U.S. needs an auto industry – but not the leaders who got them here

The Detroit 3 have only themselves to blame for the fact that two-thirds of the American public thinks they should be allowed to fail. Having watched and written about the utter incompetence of executive management and corrupt automotive corporate and union cultures, it is a sentiment that I understand.

Public sentiment reflects that lack of credibility of domestic auto industry executives. I guess managers must have thought that no one judged them for their aggressive stance against even minuscule fuel economy improvements, on global warming or vehicle quality. It all added up, and while Chrysler had a more sympathetic reception to its plight in 1979, today fewer people care.

But the United States desperately needs an automotive industry for the technology and innovation spawned by the complex demands of modern vehicles. There is simply no other product that calls upon the resources of so many businesses and creates so much real value.

The talking heads on news programs who argue that Japanese assembly in the United States constitutes an automotive industry are just stupid. There is a huge difference between designing, engineering and then manufacturing the parts and components of a vehicle compared to assembling those parts and components together like a jigsaw puzzle.

If Toyota assembles the Prius in Mississippi, it does not mean that the knowledge of how to create and integrate the components of hybrids resides in the United States. It doesn’t. It resides in the engineering centers of Japanese auto and component companies. This is the reason that newly industrialized countries always protect and foster investment in the automotive sector. China, most recently, and previously Korea and Japan protected local companies and limited foreign investment.

The question for Congress and the American public is: Can the executives of the auto companies, especially General Motors, be trusted with their money. Unfortunately, the track record of GM executives, including the current roster, is not good. During the 1990s, when GM was flush with cash, the company quite literally wasted $9.0 billion on share buybacks, only to later complain that they didn’t have the cash to spend on fuel-saving technology.

As president of North American Operations, Rick Wagoner, was a party to the farce that presented Delphi Automotive as a viable and free-standing automotive business to the hapless investors who bought the shares. He surely had a role in the launch of Hummer, a brand that is emblematic of how out of touch this management has been.

Rick Wagoner invested in Fiat and then tried to justify the more than $4 billion wasted by GM in extracting itself from his deal. GM paid a common stock dividend since 2004, when the company clearly was beginning to fail, into 2008. Rick often justified this payment as some compensation for the loss of value in the common stock. GM management, current and past, never seemed to understand that shareholders benefited from product spending that resulted in competitive vehicles, not from leveraging balance sheets to pay dividends.

To say that the current problems are the result of a recession, I would say that auto manufacturing is a capital-intensive, highly cyclical industry. Decisions about how much and where to invest and how much cash to have on hand should be governed by these simple facts. Sadly, this reality repeatedly has been ignored.

But the United States needs a healthy, vibrant auto industry. It does not need the kind of management and labor cultures that got the industry to this place. That presents a challenge of how any bailout would be monitored and overseen by Congress. A blank check with no strings would waste money and not solve long-standing competitive problems.

The Chrysler bailout in 1979 required concessions from all its related parties, such as labor, management and its lenders. Some of those concessions were real, and others were probably inflated in terms of their true value. At the very least, taxpayers deserve not just tight oversight but also contributions from those whose jobs and benefits are at stake, along with those businesses directly impacted by the failure of one or more of these companies.