Detroit's deepening woe: How bad it is, and how did it get this way?
NEW YORK -- Am in the Big Apple at a seminar attended by folks from around the country who a) know Detroit's automakers are sick and b) don't understand how it got this bad and c) wonder if we'll pull out of our collective nosedive.
I pause, look at them and say: "Not sure." Misinformation, half-truths and false impressions abound, albeit much of it directionally correct: How come Detroit's Big Three "didn't see" what Honda and Toyota saw so they could have more fuel-efficient cars, the woman from Kansas City asked today? What about the union workers, inquired the guy from Dallas who, in an earlier life, whiled away some hours on the defunct Willow Run assembly line? The guy from PBS's Nightly Business Report is mildly incredulous, and another (maybe it was the woman from Kansas City) wondered why the unions and management didn't get serious about change until last fall.
I try to explain. Then another person from Detroit says: Did you see where GM and Ford shares are today?
Grim is where they are. At Monday's bell, shares in General Motors Corp. closed at $11.55 after dipping as low as $10.57. Ford Motor Co. shares ended the day at $4.81, up from an intraday low $4.46. Reminds me of the line I heard last week from a CNBC panelist who declared GM "financially irrelevant" on Wall Street.
Stunning, that. But it shouldn't be given $4-plus-a-gallon gas, slumping sales and undeniable evidence that the Big Three are, to borrow a sport analogy, out of position.
They're not alone. To leave the Michigan bubble is to be reminded how insulated the Big Mitten and its economic troubles are from the rest of the country. Not that other places don't have their own problems, some of which we share -- sub-prime fall-out, tanking home values, stressed government budgets, threats of layoffs.
It's how utterly dismal our predicament seem to theirs by comparison. If they don't say it, you know they're thinking: How could they let it get this bad? Good question, and there's an answer to it. It's just not a defensible one.
Detroit Council, DPS antics give new meaning to 'leadership'
I think it was Barbara Rose Collins, the esteemed, tiara-wearing member of Detroit City Council, who once said she resented the implication (by whom I don't recall) that Detroit can't govern itself.
Judging by council's on-again, off-again battle with the embattled mayor and, this weekend, a new scandal swirling around council chambers, I'd say the implicators got is just about right. The Gang of Nine wants the governor to take Hizzoner out, then it doesn't. It wants to take him out themselves, then it doesn't. Now come reports that the feds are investigating at least one council member in connection with a sludge contract. How fitting. And the chief of staff for City Council President Ken Cockrel Jr. resigned last week, the Freep reports, after allegedly being videotaped taking a bribe.
Meanwhile, up in Midtown, the Detroit School Board yet again punts its budget, raising the likelihood that Gov. Jennifer "I-don't-want-to-get-involved" Granholm will have to get involved because the board and the schools administration simply can't craft a budget that isn't riddled with deficits. What's that you were saying, Council Member Collins?
When it comes to business, have long maintained that it's wise to pay attention to what the bosses do, not what they say. Embarrassment is not sufficient to describe the city's two pre-eminent elected bodies. They dither, the city crumbles, the creaking schools stumble toward a shutdown, Metro Detroiters groan at the spectacle and Detroiters reap the pathetic rewards. If ever there's a case for to be made for a ward system that would drive some measure of accountability into the system, these are it.
It would all be hysterical if it wasn't so appalling. And, yes, embarrassing.
On 'speculators' driving oil higher and Rust Belt self-destruction
What does it say that the two lawmakers leading last week's Capitol Hill wail about skyrocketing oil prices hail from the Big Mitten -- namely that ol' lion, Rep. John Dingell, and his would-be Energy and Commerce understudy, Rep. Part Stupak?
Tells me they know a political opportunity when they see it. And, second, that banging the committee room table is a fitting gesture to show they're doing something, anything, to help their hometown automakers. Gawd knows, Detroit needs it.
For some perspective, check out this column in today's New York Times, courtesy of Joe Nocera. "After years of ignoring the rather obvious fact that oil is a finite resource, the world has suddenly become acutely aware of that reality. Everyone in the oil markets is attuned to every little twitch that has the potential to damp supply or increase demand.
