Saturday, December 06, 2008

American's angst aimed at wrong target

It appears that Detroit’s Big Three have been left to twist in the wind long enough for the DC gentry, aka Congress. After a couple of weeks of being demonized by a cross-section of lawmakers, political pundits, and the American citizenry, Mssrs. Wagoner, Mullaly, and Nardelli brought enough substance back to Washington, sans corporate jets, and driving alternative energy sub compacts, and other assorted brands from their fleets, to budge the arbiters of all things holy and right. The best analogy I can come up with for Congress holding the purse strings on the auto bailout is akin to a fox guarding the henhouse. It’s hackneyed, I know, but oh so fitting.

[Mr. Wagoner goes to Washington]

Like errant schoolboys sent home with an assignment to come back with essays detailing their misdeeds, these captains of industry returned contrite and saying what Congress wanted to hear, apparently.

There's nothing more self-righteous than an American scorned. The hoi polloi are in a foul mood this holiday season because they won’t be able to stuff their oversized homes with more Chinese junk this year, and are instead being forced to endure a measly Guitar Hero game at best. Because of this, they’re looking for convenient targets for their angst. Rather than aim it at the true causes of their downtrodden economic condition, Wall Street, and yes, Washington, Detroit's Big Three automakers became surrogate whipping boys, and in particular, their wayward CEOs.

In a country where cars and horsepower have been kings for the past half century, suddenly, the great unwashed are feigning outrage towards an industry that's given them what they wanted--big, gas guzzling vehicles. I mean, no one was holding guns to the heads of the American males (and soccer moms) needing to massage their abundant insecurities by way of Hummers and Ford Expeditions. A casual drive through any upper middle class exurb will yield driveway after driveway choked with unwieldy, fuel-inefficient vehicles. We now know that they were forced on them by the “evil” Big Three.

[With lower gas prices, a used Hummer is more economical than a new Prius]

I contend that much of the anger and the chorus from those shouting "let them fail" are driven by an aversion towards America's working class, particularly those who make their living with their hands, having foresworn manicures, and the enticement of becoming a metrosexual. Since few have much regard for the men (and women) who build their cars, fix their furnaces, or unclog their toilets, carmakers are just another reminder of a past (family history?) they're more than happy to forget. Drawing an analogy ala Grover Norquist, “let's drown the car industry in the bathtub!”

Sadly, the new heroes of the workplace are the Wall Street vultures who have done damage that will take decades to overcome, if we manage to transcend this financial meltdown at all.

When these robbers and crooks came-a-calling to their comrades on Capitol Hill, the very same Congress that is now letting Wagoner, Mullaly, and Nardelli twist in the wind, couldn't hand over the money loot fast enough to the financial keystrokers from Wall Street.

If you bothered to read the Lewis article I referenced in a prior post, you'd be hard-pressed to justify $750 billion for these modern day robber barons, while at the same time denying the scaled down requests from Detroit's kings of industry. If we're talking basic fairness in the context of Congressional largesse, why does a Wall Street banker warrant favor over a suit that keeps three million Americans living their middle-class dream?

U.S. Bleeding Jobs at Record Rates

The American economy is reeling. Friday’s job report was absolutely brutal. For the month of November, 533,000 more workers lost jobs, the largest single monthly employment drop since December 1974. Since September, 1.5 million Americans have been idled, as the economy contracts tighter and tighter, as economic bad news keeps coming in Tsunami-sized waves of darkness and despair. All of this, ironically, is occurring just prior to Jesus’ birthday, or shopping’s high holy day, whichever one you’re inclined to celebrate. What’s particularly dire about the latest job losses is the broad losses across almost all sectors of the labor force. Other than healthcare and government, which saw employment gains, every other major category saw significant losses, including manufacturing, construction, the financial sector, retail, etc.

It’s obvious if you’re paying attention at all that the crisis facing Detroit has much less to do with bad management on the part of Wagoner and his cohorts, than on the great unraveling brought upon us by the Wall Street money changers. Interestingly, since the public has been made aware of the woes of the carmakers, everyone has an opinion about what should be done to right the ship, or worse, in my opinion, “let the suckers burn.”

