GM, Ford and Chrysler Should get Bailed Out

This is National Dump on American Automakers Week. Cash-less General Motors (GM), the poster child for industrial vision-less-ness, is bearing the brunt of the finger-pointing and accusations. So I thought it might be interesting to look just how innovative GM is and relate it to the bail out.

New Flash: This column was originally slated for our January issue, but I am running it now upon learning that the Big Three CEOs all flew to DC in corporate jets. That may have cooked their proverbial gooses. I hope at least one of them had the brains to fly back on a commercial flight. Sure, it’s symbolism and perception. But in auto sales, perception is everything.

Back to the innovation scorecard and bail out. In 2007, the U.S Patent Office reported that GM ranked 47^th among worldwide companies with 343 U.S. patents granted. Toyota was 46^th with 351 and the highest ranking auto making was Honda at number 21 with 677 patents. Ford was 54^th with 315 and Chrysler, still part of Daimler in 2007, was 134^th with 129. Understand the list for years has been massively dominated by electronics companies with IBM as the perennial number one.  In 2007, it grabbed 3,125 patents.

For GM, the trend since 2003 has been up and down: it was 61^st in 2003 with 291 patents and hit a recent high in 2006 with 490 when it ranked 40^th. A more telling statistic about how General Motors is reinventing its product portfolio is the quarterly “Clean Energy Patent Growth Index” which monitors who’s getting the most green patents. During the second quarter of 2008, General Motors (11 patents) was third behind Honda and leader GE. In the first quarter, GM, again with 11, was second only to Honda (if patents are any measure, Honda is clearly the leading automotive innovator).

So of late, GM has been consistently innovative. If on that basis you want to pass judgment on the bailout, you could the struggling auto maker a passing grade.

Yet, I am struck by widespread anti-GM sentiment. Detractors are urging that we let it lapse into bankruptcy so it can void its labor contracts and continue on its merry way to solvency. I don’t believe it. Labor contracts are only part of the problem. If GM CEO jet-setting Rick Wagoner is to be believed, the company will have cut hourly wage costs by two thirds to $6 billion annually in 2010 from $18 billion in 2003. What joy is there is taking away the hard-fought gains of the decimated ranks of auto workers when they’ve given back so much already? The central problems are wild swings in gas prices, the worst economy in recent memory and a good thing - cars lasting longer which testifies to the great work engineers have done.

Wagoner’s testimony before Congress on Nov. 18 outlining actions the company has taken reflects that GM has known for several years that its financial footing is precarious.

Regardless, GM management can be blamed for much of the current mess. Years of relying on pickups, SUVs and big cars damaged GM long terms prospects not to mention the environment. Quality, while improving, remains suspect. All the while, Honda and Toyota were models of efficiency and good corporate citizenship. Toyota’s vehicle sales in the disastrous third quarter dropped 1.2% or a mere 51,000 units. GM’s were down 11% for the same period. Fourth quarter results promises to be much worse. Led by trucks and luxury cars, Toyota reported a 25.9% plunge in U.S. sales for October over the same month a year ago.   

Strings and conditions will invariably be attached to any loans, but let there be no doubt that we should help domestic auto makers. Their bankruptcies would exact unimaginable toll on an already teetering economy and the upper Midwest. Bear in mind the biggest critics of the bailout are politicians in southern states with large non-union auto plants who are Detroit’s rivals. They could benefit from failure in Detroit.

 Hopefully Dump on Automakers Week will a not become an annual or monthly event.