"That's why, for instance, when Libya announced on Thursday that it might cut oil production, oil jumped more than $5. Meanwhile, when Brazil discovers a huge new oil field, the market shrugs. That is not speculation at work -- it's market psychology. There's a big difference. If there is indeed a bubble, that's what is causing it."
Fair point, and worth mulling instead of looking for someone to blame ... which usually leads to the big, bad capitalists. Herbert Hoover would be proud.
Elsewhere, in today's Wall Street Journal, a riff on "the self-inflicted economic death of Ohio." Echoes the sorry tale of Michigan, whose political class (on both sides of the aisle) and their pals in self-dealing organized labor cling to the dead dog of the past and hope for the best. Makes you want to weep for the states and those who pay the price.
'Environmentalist moralisms' clash with world of Putin, Chavez
High gas prices are pushing Detroit's automakers to the financial brink, delivering losses to mighty Toyota Motor Corp. in the United States, pinching motorists and businesses across the country and becoming issue No. 1 in the presidential campaign.
And what do our esteemed leaders (of both parties) in Washington do? They telegraph, through wildly unaffordable climate-change legislation and bone-headed threats to tax the "windfall profits" of Big Oil, just how "unserious" a nation today's America is becoming.
Or so argues The Wall Street Journal's Dan Henninger, rightly, in a must-read column today: "We live in a world in which Russia's Vladimir Putin and Venezuela's Hugo Chavez use their vast oil and gas reserves as instruments of state power," he writes. "Here, Nancy Pelosi and Harry Reid use their control of Congress to spend a week debating a 'climate-change' bill. This they did fresh off their subsidized (and bipartisan) ethanol fiasco.
"One may assume that Mr. Putin and the Chinese have noticed the policy obsessions of our political class. While other nations use their oil reserves to attain world status, we give ours up. Why shouldn't they conclude that, long term, these people can be taken? Nikita Khrushchev said, 'We will bury you.' Forget that. We'll do it ourselves."
'Nuf said.
The pandering -- from Obama to McCain, from the Bush administration to both sides of Congress -- would be laughable if it wasn't so unsettling. What does it say about American leadership when it threatens oil companies that control less than 10 percent of the world's known reserves; supports the president's "request" for Saudi Arabia to pump more oil; ignores the simple fact that oil has become a tool of aggressive statecraft in Russia, Venezuela, China and Iran; dismisses any linkage between new policy-making (can you say "ethanol subsidies" and restrictions on exploration?) and their effect on the relative price of oil?
It says too many American leaders aren't serious, especially when massive American reserves of oil and natural gas are within reach ... but off limits. Look, this isn't an argument for a monster SUV in every garage; that day has passed, and Detroit knows it. It's an argument for realism, balance and a recognition of how inter-connected the American economy is with the rest of the world. Next time someone says "energy independence" to you, laugh. Because it's a joke.
If nothing else, the past three months have yet again demonstrated that the American economy and American expectations are underpinned by an expectation of comparatively cheap fuel. That, alone, should be evidence enough that Americans -- and Detroit's automakers -- need to get a lot smarter, and fast, about smaller cars, crossovers, conservation and alternative technologies.
That's not all: The past few months also demonstrate how utterly unwilling the rest of the world is to help a country whose leaders won't help themselves. What we're seeing is weak, uninformed leadership masquerading as simply craven politics, and it says more about a prevailing American character trait today than many of us would care to admit.
Labor disputes, dysfunctional Big Three scuttle Michigan image
Takes a particularly keen sense of denial to insist that the 12-week American Axle strike, walkouts at two General Motors plants and, today, a Teamsters walkout against car-hauler Performance Transportation Services don't (or won't) hamper Michigan's image in the economic marketplace for investment and, yes, jobs.
But here was a Berkeley labor guru in The News today: "I don't think the strikes will be defining," said Harley Shaiken, a labor professor at the University of California whose roots are in Motown. "Michigan remains a place to invest."
