I know we've already reported GM CEO Rick Wagoner and his cronies' '07 pay hikes, cynically released on a Friday to avoid full media scrutiny. But I thought it was worth repeating to place this compensation in perspective. To wit: Standard & Poor's is signaling [via Forbes] that the credit rating service "may as yet downgrade General Motors Corp. (GM), after the agency downgraded GM's 49 percent-owned units GMAC LLC and Residential Capital LLC. The downgrades were triggered by the resignation of the only independent directors at Residential Capital, and the union strikes at American Axle, which have shuttered 30 GM factories. Although we expect these labor issues to be resolved, the timing, and therefore the full extent, of their effect on GM's liquidity is unknown. We expect the American Axle strike to contribute to a very large use of cash in GM's first-quarter 2008 results, which GM will announce in the next few weeks, and the effect will be magnified by the timing of GM's payables and receivables." If S&P downgrades GM, the extra cost of borrowing will add tens of millions to GM's cash burn. So those execs salaries are only the tip of the iceberg when it comes to measuring their true cost to shareholders, employees, suppliers, dealers and customers.
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![GM CEO Rick Wagoner and his cronies' '07 pay hikes](https://www.thetruthaboutcars.com/wp-admin/%3Ca%20xhref=%22https://www.thetruthaboutcars.com/wp-content/uploads/2008/04/fire_02.jpg%22%20title=%22NOW%20how%20much%20would%20you%20pay?%20%28courtesy%20irewebdesigns.com%29%22%20rel=%22lightbox%22%3E%3Cimg%20class=%22imageright%22%20xsrc=%22https://www.thetruthaboutcars.com/wp-content/uploads/2008/04/fire_02.jpg%22%20alt=%22fire_02.jpg%22%20width=%22200%22%20height=%22150%22%20/%3E%3C/a%3EI%20know%20we've%20already%20reported%20GM%20CEO%20Rick%20Wagoner%20and%20his%20cronies'%20'07%20pay%20hikes,%20cynically%20released%20on%20a%20Friday%20to%20avoid%20full%20media%20scrutiny.%20But%20I%20thought%20it%20was%20worth%20repeating%20to%20place%20this%20compensation%20in%20perspective.%20To%20wit:%20Standard%20&%20Poor's%20is%20signaling%20%5Bvia%20Forbes%5D%20that%20the%20credit%20rating%20service%20"may%20as%20yet%20downgrade%20General%20Motors%20Corp.%20%28GM%29,%20after%20the%20agency%20downgraded%20GM's%2049%20percent-owned%20units%20GMAC%20LLC%20and%20Residential%20Capital%20LLC.%20The%20downgrades%20were%20triggered%20by%20the%20resignation%20of%20the%20only%20independent%20directors%20at%20Residential%20Capital,%20and%20the%20union%20strikes%20at%20American%20Axle,%20which%20have%20shuttered%2030%20GM%20factories.%20"Although%20we%20expect%20these%20labor%20issues%20to%20be%20resolved,%20the%20timing,%20and%20therefore%20the%20full%20extent,%20of%20their%20effect%20on%20GM's%20liquidity%20is%20unknown.%20We%20expect%20the%20American%20Axle%20strike%20to%20contribute%20to%20a%20very%20large%20use%20of%20cash%20in%20GM's%20first-quarter%202008%20results,%20which%20GM%20will%20announce%20in%20the%20next%20few%20weeks,%20and%20the%20effect%20will%20be%20magnified%20by%20the%20timing%20of%20GM's%20payables%20and %20receivables."%20If%20S&P%20downgrades%20GM,%20the%20extra%20cost%20of%20borrowing%20will%20add%20tens%20of%20millions%20to%20GM's%20cash%20burn.%20So%20those%20execs%20salaries%20are%20only%20the%20tip%20of%20the%20iceberg%20when%20it%20comes%20to%20measuring%20their%20true%20cost%20to%20shareholders,%20employees,%20suppliers,%20dealers%20and%20customers.%3Cbr%20/%3E){kind=link}
Laughs maniacally. I can’t help it. The meteors are coming and the dinosaur is doomed. Wish it wasn’t so.
