Crash Course Covers Bailouts and Bankruptcies
February 15, 2010

The book, "Crash Course," by veteran automotive journalist and Pulitzer Prize-winner Paul Ingrassia is the first book about last year's bailouts and bankruptcies of General Motors and Chrysler. While the book, which was published this month by Random House, focuses on the dramatic events of 2009, it covers the history of the American auto industry from the Model T onward.  This excerpt from the opening chapter, published courtesy of Random House, begins in the bleak final months of 2008; it summarizes the mounting crisis and how Ford avoided the fate of its Detroit competitors.

It really wasn't intended to be a prophecy. It was just a smart-alecky tee-shirt worn for years by local teen-agers to annoy their parents, and show their perverse pride in the Motor City's tough-town image. It said: DETROIT: WHERE THE WEAK ARE KILLED AND EATEN. But the menacing message seemed all too appropriate in the bleak winter of 2008-2009, when signs of weakness -- indeed, desperation -- erupted everywhere in Detroit.

One bankrupt car-components company economized by servicing the bathrooms in its suburban headquarters only every other day. Some of the bathrooms ran out of toilet paper -- prompting employees to hoard it, or bring their own from home. In the city itself, employment prospects were so bleak that some prisoners begged to stay in jail to get food and shelter - "three hots and a cot," in the local parlance.

The city's battered economy was reflected on the football field, where the University of Michigan was enduring its first losing season in 40 years, and the Detroit Lions were plummeting to pro football's first 0-16 season. During their 47-10 drubbing on Thanksgiving Day 2008, fans unfurled a banner reading: "Bail Out the Lions." It was a gallows-humor reference not only to the football team but also to the weakest teams in town -- General Motors, Ford and Chrysler.

America's Big Three car companies, bleeding from more than $100 billion of losses in the prior four years, had shed more than 333,000 employees since the beginning of the century -- enough to populate the city of Cincinnati. In November 2008 GM's stock closed below $3 a share for the first time since 1946, when Harry Truman was president. To save money, the company ended its nine-year endorsement deal with golfer Tiger Woods, who was making more money than GM anyway. That same month Detroit's auto makers went to Washington to beg Congress for a bailout -- in a last-ditch effort to avoid another b-word, bankruptcy. 

Their potential demise marked a shocking reversal of fortune for companies that had been defining forces in shaping America itself, and indeed the world. Detroit's manufacturing muscle had helped win World War II and underpinned the economic hegemony of the United States in the post-war Pax Americana. The companies had made Detroit the Silicon Valley of the mid-20th Century, a place of economic opportunity, where hillbillies from Appalachia and sharecroppers from the South could break out of poverty and grab a piece of America's bounty.

Ford had invented mass manufacturing and, with it, the car that had put the country on wheels, bringing mobility to the masses and freeing multitudes of American farmers from the drudgery of rural peasantry. Henry Ford's Model T had been the first people's car, and had indirectly inspired the development of another people's car: the Volkswagen Beetle.

General Motors, in turn, had pioneered mass marketing, with a hierarchy of brands ranging from practical Chevrolet to prestigious Cadillac that fit Americans on all rungs of the nation's socio-economic ladder. GM also had developed the organizational principles -- decentralized operations subject to central financial control -- that would underpin every corporation in America and the world. General Motors scientists had invented the room air conditioner and the mechanical heart pump. And in 1955 GM had become the world's first company to earn more than $1 billion in a single year.

That General Motors could go bankrupt seemed as unlikely, say, as America's banks going broke, or as a black man being elected President of the United States. But in fact all three of those things -- one of them an historic breakthrough, and the other two historic breakdowns -- would happen in the mind-numbing months between late 2008 and mid-2009. In the end, the bailout of America's banks would cost seven or eight times as much as rescuing Detroit, but the emotional impact would be nowhere nearly as deep. 

It was cars, after all, not banks, that Americans celebrated in books, movies and music. The Beach Boys' memorable song (in 1963) was Little Deuce Coupe, not Little Deuce Coupon, and Wilson Picket's hit a few years later (1966) was Mustang Sally, not Mustang Sallie Mae.

Millions of Americans cherished the memories of the 1950s tail fins, the 1960s muscle cars and their own sexual and other escapades in the automobiles of their youth. A typical episode occurred in Kalamazoo, Mich.in 1969, when two boys driving a hot new Ford Mustang pulled out of a local Chicken Charlies drive-in, tailed by girls driving a Plymouth Barracuda. It was show time. When the Mustang's driver hit the accelerator, the car literally flew over a blind hill and momentarily went airborne -- just as it was passing a parked policeman. The cop must have been startled, because when he pulled the boys over he had hot coffee spilled on his uniform. Thousands of such incidents, all across America, would inspire Hollywood a few years later to make a movie called American Graffiti.

By the end of the 20th Century America's love affair with the automobile had evolved to its infatuation with the sport-utility vehicle, or SUV, designed for traversing off-road terrain, although few people actually took it there. Their unlikely popularity made it fitting that on Dec. 7, 2008, Detroit's greatest hour of need, three gleaming white SUVs - a Chevrolet Tahoe, a Ford Escape and a Dodge Aspen - were parked like sacred icons at the altar for a special service at the Greater Grace Temple Pentecostal Church on Detroit's northwest side.

It happened to be the 67th anniversary of Pearl Harbor, but the service wasn't to pray for deliverance from Japanese dive bombers or torpedo planes. Instead it was to beseech relief from Toyota Camrys and Honda Accords, whose wide popularity -- on top of America's financial crisis -- was a critical cause of Detroit's affliction. A vice president of the United Auto Workers union led prayers for a Congressional bailout, and gave the worshipers a benediction for the occasion. "We have done all we can do in this union," he said, "so I'm going to turn it over to the Lord." 

