Apr 16, 2014 fbook icon twitter icon rss icon

Edward Whitacre Stays as GM CEO; What's Wrong with This Picture?

By John Rafuse

Today, General Motors is expected to announce that interim CEO Edward Whitacre will remain the company’s permanent chief executive. This decision secures that the world’s once largest and most powerful automaker will be run totally by outsiders with no auto experience or expertise.

“I Don’t know Anything About Cars”

The Obama administration appointed Whitacre to step in as GM’s Chairman and now interim CEO. While head of SBC, Whitacre stonewalled against telecom deregulation and enabled his regional Bell monopoly to take over competing long distance carrier AT&T before he retired. So he’s a tough executive -- with no auto industry expertise.

Further, GM’s board of directors includes soda, human resources, telecom, investment and airplane executives plus some academics -- not one with auto experience. The only auto “expert” is former auto consultant/analyst for Morgan Stanley, Steve Girsky, appointed at the behest of the UAW. Sports fans may think of former NFL linebacker and TV analyst Matt Millen’s ineptitude as General Manager of the Detroit Lions.

But, Whitacre said in an interview when he was appointed chairman, “I don’t know anything about cars. A business is a business, and I think I can learn about cars. I’m not that old, and I think the business principles are the same.” Hands on experience, who needs it? Just ask the residents of New Orleans. (Good job, Brownie.)

History Lessons

It didn’t used to be this way, not in your grandfathers’ day. For example, after December 7, 1941, the Roosevelt administration thought it important to get executives from the auto, oil, steel, textile and shipping industries, involved in the war effort.

J. Howard Marshall II in his autobiography, Done In Oil, described his own recruitment and that of Ralph K. Davies, his former boss at Standard Oil of California (now Chevron). Davies became Deputy Administrator of the Petroleum Administration for War under Harold Ickes, for whom Marshall had worked a decade earlier in the Interior Department. In his new role, Davies helped end the long-standing antagonism between so-called Big Oil and an administration that up to that time had been interested in busting it up.

As Daniel Yergin noted in The Prize, President Roosevelt wasn’t too proud to change course for the good of the nation. FDR told the press in December 1943, “Old Dr. New Deal” had to consult his partner “Dr. Win the War.” Old Dr. New Deal didn’t like Big Oil’s size, scale, self-reliance and ability to mobilize capital and technology, but Dr. Win-the-War said it was vital to the war effort so New Deal took the prescription.

Davies’ knowledge and experience in the oil business, along with that of Marshall and others on his staff, helped keep the military supplied, prevented industrial closures and kept the government from getting bilked by any industry participant that sought to profiteer from the war.

Now, despite being engaged in two wars and facing the worst economic conditions since FDR’s day, should we be saying that experience doesn’t matter?

The Blame Game

Some will argue, of course, that the auto companies now under close government supervision brought this on themselves. As they say, “if GM and Chrysler had built more high mileage vehicles or invested in greener technology they might have done a lot better when prices topped $4 a gallon.” And, “if they hadn’t agreed to pay such high wages and offer such hefty benefits to workers, they would have been better able to compete with foreign automakers, such as Honda and Toyota.”

There is some truth to all that, but what is being ignored are government regulatory and tax policies that helped cause the failures being discussed. The U.S. auto industry in the early 1980s spent as much to make more efficient vehicles -- $25 billion – as the US spent to put a man on the moon; by 1985, the hottest selling vehicle was the Ford Escort.

But that was due more to the high gasoline prices of those years than to Corporate Average Fuel Economy Standards. When gasoline prices plummeted, people, particularly young families, wanted bigger, safer vehicles. CAFE taxed station wagons and big cars (but not truck-framed vehicles). Without appropriate price incentives Americans bought large, untaxed vehicles; the Dodge Ram, recorded the highest sales in 2003.

Now, government is pushing for $60 billion in spending on greener vehicles, without a peep from the outsider board and executives, who have almost no stake in the outcome.

Oliver Wendell Holmes once said, “A page of experience is worth a volume of logic.” Taxpayers can only hope the outsiders acquire enough experience very soon -- or at least read a little history -- before their volume of logic drags GM, Chrysler, and possibly Ford, back into bankruptcy.

John L. Rafuse is an advisor to government agencies, policy centers and businesses on energy, trade, and national security. Prior to 2003, he worked on issues analysis and government affairs for 25 years with Unocal, an international oil and gas company. Previously, Jack worked with the White House Energy Policy Office, the Office of Management and Budget, and the Federal Energy Administration.

 


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