E-mail a friendPaul Ingrassia
airdate June 3, 2009
Before his retirement, Paul Ingrassia spent 31 years with The Wall Street Journal. During his tenure, he was Detroit bureau chief for eight years and, along with his deputy, won a Pulitzer Prize for coverage of GM's management turmoil. Ingrassia is also former president of Dow Jones Newswires and co-author of Comeback: The Fall and Rise of the American Automobile Industry. A native of Mississippi, he has journalism degrees from the University of Illinois at Urbana-Champaign and the University of Wisconsin-Madison.
Pulitzer Prize-winning journalist explains how bankruptcy for GM was inevitable. (1:48)
Full interview. (10:18)
Paul Ingrassia
Tavis: Paul Ingrassia is a Pulitzer Prize-winning journalist who's spent more than 30 years with "The Wall Street Journal," including his time as the paper's Detroit bureau chief. He's currently on the faculty of the Columbia School of Journalism.
In yesterday's "Wall Street Journal," he penned an op-ed titled "How GM Lost its Way." He joins us tonight from Secaucus, New Jersey. Paul, nice to have you on the program.
Paul Ingrassia: Well, good to be here, Tavis. Thank you for having me.
Tavis: Let me start by asking you to top-line, for those who didn't see the piece in the paper. How did GM lose its way?
Ingrassia: Well, there were a lot of decisions over many, many decades. Basically it's the same story why the Roman Empire lost its way, Tavis. It was a company that had everything going for it for a long time and it just made a series of very bad decisions, including, as I mentioned in the article, really forming a very dysfunctional relationship with the United Autoworkers Union, basically signing contracts that the company over the years just could not afford to honor.
Things like 30 years of work and then retirement at any age at full pensions and benefits, things like the jobs bank, where they were paying more and more workers who were on layoff not to work, paying them 95 percent of their full salaries. And eventually, all this broke the camel's back and we saw that happen on Monday in federal bankruptcy court.
Tavis: Do I read that critique, Paul, as an indictment of GM or as an indictment of the UAW?
Ingrassia: Well, the answer is yes. (Laughter) The answer is yes to both, to be honest with you. Look, responsibility lies with management here, there's no doubt about that. The union pushed very hard, they had a labor monopoly. The UAW had a labor monopoly in the U.S. until really the early 1980s when Honda started building cars here and the union tried to organize the Honda factory in Marysville, Ohio.
It didn't do it, and the same thing happened a few years later - they tried to organize the Nissan factory in Smyrna, Tennessee, and again, the workers voted no. So the labor monopoly was broken, and really, the wages are really about the same in both factories. There was no deductible for healthcare benefits; there were tons of work rules.
For example, six unexcused absences before you're subject to being fired - unexcused absences, not excused absences. I don't know how many you get, but that's a lot.
Tavis: Yeah. How do you respond to people who say that any attempt to blame unions, to beat up on unions, to beat up on the everyday guy, is missing the mark, particularly given that it's the everyday guy right now who's being squeezed.
Ingrassia: Well, how do you defend - I guess what I would say is first of all, labor and management share this blame. It's like two parties in a dysfunctional relationship. But how do you justify six unexcused absences before getting fired? That's how I'd respond to that. Tell me how you justify that. It just defies common sense, I'm sorry.
Tavis: What do you make of the fact, how do you explain to the American people that where GM - since we're talking specifically about GM tonight, but we can talk about Chrysler in the same way.
Ingrassia: Sure.
Tavis: But how should the American people read the fact that their government, that two presidents, one Republican and one Democrat, two different Congresses, said to the American people, we have got to invest billions of dollars in this industry to save the auto industry, we've got to save GM, we've got to save Chrysler, and after all that money we poured in of our money, they still file bankruptcy?
Ingrassia: Well, filing bankruptcy was inevitable, Tavis. Basically, think of bankruptcy this way - it's like a big corporate shower where you sort of rinse yourself clean. These companies over the decades had developed billions and billions of dollars of unfunded liabilities they didn't fund over the years, and they were just crushing the companies.
They had too many workers, too many factories, way too much debt and too many dealers, to be honest with you. They were structured for 30 or 40 years ago when they had an oligopoly on the U.S. car market. That no longer exists. So basically, bankruptcy sadly here is part of the solution. There is no painless way out of this.
Now, the real question is - well, two things, I guess. First of all, it is really the height of irony that a Democratic, liberal president would bring in private equity people from New York to basically impose business discipline on both the companies and the unions. The question is, what are the chances we're going to be able to save part of these companies, because you couldn't really save all the companies. That was just economically impossible. And the answer is unclear at this point.
