General Motors Zombie Watch 19: You Get What You Don?t Pay For
OK, so, GM is a nationalized automaker. I know, I know: nationalization
is for third world dictators. But there it is. Thanks to outgoing
president George Bush, the feds used $50 billion from the Troubled Asset
Relief Fund to bail out General Motors, in exchange for majority
ownership. So no matter what W?s political successor says about his
administration?s ?hands off? non-management of Government Motors, he who
owns the gold makes the rules. And when it comes to running a
federal-funded organization, Uncle Sam plays by different rules than,
say, any private enterprise extent. The bottom line is that there is no
bottom line. Amtrak, the U.S. Postal Service, Medicaid?they?re all run
at a tremendous, ongoing loss. Which means there?s zero sense of
accountability. Which means they will never, ever be able to fully and
fairly compete with privately held corporations. Why should GM by any
different? Answer: it isn?t.
The truth of GM?s status was revealed the moment the then-head of the
Presidential Task Force on Automobiles, Steve Rattner, fired failed GM
CEO Rick Wagoner. If anyone on planet earth deserved summary dismissal,
Wagoner was it. But as so often happens in life, an important principle
was sacrificed on the altar of pragmatism or ?political reality.? Yes,
Wagoner needed to go. But the feds had no business running GM. Period.
And even if you can get past that?which you shouldn?t?it?s not a good
idea for elected officials and their appointed minions to decide who
should be the head of a commercial enterprise. That?s like asking a
serial killer to raise an an abandoned baby; no matter how good the
intentions of all concerned, it?s going to end badly.
Yesterday, the aforementioned Mr. Rattner gave us a glimpse into GM
prior to the automaker?s nationalization. For those of us who?d been
following GM?s descent into bankruptcy, Rattner?s descriptions of
executive incompetence and arrogance came as no surprise. Powerpoint
mania and an elevator straight from the penthouse to the parking lot?
Who knew? The real story here: the timing of Rattner?s so-called
revelations. They arrived in the mainstream media the day before the
staff of the federal government?s unelected ?Pay Czar? let it be known
that Kenneth J. Feinberg was going to cut the pay packets for GM?s top
25 earners, by some fifty percent. Connect the dots: crap managers, cut
compensation. Fair enough?
Not, not at all. The problem is that the pay cuts only make sense if you
accept the idea that it?s OK for the federal government to run a car
company. Yes, I?m repeating myself. But it bears repeating: private
enterprise and government represent fundamentally incompatible
ideologies. The former requires financial accountability. The latter
political. In the former case, a company must attract, retain and manage
people capable of selling goods or services for more than it costs to
produce them. In the latter case, politicians must convince people to
vote for them. Put another way, politicians promise. Companies deliver.
Or, in GM?s case, not.
Reducing executive compensation at GM will score political points,
allowing Obama?s army to claim that its sticking it to the fat cats
(that helped fund both his presidential campaign and the democratic
party but don?t get me started). But limiting pay to $500k per suit per
year (plus ?shares? in a future entirely theoretical IPO) will do
nothing for GM?s ability to repay its government ?investment.? Or
prevent further federal payments. Or forestall Chapter 7. Indeed, it
will hasten the end of the end.
Limiting pay guarantees that GM will continue doing the same thing
that?s brought it to this parlous state of affairs in the first place:
hire from within. Make no mistake: GM ?boasts? the mother of all inbred
corporate cultures. The fact that it?s still led by lifer Fritz
Henderson tells you all you need to know on that score. And speaking of
scoring . . . Given the ongoing chaos at RenCen and the inviolable rules
of supply and demand, GM can?t attract top turnaround talent from
outside its shallow genetic pool unless it pays top dollar. In fact, GM
would have to pay ABOVE the odds to hire anyone capable of keeping the
artist formerly known as the world?s largest automaker from total
But that won?t happen. Can?t happen. Because commercial prudence and
political acceptability are two different things. Which is why companies
are not run as democracies and governments are not based on the profit
motive (obviously). The wider point is also well worth making. The Pay
Czar?s interference in GM?s management sets a dangerous if not entirely
unexpected precedent. Although Feinberg?s pay and compensation mandates
only apply to companies who?ve suckled on the federal teat, who ?get
what they deserve,? his rulings are a warning shot across the bow of
executive suites across the country: a public proclamation of how much
money is ?enough? for the management class.
Thanks to America?s movement towards Bailout Nation, class warfare is
breaking-out all over. In that sense, GM?s failure can?t come soon
enough. Yes, I said it: I want GM to fail. I didn?t start from this
perspective. I didn?t want to have this perspective. But I?m a proud
American. This country was founded on the belief that government is the
single greatest threat to an individual?s life, liberty and pursuit of
happiness. The sooner GM?s ?temporary? takeover collapses, the sooner we
will realize that the Nanny State is not for us. It is, in fact, against us.