Bob Lutz: Many people say “If you made a car as good as the transplants, I’d be there”. Well, now we are and where are these people?!
Mr Lutz, no-one wants to spend £20K on an orphan, which is what your cars are going to become if you carry like this.
If GM do go down the drain, tens of thousands of people will lose their jobs and the world’s economy will take a huge hit.
But don’t worry, ladies and gentlemen, Mr Lutz and Wagoner have bankruptcy proof pensions. So, at least, they’ll be ok…..
The Photo! The Photo! It’s perfect.
Ah yes. Back in the early 1970s “forward thinking” economists thought that the entire world could be governed by economic forces, rather than cultural and emotional ones.
And so, there arose the new mantra that leaving everything to money would allow the human creature to create markets where the laws of supply and demand would even out the playing field for both countries and people alike. Those poor countries would contribute their labor to the mix and become slowly richer, and in the rich countries wealthy people would gradually become less wealthy as the overall balance of compensation for work became more even.
And so the way the world worked gradually changed to the present globalization.
Unfortunately for economists, those who were wealthy decided that they wished to remain that way, and could not envision why the great mass of ordinary folk should prosper more than they. But some lip service was paid to “helping out” poor countries (by granting massive loans from the World Bank) who subsequently discovered that despite nascent globalization, the rich countries really didn’t want their cheap and shoddy goods. No, they kept tariffs high (at least fir a couple of decades) to protect their low income earners, and the third world countries found they could not repay their debts. Countries went broke.
Meanwhile in Western business, professional managers started to run both business and government, not with any aspirations of making things better, but just running the shop competently. Of course, as professional managers, they did not think it necessary for them to be held responsible if and when things went bad, because those were external forces, and not directly attributable to their skill sets. No, indeed, it was economic forces at work, for they were not risk takers, merely managers of existing businesses and government. They had not founded the businesses, had no passion for them. They were mere custodians. But in their minds, great custodians, the most professional managers the world had ever seen.
So by 2000, no matter what misdeeds they had perpetrated, why, when things went wrong, it was someone else’s fault, or the market. Not them. Accountability vanished. What thirty five years earlier would have caused a CEO to resign in disgrace with actual public signs of remorse for misdeeds, was now merely passed off as not their fault. Similar changes happened in government. Where high ranking officials had been found out in the past to have been “crooked” and resigned, now their bosses publicly announced that they were actually wonderful folks, and completely trustworthy to look after the public interest. So they stayed on, bilking the system.
So today, we find GM executives and others who have NO plan, thinking that they are just wonderful people and even better managers. With their businesses tanking, they could always find an excuse for their lack of vision, because they had none themselves and regarded that as normal for professional managers.
Of course, managing a less than profitable business is not that stressful if you don’t care about the business personally. And, in a good year, when the business loses less than it did the year before, why, it’s only natural that you would reward yourself financially for doing better. After all, you are a mere custodian of the business, a professional manager, and you must be paid, like all professional managers. It does not matter that you are running a losing business. You might just as easily have been running a profitable one. But the compensation should be the same, because, after all, you are just a professional manager. The logic is faultless from your point of view.
Government professional managers have the same mindset. So here we are, screwed by a system which thinks that free market economics is the answer to everything, when man himself is an emotional and irrational creature.
But not those professional managers, of course. They are totally logical, so they make sure they get paid, and profess no responsibility for anything. In fact they are so good in their own mind’s eye, that they should be paid 100, perhaps 400 times better than the poor grunts working at an everyday job in those very same companies.
Further on down the line, in regional companies like electric and telephone utilities, CEOs looked longingly at the compensation packages managers of large multinationals had granted themselves. These lesser company managers applied logic and could not see that they should not be compensated much less for their skill sets than the big boys. So they upped their salaries and bonuses as well.
It’s now a ridiculous mess in Western countries and the managers of car companies show us the outcome of all this warped thinking. Next time someone criticizes Rick Wagoner, be assured he cares not one jot about what YOU think. In his mind, he’s a professional manager, and more than worthy of his exorbitant compensation package.
(I would like to thank TTAC for the GM Death Watch series for making me think, and investigating modern thinkers and writers. In particular, John Ralston Saul, whose basic ideas the above sentences are. I hope I have interpreted both his and other’s ideas correctly. The overall meaning of this posting is mine, however.)
