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The CEO-English PhrasebookWhat GM is really saying.

By Daniel Gross
Posted Friday, March 18, 2005, at 5:05 PM ET

Today's CEO phrase: "addressing the legacy costs"

Example: On Wednesday, General Motors announced a shocking earnings disappointment. Plagued by high costs, unpopular cars, and skyrocketing gas prices, the company slashed its earnings forecasts drastically. Speaking with investors, CEO Richard Wagoner and CFO John Devine told investors that the problem wasn't with the cars. GM had done a good job on operating costs, but "what we saved on the operating side has been filled in by higher legacy costs," Wagoner said. He added that "we need to be more creative and more effective in addressing the legacy costs. They are kind of swamping a competitive operational performance." John Devine added that the "projected loss in North America reinforces our need to do much more, particularly in the area of health care."

Translation into English: Give me a B! Give me an A! Give me an I! Give me an L! Give me an O! Give me a U! Give me a T! What's that spell? BAILOUT! Who is going to pay it? You taxpayers!

This is what GM really means: We're in deep trouble. We're losing market share, our cars are priced too high, and we can't afford to offer massive rebates or zero-percent financing much longer. Our bonds trade like junk bonds. But here's what's really killing us. Thanks to union contracts we signed long ago, we're on the hook for huge pension and health-care benefits to our retirees and current employees—i.e., "legacy costs." Meanwhile, our foreign competitors are domiciled in countries where the government covers most health-care and pension costs. Living up to all the commitments we made could kill us. (Oh, and by the way, all this applies to Ford, too.) The government in 2003 took a nice first step by adding the prescription drug benefit to Medicare. Surely having the government slowly assume more of our health-care and pension costs is worth saving tens of thousands of jobs in Michigan and other potential swing states. As we all know, what's good for GM is good for the country.

Why he couldn't just say that in plain English: In theory, CEOs of giant companies are supposed to be against massive expansions of the welfare state. Also, speaking plainly would alienate several crucial constituencies. Openly suggesting that the Republicans who control the Congress and the White House add to the fiscal mess they've created by bailing out a huge corporation would be bad politics. Proclaiming that GM might not be able to live up to its pension and health commitments would really cheese off the unions, who have traded wage increases for guarantees in benefits. Plus, investors would go bananas. Suggesting that GM was near collapse would crater the stock.

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Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at . He is the author of Pop! Why Bubbles Are Great for the Economy.
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