Buy American? Betting on a Big 3 bounce

Lets be reasonable about a few points.

1) Can we allow the largest segment of our manufacturing base to crumble? Of course not. Only an idiot would allow that to actually occur.

2) Is the amount of money necessary to keep the auto makers in operation a huge amount for the USA government? No. It is barely a rounding error.

3) Should we then just hand over this money and smile? OF COURSE NOT!

Here is what we SHOULD do.

1) We – as tax payers – should have the government manage ITSELF efficiently. Like a business. OK – thats optimistic. But to at least operate in these bailouts as a BANK or INVESTOR would operate – since that is what it seems to be becoming.

2) The big 3 – combined – have expressed a need for 34 BILLION dollars – that is – 34,000 Million dollars.

3) GM – has a total market capitalization of – 2.4 BILLION dollars at present. Ford has a market capitalization of – 6.9 BILLION. And Chrysler – is unknown – but would be between these numbers most likely. Lets estimate it at 4.7 BILLION for arguments sake. Add them together – that means – THE BIG THREE – COMBINED – have a present VALUATION on the OPEN MARKET of all stock – a complete value – of around 14 BILLION dollars.

3) Now – should we just give – 34 BILLION to companies with a total value of 14 BILLION – to give them 2.5 times their entire net worth – with NO STRINGS ATTACHED? I suggest only an IDIOT would do that. Or a Politician.

A BETTER SOLUTION.

1) Have the Federal Government BUY the big 3 – lock stock and barrel – for the market price of 14 BILLION dollars. EVERY SINGLE LAST SHARE OF STOCK. So that we ALL own these companies – since it is OUR money used to rescue them.

2) RESTRUCTURE them. There are no “warranty issues” – they are backed by the Government. But it will throw out all the unfair labor agreements, contracts, and so forth as part of the RESTRUCTURING.

3) COMBINE them into a single, cohesive, world class automotive manufacturer.

4) THIS NEW COMPANY will now become PROFITABLE, and become LARGER than the 3 original companies BY FAR.

5) THIS CAN BE DONE – MOST LIKELY – for the asking price of 34 BILLION Bailout. ALL of it. Complete turn around. And have money left over.

6) WE ALL GAIN FROM THIS. In the future – the government could then RE-PRIVATIZE this company – ie sell stocks – when they are then worth – 500 BILLION combined. Pay back the 34 BILLION WITH INTEREST. And write a STIMULUS check to ALL AMERICANS – THAT MEANS YOU – for the difference in profit. Its called – a DIVIDEND.

But this just makes TOO MUCH SENSE.

Someone has to be the boss,fix the American dollar at 100% never changing and make all other currencies work to come up to the dollar. The other countries then could not ever manipulate the dollar causing inflation.
Greed has killed us.Think I read that somewhere before. The big three would sell a lot more cars if they were $10,000,00 cheaper!

I think the road to be travelled will be long and challenging.

But “the American 3″ — “The Surviving American Three” — will persevere and survive. These 3 will eventually even thrive and prosper.

The 3 will continue to structurally reform. The 3 will continue to procedurally reform. Their unions will continue to reform the operating contracts. Retirees will continue to make concessions.

This is about survival. It is not enough to just have a ‘transplant’ industry coming in from offshore to provide jobs.

The workers and retirees have too much at stake. They have made concessions and will make more.

We as a society also have so very much at stake. We too must make concessions.

But what role does government have in this?

It is my position that the West does not protect, coddle, and encourage, our manufacturing and primary industries — farming, mining, and forestry — nearly enough. Not consistently enough. And not with any long-term strategy.

If the world operated on a level-playing field we wouldn’t have to. I would be for laissez faire.

But our cruel calculating world has always played Economic Cold Warfare with us. The West is just too naïve to be able to see this — to be able to understand this. Our relative prosperity in the past allowed for such indulgences — such extravagant ignorance and self-denial.

We can no longer afford such silliness. Alan Greenspan referred to it as a “conundrum”. Current FED chairman Ben Bernanke has written about it as a “Savings Glut” — supposedly the East saving massive amounts of money, that drove long-term interest rates down.

But this was ALWAYS money-manipulation pure and simple. The Japanese have been doing it for decades. The Koreans learned from the Japanese. And the rest of the Asian countries, most especially China of late, have picked up the same bad habit. “Bad” from our point of view — great for them, at least in the short run. And “bad” by the way, for the workers in those offshore countries, who make much less than they would if there was no such manipulation.

The process works like this — the Americans buy manufactured goods from Asian exporters using their own currency, the American greenback.

The Asian exporter, having earned his revenue, turns over some portion of his U.S.$ earnings to his Central Bank (or Treasury). He receives local currency. He pays his workers’ wages, he pays his taxes, and he buys some local supplies and manufactured goods.

That would be fine if this was as far as it went. But what happens is that instead of using EXISTING cash in the Treasury or existing funds at the Central Bank, the local Central Bank just PRINTS Brand-New local paper money. This is the “money” that the exporter receives.

In return, the Central Bank in that country gets to buy huge, huge amounts of American bonds using the U.S. $ it has so accumulated.

