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The Big Failed Three

December 9th, 2008

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.


Bailout Failed!

Author: Derek Clark Categories: General Politics Tags: ,
  1. December 9th, 2008 at 22:47 | #1

    Thanks for recognizing Ford as the leader in the U.S. auto industry. While I can’t speak for our competitors, I can say that Ford has come a long way in a relatively short period of time: our quality is now on par with Toyota & Honda, we have more 5-star safety ratings than any other automaker, and we’re making significant strides in bringing our small vehicles over from Europe.

    We’re lucky that Alan Mulally, when he came to Ford 2 years ago, began the planning process that got us moving in the right direction. There’s still a ways to go and we’ve got challenging times ahead, but we’re looking forward to proving ourselves to the American people.

    To see exactly what I’m talking about, I’d invite you to visit http://thefordstory.com

    Scott Monty
    Global Digital Communications

  2. December 9th, 2008 at 23:37 | #2

    While I agree that Ford has been changing and they are the best of the three, I still do not think that any of these companies deserve taxpayer money. These companies have been around for a long time and have made billions and billions of dollars. Why on earth do they have any debt at all? If they aren’t smart enough to have some cash set aside for a rainy day, that is their problem. The small company I work for would certainly not get any sympathy from Ford or Uncle Sam if we were in the same position. Thankfully, we operate debt free as an intelligent business should.

  3. Scott Sharon
    December 10th, 2008 at 18:25 | #3

    Yes, it is correct that Chrysler did receive $1.5 billion in 1980…and they paid it back several years early.
    Yes, the UAW should NOT get sub-pay (95% normal pay) when they are laid-off (I won’t). Quality…I had a ‘85 Fiero GT, that had 177,000 of HARD driven miles on it, before I decided it was time for a change (in ‘01, and I did beat that car!!!)…the engine was OK.
    Yes, the “Big 3″ do have issues…should we, as Americans, throw more American jobs/profits overseas? Is that THE answer? The NY Times has an article today in the ‘Economy’ section, detailing the $70-$77 an hour cost, per employee, that the ‘Big 3′ pays. Please read for a more accurate depiction of what is spent,where and saved. What if your father or grand-father, if employed by the ‘Big 3′ would/could loose if bankruptcy happened. Would bankruptcy still be a proper course? Will All Americans benefit, or only a very few?
    Yes, I am a Republican, I have been since 1980!
    Yes, I do live in Michigan and Yes all eyes here are what is done now!
    Yes, my job is at stake and I don’t work for the ‘Big 3′!

    The big question here is Why do the banks/mortgage insurers get $700 billion in bailouts…no questions asked, when the ‘Big 3′ get grilled twice, on business plans to restructure? How can the CEO of Merrill Lynch, John Thain, ask for a $10,000,000 bonus when he destroyed his company?
    It’s greed, pure and simple!
    Yes, the ‘Big 3′ have their issues, but is bankruptcy THE answer?

  4. December 10th, 2008 at 18:36 | #4

    Believe me, I completely disagreed with the bank bailout as well. The banks were still giving out dividends and bonuses. It is a complete joke. AIG wants another 10 billion. With the big 3 though the real problem I have is that I don’t have the confidence for these very poorly run companies to survive WITH a bailout. Then we are 15 billion in the hole and they still file for bankruptcy.

  5. Scott Sharon
    December 12th, 2008 at 18:18 | #5

    Again, please read the article in the New York Times (similar articles are also coming out) that gives an accurate break down of those costs. Depending on the area/manufacturer costs will vary…at one Toyota plant the hourly wage is actually higher than a GM plant, $30 at Toyota to $29.60 at GM. Typically the difference is $2, domestic workers getting more. Benefits are better at the domestics (vacations, Holidays, healthcare etc.), raising the cost to $55 domestic to $45 foreign.
    The big difference (another $15) is when the cost of retirees are factored in, not in the amount they get, but the large number of them. We Americans are living longer. Foreign companies have been here since 1982 or 83, and don’t have that legacy cost, yet.

    The following is from an E-mail I received 2 weeks ago, food for thought since we are Americans, but I’m not 100% sure on the accuracy (source is usually very accurate):

    Interesting stuff. Regarding the 9/11 disaster:


    The findings are as follows…..

    1. Ford - $10 million to American Red Cross matching employee contributions of the same number plus 10 Excursions to NY Fire Dept. The company also offered ER response team services and office space to displaced government employees.

    2. GM - $10 million to American Red Cross matching employee contributions of the same number and a fleet of vans, suv’s, and trucks.

