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What’s Dumb for GM is Dumb for America

November 29th, 2005 - 9:08 pm

And this is beyond dumb. According to Forbes, GM CEO Richard Wagoner was paid almost $2.5 million in bonuses last year. Let me tell you why that’s so stupid.

GM is a company in trouble. Despite three or four hot domestic vehicles (divided between seven domestic brands), GM’s future is bleak. Unimaginative designs are less than half their problem. The major portion of their problem is with overly-lavish employee benefits, amounting to more than $2,000 per vehicle made. Not sold – made. Meanwhile, to sell a car or truck or SUV, GM has to offer incentives worth an average of $3,100.

Do the math, and you’ll discover that GM suffers a $5,000-plus price disadvantage compared to its Japanese and Korean rivals. (NOTE: Thanks to the strong euro, European automakers enjoy a smaller advantage, if any.)

In the grand scheme of things, Wagoner’s bonus isn’t that big. If his efforts result in GM selling just 500 more vehicles than if, say, I were in charge, then he’s made good on his bonus.

The problem – the stupidity – lies in what Wagoner is telling his employees: “I’m out for me.”

GM just announced yet another round of factory closings and job cuts. To be exact, nine plants and 30,000 jobs. Wagoner has told the surviving workers that keeping his bonus – not his salary, but his bonus – is more important than keeping people employed. True, his bonus is only worth about 50 manufacturing jobs, but the point remains.

Let me tell you how things were done at another company.

My grandfather, Preston Green, was the sole owner of Southwest Steel Supply. My best guess is that SSS employed about 70 people. Fewer than 20 in the office, and the rest were Union guys – Teamsters, to be exact.

The white collar employees – my grandfather included – got paid a profit-sharing bonus in those years the company made a profit. When things were bad, management took a 10% pay cut, across the board, before a single employee was laid off. That rule applied to both office workers and the union guys.

The message he sent was: It’s management’s fault if we’re not making money, so we’ll take the hit before you guys will.

Now, I don’t know what Grandpa’s salary was, and I don’t know how much he paid his management team – all four of them. But I doubt their paycuts would save the job of a single Teamster. Nevertheless, the message was sent: We’re looking out for you.

Southwest Steel suffered just one strike while my grandfather owned the company, and that was during the Great Steel Shortage of the early ’70s, when damn near every steel union walked out. The unions weren’t stupid – there was so much money being made back then, they’d have been stupid not to have tried to grab a share of it.

But think about that for a moment. How many Teamster shops do you think went 35 years with only a single strike? How many union shops do you know of, who knew that management was watching their backs? Now consider that my grandfather hate-hate-hated the Teamsters and everything they stood for. But he also knew that if he wanted to count on them to make good product, they needed to be able to count on him to make good decisions.

I was privileged enough to spend a summer working alongside the Teamsters on the shop floor of the Madison, Ill. plant. And let me tell you, I was a bigger slacker than any of them were. And when they spoke of my grandfather, they always called him “the old man” in that way that signals respect.

What do you think GM’s union guys call Wagoner behind his back?

UPDATE: Related stuff from Robert Samuelson here.

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