Mr. Bloom to the Rescue?

Yesterday at 5pm GM and Chrysler submitted their turnaround plans required as a result of accepting a partial bailout (oh, sorry, "loans") from the government several weeks ago.

General Motors and Chrysler LLC said Tuesday they could need an additional $21.6 billion in federal loans between them because of worsening demand for their cars and trucks.

The two firms, in documents submitted to the Treasury Department, also detailed plans to cut 50,000 jobs worldwide by the end of the year. GM said it plans to close five more plants in the next few years and confirmed it will drop some of its weaker brands.

A newly-appointed auto panel will review both plans and determine by March 31 if GM and Chrysler can be viable in the long run. Specifically, the Treasury Department is looking for details about the progress of negotiations with creditors and the UAW.

White House spokesman Robert Gibbs issued a statement late Tuesday saying that the panel would be reviewing the plans and that "We appreciate the effort that these companies and their stakeholders have made."

Egads.  And dream on if you think that's really all it will take.  Evan Newmark has another option, one we've occasionally promoted ourselves.

The great Detroit bailout debate is here again. And now you have a chance to do the right thing. Forget about throwing billions more of taxpayer money at Motown. It’s time for you to destroy Detroit, so that the rest of America can live.  Mr. President, it’s time for the bankruptcy of GM and Chrysler.

Now that may seem harsh. But you really have no choice. Look around you. Everybody in America has his hand out — California and the movie industry, New York and Wall Street, homebuilders and the millions of mortgage deadbeats.

You need to send a message to all America — and fast. No more Mr. Nice Guy and no more money. Reinventing America doesn’t mean bailing everyone out. It means stopping those things that just don’t work anymore. And Detroit makes a great showpiece.

Harsh?  Perhaps.  And it will be expensive.  But not as expensive as ongoing and increasing subsidies.  However there's another player now in the picture, a guy by the name of Ron Bloom.

President Barack Obama's administration appeared to be turning up the pressure on GM and Chrysler to carry out tough restructuring measures, possibly through the use of the bankruptcy court.  The administration stepped back over the weekend from naming a "car czar," as it had planned, to oversee the restructuring. But according to people familiar with the task force, it named former Lazard Freres & Co. investment banker Ron Bloom a key adviser.

Mr. Bloom is no ordinary investment banker.

Mr. Bloom, who made a name advising U.S. steelworkers to accept major concessions in several bankruptcy cases, is expected to take the task force's lead role, a senior U.S. Treasury official says.

People who know Mr. Bloom expect him to be tough on the auto makers, the United Auto Workers and other parties involved in their restructuring. "The management of the Big Three are probably not going to like what Ron Bloom has to say; the UAW is not going to like what Ron Bloom has to say; and certainly the stockholders and creditors will not like what he has to say," said Michael Psaros.

That's not all.

Mr. Bloom, a Harvard Business School graduate who spent 10 years at investment banks before joining a team advising the steelworkers union, is seen as one of the chief architects of a consolidation of the steel industry that has involved about 35 bankruptcies over several decades. He's known as a blunt communicator.

In a 2006 speech at a corporate turnaround conference in Scottsdale, Ariz., he described his approach to restructuring as "dentist-chair bargaining," in which the patient "grabs the dentist by the b -- and says, 'Now let's not hurt each other.'"

Under Mr. Bloom's guidance, the United Steelworkers gave up pay, job security and benefits in a bid to help the industry recover. In some cases, thousands of steelworker jobs were lost when union leadership agreed to large-scale reductions in restructured companies.


So what is he likely to do?  Here's a hint:

Such solutions could also come into play at the automakers. Wilbur Ross, a billionaire investor who worked closely with Mr. Bloom in restructuring the steel industry, credits him with being tough on companies without being destructive. He "probably saved the jobs of 100,000 steelworkers," Mr. Ross said, while also saying Mr. Bloom "negotiated a totally different contract that simplified work rules" and other union provisions.


Exactly.  We talked about the arcane and costly work rules in a post several weeks ago.

And with the undemocratic absurdity of "card check" legislation eliminating the secret ballot, that is bound to get worse.  The big impact of unions is not pay, it's work rules.  Rules that favor seniority over real experience and knowledge, and rules that often overwhelm common sense.  These nonsensical rules are what kill productivity and create inefficiency, making the Detroit 3 uncompetitive.  Implementing real lean manufacturing in an environment with strict and narrow functional boundaries is basically a non-starter.

To put it bluntly, the UAW takes the hard earned money of the best workers and spends it defending the very worst workers while tying up the industry with thousands of pages of work rules that make it impossible to be competitive.


More money is not going to solve the problems in Detroit, only prolong the pain to those companies and especially the taxpayers.  And those auto companies simply cannot change while hamstrung by ridiculous work rules.

It's time for much more fundamental change.  A managed bankruptcy, albeit painful, may be the only way.