DPS, GM run amok on denial

You know the "D" in Detroit stands for denial when it takes outsiders to deliver the kind of reality that cannot be denied anymore.

For years, anyone who's been paying attention -- meaning anyone who isn't on the Detroit School Board or working in its inept central administration -- knew Detroit Public Schools was a corrupt, mismanaged money pit. Not until Gov. Jennifer Granholm appointed an emergency financial manager, Robert Bobb, did we know how deep that pit really is. Very deep.

Up to 50 schools may need to be closed this year and next. The deficit exceeds $300 million, and overspending this year is at $166 million and counting. People whose positions had been eliminated are still receiving paychecks. Grant money is unspent. The kids suffer, and the community is worse for it.

For years, anyone who's been paying attention to General Motors Corp.'s steady downward drift in its home market knew the General's turnaround plans were long on optimism, short on product and even shorter on the cash generation needed to make it all go. We'd heard the tortured rationalizations, the nuanced explanations and former CEO Rick Wagoner declare that there can be "no more excuses."

Until gas prices soared to $4-a-gallon, credit dried up, consumers retreated and car sales plunged. The crisis of '08 begat congressional inquisitions, which drove GM's Viability Plan I and then a response from the Treasury's auto task force, issued this week.

GM CEO Fritz Henderson called the assessment "stinging." An industry executive familiar with restructuring told me the five pages are "an incredible document for a government agency" -- technically, investment bankers hired by the government -- "to write. It was very business-like."

And bracingly accurate.

Consider: "GM has been losing market share to competitors for decades, yet its plan assumes only a very moderate decline," the report says. Or this: "While the company has made progress ... the progress has been far too slow."

Or this: "GM's plan is based on fairly optimistic assumptions." Or this: Its Chevy Volt hybrid "holds promise" but will need "substantial reductions in manufacturing costs in order to become commercially viable." And this: GM has "built a plan with little margin for error (and) even slight swings in its assumptions produce significant and ongoing negative cash flows."

The temptation in this town -- at GM, in the schools, at City Council, among lawmakers in Lansing -- is to greet such public de-pantsings with disdain, bluster or arrogant defiance. But a fact of this, the Great Restructuring, is that facts don't lie and past performance is a legitimate predictor of the future because it's been pretty accurate so far.

Hasn't it, folks? Look at the past of DPS -- declining enrollment, continuing financial crises, leadership squabbles and fractured boards. Or the record of GM -- steadily declining market share, massive losses, inadequate cash generation, expanding "legacy" obligations to former employees.

Their parallel meltdowns were hiding in plain sight, triumphs of willful denial over historical trends that were as valid a decade or more ago as they are today. The only difference is that the money and the patience have run out.

Bobb's vivisection of DPS's books and the auto task force's unsparing take-down of GM's business U.S. plan are the necessary first steps in the only processes that might enable both institutions, each with its own culture of denial, to avert complete collapse.

When the Great Restructuring of Michigan has run its course, and it will, Bobb and the auto task force will become footnotes. But that won't make their contributions any less valuable -- having more clear-eyed courage than the locals to show how things really are, not how some want them to be.

Daniel Howes' column runs Tuesdays, Thursdays and Fridays. (313) 222-2106 dchowes@detnews.com">dchowes@detnews.com Catch him Fridays with Paul W. Smith on 760-WJR.