where half the population is functionally illiterate, that political action committees openly shake down candidates for four-figure contributions? What does it say about the practice when the candidates who can't pay never hear from the groups again? What does it say about Detroit that experts in urban politics claim they know of no other major city where such a questionable tactic is commonplace in local electoral politics?
It tells me that Detroit's politics are so broken that folks don't know a cultural failing when they see one. This is embarrassing. Again. It's a marker of political rot. Again. It symbolizes the environment that delivered Kwame Kilpatrick, encouraged a mostly inept City Council, enabled Big Labor to control the public purse, created a school board that confused micro-management with governance, that wrangled over contracts for vendors and unions while the kids languished and their parents steadily left.
The worst part: Where's the outrage? Doesn't it strike Detroit voters (and the rest of us who pay taxes to the Motor City but can't vote) as, at a minimum, suspicious that prominent political groups expect to have their collective palms greased before they're willing to hoist a sign for their favorite candidates (who, by the way, bought their support with a donation)?
It isn't right. Candidates for public office, in Detroit or anywhere else, should attract and win support based on their records, their experience and their ideas -- not how many $2,000 PAC payments they're able to muster in a bid to buy support. The vacuousness of the practice speaks for itself, and it speaks volumes about Detroit.
Education + reform + new union mindset = less poverty, more $
In a town desperate for good news, word that Robert Bobb is negotiating to extend his stay as emergency financial manager for Detroit Public Schools is about as good it gets. They need him. The city of Detroit needs him. DPS kids and their parents need him. The social-services budgets of the city, the state and the feds need him because, as Nick Kristof points out in today's New York Times:
"Good schools constitute a far more potent weapon against poverty than welfare, food stamps or housing subsidies. Yet, cowed by teachers' unions, Democrats have too often resisted reform and stood by as generations of disadvantaged children have been cemented into an underclass by third-rate schools."
There's no Detroit dateline on the piece, but there might as well be. He continues: "It's difficult to improve failing schools when you can't create alternatives such as charter schools and can't remove inept or abusive teachers."
Which gets me back to Bobb. For the first time since I arrived in Detroit more than 15 years ago, there's a modicum of hope issuing from DPS. Not because the problems are fixed, because they aren't. But because Bobb and his crew -- with the support, it should be stated, of a Democratic governor -- are attacking the culture of corruption that puts adults ahead of kids, graft ahead of education, the political needs of union teachers ahead of the economic limits of Detroit taxpayers.
At some point, the political protectors of public corruption will be forced to realize their parasitic ways are killing the host that has long sustained them. And that realization can come in one of two ways -- either in the persons of Bobb, auditors and criminal investigators or in the inexorable forces of exodus and financial collapse. For DPS, it's some of both, and it needs to continue.
So now the guv wants her turn at Big Mitten's budget mess?
A 'graf in today's account of the continuing disaster that is Michigan's budget negotiations jumped off the screen, mostly for its implicit absurdity:
"The Legislature has passed all 15 department budget bills, but in a procedural move, the Senate is holding back six key bills," The Detroit News reported today. Senate Majority Leader Mike "Bishop has said he's concerned the governor will veto major portions of the budget, setting back a deal he struck with House Speaker Andy Dillon, D-Redford Township. Granholm has promised vetoes, saying she was never a party to that agreement and it's her turn to have a crack at the budget."
Let's repeat that last sentence: "Granholm has promised vetoes, saying she was never a party to that agreement and it's her turn to have a crack at the budget."
I suspect I speak for many Michiganders when I ask: Where have you been, governor? A corporate CEO who outsourced budgeting and strategic planning to her staff and board directors, let 'em cut deals and then swooped in claiming the right to void said deals wouldn't be a sitting CEO for long. And while I'll stipulate that the rules in electoral politics are different than those for corporate America, I'd suggest that dysfunctional leadership is dysfunctional leadership ... if it's leadership at all.
The longer this drama runs the more it looks like a singular exercise to a) settle scores with mean ol' Republicans and b) make Dillon look bad as a sop to the Michigan Education Association so Granholm can c) bolster her legacy (to the extent there's one worth bolstering) by setting the stage for Lt. Gov. John Cherry to succeed her. Self-aggrandizing politics it is, but Michigan's taxpayers get diddly.
Four years on, the vanguard of Detroit Auto bankruptcies emerges
Delphi Corp. filed for Chapter 11 bankruptcy four years ago today, shaking the foundations of the Detroit auto industry. Former parent General Motors Corp. changed; the United Auto Workers couldn't fight the change; Delphi shrank -- plants, people, business lines -- to less than half its size; and legions of Delphi hands, especially its salaried employees and retirees, began a long, painful journey that would culminate in them preparing to say goodbye to roughly two-thirds of their expected pensions.
This week, Delphi is out of bankruptcy. It's renamed as Delphi Holdings LLC, is privately held and is little more than a headquarters in its home country. Yes, Delphi is American inasmuch as a Swiss bank with major operations in London and New York can credibly be called a Swiss company.
What did we learn from the sordid, painful and contentious exercise? That departing Chairman Steve Miller, the serial bankruptcy guy, was right: Delphi's C11 was the warm-up act for the industry's mother of all bankruptcies (and its stepchild), the BKs of GM and Chrysler.
Second, that GM really did set Delphi up to fail when it spun the former parts unit off in 1999 with its own board, GM alums-turned-Delphi execs, and a business plan that essentially wouldn't allow Delphi to distance itself from GM's North American business or its ridiculously uncompetitive labor agreements.
Third, that UAW master agreements subjected to the detailed scrutiny of bankruptcy proceedings, open court and comparison to industry standards can be proven to be as uncompetitive as the unions critics had long insisted they were. No matter how many times UAW President Ron Gettelfinger called Delphi execs "pigs slopping at the trough" or personally denigrated (by name and in public) execs who he said didn't earn their pay, the facts were clear: GM, the UAW and, yes, Delphi were complicit in perpetuating an unsustainable labor cost model that helped push Delphi over the edge.
Fourth, that publicly saying Delphi can't afford to pay a guy $75 an hour (in wages and benefits), as Miller did early in the bankruptcy, may be directionally correct. But it's ill-advised and needlessly provocative, akin to former Defense Secretary Donald Rumsfeld's cheap shot about "Old Europe" being unable to defend itself. Arguably true, but better said behind closed doors.
Fifth, that there's still value in Delphi. However many plants it closed or businesses it sold, the slimmed down supplier operated business-as-usual outside the United States; never missed a shipment inside the United States; and, over the course of the four-year bankruptcy, managed to book nearly $90 billion in new business contracts, CEO Rodney O'Neal told The News today. That's hardly evidence of a worthless company unable to compete or deliver value to its owners, now a consortium of banks.
Finally, Detroit still matters at the intersection of national politics and the economy. So do its political connections, especially those of the UAW, to a Democratic Party with one of its own as president. End of the day, it was BHO's auto task force and, more broadly, his Treasury Department that forced GM into bankruptcy, forced all parties to finally finish a Delphi, and forced Delphi to cast the pension of its active and retired salaried folks onto the Pension Benefit Guaranty Corp.
Four years ago, The News's banner headline on its Delphi bankruptcy package was two simple words: "Staggering blow," it read. We were right.
