Category — US auto industry

US Congress passes 25 bln loan guarantees to automakers

The US Senate Saturday approved 25 billion dollars in loan guarantees for the financially strapped US auto industry, intended to spark a wave of automotive innovation.
The loan guarantees were included in a continuing resolution that included funding for the US government and the wars in Iraq and Afghanistan.
President George W. Bush has indicated that he intends to sign the bill.
“We’re very pleased Congress has chosen to act at this critical time,” said Greg Martin, director of communications for General Motors Corp’s Washington office.
GM had been subject of much speculation that it could be forced into bankruptcy.

Bankruptcy could be one of the better things to happen to the auto industry. It eradicates the union contracts, all the health plans, places the pensions in a holding company, giving the companies an opportunity to compete with the Asian and European companies.
If GM and Ford takes advantage of the opportunity to clean out the deadwood in upper and middle management, pick up the good workers from the workforce and hire new to fill in, they can be a force in manufacturing again.

The unions have to go, the adversarial work relations buried otherwise this doesn’t work. It becomes a bailout for the unions, nothing more.

The board of director’s role in corporate America needs to be rethought.  Instead of providing oversight and accountability, most are entrenched cheerleaders for the company’s management team.  Take General Motor’s Rick Wagoner in the perennially troubled US auto industry as a classic example.

Mr. Wagoner has been a C-level executive at GM since 1992.  He was steadily promoted until he became the CEO in June of 2000.  Unfortunately, Rick’s rise and GM’s performance were negatively correlated as this chart of GM’s stock price over the last decade notes:

How does the board feel about his leadership given the current woes?

Mr. Wagoner still has a strong voice in crafting details of the new strategy, a person close to him said. He also has support on GM’s board. Key directors still believe the management team under Mr. Wagoner is capable of delivering a turnaround and insist “we will win or lose together,” this person said. Despite GM’s mounting troubles, the board is anticipating management will soon notch “some victories under our belt,” one director said, asking not to be named.

What a nice sentiment.  Senior management and the board are going to shuffle the deck chairs on the Titanic together.  After all, the 10 year “turnaround” plan is just about to yield results.  Have faith.

Of course, if the predominant trend continues, the company will hit bankruptcy or require a huge government bailout.  Either way, the stockholders, employees, and taxpayers lose while executives walk away with millions in previous compensation and buyouts.

Therefore, the board should understand that some of us are more “together” in this than others.  And maybe, just maybe, they should get off their asses and start analyzing the situation and holding the executives accountable.  It’s something they should have done 5 years ago.

Sadly, the scene at GM is repeated far to often in corporate America.  Boards need to be far more active in steering the company and holding executives accountable for results.