The high drama in the auto sector keeps speeding along on a mind-bending course.
Due to just-announced concessions from U.S. banks and bond-holders, it appears at press time that both Chrysler and GM will avert bankruptcy though radically reduced job and projected sales numbers, and U.S. auto workers will be their new controlling shareholders.
Chrysler could be 55 per cent worker-owned and GM 39 per cent. That's a major milestone.
While the Canadian government watches closely and is careful not to rule out taking equity in GM itself, many voices are predicting only looming failure for companies moving so beyond the pale of private enterprise.
The restructured auto companies do have just about everything going against them, including the long-term drop in market demand, plus pending green regulations requiring retooling for fuel-efficient small cars (which already have the lowest profit margins). Oy. It's a nightmare.
And it is perfectly likely that this deal will go down in history as a pork-barrel outrage. Auto industry commentator Dennis DesRosiers estimates that in this whole process "something like $200 billion of government funds are going to support only about 200,000 jobs. That's more than $800,000 per job."
In their hearts, many compassionate progressives quietly agree with vociferous free-enterprisers that letting the companies go down would be better than anteing up this absurd amount of cash for a seemingly hopeless cause.
This worker ownership outcome is very different from what you'd have expected after the Canadian Chrysler negotiations, which saw union concessions unmatched by employee shareholding. But kudos to the CAW, which got a decent outcome for its membership anyway last week, considering that Tony Clement and the Tory government placed themselves against the union every step of the way.
It was a very different situation south of the border, where the Obama administration was obviously inclined to support "all stakeholders." Wow, that includes the union down there.
So if Chrysler does make it through to the Fiat deal, which looks likely, thanks in part to the CAW, Canadian auto workers will keep both hourly wages and pensions intact. And the stipulation that new workers will be responsible for contributing something to their own pensions is at least smart public relations, though there probably won't be any new hires for a long time to come.
The Canadian Chrysler package is probably the best it could be. But the disclosure that the non-wage concessions will amount to savings of only $240 million per year reveals the fallacy of the claim that uncompetitive wage rates are at the centre of auto's problems. That number pales in comparison to Chrysler head Robert Nardelli's personal severance package from his last job.
The heart of auto's darkness may indeed be located in a compensation problem, as is our whole economic crisis. But it isn't on the shop floor. It's at corporate head office.
It has been all the fashion to declare employee compensation the major factor inhibiting the prosperity of business. I agree -- only let's get it straight. It's the company decision-makers and their escalating payment plans that have taken the global economy down.
Auto is just the typical story. Nardelli resigned as CEO of Home Depot in 2007 after a year of company underperformance that had no diminishing effect on his bloated annual pay package of $22-plus million. His personal severance from that company was a reported $210 mil.
During his short tenure at Chrysler, Nardelli lowered costs by compromising the company's long-term viability, axing engineers and product development funds. No doubt his own compensation set-up got a bump from the short-term boost in profits before the hammer fell.
The executive compensation scandal is not about just one guy. There are many top dogs on the gravy train. I wonder how much Stephen Feinberg of Cerberus, Chrysler's main owner, pays himself, for example. He made it onto Forbes's Billionaires List at number 1.062 with a net worth of 1 billion in 2008. (Surprise: he dropped off the list this year.)
I'm sorry. You can't make a billion for yourself by the age of 48 and preside over loss of market share and thousands of job cuts in your domain without having been seriously overcompensated.
The new U.S. deal changes all that. Labour and government are now sitting at the boardroom table. They bring a new transparency to these critical issues of risk and reward that could set a new executive compensation standard.
This could be a watershed in North American corporate governance and the moment when the labour movement takes an historic step into a new accountability and wisdom.
The odds are stacked against Chrysler and GM, but it is a gigantic opportunity. Can they show that worker ownership is a successful and valid business model?
The auto companies, by virtue of huge public investment and worker ownership, are in fact being transformed into a new form of social enterprise. To survive, the new owners will have to manage the company in a way that is fair to workers, shareholders, government, customers and suppliers.
This might be the way the companies of tomorrow, born in the worst of circumstances, will do business. My fingers and toes are crossed for their success.
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