Tuesday, February 10, 2009

Tata for Now

Look east, old CEO

Ian Williams says India has the answer for Detroit

Speculator, IR Magazine, January

The big three automotive CEOs’ private jets caused a traffic jam in the airspace over Washington when they flew in to ask for taxpayer handouts. Their notorious preference for lobbying for tax breaks and against mileage and emissions restrictions rather than investing in new products people might want to buy has led to understandable reluctance to give them a taxpayer-funded parachute.

Their short-lived ecological disasters on wheels have always been hard to sell abroad. Now they can hardly give the vehicles away at home. It wasn’t just bad business; it was also environmentally irresponsible and fundamentally unpatriotic to hold their country hostage to international oil markets while ruining the health of the globe and of the US citizens choked and mown down by these behemoths.

On the positive side, the Big Three, under pressure from the United Auto Workers (UAW) union, have created a corporate welfare state, with healthcare and pensions of the kind governments provide in Canada and western Europe. Indeed, Walter Reuther, the democratic socialist who led the UAW for many years, said he had negotiated to fill the gap left by federal failure.

It is indeed unfair that the Big Three should be penalized because they are maintaining civilized industrialized world standards. But those CEOs have not been doing good because they like it or make money from it. They have been doing it because the union has them by the vitals.

The first item in my three-point plan is for one – or all – of the car companies to be taken over by the successful and accomplished boss who is on record as having said: ‘Companies that are not good corporate citizens – those that don’t hold to standards and that allow the environment and the community to suffer – are really criminals in today’s world.’

Those are the words of Ratan Tata, head of the Tata Group, which has produced a new model automobile that meets and exceeds emissions and mileage standards, and costs just $2,500. When Tata took over Land Rover, there were some snobbish sneers that it would devalue the brand. It would be a bold auto executive who could get up from his knees in front of congress and say that now.

The second point in my plan is to put the lobbying power of the Big Three behind a Taiwanese-style healthcare system. Ten years ago, Taiwan introduced a comprehensive and universal system that costs around one third the proportion of GDP that the US pays.

Third is something at which Tata would excel: retooling some car plants to produce environmentally sound products like wind turbines, solar cells, mass transit buses and trains. This isn’t as far-fetched as it sounds: during World War II, auto plants converted to making planes and Chrysler became a major part of the atomic bomb program.

It may be that the three wise men with their hands out in Washington are not up to the challenge. But Ratan Tata’s blend of social concern spiced with entrepreneurial gumption is. Give him the tasks, the $25 bn bailout and the companies. Let him pretend the companies are banks and allow him to dip into the $700 bn for this new Michigan Project. It won’t go on bonuses and compensation, you can be sure.

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