KatiePuckrick reports: “Bob Lutz: Many people say “If you made a car as good as the transplants, I’d be there”. Well, now we are and where are these people?!”
What car does Maximum Bob believe is as good as the transplants? Perhaps more to the point, which car am I supposed to believe is as good as the transplants?
Chevy’s latest baby steps in fuel economy improvement underscore their problem… The Malibu 4-banger gets a six-speed transmission only for $26K or so. People on a budget, who care the most about fuel economy, should just go buy the Camry, get the same fuel economy and save money up front. Or they can buy a Prius for far less than the LTZ and get far better fuel economy. They can even buy a Camry hybrid for less than that Malibu.
Did Chevy put the six-speed into the BAS hybrid? Not yet. As of now, the conventional powertrain pretty much equals the BAS hybrid, which didn’t look terribly attractive to anyone, anyway. Why not at least add the six-speed to the hybrid and boost its fortunes a bit? Debut it there and make the BAS look good for a few weeks or months and get some buzz on it.
The reason it’s in the expensive trim level is because Chevy is not dedicated to winning against Toyota, Honda and even Ford by providing value to the customer, they are dedicated to winning by persuading people to overspend on GM cars. This is, at best, a short-term strategy and in an unsettled economy this is a strategy that will not work at all.
This is just another reason why people don’t believe GM builds a car that equals the transplants.
There are a lot of things GM could do – could have started to do last year – that would have made the products much more attractive. Fuel economy is one key arena. Get the six-speed/2.5L four into a larger number of vehicles. Improve the Cobalt automatic. Improve the Aveo. Cut their weights. They can get impressive results from the minor changes of engine calibration and gear ratio management. Escape “class trailing” fuel economy. This would boost respect for GM’s product lines overall.
How much further could millions of dollars go if invested in the product, rather than paid to execs out of touch with reality?
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By the way, perhaps every new user’s very first post should go into the “moderator review” bin before it goes up?
Executive pay is out of control, and the auto industry is no exception! Except Toyota and stuff, where they get paid /alot/ less.
Kixstart
He was talking about the Acadia, Malibu and CTS.
I work for a supplier to the Detroit 3 car club. Have been doing so for the last 15 years. I have watched our requirements for quality and productivity go up and up, to be done for less and less payment, my factory has shrunk from 1500 workers to 300 with most of the jobs going to Mexico and more recently China. Even with great performance reviews my pay has gone up 1% or 2% a year. Management usually explains there is a fixed amount of increase to spread around as fairly as possible. Our company is being squeezed and squeezed because Detroit gives you a program, promises that you product is going into the next big turn around success for them and you tool up to make a million units, base your pricing on that and then it never is that good. I have seen whole production lines worth millions scrapped because the volumes never materialised and you need the floor space. What this is all about is just an example of the fantasy world that the Detroit world lives in. I am sure that they are being rewarded for the future projection spread sheets they dream up. They must all sit around in their catered board room high above Detroit and think that they are paid for dreaming. I just don't believe that the real world ever touches them. Must be nice to go to work everyday and get paid for your dreams.
Well, first of all real estate prices in Aruba are NOT dropping while Detroit RE prices are, and those differences have to made up somewhere. Secondly, the American Peso, er, dollar, is not doing well, and that has to be made up. GMnotNA is not doing badly at all, so recompense is justified based on those areas, and they did shuffle off a bunch of GMAC before the stuff hit the fan, so again, necessary bonuses.
The Miami Dolphins agreed to pay $30mil guaranteed to Jake Long, a 22 year old who has never played a down of professional football. So, Ricky is not worth at least 1/2 of that? Damn straight he is. CEO and entertainment pay scales seem to be out of neverneverland these days, the good old days of NFL players working off season jobs to pay the bills or CEOs making a mere 10 times their employees are long gone. And they ain’t comin’ back.
The larger question of whether Ricky should still have a job? Well, hell no. But if your friends were asked to set your pay scale based on OPM, you’d make a lot more money without a lot of responsibility too.