In manufacturing? Why? And who's he kidding? It doesn't take a PhD in labor economics to suggest the contrary: That outsiders, especially savvy ones looking to invest precious capital where it will deliver a respectable return, more likely look at Michigan, see its strikes, declining market share of its Big Three, their broken business models, panicky contract bargaining and anti-business state government and say, "No, thanks. We've got other options."
It's a simple fact -- not "anti-labor" -- to repeat yet again that investment in the automotive sector goes where strong unions and union cultures typically aren't. (Or at least they have for the past 20 years, which ought to qualify as a trend.) Investment also goes where the prevailing wages more closely approximate the national average, not the 30 percent or 40 percent premiums that have been the going rate in Big Three assembly plants.
Levin, Stabenow offer profile in courage on climate change. Right.
Republicans in the U.S. Senate today managed to torpedo the Climate Change bill, handing coastal Democrats and presumptive presidential nominee Barack Obama an embarrassing defeat. Siding with their party and its standard-bearer were, natch, Michigan's own Carl Levin and Debbie Stabenow.
If the ear chewing I got this morning from a ranking industry executive is any indication, Detroit Auto is none-to-happy with the malleable backbones of their ersatz friends in the Senate: "This is something that could close one or two of these companies," the exec told me. "It would clobber this industry. It's inexcusable to me. If not now, when? When are you going to fight?"
Presumably after the legislation passed and the mandates kicked in. Then the pols with hearts (and complicity in the creating the outcome) would rush to offer federal loan guarantees to stave off bankruptcy; to pass legislation to extend unemployment benefits to one or two years from the usual 26 weeks; and to placate unions that lent their political support to lawmakers who sold 'em out.
Senate leaders may not like principled stands by senators keenly attuned to the issues that matter most to their constituents, but they respect them. Succumbing to calls for party unity only, as Levin and Stabenow did today, means they can be rolled and, second, that Detroit Auto has two fewer friends in Washington than it thought it had.
Center for Michigan founder does Mackinac, nails sad truth
Apologies to the head-in-the-sand crowd: Phil Power, the retired newspaper publisher turned think tanker, did the Detroit Regional Chamber's Mackinac Policy Conference with 1,700 others and this is what he saw:
"Many of the programs ... were thoughtful, far-seeing, appropriate to the need for bipartisan common ground to get Michigan moving again. But in the back of the room, leaders of both political parties were cracking jokes, paying scant attention to the large measures at issue," Power writes in his weekly column.
"As enablers of a dysfunctional political system that is serving millions of Michigan citizens very badly, they should be ashamed. The unintended consequence of this year's Mackinac conference was to reveal in full and stark detail the yawning disconnect between what the politicians chatter about and what Michigan really needs. And if you reflect a bit, it will tell you something very important about the state of our state today."
It gets worse, actually. I've probably attended 10 Mackinacs since the mid-90s, and an enduring constant -- beyond the political cynicism that Power aptly describes -- is a conflict-averse lethargy in the business community that is maddening. Business complains about the governor, laments the troubles of Detroit Mayor Kwame Kilpatrick, whines about the new Michigan Business Tax and criticizes Lansing's indifference to the concerns of business. But when I suggest to a small group of CEOs that it might make a difference if some of them made their gripes public, if only to get the political class off its proverbial keister, I get blank stares.
That's sad, too, Phil. What's it gonna take to break the cycle of cynicism and apathy -- to become Michississippi?
Guv Granholm re-emerges on The Island, plays same ol' tune
Sitting here listening to Gov. Jennifer Granholm's spiel to the movers and shakers (or hopers and dreamers) up here on rain-soaked Mackinac Island. And it all sounds the same. Nothing new. The same ol' riff on government picking winners and losers, on government spending more to retrain workers, on the value of emulating Sweden in pursuit of alternative technology jobs.
Meanwhile, the fire consuming the platform that is Michigan's economy grows larger. She recognizes the worsening outlook for "our Detroit Three" -- a curious choice of words, considering the phrase was introduced by a Toyota exec. But I digress: 30 minutes in, I still haven't heard anything about structural reform; about addressing the Michigan Business Tax that has lots of folks up here grumbling.