    3. Daimler Chrysler - $10 million to the support of the children and victims of the Sept. 11 attack.

    4. Harley Davidson motorcycles - $1 million and 30 new motorcycles to the
    New York Police Dept.

    5. Volkswagen - Employees and management created a Sept 11 Foundation, funded initial with $2 million, For the assistance of the children and victims of the WTC collapse.

    6. Hyundai - $300,000 to the American Red Cross.

    7. Audi - Nothing.

    8. BMW - Nothing.

    9. Daewoo - Nothing.

    10. Fiat - Nothing.

    11. Honda - Nothing (despite boasting of second best sales month ever in August 2001)

    12. Isuzu - Nothing.

    13. Mitsubishi - Nothing.

    14. Nissan - Nothing.

    15. Porsche - Nothing. (Press release with condolences via the Porsche website.)

    16. Subaru - Nothing.

    17. Suzuki - Nothing.

    18. Toyota - Nothing (despite claims of high sales in July and August 2001.)

    Condolences posted on the website (whenever the time) may be for you to purchase or lease a new vehicle, keep this information in mind. You might want to give more consideration to a car manufactured by an American-owned and / or American based company. Apart from Hyundai and Volkswagen, the foreign car companies contributed nothing at all to the citizens of the United States.

    It’s OK for these companies to take money out of this country, but it is apparently not acceptable to return some in a time of crisis. I believe we should not forget things like this. Say thank you [to them] in a way that gets their attention..

    My comment…
    We are Americans!

  6. December 12th, 2008 at 23:55 | #6

    While I agree with much of what you are saying, and I actually have only owned American cars. My last car was a Ford Taurus which was absolute junk, my current is a Chevy Equinox which has so far been fine. The money that those companies offered is great, that doesn’t mean they deserve a bailout. Much in the same way the banks didn’t either. (Lest you think I prefer wall st over main st).

    Keep in mind 2 things, the foreign companies like Honda and Toyota also provide lots of American jobs. I am originally from Ohio and I saw an entire city (Marysville) completely transformed by the Honda plant.

    Second, there are many companies in different businesses that have been around longer than the car companies. They have managed to handle the legacy costs just fine. Ford, GM, and Chrysler have simply been mismanaged in many many aspects.

    One of the biggest things I don’t understand is Chrysler. They are a private company that is mostly owned by Cerberus, which has tons of cash sitting around. Why don’t they use that? If they can’t put up their own money, why in the world should taxpayers?

  7. Scott Sharon
    December 13th, 2008 at 07:19 | #7

    I stand corrected…the above E-mail is a mixture of outdated, incomplete and false information. Almost every company listed above did in fact contribute something.

    My apologies!

  8. Scott Sharon
    December 13th, 2008 at 07:45 | #8

    You are correct, the current management of the ‘big 3′ is inept and topheavy. The UAW is outdated, they served their purpose in the ’30’s.
    If only one of the ‘big 3′ was close to bankruptcy I would say ‘let them go, they choose that path’.
    With the current economical climate, if all 3 went bankrupt within months of each other, the country would, I believe, go into a true depression. The number of foreclosures would increase dramatically, which is what got us here in the first place. The lost tax revenue, increase in unemployment costs and retiree benefit costs would put a huge burden on the government.
    I agreee Cerberus shouldn’t get any of the bridge money, as they are a private firm, with plenty of their own resources.

    Where’s Lee Iacocca when you really need him!
    A true ‘car guy’ not a bean counter.

  9. December 13th, 2008 at 08:13 | #9

    Woah there Scott. I have a hard time seeing why any companies behavior at ‘A Time of Crisis’ is in any way relevant. Frankly, it isn’t the companies responsibility and no one should expect them to behave like it is. Is that email making the claim that somehow those companies that donated and helped out are somehow more deserving of funds than the others?
    My suspicion, entirely unsubstantiated, is that in a boardroom somewhere some management folks decided to contribute those funds because they thought it to be the best decision for their businesses. Maybe they figured they could drum up business by running TV spots that mention how ‘American’ they are.

  10. December 13th, 2008 at 11:30 | #10

    “If only one of the ‘big 3′ was close to bankruptcy I would say ‘let them go, they choose that path’.”

    Well, Ford says it has enough money to last all of 2009, we just agreed that Cerberus and Chrysler shouldn’t get any money because they have plenty, that leaves us with GM.

    What they should do, instead of giving GM and Chrysler money and not Ford, is the other way around. Ford is the only company that has a good chance of surviving. So give them a boost and let the other 2 fail.

  11. February 24th, 2010 at 11:31 | #11

    any company should not rely on a bailout as it shows that they are just lazy to work on their profit margins and just expect help. There are automobile companies out there that are having problems and risk closing so they are fighting as hard as they can to get their strategies in teh right order and even looking for outside investment to help them (Ford sold Jaguar to Tata Motors and they have been steady since)