Mitt Romney on the Auto Industry Bailout

Former Governor and Presidential candidate Mitt Romney, who was also a son of an auto executive, gives his opinion on the auto industry bailout. From The New York Times:

“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.

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.”

The rest can be found here.

This is a very good opinion piece from someone who is in politics but keeps a business mind in it. I couldn’t agree more. He also mentioned that this is what his father did when their company was in trouble.

This is not a profound finding! Every company that is successful offers new and innovative things. If they do not someone will come in and make something newer and more innovative. Some examples are Apple and their iPod, before this they were struggling due to the powerhouse Microsoft. McDonald’s at first only offered burgers and you couldn’t change anything. They soon offered a choice for you to have whatever you want on your burger. Now they are innovating with new coffee and healthy choices. Without these innovations both Apple and McDonald’s would have gone out of business.

Why should the auto industry be treated any different? I would imagine there would be a lot of jobs lost if these companies failed too.

~PCCapitalist

Thanks to a loyal reader for this story.
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Published in: on November 19, 2008 at 5:59 pm  Leave a Comment  
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