Peter Morici: Why The Big Three Left Washington Empty Handed

[Jeff Higgins]

I'm very, very fuzzy on the details of what I'm about to say, and I may very well be talking out of me arse, but maybe somebody who actually watches this stuff (and gives a *****) can elaborate.

A few things about CEO's of these Big Three and American companies in general. Compensation has apparently soared when evaluated as a percentage of what the companies' employees make. Years ago (like ten or more) Time, or Newsweek (or some one) ran an article comparing the CEO of GM's salary in the '50's to what he was making when the article was written. It had climbed from roughly 6-7 times the average employees' to somewhere on the order of better than 100 times.

Didn't the CEO at Daimler Benze publicly marvel at the compensation given his (failed) counterpart at Chrysler? He made some comments about the obscene pay, and how it was clearly not linked to performance.

Anyone ever hear of the 60/60/60 plan at GM? In the '70's, the top brass was looking to bolster their own portfolios before they retired. The goal was 60% market share, $60 per share stock price, and their own retirement at 60. The strategies they employed were short-sighted and ruinous for GM. They achieved their goals but GM has never really recovered.

In the last bailout Congress afforded the airline industry (United in particular if memory serves) they actually had to stipulate that none of the bailout money was to go to executive bonuses. Apparently in the past, some had.

Lastly, a bit closer to home for me. I work for a rather large manufacturer of commercial aircraft. Our stock is bumping off of $90 today; it had reached that lofty plateau over ten years ago. In the interim, it had dropped to under $30 at one point. Our executives were still drawing large bonuses and healthy raises even then.

So what is wrong in corporate America? Hell, I don't know. I'm no economist, and I don't even play one on the internet. From my somewhat unsophisticated outlook on these matters, however, the above leads me to believe we have a problem. A problem with self-serving CEO's and execs run amok in corporate America. Yeah, the unions share the blame, but I think there is far more to the story than Big Money is willing to divuldge. And hey, they can use their partners in Big Media to convince the American people that it is ALL the unions' fault.

[JSDSKI]

Originally posted by Jeff Higgins
Lastly, a bit closer to home for me. I work for a rather large manufacturer of commercial aircraft. Our stock is bumping off of $90 today; it had reached that lofty plateau over ten years ago. In the interim, it had dropped to under $30 at one point. Our executives were still drawing large bonuses and healthy raises even then.

So what is wrong in corporate America? Hell, I don't know. I'm no economist, and I don't even play one on the internet. From my somewhat unsophisticated outlook on these matters, however, the above leads me to believe we have a problem. A problem with self-serving CEO's and execs run amok in corporate America. Yeah, the unions share the blame, but I think there is far more to the story than Big Money is willing to divuldge. And hey, they can use their partners in Big Media to convince the American people that it is ALL the unions' fault.

Outstanding post and analysis.

"What's wrong in corporate America?" Exactly. Where is ethics and moral behavior in any of this? It's nowhere. It doesn't exist in these boardrooms. It's all about - "how much do I have". I don't pretend to know what the answer is. But somehow, somewhere we've allowed our system to develop a complete disconnect between upper level executive compensation and economic reality. It is as if fundamentals of market behavior and accountability just don't apply to certain people. Hell, it's as if laws and regulation don't apply to these people. "Post dated stock option plans" are a prime example.

How do we get this back in sync? Because Jeff's right, (far right, ha ha) this kind of behavior is crippling our competitiveness in the world and providing false economic feedback to our markets.

[Flatbutt1]

Originally posted by JSDSKI
It is as if fundamentals of market behavior and accountability just don't apply to certain people. Hell, it's as if laws and regulation don't apply to these people. "Post dated stock option plans" are a prime example.

How do we get this back in sync? Because Jeff's right, (far right, ha ha) this kind of behavior is crippling our competitiveness in the world and providing false economic feedback to our markets.

IMO you must add to this accurate descriptor the fact that our products don't sell as well anymore. We are no longer the pre-eminent manufacturer of durable goods as we once were.

[artplumber]

Don't forget the corvette.

One of the biggest problems for the big three IMO is that they don't sell well overseas. There are a few models like the Ford Focus, but you don't see tons of US cars in China. The chinese want the prestige of german cars - Audi, BMW, Mercedez even if they break down frequently (just look at JD Power). The consumers in Europe love to buy from their own country's car companies, there is a significant nationalistic component to car purchases, and finally, the big three make cars that don't fit in over there (size/mileage-wise).

[JSDSKI]

Product development and marketing is directly related to corporate culture and focus. Porsche culture is racing and engineering and it shows. Toyota culture is gradual quality improvment and durability and it shows. It seems as if the Big 3 (and other US corps) are focused on stock price and personal gain rather than building something great or building a great company. And it shows.

[widebody911]

Originally posted by Jeff Higgins
From my somewhat unsophisticated outlook on these matters, however, the above leads me to believe we have a problem. A problem with self-serving CEO's and execs run amok in corporate America.

I've brought up this issue several times in the past, and I'm always shot down with "executive compensation is just a drop in the bucket" yada yada yada.

Where's kaisen?

[RallyJon]

It is true that the actual impact of executive compensation on the financials is relatively small. It's the appearance of excess that is insulting.

Also, we're talking senior, "rockstar" execs, not all managers. People of that level are like pro athletes. They have the equivalent of agents who help them negotiate their compensation. There was an article in HBR a while ago which broke down the amazing effect just hiring the right CEO could have on a company. They're not managers, they're more like figureheads or celebrities, and are compensated accordingly.

Then things go south, and suddenly they're criticised for poor management, a role they have very little to do with.

[dagriff]

Originally posted by dd74
The CTS is actively saving Cadillac. It is a very good car, on par with BMW, Mercedes and Audi. It is just as fast, handles as well, and has better build quality than at least Mercedes and Audi.