This also, and most damagingly, keeps American goods at a huge competitive disadvantage. The local currency is NEVER allowed to appreciate against the American dollar as it would if there were no dirty manipulation.

This is the biggest subsidy that those countries could EVER provide to their auto makers, and to their other manufacturers. It is not a one-time gift or loan. It is perennial. It is given every day. It is never-ending. It is Total Economic War against the WEST.

Because our Central Banks do not operate a so-called Dirty Exchange Mechanism — I was going to write Dirty “Machiavellianism” but that would be redundant — or a so-called Dirty Floating Exchange Rate, our countries simply cannot compete. Our jobs and plants are going to the East, lock, stock, and barrel.

I am not a big fan of unions for other reasons, but in this matter their spokespeople are correct IMHO.

People like Jim Stanford, economist for the CAW (Canadian Auto Workers) and UAW union chief Ron Gettelfinger have both written about the middle class dream slipping away. If it was for reasons of fair competition, then we would have fewer reasons for legitimate complaint.

http://business.maktoob.com/NewsDetails-20070218034562-Auto_union_chief_sees_middle_class_dream_slipping_away.htm

http://www.caw.ca/en/news-events-newsletters-facts-from-the-fringe-eggs-in-the-wrong-basket-again.htm

The leaders at Toyota and other such companies know about this type of cheating that has occurred in the past. This has led to the decline of so much of America’s heartland. Can we in good conscience really allow it to continue? Everyone of us in the West will be materially hurt if we do.

We need to stop the manipulation — the so-called Money-Pulation.

You cannot squeeze blood from a stone. Nor from a corpse.

Where does government think that it will get its future tax revenues, if we are all on welfare? By borrowing from the Chinese Central Bank?

The future will be written by GM, Ford, Chrysler, and their proud workers.

But in answer to my earlier question of “what role for governments” I would say that the future will also partly be written by the rest of us.

This is a partnership. If we don’t make it one, the partnerships that the Asian auto makers enjoy with their compatriots and governments will destroy us. We will lose this economic war and every other kind as well.

As Leonardo da Vinci said “When you put your hand in a flowing stream, you touch the last [of] that [which] has gone before and the first of [that] what is still to come.”

Let’s use this point in time and this opportunity to meet the current needs of our indigenous automobile companies. They were severely handicapped in the past. They have received help only occasionally, unlike their competition that receives help from their governments (and Central Banks) each and every day.

Let’s also stop this MoneyPulation madness.

After this stopgap aid has been delivered to the car companies, let’s insist that fair exchange rate mechanisms are put in place in all countries with which we do trade. If it is not, nothing will have materially changed.

Indeed, if we don’t do this, it won’t be just the car companies that will be going to the welfare office for assistance. It will be many more of the rest of us.

Any money spent should be carefully directed to re-tooling the infrastructure and re-training of existing man-power for forward looking projects (Fuel efficient, env. freindly…), not directed to make the same cars that are not selling. Giving the money to the same management without change would be more of the same and we can take it granted this would be a write off for sure.

The BIG 3 can bounce back if they work as an “Industry” and not as rivals. This is a national industrial crisis not just a Chrysler, Ford & GM crisis. They simply need a collective solution that includes the US worker and focuses on addressing their industry’s biggest challenges. I believe if they would have approached the House, Senate and American public like this they would have already secured the funding. So what’s the problem? These leaders just don’t get it…

THE BIG THREE AUTO COMPANIES ARE PAYING THEIR WORKERS NOT TO WORK. If you pay me 70%, let alone 95% of my pay, I WOULD GLADLY ACCEPT NOT WORKING with “Bells-on”.

I would feel like I won the lottery.

These companies are in trouble because they practice capitism. They are in trouble because they practice socialism and communism.

YES, IF THEY GET RID OF THE CURRENT CREW OF GREEDY STAFF AND EMPLOYEES.

UNION CONCESSIONS! What union concessions. They don’t get it. You are about to lose your jobs, period.

Why should the american public give a hoot about the problems of the company? When the union and management are hedging their bets. Not wanting to let lose of “hard-fought” victories.

Bankruptcy is the only way to pry their money grubby hands off their ridiculous perks.

Harsh… but how dare they pay laid-off workers 95% of their pay, fly in private jets, make lousy, gas-sucking cars and then plea for a bailout.

THE AUTO WORKERS UNION IS NO BETTER THAN THE STEAL WORKER UNIONS and now they’re defunct.

Even in the animal kingdom they kick their young off the tit. Stop paying workers that don’t work. Get rid of your perks. Stop paying dividends, lower pay, etc.

Tough love- the american taxpayer is not your new mamma.

Jose,

There’s a simple fact about the way markets work, (and sometimes don’t work,) that escapes many people, particularly including the dogmatic “free-market” faithful: Markets are all about exploitation of the status quo. Innovation, and change in general, are viewed by markets as surprises, and markets don’t, as you not, like surprises.

Knowing this, it should be no surprise that the car makers are still trying to behave the way they used to when they were the most profitable: they try to manipulate the consumer into buying the products that offer them the highest profits. This is why they pushed the SUV so hard, as SUVs generate their biggest profit margins.