While most on Capitol Hill gave Wall Street pretty much whatever was asked for, many of these same people think that GM and Chrysler would be well-served by bankruptcy. A recent CNBC/ poll however, indicates that more than half of the people surveyed would not buy a car from a bankrupt carmaker. The survey of 800 Americans, conducted from December 1 through December 3, reveals that 52 percent of Americans are unwilling to buy a car from a manufacturer that is under bankruptcy protection. Thirty-seven percent said they're willing to purchase an auto from a manufacturer under bankruptcy protection and 11 percent said they weren't sure. Only an idiot thinks that bankruptcy is a viable option to restore GM and Chrysler to profitability. Of course, these suggestions are coming from Congress, so I rest my case.

Additionally, much of the DC hot air directed towards letting Detroit twist in the wind is coming from Republicans from the south, whose region benefits from breaking the UAW’s back, which is another subtext in this industrial tale of woe. If the upper Midwest’s industrial core is shuttered, then many of their states, which have foreign car plants for Toyota, Honda, and others, paying lower wages than Detroit’s premium union wages, stand to gain. It’s another case of union-busting, with average middle-class Americans joining the chorus, clamoring that these workers in Detroit make too much money, have insurance benefits that are too rich, and other perks that were all negotiated for. What most of these people are ignorant of, as they’ve probably never negotiated a union contract with management, is that the bosses only give the workers the scraps from the table any time that pay and benefits get talked about.

There was a time in own my life when I had a union watching my back in the workplace. I could tell you a number of stories of how my employer was ready to throw me out in the street, if not for the protection afforded me by my union card, and dues that I paid for that protection.

I was a shop steward back in the early 90s for the IBEW, and I remember contract time. It was never a pleasant period, as the adversarial nature that exists between labor and management, when one side is looking to take from the other, promotes discord, rather than harmony. While the intent of these negotiations is that both sides bargain in good faith, rarely is that the case. Neither of the two contracts I was involved in negotiations for went smoothly. Management’s representatives always came to us, asking for concessions, taking a hard line stance straight out of the chute.

For a fledgling steward, this could have been intimidating, but some of the veterans warned me ahead of time about this, so I went into these with my eyes wide open. Back and forth it would go for weeks at a time. Reluctantly, we would be granted our cost-of-living demand for a salary increase, scaled down from our original bargaining point, or towards the mid-90s, limiting our out-of-pocket expenses for health insurance, even as the company’s financial status was sound, with profits rolling in, and CEO compensation increasing, only because our membership was ready to walk out, if necessary.

Having the right to bargain and strike only if pushed far enough, was the great equalizer in America for much of the 20th century. After Reagan fired the air traffic controllers, however, workers and their unions have been giving the bosses back much of the gains they paid for via pitched battles, and even bloodshed. Along with that giving back, the sentiments of the man on the street have also shifted. If they are still making middle-class wages, then its because people before them have paid a price, either with their willingness to take on management across a bargaining table, and at one time, even shedding blood, and laying down their lives for the right to bargain for wages and benefits that a family could live on.

Much of the canard that’s been brought up regarding labor over and over again by the likes of southern Senators Demint (R-South Carolina), Shelby (R-Alabama), and Sessions (R-Alabama), is a non-issue. Both Sessions and Shelby represent states with plants owned by foreign carmakers, like German-based Daimler AG and Japanese-owned Honda, as well as a plant making Hyundai automobiles. Hyundai is based in Seoul, South Korea. Both senators have regularly intimated that it’s ok for Detroit to go under. Other Republicans, primarily, have taken a similar tack.

“We have a very large and vibrant automobile sector in Alabama,'' Sessions told Bloomberg Television on Nov. 11. ``I don't feel like this is the end of the world.”

DeMint’s South Carolina is home to Munich-based Bayerische Motoren Werke AG, employing about 4,500 people at their Spartanburg, South Carolina, assembly plant. While these are manufacturing jobs that pay well, the wages are significantly lower than what automakers in Detroit make.

The south has traditionally been difficult to unionize, and Republicans, who routinely bash union workers for their wages (while ironically turning a blind eye to CEO compensation) and benefits would love to see car making shift southward. This mantra is now being parroted by many middle-class American, some of them benefiting directly in retirement, from the very same union largesse they now are keen to deny others.

Labor History for Dummies

It’s become a given in the U.S. that somehow, labor and unions are bad. Part of this may be due to the daily brainwashing that takes place courtesy of Rush Limbaugh, Sean Hannity, and other right-wing gas bags, dispensing with their Republican anti-union talking points.

Interestingly, direct labor accounts for little of the price of an automobile. Only 5 to 10 percent of automobile assembly costs (From Dispelling the Manufacturing Myth: American Factories Can Compete in the Global Marketplace). Unfortunately, facts matter less and less when discussing issues like these, given that most people proudly operate from a position of ignorance most of the time.

