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Negative Equity

The heads of General Motors, Ford, and Chrysler Group met with President George Bush at the White House yesterday for what they billed as a discussion of challenges facing domestic automakers, such as the high costs of health care and pensions. But any reasonable person listening to the CEOs' post-meeting press conferences would conclude that their real motive was to shift responsibility for their current woes from themselves--and decades of mismanagement--to the U.S. government. But to do so, the automakers must rewrite history.

Years ago, the then "big three" car manufacturers convinced workers to forgo some pay increases and accept long-term health and retirement perks instead. Now the Detroit threesome blames workers for their companies' financial struggles, just because employees expect their promised benefits.

Adding to the automakers' problems is a pending accounting rule change will require companies to include future pension liabilities on their balance sheets. The revision will leave GM and in the unusual and unhealthy position of having total liabilities that exceed total assets--a situation known as negative equity. I know from working in banking for two decades that financial institutions don't like lending money to companies with negative equity.

As CEOs, Wagoner, Mulally, and LaSorda should be concerned with their companies' balance sheets. But equally important are the ledgers employees maintain on the ethical net worth of their leaders. Honesty and integrity are assets; deceit and distortion are liabilities. Any attempts to alter history will leave automaker leaders with negative moral equity.
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