Because car makers are still trying to manipulate consumers as cash cows instead of meeting consumers’ needs, the disconnects between manufacturer and consumer are denied until they emerge as the kind of dramatic failure we’re seeing now. They basically view consumers as food animals.

The trouble, whether there’s a bailout or not, is that those three companies are connected to enough jobs that, were they to disappear, their loss would be enough to significantly impoverish the whole country. Manufacturers, dealers, suppliers (providers of steel, rubber, glass, textiles, leather, plastics and many more would collapse), and servicers would be directly affected by a failure, and the loss of those jobs would cripple consumer spending and cause a decimation of the retail and health care industries. It would be a mess we just can’t afford.

You’re also right about their investment value; the fact that GM’s market cap is less than a month’s expenses is no accident. Even so, we can’t afford to lose them, and can’t afford the time it would take to rebuild them after a collapse.

My suggestion, written up elsewhere in this topic, is to recapitalize them with voting shares, and use that control to require them to participate in the overhaul of the national transportation system. This would drive them to create products that will be viable for the 21st century, and will generate enough revenue to make them financially viable and attractive to investors again. Existing stockholders wouldn’t like having their control diluted, but they wouldn’t hate it as much as they’d hate getting wiped out.

I don’t think this simple bridge loan tactic is anything but a tactic to prolong the status quo. That shouldn’t happen. Instead, we should make them part of a national transportation strategy focused on green modes of personal transportation, and on mass transit.

Free-marketers don’t get it, but markets don’t innovate, and markets don’t lead. You need leaders for that, and there’s scant evidence that the Big Three have leaders. Nonetheless, we need to keep as many of our people employed as we can, and that means sustaining the Big Three in some fashion.

Of course, after we fix them, the next thing to do is to break them up. Economies of scale aren’t worth the consequences of allowing a stagnant triopoly to rule the US manufacturing sector. This is the price of allowing market competition to become a sham.

GM Out of Gas: Too Late for Surprises

As a business executive and former CFO of major multinational businesses, one of the first lessons I learned was that top management, stakeholders and the markets do not like surprises. Allow me to repeat that, “they do NOT like surprises!

The reason that corporations have so many internal reporting mechanisms such as planning, forecasting and a daily or weekly cash flow statements is so they can avoid surprises. They conduct periodic risk reviews in order to mitigate any potential surprises and if necessary, take appropriate actions. GM clearly knew that revenues were down, market share was down, cash was burning at the speed of light and debt was spiraling out of control.

With that in mind, it’s should have come as no surprise to anyone, that GM execs, (who arrived in Washington in a private corporate jet) requested a federal bailout—they need $4 billion just to pay their bills this month, or risk running out of money. They are seeking an additional $18 billion—$12 billion in loans and a $6 billion line of credit.

Now that they’re on the hotseat, the company is finally making plans to shrink its work force by 34%, close nine plants, shut down 1,750 dealerships, focus on four of their eight current U.S. models, cut its debt in half and win new concessions from the UAW. They may have been considering these actions for awhile, but why would they put off outlining a plan until they were running out of cash? Why now? This is not the way to run a corporation. . . or has this become the new standard?

The current board and top management have failed spectacularly, and in my opinion, the government should forget the bailout and allow the company to file for Chapter 11. However, my main concern is that the $18 billion is not nearly enough for GM to survive at current production levels anyway. Furthermore, using rough estimations, the restructuring process alone could cost GM $20 billion.

Another fallout of the global credit crunch is that auto finance companies do not have enough money to lend to consumers. But GMAC Financial Services, GM’s finance arm, has applied to become a bank holding company, making it eligible for a slice of the bank bailout pie, as well as giving them access to the Federal Reserve’s discount window for emergency loans.

The bottom line is that even if the government bails GM out, who will want to invest in them? I don’t mean to sound contrarian, but I am realistic enough to think that GM filing for Chapter 11 would be the best option for the taxpayer and the American consumer.

We stated in our book, “The Big Gamble: Are You Investing or Speculating?” that maybe we should not give up just yet on GM. After all GM was once considered a rock solid investment, even though in hindsight, it turned out to be mere speculation. But we were still betting that GM could bounce back and steal the spotlight from Toyota. However, looking at the reality of their current situation, perhaps it is too late now.

GM missed an opportunity to learn from the Chrysler bailout in 1979 and 1980. In that landmark case, Chrysler spent months building support for a $1.5 billion loan guarantee. Executives received zero bonuses, took deep salary cuts and negotiated for concessions across the board. Their efforts eventually helped save the company and tens of thousands of jobs. GM did indeed miss an opportunity to learn from this, but unfortunately, that seems to be true of many of today’s corporations

In addition to recapitalizing and transforming the car makers, we have to raise tariffs on imported oil, and the gas tax. This has two desirable effects, in that it will reshape market incentives for the vehicle-buying public, and it will help fund the necessary transformation of our transportation system. Another nice thing about raising petroleum taxes is that it’s self-limiting: as oil consumption diminishes with the adoption of more conservative means of transportation, so does the generation of revenue we would use to drive that transformation. It would give us some control over the way we transition from the petroleum-based economy to a renewables-based economy.

