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 Michiganians 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.
GM's news: RenCen to remain HQ, top sales guy to go, quickly
To all those readers who objected to my characterization of Fiat-controlled Chrysler as all pasta and no salami, I'd offer this: General Motors Co., also a ward of the American taxpayers, is assiduously telling the public what it's doing with their money, which is more than can be said for signori calling the shots in Auburn Hills.
(And don't talk to me about the five-year plan scheduled to be released next month, some five months after Chrysler exited bankruptcy. Didn't know "accountability" had two meanings, which appears to be the case when you compare the public postures of the two post-bankrupt automakers.)
Back in reality, we had GM CEO Fritz Henderson holding another conference call today to update the world on the General, 90 days into its new life. The news? North American sales chief Mark LaNeve, who survived the post-C11 bloodletting and got a seat on Henderson's nine-person executive committee, is leaving (as predicted earlier on this blog), effective Oct. 15. Matter of fact, just in passing, ol' Fritz laid it out and moved on.
Second piece of news: "Our headquarters will remain here in the Renaissance Center," he said. "We will consolidate quite a bit of our operations out in Warren," as well as at the Milford Proving Grounds and a testing center in Pontiac.
Perhaps now the peripatetic mayor of Warren, Jim Fouts, can cease his humorless campaign to woo GM from downtown. And perhaps now some in the local media can dispense with the breathless scare headlines suggesting same. I mean, besides getting GM's CEO on the record, we've got Mayor Dave Bing willing to say that President Obama -- personally -- told him that GM's headquarters will remain downtown. Until BHO leaves office or unless GM collapses, I'd say an official decampment from the RenCen (as distinct from the personnel rebalancing clearly underway) is off the table.
WaPo shows MI's guv keeps answering question no one asked
Last week, Time magazine's cover -- "The Tragedy of Detroit" -- presaged a simple question: Will a once-great American city recover? The front page of today's Washington Post doesn't ask such an explicit question about the Motor City or its home state. But if the piece headlined "In Michigan, a yellow light for green jobs" posed one, it'd be this: Does its governor, Jennifer Granholm, understand the economics of job creation ... or any economics at all?
"Since taking office in 2003," The Post says, "Granholm has created 163,300 positions, her office says. She expects that a recent infusion of more than $1 billion from the Obama administration aimed at nurturing car battery and electric-vehicle projects will generate 40,000 more positions by 2020.
"In the past decade, however, as the auto industry has grown smaller, Michigan has lost 870,000 jobs -- about 632,000 of them during Granholm's tenure. The number is expected to reach 1 million by late next year, the end of her term.
"In her effort to attract employers, the governor has taken up the latest arms in the economic arsenal -- tax credits, loans, Super Bowl tickets and a willingness to travel as far as Japan for a weekend to try to persuade an auto parts company to bring more jobs to Michigan."
None of it -- or almost none of it, the paper neglected to report -- has been designed to help existing Michigan businesses or reduce the swelling costs of business taxes (such as the 22-percent surcharge on the Michigan Business Tax) and regulation that rivals the anti-industrialism of California.
That's because the sum total of the guv's economic policy, despite the worst economic record of any sitting governor and a legacy destined to be called "the lost decade," is to avoid hard, old problems and focus on new ones. New industries. Politically correct "green" jobs. Twenty-first century companies whose hiring needs typically are modest and whose hiring standards are generally higher than those offered by the would-be Michigan workforce (as the guv recounts in her retelling of the Electrolux saga for the benefit of The Post).
Here's the inconvenient truth, which repeatedly goes unacknowledged by the guv and, now, the Obama administration: Economic policy must do both. If politicians are keen to support emerging industries with incentives and sympathetic government policies (as teams Granholm and Obama clearly are), they're kidding themselves (and their supporters) if they think that's sufficient, especially for an economy so clearly in transition. It isn't.
And if Team Obama doesn't believe it, come to Michigan. Come talk to the CEOs of Business Leaders for Michigan, several of whom have a figurative foot out the door. Or the CEO of Pfizer, who made the call to bolt Michigan. Or the CEO of Comerica Inc., now based in Dallas. Or the CEO of Volkswagen of America Inc., now based in suburban Washington. Or thousands of small business owners. Accidents unrelated to business tax and regulatory policy? Hardly. Instead, it's evidence of a lesson still unlearned by some who should know better -- but don't.
