Marina Whitman on the "perfect storm"
by Jan Schlain
"I was the resident Cassandra," Marina Whitman recalls. "But I have to say that even in my most Cassandra-like moments, I never conjured up what's actually happened."
Whitman was a vice-president of General Motors from 1979 to 1992, helping to shape the company's response to two recessions and the globalization of the auto industry. When many executives still hoped the troubles were temporary, she argued that GM faced profound problems that threatened its future. But even she was shocked at the disaster that hit the auto industry in the past year.
In December, Whitman was just back from a meeting of the "Group of Thirty" in New York. At seventy-three, she's a "senior member" of the financial think tank. "Paul used to be the chairman," she says, referring to an old friend and mentor, Paul Volcker. "The two people who didn't show up, understandably, were Larry Summers and Tim Geithner"-past and future secretaries of the treasury.
Marina, Paul, Larry, and Tim are on a first-name basis because before she was GM's first female group vice-president, Whitman was the first woman to serve on the White House Council of Economic Advisers. That blend of business and policy experience gives her a special perspective on the crisis that's brought her old employer to the brink of bankruptcy.
As she sees it, the Detroit automakers were hit by a "perfect storm," in which the financial crisis, gas prices, and a "doozie of a recession" combined to lay bare long-standing weaknesses. No wonder her friends are urging her to get back to work on her memoir.
Her father, John von Neumann, was one of the greatest mathematicians of the twentieth century. Born in Hungary, he immigrated to the United States in 1933 to join Albert Einstein on the founding faculty of the Institute for Advanced Study. "Pure mathematicians tell you that his greatest achievements were things that I'm not even sure I know the phrases of," Whitman admits. "'Mathematicization of quantum mechanics'-that's already too applied
for a pure mathematician. From a pragmatic point of view, there is his very major role in the modern stored-program computer. And the other is his invention of-he really did invent-game theory."
Marina was born in 1935, and her parents divorced two years later. She says her memoir "really is about a clash of expectations, and then how that clash ultimately was resolved." On one side was her father, "who felt that your big obligation was to use the brains God gave you." On the other was her mother, who "felt the most important thing was to be attractive and marry early-because after college, your chances of meeting a man were greatly reduced."
As a seventeen-year-old freshman at Radcliffe-then the women's counterpart to all-male Harvard College-she met twenty-seven-year-old English instructor Bob Whitman. They married four years later. By then her father was dying of cancer-and she remembers him being "so upset, because he felt my early marriage would destroy my chances of my own professional achievement and development.
"And of course, in a statistical sense, in the fifties, he was absolutely right," she adds. "If you graduated from Radcliffe summa cum laude, you still were expected to learn to type-and then become a secretary."
But Whitman refused to learn to type-"I still type with four fingers"-and continued on to grad school. By then Bob was at Princeton, but it, too, was still all male. She enrolled at Columbia instead, taking her doctoral exams while pregnant with her son, Malcolm. Daughter Laura followed four years later. By then, Bob's career had taken them to Pennsylvania, where he taught at the University of Pittsburgh. But Marina always maintained her own academic career-highly unusual in the early 1960s. It was only years later, she once joked, that "I went from being a freak to a role model."
In 1970-1971 she served on the staff of the Council of Economic Advisers. The CEA was then chaired by U-M economist Paul McCracken, who "very much took me under his wing and became an important mentor to me." She suspects that McCracken and George Shultz, then director of the Office of Management and Budget, were the ones who "persuaded first the president's minions, and then the president himself" to make her the first female member of the council. She remembers how the Nixon administration "made a big deal" of her appointment-and, afterward, the "constant cracks about, you know, 'The administration uses her because she's pretty,' or 'Her eye shadow matched her dress.' And even while I was being indignant about that, I thought, 'You know, my mother might actually be pleased.'"