The presiding prelate at the service intoned: "We have never seen as midnight an hour as we face this week. Lives are hanging above an abyss of uncertainty as both houses of Congress decide whether to extend a helping hand."

  
       *                        *                       *

Ingrassia then describes Detroit's infamous Jobs Bank and its bizarre, lesser-known outcrop, a practice known as "inverse layoffs.

The Jobs Bank was started by the car companies and the UAW in the 1980s.  The original intent was to provide temporary security for hourly workers on layoff. But like a lot of other things in Detroit, the Jobs Bank had evolved into something else altogether. By the 1990s, laid-off workers could remain "bankers," as they were nicknamed with knowing irony, for an unlimited time, making 95% of their wages while not working. Thus an arrangement begun to protect workers had helped plunge the auto makers into red ink -- and was threatening the very survival of the companies that provided their jobs.  

 In a perverse but predictable twist, the Jobs Bank led to something called "inverse layoffs," which occurred when senior workers volunteered to be laid off, and thus bumped junior workers back onto the assembly line. After all, why should a worker with high seniority slave away building cars when workers with lower seniority collected virtually full pay for just sitting around? Such was the logic of Detroit's dysfunction.

It was difficult to place sole blame for all this on the UAW, however, when the companies' managements sometimes seemed determined to alienate their workers at every turn.

Even late in the late 1980s GM's factories had bathrooms that were segregated -- not by race, but by rank.  The "Salaried Men's Rest Room" and the "Hourly Men's Rest Room" usually sat side-by-side, but psychologically they were worlds apart. They were part of an apartheid system in which the behavior of white-collar managers sent constant humiliating reminders to blue-collar workers that said, in effect, "I'm better than you are."

Over the years such dysfunction came to be accepted as normality by corporate bureaucracies that became focused on managerial minutia. General Motors had a Bulletin Board Study Committee (no kidding), which in 1988 recommended that new bulletin boards be installed at company headquarters for the GM Women's Club and the GM Men's Club. The committee could have been punch line in a corporate comedy skit. 

                    *                               *                               * 

Detroit's final descent to disaster began on Sept. 15, 2008 -- just one day before General Motors, ironically, would celebrate the 100th anniversary of its founding. The 15th happened to be the day that bank failures on Wall Street sparked another historic event -- the collapse of the U.S. stock market. Almost immediately, car sales collapsed too.

Two months later, the Big Three CEOs swooped into Washington on their private jets to ask for money. They came away, instead, with Detroit's worst PR drubbing in 40 years. After Congress said no, President George W. Bush provided opened the public purse anyway -- just enough so he could pass the presidency, along with Detroit's crisis, to Barack Obama.             

In late March, just two months after taking office, the new young President himself launched the last-ditch effort to save Chrysler, even though many of his own advisors opposed the idea as foolhardy. And he defrocked the CEO of General Motors -- a one-time boy wonder just like the President himself -- prompting GM's directors to mount an angry rebellion that collapsed when they realized who held the purse strings, and thus the power. Those steps, and all the behind-the-scenes maneuvering that preceded them, were just the beginning.

In April, the President's people would slap down Chrysler's creditors, which included some of the nation's biggest and most powerful banks. They would force the UAW to swallow things it had fought successfully for years.  In the process, they would push Chrysler into bankruptcy and into the orbit of an unlikely savior -- an Italian company that had fled the U.S. more than 30 years earlier because its cars were shoddier than even the worst of Detroit's.

Then in May attention turned to General Motors. The only way to save the company, the President's aides concluded, would be to do push what once had been the biggest and most powerful on earth into bankruptcy court as well -- lubricated by billions of dollars of additional government bailout money. 

The bankruptcy filing came on June 1, 2009, and began with rhetorical flourishes that evoked General Motors' glorious history. "For over one hundred years," the filing began, "GM has been a major component of the U.S. manufacturing and industrial base, as well as the market leader in the automotive industry... General Motors' highly-skilled engineering and development personnel designed and manufactured the first lunar roving vehicle driven on the moon."  That was in addition, the company added, to having made 450 million earth-bound vehicles during its century of existence.

But the company's new CEO, Fritz Henderson, dispensed with lofty language and described GM's grim reality. "There is simply no other alternative" to bankruptcy, he said in his own court affidavit. "There is no other sale, or even other potential purchasers, present or on the horizon..There is no other source for financing.  The only alternative available is liquidation."

Actually, had General Motors come to grips with reality earlier, there would have been another alternative. It was evident in plain view, right across town, where Ford stood as the only American car company that had steered clear of bankruptcy. In the nick of time, Ford had made tough and painful decisions: Changing the CEO, even though his name was on the building.  Dumping money-losing brands. And mortgaging every asset the company had -- including its iconic blue-oval logo -- to fund a turnaround effort without government help.  

The measures Ford took were all things that General Motors could have, and should have, done itself. The consequences of GM's denial and delay would be paid by the company's stockholders, employees and dealers -- and by every American taxpayer as well.

None of this had been inevitable, as Ford had proved by its just-in-time awakening. Everything that happened to Detroit's auto industry in 2009 had been so avoidable and so incredibly sad, especially when measured against the brilliant promise of the early years of America's automotive age.   
                                                  
  
   
  

Posted by Michelle Krebs at 11:52 AM under Chrysler , Commentary , Companies , Featured , Ford , GM | Comments (2) | digg this | Seed Newsvine

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