Here's Part II, items 6-10, of the required GM (show-me-the) plan. First, to repeat from last week:
GM has to go through bankruptcy procedings, but (a) a long drawn out bankruptcy will degrade from a Chapter 11 (reorganization) to a Chapter 7 (liquidation), and (b) no lender is likely to step up to provide DIP (financing during bankruptcy) lending. So instead this crisis requires (c) a pre-packaged bankruptcy which allows for a rapid in/out and (d) government financing when the necessary reorganization conditions are met. Pre-packaged bankruptices aren't typically used because all the parties involved won't agree without long, stressful negotiations on actions they individually don't want to do. Too bad, they have to and any other course just postpones the inevitable and wastes government/taxpayer funds. Congress needs to say--here is the plan; do it or forget it.
#6. Fuel efficiency standards. Let's cut the crap. Even the current congress-mandated fuel levels and standards (CAFE) are beset by industry-lobbied gimmicks. First, Everyone knows that the EPA established mileage criteria for each car is bogus by about 15% on average; no one ever gets in actual use the posted mileage on new car stickers--so the measuring criteria needs fixed. Then, secondly, eliminate all the exceptions that have been lobbied in, the 10mpg "adder" for cars that have an ethanol sticker on the gas cap, vans, SUV's, etc. No exceptions: no exemptions. Third, the standards are to apply to all cars sold in the U.S. by each manufacturer regardless of where they're made. Fourth, let's set real but stretch standards that increase over a 10 year period. All manufacturers (not just GM) that don't meet these objectives pay huge fines.
#7. GM's board. I'm sorry but the board has been awful. There may be some on the board that have appropriate credentials and attitudes but clearly they have not been a prevalent force. So they all must go. The board should have tough experienced managers, including representatives from some high performance LBO groups--for example--overseeing the bankruptcy/government debt conditions and making sure they are all followed; folks looking forward to renewed performance not looking backward at what has been. This board-cleansing includes the CEO.
#8. I have saved the labor union issues for last for a particular reason. Everyone bangs on these issues and they are critical, but items 1-7 are equally critical. Within the category of labor union issues wage rates, per se, are not the most important, but do need addressed. The average hourly rate should be established at the same level as the wage rates paid to similar workers in non U.S. based automotive companies with plants in the U.S. Simple--just do it. This, however, I believe to be a minor issue as you will see in items 9 & 10.
#9. The first real critical labor issue relates to work rules. Labor leaders have stated publicly "look at all we've given back on work rules." Well, giving back an item or two out of dozens or hundreds of efficiency stifling rules isn't scratching the surface. The encyclopedia of work rules prevents operating efficiencies and retards productivity. So, they all go. Period! Start-up companies don't have work rules. Non-unionized companies don't have work rules. They are an absolute block to one of America's greatest strength; steady and ongoing productivity increases. Example: two companies pay exactly the same wages; one has work rules that hinders production changes and productivity improvements and hence needs 50% more employees. Guess who wins; who dies! All work rules have to go.
#10. Ongoing labor costs after retirement, after termination, after layoffs. I don't even know how to address this one. These three categories require a major haircut if not complete extinguishment. There are many specific issues here relating to fairness and alternatives so I don't want to, and don't have the insight to, create an exact formula. But no company can afford this giant overhang, and the bulk--or all--of these costs need to go.
Items 1-10 comprise the reason GM cannot make money on anything other than hogs (if even then). Their total labor and overhead costs are so extraordinarily high that they have to be amortized over the large amount of material and components included in the large fuel-gulping and high-priced hogs. With items 1-10 enacted, the resulting costs will allow GM to produce a fleet of cars meeting government policy and consumer dictates for excellent fuel performance and price.
That's the plan. GM's constituencies, executive, middle management, labor, and the board, will fight this plan on their own. That's why chapter 11 of the bankruptcy code exists. If all these constituencies don't agree on this set of pre-packaged conditions, then let the company file, see sales start to plummet, and see if this package then prevails. When they stare into the abyss, attitudes change and previously completely unacceptable conditions don't seem quite so, well, unacceptable. There's another problem. The government doesn't have the faculty to manage this process or to make a clear determination on a change plan that will work (mine above was an apporoximation), so the government should go in parallel with one of the top LBO groups (like Texas Pacific, KKR, Blackstone) with the highly experienced and knowledgable LBO group setting the conditions and then then the government co-funding. If GM then won't meet these conditions, then the country is better off without GM.
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