The Big Failed Three
A few weeks ago I wrote an article about the potential automaker bailout. Well, now the only real question is who will be appointed to the “car czar” position. It’s sad really, that the taxpayers are going to be on the hook for another 15 billion in bailout money. Apparently that is the amount that Congress thinks will save GM and Chrysler. Ford says they have enough cash to make it though 2009 as long as the other automakers don’t fail.
The fact is that there is no way 15 billion will save these companies. It will only postpone the inevitable. Chrysler has been here before. They got a bailout in the late 70’s from Carter. Less than 3 decades later they are back again looking for another bailout. If 15 billion could actually save the entire American auto industry, investors would be lining up to give them cash. Warren Buffet just gave GE and Goldman Sachs nearly that much money. Plenty of investors could come up with the money. The reason they haven’t is that 15 billion dollars will not save these companies. They have failed at everything they do for so long it is sad.
The problem is they still don’t know how to run a business. First off, these companies have made billions and billions of dollars. They have been around for about a century. How in the world do they have so much debt. I just wrote an article about becoming debt free. The same thing applies to businesses. You have to have cash on hand for a rainy day. As much money as these companies have made in the past, there is no reason whatsoever that they should have any debt. If they followed smart financial principles, they would have some cash on hand for the current rainy day they are facing. They would not need it from the government.
United Autoworkers Union
The Big Three are facing many issues causing their problems, and 15 billion dollars doesn’t solve any of them. It only helps them remain solvent longer. They have a huge overpaid workforce called the UAW. It is so bad, they pay the employees they lay off nearly 100% of their salaries. Shoot, if I could get that it’d be great. I could spend more time working on this blog, golfing, reading, and other things I love to do. What is the point of having somebody stop working if you are going to continue paying them? They have tons of retired employees who are reaping the benefits of years and years of terrible negotiating by GM, Ford, and Chrysler management. A 15 billion dollar loan doesn’t fix this.
Really Bad Cars
They have manufactured cars poorly for a long time. The majority of the people I know all drive foreign cars. This is mostly because the American cars they bought all broke. It is not that people don’t want to buy American things, it is that they can’t afford to. My first car was a Ford Taurus. The engine failed with less than 90,000 miles on it. People can’t afford to replace engines at 90,000 miles, so they started buying Honda Civics that lasted until 250,000 miles. Building bad cars has finally caught up with them. They are all worried about their reputations being damaged by going bankrupt. It’s too late, their reputations already suck.
Lack of Foresight, and Fuel Efficient Cars
Gas was really expensive this summer. Demand for oil skyrocketed across the globe when emerging economies like India and China finally started getting cars. I am really mostly impressed that some of the Big Three saw this coming. They did a good job of having cars for China to buy. The problem is, they missed the part where oil is a limited resource. They didn’t build fuel efficient cars for a long time. Honda, Toyota, and Nissan all managed to see this coming from a mile away. The Big Three apparently didn’t. They do make nice trucks though.
Scare Tactics and What to Do
GM has been saying that 3 million people will lose their jobs if they fail. That may be, but it would only be because their managements failed them as well. It would also only be temporary. Americans are not going to stop driving cars. We simply depend on them for everything. Somebody will step up to fill the void. Maybe it would be Ford, they are in the best shape out of the three. Maybe it is Toyota, Honda, and Nissan. The point is, as long as there is a demand for cars, somebody will make them. That means jobs.
These companies couldn’t currently meet the demand for cars if GM and Chrysler stopped producing cars altogether, (that isn’t what would happen, but stick with me). So to meet the new demand they would have to build more factories. This means those unemployed GM workers can now become employed Honda workers. Those supply companies are going to have to be flexible. They will have to turn more to whoever fills the void than they did to GM. If they put all their eggs in GM’s basket, they probably deserve to fail. The mechanics that work on American cars will still have plenty of old American cars to work on. They can also learn a new skill set, i.e. Civics and Maximas.
The point is that while bankruptcy would be very painful, it is the only way to fix this mess in the long term. These companies are past the point of no return. The place they will be returning is to Washington to ask for more money. You can be sure they will drive back though. Congress is going to make them sell their jets, as if that is the root of the problem.