November 19, 2008
Op-Ed Contributor
New York Times
Let Detroit Go Bankrupt
By MITT ROMNEY
Boston
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.
First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.
That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.
Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.
The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”
You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.
The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.
Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.
Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.
It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.
But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.
The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.
In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.
Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.
Showing posts with label Romney. Show all posts
Showing posts with label Romney. Show all posts
Wednesday, November 19, 2008
Sunday, November 9, 2008
Romney: Obama must be 'educator-in-chief'
Former presidential candidate Mitt Romney offers his advice to Barack Obama, and his views on labor unions, federal bailouts, Detroit, protectionism, and America's debts.
November 7, 2008: 9:47 AM ET
Fortune Magazine
NEW YORK (Fortune) -- Mitt Romney, former Massachusetts governor and co-founder of private equity firm Bain Capital, is often mentioned as a GOP contender for 2012. He spoke with Fortune's Jia Lynn Yang.
Any management advice for the next president? How does he rally a depressed nation to meet the challenges we face?
He should forget entirely about reelection and focus solely on helping the nation at a critical time. He should dismiss the people who helped him win the election and bring in people who are above politics and above party. He should surround himself with statesmen and economists, businesspeople and leaders. In some ways it would be beneficial if our presidency consisted of only one term. That way the President would think about his legacy and the future of the country rather than reelection and partisanship.
How likely do you think that's going to happen?
In his second term, President Clinton made an effort to govern more from the center than from the extreme wing of his party, and by doing so, found greater support and greater political success. Perhaps it's a paradox, the less political the agenda, the more political success one enjoys. But now is not the time for partisanship opportunism.
The unions have helped Barack Obama. They will hope to be paid back. I'm particularly concerned that organized labor would call on Barack Obama to pass the card check program. This removes from American workers the right to the secret ballot in deciding whether or not to accept a union. This legislation would do more to harm America's long-term competitiveness than almost anything I can imagine. It would be a partisan payback for organized labor but it would come with devastating consequences for the nation.
Do you have any concerns that the massive government intervention on Wall Street will have unintended consequences?
"The bailout of Wall Street" was a terrible choice of words. No one wants to bail out anything, especially Wall Street. The objective of the legislation, however, had a much broader purpose: to stabilize our financial system, to keep it from complete collapse. Sometimes that broad purpose may require saving individual companies, as with AIG (AIG, Fortune 500). But we just can't have government running around the nation looking to bail out companies in trouble.
Given your Michigan roots and what your father accomplished turning around the American Motors Corporation in the 1950s, what do you think is the future of the auto industry?
Right now, the auto industry is on life support, and its prospects look extremely dim. But they don't need to be. The industry could be turned around. There is no inherent reason why America can't build and sell cars to Americans at least as well as the transplants are doing. Any effort to help the auto industry has to be made as part of a comprehensive strategy. Before the government issues loans to the auto industry, as has been authorized by Congress, it should insist on seeing credible and independent strategies that will return the companies to long-term sustainability. Government should not finance ongoing losses and declining market shares.
What concerns you the most about the economy right now? Any dangers lurking in the global economy that we didn't hear much about during the campaigns?
Far too little attention was paid to America's long-term competitive position during the campaign. I see four major economic strategies at play in the world today: the first is ours. It combines freedom and free enterprise.
The second is China's. It combines free enterprise with authoritarianism.
The third is Russia's. No longer is Russia's plan for dominance based upon industrial capacity but rather upon controlling energy throughout the world. Hence Russia's cozy relationship with Iran and Venezuela as well as its belligerent entry into Georgia. Russia's strategy is based on energy and authoritarianism.
The fourth strategy is represented by radical violent jihad. The intent of the jihadists is to cause the collapse of the other three, such that the "hidden Imam" or the Caliphate remains the last man standing.
The real challenge for America is how to strengthen our competitive position so that our economy outperforms those of the other three. If we're successful, freedom will be preserved for the world. If we're unsuccessful, the results are unthinkable.
When you talk about making America more competitive, what do you have in mind?
First, America must substantially improve our education system. We've fallen behind, particularly in areas of math and science.
Second, we're going to have to remedy our disproportionate health care cost disadvantage. America spends far more than any other nation as a percent of GDP on health care. This effectively is an enormous tax on the economy and on our businesses.
Third, our national debt is excessive and our entitlement obligations pass a massive burden onto the next generation.
Fourth, tax and regulatory policies weigh down our ability to compete. Specifically, our products carry an embedded tax which makes American goods less competitive abroad and at home.
Fifth, America's apparent retrenchment from the concept of open, free and fair trade could put us further behind other nations that are aggressively seeking trade relations around the world.
Sixth, our lack of an effective energy policy drains our economy by approximately half a trillion dollars a year.
And, finally, the blow that Wall Street has taken may make us less competitive in financing entrepreneurship.
There's strong populist sentiment against free trade deals. Given that, how does an American president move forward on this?
I can only hope the President abandons the populist current, which seems to be growing in our country. An effort to block foreign trade will only hurt America. Ultimately products in this country would become uncompetitive. Look what happened to the Soviet Union. Its cars, its watches, its goods became a joke.
The only way to remain the leading economy in the world is to be successful on a level playing field around the world. Some individuals, at the behest of special interests, seek to prevent trade with other nations by imposing America's labor requirements and other peculiarities. That is a disguised form of protectionism.
Do Americans need to save more and adjust to a lower standard of living? In other words, should be buying houses we can actually afford?
I think a President has to be an educator- in-chief as well as a commander-in-chief. The American people need to understand the challenges we face. And the American people need to understand that they, like the nation, need to live within their means. Both have been spending more than they have been taking in. It puts the nation at risk. And it puts families at risk.