In 1979 GM offered her the job of vice-president and chief economist, working out of New York City. She took it, and the family moved to Princeton, her hometown. Bob, who still taught at Pitt, became a long-distance commuter. In 1985 she was promoted to group VP and transferred to Detroit. Bob was still willing to commute, but he needed access to a university library-which is how they wound up in Ann Arbor.
She joined GM at a terrible time in the auto industry. Then, too, oil prices had briefly skyrocketed, causing a surge in demand for small cars. While the Big Three frantically downsized their fleets, sales of Japanese cars rose so fast that the government negotiated import limits.
GM and the other American manufacturers rushed more small cars into production-only to see their sales, too, decline once gas prices fell and buyers switched back to big cars and trucks. But as Whitman and her staff saw it, the real problem wasn't fluctuating oil prices-it was GM's much higher costs. The company spent so much to develop and build a new small car, they calculated, that it would have to be sold at a loss.
"That was not happily received," Whitman recalls. "There was enormous denial. There were some notable exceptions, but most of the top management really did think that sooner or later the world would get back to normal-and normal was [GM having] somewhere between forty and fifty percent market share."
She couldn't see it. When new competitors enter a market, she points out, "and you've had the dominant share, there's really no place to go but down."
GM was particularly vulnerable because of its high labor costs. "Way back, to right after World War II, GM was known for making expensive [labor] agreements rather than taking a strike," she explains. "And as long as they were sharing in an oligopoly, because there was no real competition from outside the U.S., that was fine. The union was getting its share of the high profit. But once the oligopoly disappeared and the industry became worldwide competitive, the contracts were still there-but the profits to support them weren't."
In the years since she left, Whitman notes, GM made progress on its labor costs-most dramatically by shifting responsibility for its retirees' health care coverage to a fund managed by the United Auto Workers. But then came the "perfect storm."
Whitman stresses that she's been gone from the company for many years and that her knowledge now is secondhand. But what she hears is that GM boss Rick Wagoner "had what many people felt was a viable plan for turning the company around. And he had started doing it-he had renegotiated the union contract and they were doing very well in Asia, and so on and so forth.
"What nobody foresaw-and I think 'nobody' is really true, here-was the sudden total freeze of credit. That just destroyed their access to the cash they would have counted on to get them through till the economy picked up again.
"The companies can't get loans, the dealers can't get loans, the consumers can't get loans. I think the latest forecast is 11.5 million in sales in the coming year. When I was there, sixteen million was a good year."
Bleeding cash, the Detroit automakers asked the federal government for an emergency loan. Under the circumstances, Whitman says, "I tend to take GM at its word: that if it didn't get a [government] loan, it wouldn't be able to pay its suppliers. And if [it] couldn't pay its suppliers, it wouldn't get supplies. And it wouldn't be able to make any cars at all."
Whitman believes the loans Detroit is seeking "will definitely make a difference" in assuring the companies' near-term survival. "Will it underpin ultimate viability? That we'll have to see."
Much will depend on the course of the continuing recession-and on what her successors in Washington do next. Whitman respects Christina Romer, the Berkeley economist who will chair Barack Obama's Council of Economic Advisers, but doesn't envy her dilemma.
At the recent Group of Thirty meeting, Whitman says, speaker after speaker described "a kind of a hundred-and-eighty-degree discrepancy, from many perspectives, about what is required in the short run and what is required for the long run. For the short run, we need the consumers to keep on spending; for the long run, we know Americans need to save more. For the short run, it is clear that there has to be ample liquidity provided by the Fed to help get us through this; for the longer run, there is some concern that if there is too much liquidity floating around in the world, you could get inflationary pressures. We know the government has to spend on both bailouts and on job creation, and yet for the long run, we know we have to get a handle on the government debt.
"So no matter where you look, there's this contradiction. To do what has to be done now, and then somehow make the transition a hundred and eighty degrees to what is required for the long run, can't be easy for any mortal, or any group of mortals."
But she'll leave that to others. She still has to get back to that memoir.
[Originally published in January, 2009.]