Why in Living Hell does anyone(!!) have to ASK for the Domestics to build a car as good as the transplants???
That’s the gist of ALL their problems, in a nutshell.
Pathetic…absolutely and without a doubt…Pathetic!!!
And you wonder why nobody is beating a path to your door…good grief.
At the end of the day, General Motors’ success or failure depends on the attitudes of their customers, who are mostly fair people who work hard for their money and rarely see even 10% pay increases. Many of these people may reflect on Ricky’s 64% failure reward when they make their next cay buying decision- I know I will.
wmba. great piece.
I second the commendation to wmba. It is a great way of saying what I have been thinking and trying to say for the past decade, but I never did it so well!
I’ve forgotten which of the GM spokesmen said a few weeks ago that GM was ‘banking’ on the economy turning around come July or thereabouts. There are many indicators of the GM elite being in denial, and this is just another. A couple of months ago, Henderson said nobody saw the real estate disaster coming say a year ago. Of course not. Why would anybody think that just because real estate prices had gone up much faster than income for several years running, and just because inventories of unsold houses had been building for months across the country, why would anyone think that we were in for a ‘correction’? These people are just liars or fools or both. But maybe not. In their world with a board of directors that cruises in the same orbit, and with enough assets for them to bleed down until they retire, and with a Bear Stearns type bailout likely available if it all crashes sooner than expected, they’re right, and the rest of us are wrong. They will very likely come out in fine shape and there was nothing anyone could have seen or done to make things any better. All this is just one more reason I’m pulling for Ford and Mulally. I don’t know if the recent quarterly profits can be sustained, but I hope Ford makes it; I don’t see how GM can without a bailout. The GM execs have several things in common with Bush. Utterly incompetent, failing at every step and still cocky and arrogant regardless. Irritating to say the least and I don’t even have a cent in their sick game. I don’t see how those invested who have lost so much in stock, real estate or jobs/pensions can stand it.
“The GM execs have several things in common with Bush. Utterly incompetent, failing at every step and still cocky and arrogant regardless.”
Wagoneer GM CEO, Harvard MBA in 1977
Henderson, GM COO, Harvard MBA in 1984
Bush, US President, Harvard MBA in 1975
Weird commonality, eh?
Pretty much the entire GM executive suite is filled with MBAs. The rise of the self-centered professional manager in corporate America exactly parallels the rise of college MBA programs which train people to be cold hearted “numbers” types. Numbers are important, but numbers never created anything.
Gates (Microsoft), Jobs (Apple & Pixar), Brin & Page (Google’s founders), Schmidt (current Google CEO), Sinegal (founder and CEO of Costco), and Andy Grove (Intel founder & longtime CEO) all have something in common; not a one of them has an MBA. Many have advanced degrees in other fields, but the actual creators of businesses and the leaders who are able to grow them successfully rarely come from the ranks of MBAs.
We often hear that the engine of the US economy is small and mid-sized business, and they likewise are rarely started or run by MBAs.
The evidence is pretty strong that as a group MBAs are at best caretakers and rarely successful growth leaders.
This bit from Ford’s website is informative: “Mulally holds bachelor’s and master’s of science degrees in aeronautical and astronautical engineering from the University of Kansas, and earned a master’s in management from the Massachusetts Institute of Technology as a 1982 Alfred P. Sloan fellow.” My question is whether the MBA ruined the man or not. One plus for Alan is that getting through an MS in engineering is a very hard task, certainly much tougher than was Wagoneer’s task of getting a BA.
P.S. I just looked it up, and Jack Welch of GE fame likewise lacks an MBA. He does, however, have BS, MS and PhDs in Chemical Engineering.
wmba,
Wait til the fight starts among the board members. You should have heard some of the conversations among the Enron leadership near the end. They would sit around over dinner talking about how great everyone was, and reassuring each other they were all in it together. It was spooky. They held out for a LONG time to. It will not be easy breaking up the clique of current board members.
However, the board clique is not nearly as tight as the Enron management. Many of these guys will see the train coming from the other end of the tunnel, and the long knives will come out something fierce. Look for some of the worst offenders to get sacrificed first. If that doesn’t work, it will get soooooo ugly. The press will have a field day.