An area where I'd warrant a guess that nine out of 10 Americans are woefully ignorant of is that of labor history. That’s one of the reasons why workers are easily led around by their nose rings by anyone running down labor rights and adequate pay. In a Wal-Mart world, the subject of labor history now resides in a similar fringe category occupied by discussions about UFOs and the power of crystals. It wasn’t always that way, however.

While there are a few marginal programs left on college campuses devoted to the study of the great struggles waged by workers in the early days of the 20th century, those tales and much of the gains of the progressive era have been shunted down the rabbit hole.

During the 14 month southern Colorado Miners Strike, waged by the workers against the Colorado mining companies, and organized by the United Mine Workers of America in 1913-14, Ludlow was the site of the bloodiest event that took place.

The miners had been periodically attempting to organize in Colorado since 1883, for safer conditions, pay, and other rights that the mining interests denied them. The companies started purposely mixing immigrants of different nationalities in the mines to discourage communication that might lead to organization. Additionally, as was typical in the industry of that day, miners were paid by tons of coal mined and not reimbursed for "dead work," such as laying rails, timbering, and shoring the mines to make them operable. Under intense pressure to produce more and more to increase company profits, mine safety was often given short shrift. More than 1,700 miners died in Colorado from 1884 to 1912, a rate almost three times the national average during those years. The miners also felt they were being short-changed on the weight of the coal they mined, arguing that the scales used for paying them were different from those used for coal customers. Any miners that challenged the weights risked being dismissed.

Colorado Fuel and Iron Corporation (CF+I) was owned by John D. Rockefeller, one of America’s Robber Barons, and similar in nature to many of today’s lords of Wall Street. Workers at CF+I went on strike after a labor activist was killed in one of many skirmishes that took place with thugs that Rockefeller employed to “keep the peace” and maintain production at any cost. The strike enraged Rockefeller, as often happens when workers have the audacity to put teeth behind their demands. As a result, he evicted striking workers from their company owned homes leaving them (along with their families) to face the harsh Colorado winter without adequate shelter. Assisted by aid groups from across the US, the strikers organized tent cities close to canyon mouths which lead to coal camps (in an attempt to block strike-breakers replacing them) and continued their strike.

On March 10th the body of a strike-breaker was found near railroad tracks near the Forbes tents and the National Guard’s General Chase ordered the colony to be destroyed. The strike was reaching a climax, and National Guardsmen were ordered to evict the remaining tent colonies around the mines, despite them being on private property leased by the UMWA.

Ludlow was the largest of the tent colonies, and on the morning of April 20th 1914, troops fired into the camp with machine guns, anyone who was seen moving in the camp was targeted. The miners fired back, and fighting raged for almost fourteen hours.

Many other acts of brutality were committed against the workers by Colorado’s National Guard, acting as Rockefeller’s personal police force. That evening, under cover of darkness, the militiamen entered the camp and set fire to tents, killing two women and eleven children who were hiding from the fighting in a pit below one tent. Thirteen other people were also shot dead during the fighting.

News of the massacre spread, and other workers from around the country went on strike to show solidarity with the remaining miners on strike in Colorado. Several other Colorado cities were taken over and occupied by miners, with some National Guard units laying down their arms and refusing to fight in support of the miners.

Ultimately, the workers failed to have their demands met along with union recognition and many were replaced with non-union workers. No National Guardsmen was ever prosecuted over the killings, even though sixty-six people had been killed by the time violence ended.

Upton Sinclair sent this letter to Rockefeller after the massacre. Here is an excerpt:

“I intend to indict you for murder before the people of this country. The charges will be pressed, and I think the verdict will be ‘Guilty.’

I cannot believe that a man who dares to lead a service in a Christian church can be cognizant and therefore guilty of the crimes that have been committed under your authority.

We ask nothing but a friendly talk with you. We ask that in the name of the tens of thousands of men, women and children who are this minute suffering the most dreadful wrongs, directly because of the authority which you personally have given.”

Rockefeller, of course, feigned innocence, denying complicity for the deaths.

This was just one of the countless battles waged by workers, in solidarity, for the wages, benefits, and other retirement pensions that the UAW is now partially conceding in a good faith effort to arbitrate a plan for federal assistance for Midwestern automakers.

A grasp of labor history offers a different perspective than right-wing talk radio. Unfortunately for many working-class Americans, their predispositions begin with the latter narrative, rather than starting with stories of Ludlow and other pitched battles, where their sympathies ought to reside.