We need a transportation industry, and we’ve been stupid enough to let it consolidate down to just three companies, so we have very few options. This is the worst possible time to try to recreate the auto industry from the scraps that be left after a collapse.

If the car makers go, so do the dealer networks, the parts networks, dozens of additional industries dependent on cars for their existence, all the retail sales supported by the incomes that would be lost, probably about half the retail and wholesale consumables businesses would be lost within two years. If the car makers go, it will become a Herculean task to keep unemployment from hitting 20%. We clearly can’t afford that.

It’s also wrong to simply offer bridge loans. The car makers’ status quo is a failed business model. The car makers are thinking way too small in their recovery plans. We need a transportation industry that produces much more conservative products, emphasizing efficient vehicles for personal transportation, and mass transit (we now buy most of our light rail systems overseas.)

We will have to use government to assure manufacturers of a market for these new products, by contracting with them for new fleets of next generation vehicles for public use. We need to transform the US transportation industry into makers of 21st century transportation, and we’ll have to see that necessary supporting industries get set up, such as a battery industry of sufficient scale to support hybrid and fully electric vehicles, and the network of charging stations. $34 billion would just be a bridge to oblivion; $100 billion would probably be a good start.

If we need to recapitalize the car makers as part of this plan, then we have to do that, but instead of massive loans the car makers promise to pay back whenever, we should recapitalize them with equity stakes, like what we did with the banks, but with accountability: this time, we should recapitalize them with voting shares, so that we can require them to follow the transformation strategy.

Later, after we save them and transform them, we should break them up, to make it a good long time before this can happen again. Any time we permit a small number of players to dominate a market, we create a de facto public trust, and we can’t expect free-market principles to work, because markets dominated by a handful of players simply aren’t free; they’re dominated by entities that are accountable to no one unless government steps in to regulate their behavior. We can have the benefits of free markets, or we can have the benefits of the economies of massive scale, but it’s a trade off: free markets and massive consolidation are mutually exclusive.

We have to act, bridge loans won’t accomplish what’s needed, the car makers are thinking way too small, and once we save the industry, we have to choose between massive consolidation and free markets. It’s a little complicated, but this really is one of those “think outside the box” moments. Half-measures designed to restore the status quo will only prolong the agony.

Incidentally, if you think US car makers just can’t survive without relief from the pension and health care obligations they freely entered into, you’re making a case for having universal health care like the civilized countries do.

It is ironic that the guys with a 22% job approval rating are passing judgment on Detroit! It is Congress by being the lackies of the Oil industry that Detroit has produced ’safe’ vehicles that consume more oil to please the Oil lobbiests. It is laughable that the CEO’s are going to just take a dollar a year in ’salary’ but 20 million in ‘other’ compensation. When the majority of auto workers have lost half their life savings by investing in the company stock they can’t be expected to now give up all retirement benefits! Come on you wimps in Congress, be fair!

Any bailout is probably going to include a significant equity share for the US Government and will wipe out any existing Big 3 shareholders.

Stockholders are completely expendable to CEOs these days and their severance packages, I see little incentive in owning anything that isn’t backed by real, hard assets. If you really think about it, stocks are worthless pieces of meaningless paper, especially when CEOs are, in no way, accountable to the stockholders. A CEO who kills the share price of a stock, or flies to Washington in a private jet to ask for a bailout, should automatically lose their job, with no severance. That never seems to happen these days. I’ve been burned too many times by CEO’s to give them my money without some hard assets as collateral. Since the Big 3 have already mortgaged their assets, buying their stock is only OK if you were already going to throw your money into a fire. If I’m going to throw money into a fire, I can think of better places to do it with better chances of a return, especially living in Las Vegas, NV.

I can also get a good dinner and some free drinks at the same time.

What this recession has shown us is the true amount of risk involved in a modern stock transaction. This is why stocks didn’t rise very much for nearly 50 years after the Great Depression. If CEOs had a numbered credit rating, these days, it would be in the 450 range. It’s going to take CEOs a long time before people will trust them again with unsecured debt. This is bankruptcy number two for US CEOs in less than a century.

In the long term, I think the Big 3 will get their bailout and will survive, but not in their current form. The winners will be the CEOs and the US Government, as it was after the Chrysler bailout in the 1980’s. The current stockholders will get very little to nothing out of the deal.

I think Chrysler will have to merge or liquidate itself, in pieces, to another company. I can see an up and coming foreign car company, like India’s Tata Motors, buying Chrysler for their US dealer network and their nameplates. The Michigan factories, however, are as good as gone, because of the unions. You can take the technology, relocate to a Right-To-Work state, and pay half of what it takes to do business with Michigan and the UAW.

Ironically, the electric car will save GM, especially in Congress. The Chevy Volt is a killer product if GM can succeed in getting it to market. However, once again, today’s stockholders will be wiped out before there are any returns on the Volt and its technology.

