Further to Felix Salmon and Jim Surowiecki’s comments on the myth that Detroit auto workers cost $73 per hour to employ – that includes the healthcare and pension benefits of former employees – it seems unfair to me to blame the United Autoworkers union for Detroit’s plight.
Of course a union tries to get high wages and benefits for its members – that is what unions are for. The fault for Detroit’s relatively high labour costs ultimately lies with the managements of these companies, or to be more exact the former managements, for taking on liabilities that they could not afford.
Rick Wagoner, chairman of General Motors, just told the Senate banking committee that the US market for cars and light vehicles could be 14.5m or so a year in the long-term, compared with a peak of 17m.
GM’s estimate of market size is as much a guess as that of any informed observer, but that indicates a realisation that Detroit will not be able to boost demand in future to anything like the level of the past.
One argument advanced for bailing out Detroit is that it is a national security imperative to have a domestic auto industry. I do not take that argument very seriously, but here anyway is a photograph of a Cadillac factory in 1951, presumably making tanks for the Korean war.
The view that the Detroit big three should be pushed into Chapter 11 bankruptcy, and not simply be bailed out by the US government, is growing.
The big three argument against this, apart from the general view that they only need a helping hand, is twofold.
With regard to the proposed Detroit bailout, I find it curious that most people have accepted that it needs to be all or nothing – that either General Motors, Ford and Chrysler should all get government money, or none of them should.
Since my column last week noting the reasons why a Detroit bailout would be a bad idea, the mood has become more hostile to the idea (I am not, by the way, claiming any causality: lots of other people argued against it).
But the argument has generally turned into a three-way bailout versus none at all. So I want to reiterate my suggestion that the US government provides some finance to GM and Ford while letting Chrysler go bust.
Tyler Brûlé is opening a shop.
Adolf Merckle lost a lot of money by shorting Volkswagen.
Rupert Murdoch has blown hot and cold on President-elect Barack Obama, and is still doing so, to judge by the tone of his media outlets.
The New York Times has an article this morning pointing out that the New York Post has been displaying a lot of warmth towards Mr Obama since the election, although it did not take such a friendly line before November 4.
Meanwhile, Fox News is apparently unrepentant about its hostility towards Mr Obama on shows hosted by figures such as Sean Hannity and Bill O’Reilly. Fox News is run by Roger Ailes, who does not appear to be a fan of Mr Obama.
Lloyd Blankfein’s decision not to take an annual bonus for 2008, along with other senior executives at Goldman Sachs, surely closes the door on big bonuses for top investment bankers across the industry this year.
Given that Goldman has performed better than any other big investment bank – and than many smaller ones – during the financial crisis, it would be perverse for others to try to force open the door that has been slammed by Mr Blankfein. Indeed, UBS has already fallen in line with Goldman.
Defying the precedent would be risky in various ways. Citigroup’s disclosure this morning that it will cut 50,000 jobs as part of an effort to slash its cost base by 20 per cent shows how much the sector is suffering. That makes largesse at the top tactless.
The New York Times has a long and interesting article on how Sallie Krawcheck, Citigroup’s former chief financial officer, was pushed to the sidelines of the bank’s senior management and ended up leaving. The piece includes a lot of detail about what happened from “a person with direct knowledge of her thinking”, who is so well informed that I assume it to be Ms Krawcheck herself.
It concludes that Ms Krawcheck was the victim of internal politics and her falling-out with Vikram Pandit, the bank’s chairman and chief executive, rather than sexism:
Ms Krawcheck believes her exit from Citigroup is the result of pressures she faced from Mr Pandit to be a team player and to follow his lead on the best way to deploy talent at the bank — and not related to her sex. The two also sparred over how to compensate clients who lost money by following the bank’s investment advice.
That seems plausible, although the financial crisis has been brutal for several of the women who formerly occupied senior positions on Wall Street. The biggest names to lose their jobs apart from Ms Krawcheck were Zoe Cruz, former co-president of Morgan Stanley and Erin Callan, former chief financial officer of Lehman Brothers.
Matthew Yglesias, whose blog on politics I like, has been prompted by Detroit’s troubles to assert that most chief executives are frauds whose jobs require no particular talent apart from convincing people that they are good at them. He also says that we business journalists treat them with undue deference.
“I think that running a major company is largely a matter of riding around on the corporate jet, etc, etc. But at the same time, I’m 100 percent sure that if you put me in charge of Procter and Gamble, the company would sink like a stone. But that’s because there’s a big element of bluff to the whole thing.”
I have three thoughts about this:
First, at the top of the business cycle, business leaders are lauded as visionaries and people start to buy shares on margin and speculate in property. At the bottom, they are written off as dolts and there are loud calls for blanket regulation. Both attitudes are suspect.
Megan McArdle poses a very good question.
Kathleen Parker quotes me approvingly, of which I approve.
The subject of the pricing of Taylor Swift’s new album as a digital download on Amazon and iTunes continues to intrigue me.
As Felix Salmon notes, the reason for the initial low price of $3.99 on Amazon, versus the $11.99 you have to pay on iTunes, was probably more a matter of Amazon doing some loss-leading to lure people away from its rival than a tribute to the music industry, as I suggested.
I went to see Gordon Brown, my prime minister, speaking at the Council on Foreign Relations in Manhattan this morning. He is in the US for the Group of 20 meeting in Washington. Two things occurred to me as I listened.
First, he looked more cheerful and relaxed that I have seen him before. The international economic crisis is clearly treating him well since the UK government’s decisive action to recapitalise its banking system. He has had a bounce in the polls as a result and he has garnered some international respect.
If evidence were needed that the recession will prod websites towards charging for access rather than relying on advertising, here it is.
Not so long ago, the “say on pay” movement – the effort by institutional shareholders to get US companies to have non-binding votes on executive compensation – seemed to be losing steam. But there is quite a head of steam now.
Not only have federal bail-outs for financial companies made taxpayers more angry about high executive compensation but Barack Obama, who pushed the idea in the Senate, has been elected as the next president.
The change in atmosphere struck me this morning as I listened to a panel discussing the topic at a Manhattan breakfast organised by the Drum Major Institute for Public Policy, which was founded during the Civil Rights movement.
Of course, you might expect a bunch of people from union and public sector pension funds, which have been among the leading forces pushing “say on pay” to be gung-ho about their campaign and its chances of success.
But what struck me was the renewed sense of self-confidence that this was actually going to happen, whether or not many US corporations like that.