Can Detroit Make It?

Some think the major problem with Detroit is that the companies are too big. In an era where efficiencies that come from lean manufacturing processes are required, with the ability to retool quickly, the number of brands that GM currently has seems to be a place where efficiencies could be made. Because each brand has its own set of dealers, each of them demanding vehicles and attention to their product lines, it becomes impossible for the companies to fill out each brand's lineup with innovative, quality products--let alone supplying the requisite marketing required for each.

Traditional bankruptcy is not going to solve the issues facing GM and Chrysler, either. Chapter 11 would discourage the very innovation required in production, by forcing the carmakers to laser in on short-term profits, at the expense of larger, macro issues, and a vision for the future.

As I mentioned earlier in the article, consumers are not going to buy an American-made car from a bankrupt company. They’ll walk across the street and buy one from a foreign competitor.

[Finding a way to put consumers "in the drivers seat" of a new car would help the slumping economy]

While the “devil is in the details” of what the final bailout agreement might look like for the Big Three, there are elements of Chapter 11, the “best of bankruptcy,” so to speak that might serve the carmakers, particularly considering the dire straits faced by GM and Chrysler in the short-term.

One proposal put forth by Susan Helper and John Paul MacDuffie, in their article in The New Republic made sense to me.

Similar to the "debtor-in-possession" financing that the private lending market would make available in a healthy economic environment, all "secured" creditors--banks and bondholders--would get heavily reduced payments (say, 30 or 40 cents on every dollar owed). They would also get equity, which means they'll have a chance to make back that money and perhaps earn some more if the companies rebound and stock prices rise. Suppliers, who as "unsecured" creditors would have to wait in line to have their claims heard in bankruptcy court, should continue to be paid in full. Their own financial state is too precarious to do otherwise and their contribution to the industry's recovery is crucial, because without them, any funding would be for naught.

Rather than have a bankruptcy judge overseeing the process, the government would appoint an advisory committee. The makeup might consist of knowledgeable, independent monitors--a mixture of former industry executives with experience working for Toyota or Honda; industry academics and experts in alternative engine technology or labor-management collaboration. The committee would set goals and require the companies to report on progress quarterly, as a condition for obtaining additional funds. If a company missed its goals, the committee could withhold funds, or prepare for liquidation or nationalization. As someone who is involved in workforce development, I liked the proposal to take the leftover money if this occurs, and use it for retraining workers and easing the impact of downsizing on communities.

This would eliminate messy litigation that only fattens the wallets of lawyers—and benefits no one else.

This plan would also ensure that automakers sit down with the United Auto Workers, as well, in order to make sure all plants featured regular, institutionalized labor-management cooperation.

Detroit and manufacturing still matter in America. Only time will tell if the U.S. automobile industry is able to weather these stormy economic times.

I might be in the minority, but I’m rooting for the Big Three to succeed.


Kevin said...

Good post. I am a manufacturing executive who writes a lot on manufacturing, but I have always believed that the "problem" with unions is due to pathetic management. I'm far less concerned about the wage discrepancy than the work rule inflexibility, which can hamper improvement.

But almost exactly to your point, real "lean" focuses on the people, while most U.S. companies use it to focus almost purely on efficiency, often to the detriment of the people.

As you point out, wages are only minor part of true cost. I saw this first hand last month while visiting Toyota's most profitable plant in Kyushu. Most profitable... but with rather low labor productivity compared to most. They specifically don't automate or use excessive robotics, as robots can't create ideas for improvement. See:

Another example, in the U.S., is American Apparel. Low margin clothing, but they pay 5,000 factory workers in Los Angeles well above minimum wage, plus good benefits, and they're beating the socks off of Asian sweatshops. See

The biggest cost in business is not labor, material, or overhead... it's unnecessary complexity. If you whack people you whack knowledge, creativity, and ideas.


Jim said...

Great points, Kevin. Thanks for taking the time to share your thoughts. It's nice to hear from an industry person that I'm on the right track.

Intuitively, I see the importance of trying to keep manufacturing viable in the U.S., as it is one of the sectors that creates wealth (unlike finance that just moves money around via keystrokes).

Thanks for mentioning American Apparel, a company I've been a fan of for awhile.

People over profits is an M.O. that they obviously embrace, and they still manage to grow and prosper.

Real patriotism isn't finding any excuse to offshore production to maximize profits.

America needs to find a way to get back to making things again.

BTW, checked out your blog; good stuff!