Ford will muddle along for awhile. While it has a good cash position, I’m worried about their lack of R&D investment. When the car world goes electric, Ford will be left behind because of its lack of R&D and the resources to do any R&D. Ford will be relegated to a niche market of super cheap gas powered cars and heavy duty trucks. Ford is going to have to get much, much smaller.

Whatever the outcome, the US auto industry is going to get much smaller and the unions are going to lose most, if not all, of their power. The Michigan economy will become even more of a basket case until that state wakes up and kills its onerous union laws. If the UAW and management had worked together earlier, they might have avoided this mess. It is definitely a mess.

Congress should make the loans available to the Big 3 with the same types of conditions it imposed on Chrysler in the past auto company loan episode (probably 25+ years ago). It worked back then with a positive outcome for all, and it can work again this time! To not do so at this juncture in problematic American economic history would be insane. How would we begin to replace the estimated 2 million plus related jobs lost, through the FDR/Obama infrastructure rebuild plan? I don’t think so, at least not in this century! And what about the government inherited health care and pension costs that a possible Chapter 7 liquidation filing by one or more of the Big 3 would bring on taxpayers? Has the GAO been asked to do an estimate of these costs to the taxpayers? Probably not.

Currently in our business we own a variety of five American vehicles and two foreign vehicles (a Toyota and a BMW). We have found over our past 10 years of car buying (averaging two new vehicles per year),that today’s American vehicles are as good of quality or better than their foreign competitors (contrary to popular media created perceptions). It is time for our legislators to step up to the plate and help this major American industry survive until our economy can function on its own once again.

my suggestion: let those who depend on GM, F, Chrysler put their money at risk, not taxpayers. Let UAW loan them money from their pension, let workers loan them money from their 401K plans and personal savings, let vendors invest in them, let retirees agree to cut pension / health care to reduce outflow, but leave taxpayers who choose to buy cars from other companies out of it.

Dora,

Apparently my last post didn’t make it through. I am against bailouts, loans, or any assistance from our government to any private enterprise. This country is not running out of money. In fact, our country has too much of it. We have effectively increased our total money supply by 75% in the last 6 months and we are not through yet. While we may have more money it is not going to be worth much after the banks start lending it out. We will experience a fair amount of inflation once that happens. Money only has value if it is scarce. Unfortunately, our government doesn’t see an issue with debauching our currency.

If the big 3’s vehicles are on par with their competition, why are they losing market share to them and hemorrhaging capital? (Actually, we cannot call the big 3 the big 3 anymore, Toyota has moved into the top three) I would have to ask you how you see a “free market” ideology in the US today. How could one of the most regulated industries in the US ever be considered “free market”? The US has not had anything close to a free market economy since about 1815 or so.

Whether our government gives the US automakers a loan or bailout is essentially a moot point. A private individual usually doesn’t knowingly invest money in something that is likely not to produce some kind of return. Why is the government an exception to thi rule? The US automakers have poor business models that produce high cost products that do not sell well. Why is Chapter 7 bankruptcy such a bad idea? I am certain that a competitor would snap up the good parts of GM/Ford/Chrysler (Camero anyone?) and the bad parts (who is buying Mercury Milans?). The US automakers have an unsustainable business model, plain and simple. Any loan or bailout in the US automakers will be malinvested and will destroy any possibility of true wealth creation. Just wasted cash.

Even though the foreign automakers are experiencing a downturn in sales, they are not crawling on their knees to their governments for bailouts. They have flexible factories that can produce SUV and trucks one moment and compacts and sedans the next. Detroit cannot do that, nor is it in their plans to do so.

I work for a US based heavy machine manufacturer, support inbound logistics for an automotive manufacturer and drive an inexpensive, economical, slightly used foreign made car.

Dora,

No one, even the bank, should be given bailouts, loans or any kind of assistance from the government. This country is not running out of money, we are actually producing too much of it. We have had a 75% increase in the money supply (M3) in the last 6 months! Money retains value if it is a scarce resource. The only reason that we have not had an inflationary spike is due to the banks holding onto the funds. Once they are made to loan out the cash that they have received, look out for higher prices.

If the Big 3’s (you really cannot call them that anymore, Toyota has made it into the ranks of the Big 3 now) product is on par with their competitors, then why are they losing market share and having trouble making ends meet? Toyota is seeing a similar decline in sales as the “big 3”, but they are not having the financial issues that Ford/Chrysler/GM are having. Toyota, Nissan, Kia, Hyundai, et al. produced trucks and SUVs, but they also do not restrict their factories to only produce those vehicles. Toyota for one can take any plant they operate and product any vehicle platform out of it. Ford/Chrysler/GM cannot do that due to their inefficient business model, among other issues they have.

How can one loan out money one doesn’t have? Our government is insolvent; our money is looking at total debauchment. Call it a loan or a bailout, the effect is the same. It is money that will be malinvested and not generate true, sustainable wealth. Why is Chapter 7 bankruptcy not an option? GM has some good things going for it (the new Camero for one). Perhaps Toyota could buy the rights to produce it, using existing suppliers, workers and plants? If Ford/Chrysler/GM were to vanish overnight, someone would fill the vacuum in the market and employ those workers (minus the expense of those pesky legacy costs), use the same suppliers and might even buy up some of the plants. Why would this be a bad thing for a well run company to take over the good parts of the older companies and let the bad stuff die a rightful death (would anyone like a Mercury Milan?)?

