CAR GO

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After a March 3 meeting of General Motors’ board of directors, at which executive compensation for the year was set, the June 4, 2008 Motor Trend noted that: “Several shareholders expressed anger at their perception that management hasn't been held accountable for GM's falling stock price and market share, and in particular that CEO Wagoner received a 64 percent increase in overall compensation at the same time the company lost $38.7 billion in 2007.” General Motors Chief Executive Officer, G Richard Wagoner, Jr., pulled down an incredible $14.4 million in salary, bonus and other incentive compensation in 2007. His base salary, which had been reduced in earlier years, was “restored” back to the 2003 level of $2.2 million.

That was before market crashed, but after some pretty miserable performance. 2008 was a super-disaster for automakers as my earlier blog has pointed out. The entire automotive sector in the U.S. took a nose dive – a 14% decline in car sales for the first 10 months of 2008, plunging by 32% in October to the lowest level in a quarter of a century. Poor Richard – he was forced to cut his own CEO compensation, dropping it down this year to a paltry combined total of only $4.85 million. How will he ever pay his mortgage? GM even sold a couple of its corporate jets, but obviously not the one Richard flew to Washington last week to plead for a federal bailout.

To get a sense of perspective on exactly how outrageous paying a CEO a king’s ransom in failure is, take a look at this observation from the June 9, 2006, International Herald Tribune (note the date – years before the meltdown): “Toyota Motor, the No. 2 automaker in the world after General Motors, paid its 26 top executives, including Katsuaki Watanabe, president, a combined ¥940 million, or $8.27 million, in the latest financial year, compared with ¥938.1 million for 27 executives in the previous year…Japanese companies are not required to disclose the pay of individual executives.” Estimates place CEO Watanabe’s current personal annual take-home at around $1 million. Toyota makes hybrids, selling many successful models for years, and is actually opening a new plant in the U.S. despite falling sales. Oh… and they haven’t laid off any workers either.

It’s not like we can simply let GM fail; we can’t. The special vendors that service almost all of the automakers with the parts that wind up being essential components in every car made in the U.S.A. – aggregated to create efficiencies of scale – would fail without the orders from the world’s largest carmaker. And if those vendors fail and are unable to supply, for example, Ford or Chrysler, those automakers would most likely follow General Motors after struggling for a while to make up the difference.

Everyone who owns a GM car or truck would lose the ability to find replacement parts, and warranties would die in a full bankruptcy. The ripple effect would send job losses throughout the economy, from the plants themselves, to car dealerships, media and advertising sectors, etc. – estimates range from 3 million to as many as 5 million lost jobs. And if all those cars will come from overseas in the future, the negative impact on our trade balance is equally obvious.

No, the pain has to be inflicted on senior management first. Do we really care if they resign because of significantly lower pay? They’re the ones who “decided” the company’s path to utter disaster; in fact their departure may be a required part of a taxpayer bailout. Then we have to address the unions that have created “labor pools” of employees who have been downsized out of work, but are paid and kept under reserve due to labor agreements designed in another era. Wage rates and benefits need to be reexamined – the focus should be on keeping as many people working as possible, not in keeping as much as possible in the pockets of those who are currently at General Motors. Nobody wins in this mess, but we have to make sure that the losses are placed where appropriate, especially if the U.S. taxpayer is footing the bill.

With 5-year, going-forward business plans being prepared by the U.S. automotive industry as a precondition to Congressional consideration of financial assistance, what evolves – particularly at GM – should look a lot like a “reorganization” (versus liquidation) under bankruptcy law, but it should fall short of formal filing if possible to preserve the warranties and vendor-supplier relationships that are so vital to the survival of the entire industry.

I’m Peter Dekom, and I approve this message.