I was in Washington yesterday, and there is considerable excitement about President-elect Obama and the prospects for his administration. Here’s what I think. If during the first months of his administration Obama can restore confidence and trust in our elected leaders and government he will have achieved plenty. And if he can hold business leaders and others to some higher standard of ethical behavior, then he will have achieved a miracle.
And since the current administration and Congress have basically bankrupted the nation — financially and ethically — he’ll have his work cut out for him. Two examples.
First, few have any confidence that the Bush administration and Treasury Secretary Paulson have any real clue about what to do to stop the financial meltdown. Yesterday Paulson announced he was changing the direction of the $700 billion federal government economic rescue plan. But the financial markets sure don’t have any confidence — or trust him or the current administration to get it right. Dow Jones tanked yesterday 5 percent. And we’re on an elevator heading down — with no stops and no way to get off.
Remember that this was the White House group that went to Congress just a few weeks ago and said give us the money — based on the outline of a three-page plan that was so sketchy that even legislators running for re-election demurred. No way. No trust.
And there was so little confidence in Paulson and the administration even at that point that Congress had to demand strict oversight. Has that happened? No. And if there is any time in the history of this country that elected leaders should be watched — it’s now. No trust. (Note to self and others: traditional news media used to do that.)
Second, I’m sure at some point the federal government — in other words, those of us who pay taxes — are going to have to bail out Detroit and the automakers. Just too many jobs on the line — even though there is something seriously wrong about rescuing those companies unless you are going to rescue every company, big, small and in between. If it’s OK for the big boys, why not Mom and Pop?
Beyond the issue of free-market capitalism (hehe) is the big elephant in the room: People and lawmakers do not trust the management of those companies (or of the UAW) to improve performance and save jobs over the long run — regardless of how much cash they get from the government. Read Tom Friedman’s column in The New York Times yesterday, “How To Fix a Flat.” Talk about lack of confidence in management. Here’s from the column:
How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling S.U.V.’s and trucks. Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, G.M. threw way too much energy into lobbying and maneuvering to protect its gas guzzlers.
Then Friedman writes about necessary conditions to any auto bailout. And he mentions a column by Paul Ingrassia from The Wall Street Journal. Note: I worked with Ingrassia when he was the Dow Jones bureau chief in Cleveland many years ago. He was without question one of the best reporters that I had the opportunity to work with. And he has spent years understanding the inside workings of the auto industry. When he says something these days, even an overly sceptical asshole like me pays attention.
O.K., now that I have all that off my chest, what do we do? I am as terrified as anyone of the domino effect on industry and workers if G.M. were to collapse. But if we are going to use taxpayer money to rescue Detroit, then it should be done along the lines proposed in The Wall Street Journal on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.
“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company … Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”
I would add other conditions: Any car company that gets taxpayer money must demonstrate a plan for transforming every vehicle in its fleet to a hybrid-electric engine with flex-fuel capability, so its entire fleet can also run on next generation cellulosic ethanol.
No confidence or trust in management. Once gone, communication alone doesn’t get it back. (Note to Bob Lutz: Blog not working.) Only actions that truly are in the best interests of the company and all its stakeholders for a long periond of time will restore trust. And if the Big Dogs at the Big Three manage to benefit directly from the coming bailout — that’s shameful. Even the execs at A.I.G. would be embarrassed.
Obama and his team are going to have to restore trust and confidence. And that’s not going to be easy. So let’s hope he brings honorable men and women into the administration who are more interested in public service and good than political partisanship. Let’s hope he brings women and men into government who really do have an understanding of what it will take to get us out of this mess — and who have the courage to tell him what is right. Not just what he wants to hear. And since President Obama and his team are not going to have much money to do anything else — maybe restoring trust and confidence is all that we can ask for. And maybe that would be good enough.