I work for a heavy manufacturing company, support the inbound logistics for an automotive manufacturer and drive an excellent, economical, low purchase price, foreign made vehicle.

And here is a link to another CNN article about “over capacity”.

Detroit’s auto bubble pain

http://money.cnn.com/2008/11/30/news/companies/auto_bubble/index.htm

Overcapacity, overcapacity, overcapacity.

The agricultural sector was plagued by over-production decades ago and Congress responded with various programs to reduce production to limit boom-and-bust devastation in that sector.

Various manufacturing sectors have had businesses end because demand for their products simply disappeared. Buggy-whip makers, anyone? Vacuum-tube radios, anyone?

Restaurants come and go – now that industry provides a on-the-spot custom-manufactured product, but it’s not durable goods, and decades ago people had to pay cash, no credit cards allowed at your local diner.

The United States simply has too many vehicles of recent manufacture (within the last 5 years) and there just is no longer a huge demand. The future will have to be gas-electric hybrids so as to reduce the growth in demand for gasoline, and people will have to modify their lifestyle to reduce the amount of driving they do, for health reasons – too much driving and not enough walking means not enough exercise.

Dora St Clair, thanks for giving us Mitch Albom’s well-written piece.

Missing from the article and these comments is : who is going to buy automobiles when 20% of the working population is unemployed (remember that at least 5% of the working population are the “hard-to-employ” and another 5% are disabled and another 5% are just too dishonest to be employed)

Who is going to buy automobiles when the average credit card debt is $10,000 ? Or is it $5,000 ? (Where are those darn statistics when I need them?)

Wall Street thought they were very clever, that they could dance around boom-and-bust in other business sectors, but what some call the “perfect storm” is simply several business sectors all hitting the bottom of an economic cycle together.

Folks, it isn’t just Detroit that is in trouble, it’s all US businesses.

It’s going to be a long time in that bottom trough – exacerbated by the sheer stupidity of the belief that “free markets self-regulate” but never “self-immolate”.

Good post Dora.

Give the big 3 another look.

In the past few year, they (ok, at least Ford, with which I am most familiar) have made a big push to meet the market demands and produce more fuel efficient, high quality cars. The Ford Escape Hybrid has the best fuel economy of any SUV available in America! The Fusion is a great car, comparable to foreign sedans with good fuel economy, reliability, safety, and a much better price!

Yes, they all screwed up big time over the years, but give them a new look before you claim they still make crappy cars…

Todd I understand your point…however where are your comments about the other bailouts and this country running out of money?

Actually many of the big 3 vehicles have been on a par with its foreign competitors for years. Several vehicles are getting over 30mpg, crossovers, flex fuel, and hybrids. Let’s not ignore how the US Congress and the free market ideology let foreign automakers LITERALLY STEAL our intellectual know how and our market. However going overseas to sell in their market is not as easy as we let others do in the US. American automakers dominated the truck and suv market up until know b/c unfortunately that is what the market demanded. Even the foreign automakers jumped to the opportunity to grow their truck and suv divisions.

Funny how shifts in gas prices, environment wake up call, drop of the US dollar, higher costs of raw materials and wall street thieves can change everyone’s demand and mindset.

This is a loan not a bailout and it is needed to get over this current economic crisis and yes more may be needed. The debtor-in-possession financing required to survive a chapter 11 simply is not available from our current banking system. Without the adequate funding, a chapter 11 would convert to a Chapter 7 liquidation in a matter of days.

The knowledge is out there for hybrid vehicles and all automakers can produce more. However now is not the time to assume the big 3 are complete failures. They have been restructuring even before the current economic crisis. Fund shortage is world wide….even the foreign automakers will suffer as shared suppliers will fail as well.

I am also curious what everyone drives and what industry they are working in? This is not a Detroit issue, I know most people do not grasp that right now. I can argue this until I am blue in the face but Americans do not think ahead. Yes even the big 3. Now is not the time to let this hit the economy!

GM, Ford, and Chrysler have the best product lines in years. They cannot survive without offloading their:
– Retiree healthcare to MediCare
– Employee healthcare to MediCare
– Pension plans to somebody else

Governments in Europe and Japan pick up all of these tabs; it’s impossible to compete with them without a similar arrangement.

They must also right-size down to their profitable core markets. The weakest brands will probably have to go, such as Buick, Pontiac, Mercury, and Plymouth, in order to cut capacity.

They can survive if they make these changes.

How can they survive when no one is buying cars? We’ll be lucky if the ones not asking for a bailout survive.

As long as part of the money given to Wall Street winds up in the pockets of politicians, who cares if it rebuilds the economy or not. Those who count, the bankers and the politicians, will get fatter; who cares about anyone else?

“You gave a pile of money to un-deserving banks.” is NOT justification for giving a further pile of money to undeserving car companies.

The banks shouldn’t have gotten any money. That’s easy.