Key question: Does government create jobs? Or does business create jobs? If it's the latter -- and it is -- does it matter that Michigan have a competitive business environment that business leaders deem to be competitive? Of course it does.
Update: Now she's talking about reforms ... sort of. She's cut more money from the budget than any governor in recent history, she reminds. The state's workforce is the smallest it's been since the '70s, she says. We're trying to improve the efficiency of the permitting process, the says, and reforming state contracting.
Two reactions: A) nothing new here, despite an economy that is deteriorating with astonishing speed, and B) if all of this is sufficient, how come real business folks up here -- as opposed to like-minded managers of non-profits -- give her a failing grade for making Michigan competitive?
Ford's reality strikes ominous chord for Detroit Auto, Kerkorian
The mantra inside Ford Motor Co. is to "keep executing the plan" devised by CEO Alan Mulally and his team. But could Thursday's acknowledgement that skyrocketing gas prices are forcing the automaker to cut further pickup and SUV production and thus miss its '09 profitability target be a defensive move to placate its newest shareholder?
Absolutely.
Las Vegas billionaire Kirk Kerkorian owns 100 million shares of Ford common and has extended a tender offer to acquire another 20 million more at $8.50 -- a nearly 24-percent premium over today's close of $6.87. Even as it warned of a sharp deterioration in its business prospects, Ford's directors pledged neutrality over Kerk's offer. Ostensibly, his play is being pitched as a vote of confidence in Mulally, his plan and the traction it appeared to be delivering -- until it confirmed Thursday that it sort of wasn't.
Given ol' Kerk's penchant for filing big, nasty lawsuits when either things don't go his way or he feels he's been sandbagged by the brass at a recent acquisition (can you say Juergen Schrempp and DaimlerChrysler?), Thursday's abrupt disclosure has the added benefit of letting Kerk know sooner rather than later that Ford's apparent traction is getting might slippery.
Everything is now on the table in Dearborn.
GM & gas wars: 'We're as well-positioned as anybody'
So says the General top sales analyst, who in one sweeping statement essentially confirms what General Motors Corp.'s critics -- including my Toyota Prius-loving father-in-law -- have been saying for years: Detroit is fixated on its big pickups and SUVs, even as it has vastly improved its cars, their designs and their fuel-efficiency.
"We've been promoting our trucks more than we should have," Mike DiGiovanni, GM's top sales analyst, told a conference in Warren. "We're going to shift our marketing toward fuel economy and hybrids."
Sheer genius, as a reader, Gary S., pointed out to me today: "Oh, so now GM is figuring out that gas prices might affect truck sales? I'm just this middle class small-town guy, no genius by anyone's account, and I kinda sorta figured out -- oh, maybe three years ago or two years ago? -- like everybody else (except apparently the execs at GM) that energy prices were heading up and up, and smaller, more fuel-efficient vehicles would be in demand."
Would make you want to weep if it wasn't so infuriating because Mickey D., as he's known to his friends, has it right: GM is well-positioned. It just prefers to cede the fuel-economy high ground to Toyota. Why is beyond me.
Here's a company that has spent the better part of 15 years playing catch-up to the standard in its industry (that would be Toyota). It has watched the Prius hybrid become a synonym for market savvy and anticipation. It has gutted through global restructuring after global restructuring, labor contract after labor contract. And, still, it doesn't acknowledge the reality of wrought by higher gas prices? Still, it has trouble telling its story?
What $4-a-gallon gas and the knowledge that a goodly chunk of every fuel dollar goes to support the likes of Hugo Chavez, Vladimir Putin and Iran's mullahs doesn't change, then peer pressure and the changing needs (and tastes) of aging baby boomers will. The trends have been obvious at least since 9-11, and have accelerated in the past couple of years.
That GM is acknowleging it now -- in a news story that runs the day its newest critic, probable Democratic nominee Barack Obama, is in Michigan for the first time in 10 months -- tells you why the General (and Detroit's other two companies) keep finding themselves in deep holes. They don't know when to stop digging.
