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November 1, 2009

Where Have All the Leaders Gone?

Lee Iacocca - ISBN - 9781416532491

Here is a book from the man who "rescued Chrysler" from the jaws of bankruptcy in the 70's. Unfortunately, none of that tale is altogether true. He went to the government and groveled for 1.2 billion dollars to "save jobs." The only jobs he saved were at Chrysler. Instead, Ford and GM took the hit. They all made money, but only because the government simultaneously restricted imports of European and Japanese cars. Americans had few choices but to "buy American." Thus Iacocca became the poster boy for protectionism as Chrysler was "saved" . . . for a while.

The "K" cars weren't revolutionary. They were poorly engineered and badly built. They were less fuel efficient, less reliable, and more expensive both to buy and run than "foreign cars." And did I mention ugly? So, with a multi-billion governmental salvage loan, wrapped in import restrictions, big auto profited. The loan was repaid before it was due, and Iacocca became an icon. Whoopee!

Within a few years Chrysler was again losing money, as were the other American manufacturers. They put new bodies on "old guts" while Japan and Germany offered new, fully re-engineered vehicles every 3-4 years. And you'll all recall the sale to Mercedes, henceforth named Daimler-Chrysler. (Well, not really, the "Chrysler" part was silent.)

While things have improved since, Detroit is still well behind. Americans took notice; they still do. Some of the problems are "legacy issues:" ancient pension and health care liabilities, pay for no work, and myriad union requirements which are inflexible. These issues are absent in factories built by the Japanese and the Europeans in "right to work" states. Still, one ought to remember that the reason Japan and Germany started to build cars in America was to skirt the import quotas fostered by the original Chrysler bailout. There is no better example the law unintended consequences than that. GM and Ford have been very successful overseas, but not Chrysler. Lee wasn't and isn't the wizard he claims to be, though some of his activities post-Chrysler have been admirable.

"Where have all the leaders gone?" Legitimate question. He does provide some answers to it, but he begins with "lets compete" without acknowledging that he is an avid protectionist. In his world it ain't about competing on level ground, it's about cheating; getting government to h'yep out, don'tcha-no?

The head of a car company, "losing money like crazy, had better come up with a new plan if he wants to retain his job," says Lee. I say give him the gate. Hire someone else to correct the situation. And, "whatever happened to pay for performance?" Good question. "What kind of capitalist system [overlooks pay based on merit]" he asks . . . well, it's the kind that he helped foist upon us. He has the ego of a wildly successful capitalist without the performance record to match.

"The way free trade operates today it's a 'win-lose' situation, and the loser is the United States." He has a point, but there are ways to level the playing field without governmental take-over of industry. On globalization, his emphasis is touting Lehigh University's Global Village for Future Leaders of Business and Industry. He funds this with some of what he "earned" saving Chrysler. One would hope his myrmidons teach some more realistic lessons.

"In business, people get it," he crows. Really? Doesn't seem the car industry gets it. And he supports Detroit and unions while demanding that government fix it . . . like before. How about bankruptcy? Does anyone believe that all of that sophisticated machinery will just be destroyed by a bunch of Luddites? Not! It'll be picked up for dimes on a dollar by people who know what to do, and they will create valuable jobs. Creative destruction is the engine of capitalism.

He does allow that the auto industry historically builds what it wants and tries to sell it with advertising. Of course, the deal he made with Washington to save Chrysler enhanced the concept that not just big auto, but the government itself would tell them what to build. Great concept. And government gives "cash for clunkers," too. "Why don't we ask the customers what they want, and then build it?" Good idea! But we didn't hear that before and we aren't hearing it now. The modern bailout is the same old policies with new suits in charge. There's a new band leader but it's the same music.

He observes that the unions were phenomenally successful at first (Not really. . . . Really!), but drove the bus off a cliff with increasingly larger demands. Ya think? The relevant question is what to do now? Neither Obama nor the unions address the problems, investors have been savaged, and the whole thing is a mess. Bankruptcy is the answer. Just get it over and done, and begin on a sound basis.

He does sing my song in noting that some of our inability to compete is tied directly to the litigiousness in our country. We need tort reform. In this regard he gives a variety of great ideas, and opines that we are punishing ourselves, wrecking opportunity to compete and "stomping out progress." He emphasizes that "it's not just our ability to compete that gets harmed . . . it's our ability to live with one another . . . to cooperate because . . . it's the right thing to do--not because we might get sued." Hear-Hear!

He does go on . . . and on . . . but I won't. With myriad unmentioned caveats it is still worth reading. He raises lots of questions which demand answers, and whether or not you agree he does bring them to the fore.

Posted by Curmudgeon at November 1, 2009 1:52 PM