That said, I am confused by one major issue with the US Big three. They need the money to retool to make small cars instead of big trucks. But as far as I can tell, making full sized strong work trucks is the only thing they do well. The problem is that they inflated a stupid SUV bubble for the sake of growth at the expense of solid business practice. THERE IS STILL a market for full sized strong work trucks. And there ALWAYS will be. The problem is that the only stable market for said trucks is for people who actually work them. The rest was just a fad. Lets stop trying to keep the big three as big as they are. How about they start by reducing operations to fill the realistic market for the product they do well (it will return after the lull caused by over selling leaving everyone with new when they are broke).

Everything doesn’t have to stay as big as it is. It doesn’t have to always grow.

And they can worry about making good quality fuel efficient cars a little later. When they get solid again. In the mean time, there are plenty of them out there for sale to help all of us save our pocket books and the planet.

And I, for one, would be sorry to see the RAM diesel or the Ford full sized 4X4 not available.

So now that Wall Street has been given Trillions of no-questions-asked money and the stars and moon above – over tea on a Sunday afternoon for the most part I might add – let’s all play the “This is rewarding irresponsibility card”.

Our economy WILL NOT BE REBUILT by “manufacturing new ways to push paper around and imagine new ways to fabricate phony wealth.

MONEY IS NOT PRODUCTIVE, PEOPLE ARE PRODUCTIVE.

Dora from Michigan,

The “article” that you posted explicitly demonstrates what is wrong with the bailouts: You start handing out “free” money, and we all act like pigs at the trough. The “article” is just an attempt to play on the old “they got theirs, I have to get mine” school yard, bull crap mentality meant to play on emotion, not rational thought. The “article” fails to indicate how the automakers are going to productively use that bailout money to turn their business models around in short order. It fails to demonstrate why these failed businesses do not deserve to die.
The US automakers are failed businesses that can’t control their costs and cannot sell enough of their product. The American people have already voted on the automakers with their wallets. We do not want to buy enough of their terrible product to sustain the GM/Ford/Chrysler business models. Now, we will be forced to subsidize their failure at the expense of generating something of value that might actually increase wealth. But, you and the “article” would rather see good money pour into a product the American people and the world in general doesn’t want because the companies are old and have an expectation that they deserve to be around. I cannot fathom a greater waste of material, labor, capital or time. The path of bailouts destroys true wealth generation and leads to further ruinous behavior.

“Congrats, the UAW has forced the Big 3 into bankruptcy. That was always the risk they ran by asking for the moon in labor negotiations.”

Why does everyone blame the unions? Americans didn’t stop buying Big 3 cars because they were made by unions, Americans stopped buying American cars because they were inferior for many, many years compared to imports. Starting in the 70s when GM rolled out the VEGA and Ford the PINTO and MUSTANG II, and Chrysler the ASPEN, all problem plagued cars which the manufacturers refused to fix at their expense. I know, my family owned a Vega and Aspen and they were the LAST American cars my family ever bought. AND let’s not forget the 80s when GM rolled out the passenger car DIESEL and the Caddy 4-6-8 motor, and Chrysler rolled out their crappy K cars that were nothing but problematic. Americans decided, using their feet and wallets, to bail out on Detroit cars. Americans were fed up buying inferior problem plagued cars. And this continued into the 90s when Detroit spewed countless boring and problematic cars into dealer showrooms. This wasn’t a problem created by the unions (although in the 60s and 70s workmanship was shoddy), NO, this was a problem created by MANAGEMENT and the attitude management had towards the American public. If what I said was not true why is the % of American cars sold in America so low. At one time Chevy had more than 50% of the market, excluding the rest of GM, now ALL American cars together sell than 50% of the market. Those who blame the unions exclusively for the current problems are uninformed and know very little about the auto industry or their memories are too fragile.

It certainly is American to help the autoworkers out of this pickle. However, why should we help the mediocre of worse management teams that made the decisions that caused their companies to tank or the greedy unions whose contract demands for benefits rather than efficient management helped put the companies in this position. Why should we expect the management or unions to do any differently than they have in the past – make shortsighted, disastrous decisions. Get rid of the management and the UAW and it is then reasonable to talk about helping the workers.

I would like to share this article from 11/25 for everyone making comments about letting the american auto industry fail. Most of you do not realize how your jobs and the US economy will be affected. Japan would never let their auto industry go bankrupt…why are we? Yes even foreign automakers are struggling right now. I am not ignoring the fact that the automakers need to make major changes…that is obvious. There are several companies here in MI and engineers within the big 3 that are coming out with technology to lead us to more fuel efficent cars…but now all projects are on hold due to lack of funds and lending.

If I had the floor at the auto rescue talks
BY MITCH ALBOM

OK. It’s a fantasy. But if I had five minutes in front of Congress last week, here’s what I would’ve said:

Good morning. First of all, before you ask, I flew commercial. Northwest Airlines. Had a bag of peanuts for breakfast. Of course, that’s Northwest, which just merged with Delta, a merger you, our government, approved — and one which, inevitably, will lead to big bonuses for their executives and higher costs for us. You seem to be OK with that kind of business.