Tavis: I'm still stuck, though, to your point - if bankruptcy for GM was ultimately inevitable, why did you need billions of dollars of our money? I don't mean you; I mean why'd the government ask us to do this? Why didn't we just let them file bankruptcy and go down? There are a lot of folk making that argument weeks and months ago.
Ingrassia: Well, that is a very good question, and the answer is when you go through bankruptcy there are different flavors of bankruptcy - it's like different flavors of ice cream, vanilla and chocolate. So one flavor is chapter 11. Chapter 11 is a restructuring, where a company sheds the bad assets, keeps the good part of the business, sheds debts it cannot afford to repay and that sort of thing. It's like a personal bankruptcy. You get your debts forgiven and you can go on and live your life in a more structured financial way.
The other flavor of bankruptcy, one of the other key flavors is chapter 7. Chapter 7 is a liquidation. Now if these companies were going to do chapter 11 and restructure as opposed to chapter 7 and liquidate, they needed debtor in possession financing. There was no bank, no insurance company, no private lender in the world that was going to provide that money to these companies.
So the choice for the federal government was simple - do you let them just go out of business and collapse, or do you try to save part of these companies because there are jobs - some jobs that can be saved by putting in the taxpayer dollars.
I'm a free market guy. I don't like the fact that the government did this. But on the other hand, at a time when our economy, our national economy is very shaky and a real crisis, to let these companies simply collapse as opposed to restructure I think would have been irresponsible and both Presidents Bush and Obama made the right choice.
Tavis: All right, so now they get a chance to restructure and we will see what happens in the coming months and years. But the restructuring has a great deal to do, as we've been talking tonight, about the process of how these entities, these companies are run.
That's a very different subject, as you well know, you're the expert here - that's a very different issue than the product that they produce. Talk to me about what they have to do vis-à-vis their product, because ultimately if they don't sell cars, they're still going to be in trouble.
Ingrassia: Well, that's exactly right, Tavis, you hit the nail on the head here. What they have to do is produce cars that excite the American public and the cars people want to buy.
Now, let me step back from GM and Chrysler and mention the one company we haven't mentioned here in the Detroit auto industry, and that's Ford. Now, what Ford did, Ford did not go into chapter 11. A few years ago they had the foresight to basically mortgage everything they had, seeing a crisis coming. So they raised billions and billions of dollars and invested that money in really developing new products that are about to come to market.
And along the way, by the way, they really conserved cash by shedding some brands and shutting down operations they didn't need to have. For example, they sold Jaguar and they sold Land Rover, two luxury brands that were wise decisions, and they focused on doing one thing very well. You know the old saying, "Keep it simple, stupid?"
Tavis: Yup.
Ingrassia: And so what they did was focus on reviving that blue oval Ford brand. So the new Taurus is going to hit the market this month. I had a chance to drive it in Detroit recently. It's terrific. A year from now they're going to bring in a new Fiesta subcompact that will be built here but was engineered in Europe, and it's going to be really a great little high mileage car.
So I think that that sort of is the template now for GM and Chrysler, getting back to those two companies, to follow. And let's consider them one at a time. Chrysler really has a big problem with its lack of product. This is a company that suffered from a decade of dysfunctional mismanagement under Daimler-Chrysler, the German company, Mercedes Benz, that bought Daimler, and was not able to develop a sustained product program for Chrysler. Chrysler was like the neglected orphan stepchild here.
So essentially they have a big job to do. Now, Italy's Fiat is going to bring new product in to Chrysler as part of the deal that will deliver Chrysler into basically the control of Fiat, the managerial control of Fiat, even though it'll be owned by the UAW. But the truth is that it's going to take a couple of years for those cars to get to market. It's going to be tough going.
GM, on the other hand, has some very good products right now. They have things like the Chevrolet Malibu, the have the Cadillac CTS; they have a broader product line.
And the good news for General Motors is hopefully GM, because it's shedding Hummer and Saturn and Saab and Pontiac, will be able to really focus its product development dollars like Ford is doing for Ford Motor Company and the Ford brand, be able to focus those dollars on the four remaining brands - Chevy, Cadillac, Buick, and GMC - and produce a few really exciting cars as opposed to a lot of mediocre vehicles.
Tavis: We shall see, Paul, but I appreciate your coming on and giving us your insight as to how we got to where we are and what the future might hold for the auto industry. Paul Ingrassia, nice to have you on. All the best to you, sir.
Ingrassia: Thank you, Tavis, good to be here, and let's hope for the best.
Tavis: Glad to have you, and yeah, from your mouth to God's ears.
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