My Nine Years Spinning Wheels at GM

Paul Sancya/AP A longtime Big Three economist on why the automaker crisis would be funny if it weren't so tragic.

There used to be an inside joke at General Motors, a twist on biologist E.O. Wilson’s finding that ants are individually stupid but collectively brilliant. GM—whose CEO, Rick Wagoner, went before the Senate Banking Committee yesterday to plead for a financial aid package—managed to create a system that produces the opposite: individually brilliant people who are collectively stupid.

I should know. I was an economist at GM for nine years, working alongside brilliant forecasters, designers, engineers, and managers. No one could tell us anything we hadn’t already figured out months earlier. Or at least that is what we told each other inside GM.

Today it is clear that the joke was on us, and not just on the brilliant people at GM but rather on all the brilliant people in the Detroit auto industry. We weren’t as brilliant as we thought we were after all.

Chrysler’s smart execs are about to be paid retention bonuses under Daimler’s “getten outten der Detroitmistaken und schnell” plan.

The auto industry is the most analyzed industry in history. Economists and analysts inside the automakers, on Wall Street, in consulting firms and universities all follow the business. With all of those smart people, it seemed rational to expect a rational approach to the auto market. That hope, however, has been dashed by events over the last several years.

That’s why I am convinced that a bailout without conditions would be tragic for the Detroit “Big 3” and for America. Leaving the same smart people in charge would lead to more of the same dumb decisions years into the future.

Of course, insiders have don’t have a monopoly on dumb decisions about Detroit.

Chrysler’s smart execs are about to be paid retention bonuses under Daimler’s “getten outten der Detroitmistaken und schnell” plan that convinced the smart people who run a private fund named after the dog standing guard at the gates of Hades to invest $6.1 billion in Chrysler and pay Daimler $1.4 billion for 80 percent of what Daimler now says is worth “nil, zero, NOSINK!” Not to be outdone in collective dumbness, the smart people at Daimler had paid $36 billion for Chrysler in 1998.

If it weren’t so tragic, it would be hard to keep from laughing out loud. And it gets harder. A few months ago my brilliant former colleagues at GM took a look at their cross-town rival and decided (collectively, no doubt) that it was the perfect time to “absorb” Chrysler. I can’t decide which is a worse fate for Chrysler: to be the blind seeing-eye dog doomed to eternally lead the blind former guard dog around and around inside the circles of Hades or to be absorbed into GM’s individually brilliant but collectively dumb Borg.

Since my years at GM—I left in 1998 and joined the University of Michigan in 2005 after a stint at J.D. Power and Associates—I’ve begun to refer to myself as “The Extramundane Economist.” The obscure word “extramundane,” known to some practicing Catholics and all Latin scholars (I am neither), means [fr. late L. extramundan-us] “situated in or relating to a region beyond the material world; fig. out of this world,” according to Obscure Words, by Michael A. Fischer.

I chose this title to indicate my view of the auto industry as an unreal bizzaro world where down is up, gain is loss, and dumb is smart. I am the first auto economist to admit this; hence, I am The Extramundane Economist, at least for now. I nurture the hope that others will join me someday.

What conditions should a bailout have? For starters, fire the individually brilliant people who ignored their customers for years while telling the government “we only make what they want and they won’t pay for fuel economy.” Then, impose oversight similar to what Chrysler had in the 1980s.

Finally, get out of the SUV loophole, which even the hometown media in Automotive News called the golden goose that became the goose egg. With gasoline slipping toward $2 per gallon, commitment to what the industry touted as “nothing less than the re-invention of the automobile” (or in English “copying the Japanese”) seems to be slipping. Ford has restarted large pickup production. Even Toyota, which apparently has been “copying the Americans” for too long, is restarting truck production.

Bankruptcy would be better than a bailout without conditions.

Job losses would not be close to being as large as is claimed by the industry’s hired guns at the Center for Automotive Research (CAR). Among job losers if Detroit actually has to restructure and become profitable and productive, they’re counting the wait staff at the Waffle House in Gainesville, Florida under the assumptions that Americans will stop driving, stop vacationing in Fort Myers, and stop stopping for waffles in Gainesville on the way.

And some jobs should be lost: the so-called JOBS Bank required under collective bargaining agreements mean that Detroit has to keep paying workers displaced by technology. They report to “work” and spend the day doing nothing: no card games, no chess games, no reading. The detainees in Guantanamo are more productive.

Bailout or bankruptcy? I’ll take either one, as long as the Borg is defeated, all dogs escape Hades, and workers are released from a fate worse than Gitmo.

Walter McManus is head of Automotive Analysis at the University of Michigan Transportation Research Institute. Prior to UMTRI, Dr. McManus forecast vehicle sales and conducted research on new automotive technologies at General Motors.