Which makes me wonder why you’re so against our kind of business? The kind we do in Detroit. The kind that gets your fingernails dirty. The kind where people use hammers and drills, not keystrokes. The kind where you get paid for making something, not moving money around a board and skimming a percentage.

You’ve already given hundreds of billions to banking and finance companies — and hardly demanded anything. Yet you balk at the very idea of giving $25 billion to the Detroit Three. Heck, you shoveled that exact amount to Citigroup — $25 billion — just weeks ago, and that place is about to crumble anyhow.

Does the word “hypocrisy” ring a bell?

Protecting the home turf?
Sen. Shelby. Yes. You. From Alabama. You’ve been awfully vocal. You called the Detroit Three’s leaders “failures.” You said loans to them would be “wasted money.” You said they should go bankrupt and “let the market work.”

Why weren’t you equally vocal when your state handed out hundreds of millions in tax breaks to Mercedes-Benz, Hyundai, Honda and others to open plants there? Why not “let the market work”? Or is it better for Alabama if the Detroit Three fold so that the foreign companies — in your state — can produce more?

Way to think of the nation first, senator.

And you, Sen. Kyl of Arizona. You told reporters: “There’s no reason to throw money at a problem that’s not going to get solved.”

That’s funny, coming from such an avid supporter of the Iraq war. You’ve been gung ho on that for years. So how could you just sit there when, according to the New York Times, an Iraqi former chief investigator told Congress that $13 billion in U.S. reconstruction funds “had been lost to fraud, embezzlement, theft and waste” by the Iraqi government?

That’s 13 billion, senator. More than half of what the auto industry is asking for. Thirteen billion? Gone? Wasted?

Where was your “throwing money at a problem that’s not going to get solved” speech then?

Watching over the bankers?
And the rest of you lawmakers. The ones who insist the auto companies show you a plan before you help them. You’ve already handed over $150 billion of our tax money to AIG. How come you never demanded a plan from it? How come when AIG blew through its first $85 billion, you quickly gave it more? The car companies may be losing money, but they can explain it: They’re paying workers too much and selling cars for too little.

AIG lost hundred of billions in credit default swaps — which no one can explain and which make nothing, produce nothing, employ no one and are essentially bets on failure.

And you don’t demand a paragraph from it?

Look. Nobody is saying the auto business is healthy. Its unions need to adjust more. Its models and dealerships need to shrink. Its top executives have to downsize their own importance.

But this is a business that has been around for more than a century. And some of its problems are because of that, because people get used to certain wages, manufacturers get used to certain business models. It’s easy to point to foreign carmakers with tax breaks, no union costs and a cleaner slate — not to mention help from their home countries — and say “be more like them.”

But if you let us die, you let our national spine collapse. America can’t be a country of lawyers and financial analysts. We have to manufacture. We need that infrastructure. We need those jobs. We need that security. Have you forgotten who built equipment during the world wars?

Besides, let’s be honest. When it comes to blowing budgets, being grossly inefficient and wallowing in debt, who’s better than Congress?

So who are you to lecture anyone on how to run a business?

Ask fair questions. Demand accountability. But knock it off with the holier than thou crap, OK? You got us into this mess with greed, a bad Fed policy and too little regulation. Don’t kick our tires to make yourselves look better.

Instead of giving all this money to banks and car companies…..why not give us the money so we can pay our debt off and the money will end up with banks and car companies anyways? Or does that make too much sense?

I am all for free markets and a hands off approach USUALLY…with this large a sector potentially completely tanking and taking millions out of work (auto workers,supply chain etc.) I think its best we prop them up with money and stipulations i.e. alternative powered vehicles, fuel efficiency etc. Dont forget that in times of war in the past the government domestically needed a way to produce military vehicles,planes and the like…without the us based auto industry that ability in times of a world type war would go away …albeit a farfetched scenario without the auto industry we are sunk. The industry must be saved.

The best idea so far, but JBSaunders on huffingtonpost.com:

“Congrats, the UAW has forced the Big 3 into bankruptcy. That was always the risk they ran by asking for the moon in labor negotiations.

Rather than bail them out, I say we should just give the Big 3 to them–they can contribute their massive pension obligations in bankruptcy proceedings and end up running it. All those retirees that pillaged these companies can now have the full results of their labors. Make the genius Labor Leaders run the things.

Once they have a dose of reality and real responsibility, then we’ll see how quickly they lower labor costs.”

“Magna has been successful in diversifying its business away from Detroit.”
Smart managment at Magna, contrary to Detroit. Depending on how much money we throw at them, it will delay the outcome but it won’t change it. But might as well bail them out, what’s another $50 billion after trillions have already been wasted on Wall Street. Let’s go for broke, we can always print more money if we need it, right?

If I was a congressman I’d be more annoyed for them driving after flying there on the prior trip. Do they really think I’m that dumb or do I belive the smoke screen?

US Congress ~ The best money can buy!

Asking for more money is a Hog Wash! The additional money is to compensate for their alleged $1 a year salary! Who are they kidding? Congress please don’t be bamboozled!!