There's a period of adjustment that's occurring right now as American families deleverage and employers deleverage. It's time for the government to finally address our severe debt burden, before it leads to even more severe consequences. I'm referring not only to our annual deficit and national debt but also to our obligations under entitlement programs like Social Security.
November 7, 2008: 9:47 AM ET
Fortune Magazine
NEW YORK (Fortune) -- Mitt Romney, former Massachusetts governor and co-founder of private equity firm Bain Capital, is often mentioned as a GOP contender for 2012. He spoke with Fortune's Jia Lynn Yang.
Any management advice for the next president? How does he rally a depressed nation to meet the challenges we face?
He should forget entirely about reelection and focus solely on helping the nation at a critical time. He should dismiss the people who helped him win the election and bring in people who are above politics and above party. He should surround himself with statesmen and economists, businesspeople and leaders. In some ways it would be beneficial if our presidency consisted of only one term. That way the President would think about his legacy and the future of the country rather than reelection and partisanship.
How likely do you think that's going to happen?
In his second term, President Clinton made an effort to govern more from the center than from the extreme wing of his party, and by doing so, found greater support and greater political success. Perhaps it's a paradox, the less political the agenda, the more political success one enjoys. But now is not the time for partisanship opportunism.
The unions have helped Barack Obama. They will hope to be paid back. I'm particularly concerned that organized labor would call on Barack Obama to pass the card check program. This removes from American workers the right to the secret ballot in deciding whether or not to accept a union. This legislation would do more to harm America's long-term competitiveness than almost anything I can imagine. It would be a partisan payback for organized labor but it would come with devastating consequences for the nation.
Do you have any concerns that the massive government intervention on Wall Street will have unintended consequences?
"The bailout of Wall Street" was a terrible choice of words. No one wants to bail out anything, especially Wall Street. The objective of the legislation, however, had a much broader purpose: to stabilize our financial system, to keep it from complete collapse. Sometimes that broad purpose may require saving individual companies, as with AIG (AIG, Fortune 500). But we just can't have government running around the nation looking to bail out companies in trouble.
Given your Michigan roots and what your father accomplished turning around the American Motors Corporation in the 1950s, what do you think is the future of the auto industry?
Right now, the auto industry is on life support, and its prospects look extremely dim. But they don't need to be. The industry could be turned around. There is no inherent reason why America can't build and sell cars to Americans at least as well as the transplants are doing. Any effort to help the auto industry has to be made as part of a comprehensive strategy. Before the government issues loans to the auto industry, as has been authorized by Congress, it should insist on seeing credible and independent strategies that will return the companies to long-term sustainability. Government should not finance ongoing losses and declining market shares.
What concerns you the most about the economy right now? Any dangers lurking in the global economy that we didn't hear much about during the campaigns?
Far too little attention was paid to America's long-term competitive position during the campaign. I see four major economic strategies at play in the world today: the first is ours. It combines freedom and free enterprise.
The second is China's. It combines free enterprise with authoritarianism.
The third is Russia's. No longer is Russia's plan for dominance based upon industrial capacity but rather upon controlling energy throughout the world. Hence Russia's cozy relationship with Iran and Venezuela as well as its belligerent entry into Georgia. Russia's strategy is based on energy and authoritarianism.
The fourth strategy is represented by radical violent jihad. The intent of the jihadists is to cause the collapse of the other three, such that the "hidden Imam" or the Caliphate remains the last man standing.
The real challenge for America is how to strengthen our competitive position so that our economy outperforms those of the other three. If we're successful, freedom will be preserved for the world. If we're unsuccessful, the results are unthinkable.
When you talk about making America more competitive, what do you have in mind?
First, America must substantially improve our education system. We've fallen behind, particularly in areas of math and science.
Second, we're going to have to remedy our disproportionate health care cost disadvantage. America spends far more than any other nation as a percent of GDP on health care. This effectively is an enormous tax on the economy and on our businesses.
Third, our national debt is excessive and our entitlement obligations pass a massive burden onto the next generation.
Fourth, tax and regulatory policies weigh down our ability to compete. Specifically, our products carry an embedded tax which makes American goods less competitive abroad and at home.
Fifth, America's apparent retrenchment from the concept of open, free and fair trade could put us further behind other nations that are aggressively seeking trade relations around the world.
Sixth, our lack of an effective energy policy drains our economy by approximately half a trillion dollars a year.
And, finally, the blow that Wall Street has taken may make us less competitive in financing entrepreneurship.
There's strong populist sentiment against free trade deals. Given that, how does an American president move forward on this?
I can only hope the President abandons the populist current, which seems to be growing in our country. An effort to block foreign trade will only hurt America. Ultimately products in this country would become uncompetitive. Look what happened to the Soviet Union. Its cars, its watches, its goods became a joke.
The only way to remain the leading economy in the world is to be successful on a level playing field around the world. Some individuals, at the behest of special interests, seek to prevent trade with other nations by imposing America's labor requirements and other peculiarities. That is a disguised form of protectionism.
Do Americans need to save more and adjust to a lower standard of living? In other words, should be buying houses we can actually afford?
I think a President has to be an educator- in-chief as well as a commander-in-chief. The American people need to understand the challenges we face. And the American people need to understand that they, like the nation, need to live within their means. Both have been spending more than they have been taking in. It puts the nation at risk. And it puts families at risk.
There's a period of adjustment that's occurring right now as American families deleverage and employers deleverage. It's time for the government to finally address our severe debt burden, before it leads to even more severe consequences. I'm referring not only to our annual deficit and national debt but also to our obligations under entitlement programs like Social Security.
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