And if that's enough, the CTS-V will hand a C-series AMG its ass, and take care of an M3, if properly driven. And all for, what, $45,000 if you wheel and deal.

Put all this together with high success at the race track with a car that has approaching 60% off-the-shelf factory parts, and one could say, at least within Cadillac, that American cars are just as good.

Their design is nice, to boot. The 2008s look even better.

So the fact is, the American car companies can do. They have good products. You just have to sift through the crap to get to cars like the CTS, the 3000M, the Cobra, or the (gasp!) marked-up $250,000 Ford GT.

The above mention cars could be the best in the world, but those type of cars are not what saves a bankrupt Auto maker,
it's the "bread & butter" cars.

The British car industry had a few low volume cars that were the best in the world, that did not save them because of the other junk.

Remember when Japanese cars were a joke? Total crap?
Well, in India you can buy a pickup truck for a couple of grand, the quality is almost non existent.. but as the VERY bright guy that runs the factory (btw it runs 24/7 and they can keep up with demand) said "We can easily get our quality up, the question is can the world's other car makers get the cost of one of their cars down at least 50%?".
Don't laugh, they are on their way here.....

[JSDSKI]

Originally posted by RallyJon
It is true that the actual impact of executive compensation on the financials is relatively small. It's the appearance of excess that is insulting.

Also, we're talking senior, "rockstar" execs, not all managers. People of that level are like pro athletes. They have the equivalent of agents who help them negotiate their compensation. There was an article in HBR a while ago which broke down the amazing effect just hiring the right CEO could have on a company. They're not managers, they're more like figureheads or celebrities, and are compensated accordingly.

Then things go south, and suddenly they're criticised for poor management, a role they have very little to do with.

Well we can agree that they have little to do with "management"!

Why, exactly, are these business rockstars hired? What are they supposed to do ? Why doesn't the market or the freaking board of directors make them accountable for performance? Sorry, just doesn't make sense to me. I'm amazed that companies still use this model for CEO hiring and compensation.

[JSDSKI]

For what it's worth - Ford GT is about a $150,000 MSRP. Currently selling for 20 to 25K over sticker.

[Lothar]

The U.S. manufacturers have failed to excite the public. They are not on a quality par with the Japanese and I agree with Wayne about unions.

In fact, people who support labor have soft hearts. People who support labor unions, on the other hand, are soft in the head. The two simply cannot be equated.

[Jim727]

News Flash, Lothar -

You're using a rather broad brush. The most effective force for safety in commercial aviation (which has been imploding, btw) is the Airline Pilots' Association. I had never been a fan of "Unions", but having worked for a major airline I wouldn't want to go to work without one. Any passenger who pays attention will feel the same.

[niner11]

Jim, good point. Yes, I would not want to work for a major without a union but having said that ALPA's ineffectiveness makes my blood boil. Nearly completely powerless these days so I'd take my 2% and my chances without them. If ALPA was anywhere near as strong as the UAW the airlines in general would clearly be safer for everyone

Be careful about generalizations though, JB is as safe as they come and there is no union on the property. I guess you could say that they are an exception to the rule. Management for the most part is trying to do the right thing but that becomes more difficult as the airline grows.

[Jim727]

niner11 -

Lots to discuss, as there are several embedded issues there. I don't want to hijack the thread so I'll keep this short and perhaps we should have one wrt commercial aviation.

1) I'm interested in why you think ALPA is ineffective. Granted they are less a positive force than they could be, but certainly more than the flying public would have if ALPA was not around.

2) Disagree about Jet Blue, but *only* because of their equipment. Management and employees seem to be on top of the game. In a perfect world there would be no need for unions of any stripe but the world of commercial aviation is driven by only one thing: ticket prices.

As I have said many times before, airline management may be despicable, but they are not stupid. The traveling public wants cheat tickets at all costs and that's what they're getting.

...we now return control of the thread to it's rightful owner...

Jim

[niner11]

Jim, we can have he ALPO discussion on another thread but I agree that the industry would be far worse off without the union. I'm probably more disappointed than anything else with their leadership and direction over the last 10 years. Now about the UAW..........:-)

[CRH911S]

I have been a dues paying union member for over 34 years. While I agree and disagree with some of what is being said here it is probably useful to point out that much of the negative statements relative to organize labor is unsupported and in some cases ignorance of the facts.
The major issue facing the Big 3 is the cost of providing health care for its workers.

[Lothar]

Originally posted by Jim727
News Flash, Lothar -

You're using a rather broad brush.

I'll grant you that. I was referring to UAW, the Teamsters and other unions that preoccupy themselves with pushing a socialist agenda that does more harm than good for the targeted beneficiary. Those unions are nothing more than PACs that are funded by involuntary contributions paid members whom they do not faithfully represent.

THe UAW has done more cumulatively to damage the American auto industry than any other factor I can think of.

[JSDSKI]

Unions helped create the middle class. Most members are good, straight forward family people who just want a good job with benefits and some kind of leverage with management. Like most organizations, INCLUDING MANAGEMENT, about 80% of the work gets properly done by 20% of the population.

The "broad brush" axioms " management are a bunch of greedy incompetents" and "union workers are a bunch of lazy incompetents" are perfect for divisive political purpose and useless for analysis, IMO.

[JSDSKI]

Originally posted by Lothar THe UAW has done more cumulatively to damage the American auto industry than any other factor I can think of.

Those poor directors, managers, accountants, marketers, designers, and engineers just have no say in the BIG 3. Freakin' union guys keep them locked up in their offices and don't even allow them to answer their own phones or use pc's without direct UAW supervision. Because the secret UAW strategy is to destroy the companies so they won't have jobs.