OPINION:The sorry state of US car makers offers an eloquent summary on what has gone wrong with the country itself, says TONY KINSELLA
ON THE morning of December 21st, 1989, over 100,000 freezing Romanians had been assembled in Bucharest's Palace Square to cheer their president, Nicolae Ceausescu. The 71-year-old Ceausescu was no orator at the best of times, and delivered his usual wooden litany of Romania's successes, waved the repressive stick about the recent disturbances in Timisoara and offered a 5 per cent pay rise as a small carrot.
The unthinkable happened. The crowd began to boo. Ceausescu stopped, frozen in mid-sentence, lost and incredulous. In that instant his power crumbled. Four days later he was executed and Romania had begun its transition to democracy.
A similar look of perplexed incredulity was to be seen on the faces of the "Big Three's" chief executive officers, Richard Wagoner of General Motors, Alan Mulally of Ford and Robert Nardelli of Chrysler as they faced a Congressional grilling in Washington last week.
Messrs Wagoner, Mulally and Nardelli do not, thankfully, risk their lives, just their executive careers. The prospects for the three companies they are paid to manage are, however, considerably more sombre.
They were asking the US government for an overdraft of $25 billion (€20 billion - GM $10-12 billion, Ford and Chrysler around $7 billion apiece) to keep them afloat beyond the end of the first quarter of 2009. This $25 billion is in addition to the $25 billion in subsidised loans Washington has already promised them to retool for the production of more fuel-efficient vehicles.
The depth of their incomprehension of the environment they inhabit, and which they have helped create, was most tellingly revealed by them all flying to Washington in their corporate jets when Detroit and Washington are linked by 24 direct daily commercial flights.
Their behaviour added credence to the assertion by the chairman of the Senate Banking Committee, Democratic Senator Chris Dodd of Connecticut, that "their boardrooms and executive suites have been famously devoid of vision".
His Republican colleague, Senator Richard Shelby of Alabama, was doing more than defending free market orthodoxy when he declared "Companies fail every day, and others take their place". Senator Shelby was speaking for a state that has become a major motor industry player as home to Mercedes-Benz, Honda, Hyundai and Toyota factories.
Detroit may still be Motown, but it's no longer the motor industry.
The world has come a long way since the then GM chief executive, Charles Wilson, told a US Senate hearing in 1953 that ". . . what was good for our country was good for General Motors and vice versa . . . Our company is too big. It goes with the welfare of the country".
In 1955 GM became the first company ever to record over $1 billion profit in a single year. This year GM has been losing $1 billion a month.
The assumptions, thought processes and actions which have led what used to be the world's biggest auto manufacturers - a spot now held by Toyota - to their current sorry state offer an eloquent precis of what has afflicted much of US manufacturing, and by extension the country itself.
They were the first and the biggest global manufacturing companies. They were the trend setters and industrial innovators, Ford with mass production, GM with design and variety. Their own brands Cadillac, Chevrolet, Dodge, Mercury, Lincoln, and Ford blended with purchases such as Vauxhall, Simca, Opel, Hillman, Holden, and Saab to become household names around the world
While sitting comfortably on their Olympian thrones, they failed to notice the world changing around them - to the extent that eventually they preferred and fatally believed, their own superiority myths - a process which led them to eventually deny reality itself.
They account for around 4 per cent of US GDP, directly employ almost 250,000, while providing healthcare and pensions for another 2.75 million. They used their political muscle to engineer the tax break that gave us the now infamous Sport Utility Vehicles as a concession to US contractors and tradesmen. The legislative wording mitigated against imports of such vehicles, and suddenly they were competing with each other to offer ever-bigger, ever-thirstier monsters.
They never bothered to apply that muscle to changing US fuel tax rates. Diesel is around 20 per cent more expensive than petrol in the US. This means that GM and Ford never domestically presented the high-performance, frugal diesel engines that equip many of their best-selling European models. An omission that sits uncomfortably with the 2008 Los Angeles motor show awarding its Green Car of the Year title to the Volkswagen Jetta TDI.
Similarly the flex-fuel technology of their successful Brazilian and Swedish models has only recently started to become available in the US. They shunned technology they owned and mastered in favour of short-term profits on gas guzzlers. Of course those short term profits were what drove executive bonuses, the same affliction that wrecked the US financial system.
They never supported an effective lobby for comprehensive public health and pension systems in the US. As a result they now carry 11 times more retirees and health beneficiaries on their books than active employees. It is estimated that this adds $2,000 to the cost of every car they build, a cost their foreign competitors do not have to directly meet.
The question is whether the Big Three are too big to let fail, or too big to rescue. In all likelihood it will be one of the priority questions in Barack Obama's in-tray next January.
Whatever the answer is, it will have to come from Washington, for we have entered a world where investors prefer lending to governments rather than investing in businesses. As US treasury secretary Henry Paulson said last week: "There is no play book for responding to turmoil we have never faced."
So we have to write a new one.