Bashing of GM, Chrysler bonuses is way off target

February 15, 2011

Bashing of GM, Chrysler bonuses is way off target

Rewarding good performance is sound policy in driving turnaround of carmakers

General Motors Co.’s decision to pay bonuses to its employees — including roughly $4,000 each to union workers — is eliciting predictable outrage.
How can an automaker partly owned by American taxpayers have the gall to pay bonuses to salaried and hourly employees when the company still owes the U.S. Treasury something north of $25 billion? Easily, if you grasp the premise that an effective tool for successfully completing the exit from government ownership is rewarding people for the kind of strong performance that makes such an outcome more likely.
Instead, the implication flowing from outraged critics is akin to saying those who survived the harrowing shakeout and now find themselves in positions to help execute a turnaround should continue to be penalized for jobs well done. How, exactly, would this help GM become fully independent?
It wouldn’t.
This is the same kind of facile reasoning that lambastes GM and Chrysler Group LLC for spending money to market their products to Super Bowl viewers, as if marketing less in a consumer-driven culture is somehow a smart way to sell more cars and trucks. No, spending wisely to attract consumers and reward positive performance help to grow the business and woo private investors precisely so the public can be repaid.
Why is that so hard to understand — aside from the obvious fact that the Obama administration’s bailout of GM, whatever its performance, appears repeatedly to be one of many rhetorical clubs for hammering the opposition? That’s understandable, maybe, but it’s hardly grounded in business sense.
In other words, the deeper we go into the (diminishing) public ownership of GM and Chrysler, the more evident it becomes just what a pain that kind of ownership is — even if the reason for it happening in the first place was to rescue both from almost-certain oblivion.
The problem now isn’t the fact that using public money to bail out private companies with demonstrated records of bad decisions is anathema to American free-market values. The problem is that once that decision was made, almost any move by GM to get out from under federal ownership is fodder for folks who want GM out from under federal ownership so long as company execs don’t use common business tools to do it.
Hello? It’s not just the Washington politicians whose self-serving pronouncements get unmasked for what they are. It’s the circular logic that prescribes the kind of remedies to GM’s ownership predicament that could make the taxpayer payoff come later, not sooner.
Deliver profit in North America and the rest of the world? Not good enough. Hit quality targets? Doesn’t matter. Honor the terms of a union contract that provides a formula for profit-sharing payouts if GM makes money in the United States? To heck with a contract.
Maybe GM should just change its corporate slogan to “the floggings will continue until morale improves” and be done with it. Except it doesn’t work that way, folks, at least not in the real world.
The sooner GM consistently performs better, the quicker American taxpayers will get cashed out fully. Making good on promises to reward performance is a smarter way to get to that point — especially when the bonus dollars are generated by positive cash flow and not the U.S. Treasury.
Look, just about every financial marker is moving in the right direction for GM and the case for separating the automaker from the federal government. Profit is rising; debt is falling; the initial public offering in November exceeded expectations and was over-subscribed.
Performance in North America, long the sick man of GM’s global operations, is now driving the company’s financials and forcing investors to undertake a complete reappraisal of its prospects — or risk missing out on a new chance to profit from a renaissance in American auto making.
None of that, of course, buttresses the case against paying bonuses or advertising new metal or making a business case to up production of Chevrolet Volt, an extended-range electric car. Which tells you everything you need to know.

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