Crunch time for the Big Three

[masonite]

So it looks like Daimler Chrysler, Ford and GM are up shit creek without a paddle, looking towards the good ship congress to pull them back to clearer waters the way they did with other big business. But with public outcry already pretty high regarding wall street, should the big three be pulled out?

Personally, i think something has to be done, but not because of the companies themselves - because of the negative ramifications of not helping them out. Hundreds of thousands of direct job losses will be bad enough, but them supply companies will also suffer and die (we saw a similar thing happen to a few companies here in australia when car sales dipped and mitsu closed their aussie plant). There are business ventures currently going on with the big three and other international companies, who will in turn suffer as the money they've put into joint projects will count for nothing (Mazda have platform sharing with Ford, which undoubtedly will mean they have to cover all of the development costs themselves, gearbox manufacturers will suffer (i believe getrag in the US has already filed for chapter 11 protection, and ZF contributes to Ford and GM, WM Vittori [sp.] have diesel agreements with GM).

Then theres the fact that all of the unemployed probably won't be able to afford any type of car for a while - meaning the cheaper car sales will drop significantly, probably affecting, ironically, some of the big three's biggest competitors, namely Honda and Toyota.


But what happens if there is no bailout? Here's my take on the current situation:

GM - appears to be in the deepest crap, despite having a number of very attractive propositions on the table, along with a sucessful number of divisions. Have very little cash, barely enough to see them through the year, although are trying to free up as much as possible (just sold off the rest of their suzuki shares). They do have profitable divisions overseas though, who are starting to pump out some very nice cars: Holden is doing well, showing how much they can do with a fractio of the money of their parent company, have had the top selling car in Australia for over 10 years and still looking strong despite pressure from petrol prices. Vauxhall/Opel just got eurocar car of the year ( i think that was the publication, or maybe it was europe car of the year? cant remember) by one point over the fiesta, and the astra is now looking like it'll sell great when it comes out with a new platform in a few years. Saab, the black sheep of the GM family, is *finally* getting some updates, actually doesn't look too bad (swedish? stylish? who would've thought? [volvo C30 excepted, which already looks pretty hot for a swedish car]) and is also getting a new 4WD which should push it back into the black thanks to a downsizing US market (although i still find it hard to comprehend that people can "downsize" to a medium SUV). Still, without getting through the next 12 months (or even 6 months) that won't count for shit.


Ford - Not necessarily doing as successfully as GM, but have a turn-around plan that seems to be stemming the bleeding somewhat, although it may still be too little too late. They've had a couple of very successful companies they own (in recent years at least) which is probably the most painful thing for ford - in the future they'd be what made the company incredibly strong, and we were starting to see that (aston, Jag, and rover, Mazda [although Mazda was more independent - Ford owned a large stake but it seemed it was for platform sharing more than actually trying to influence them, which could explain why Mazda are doing so well]) but without the cash to fund their new projects, the profits couldn't make a difference, particularly when the rest of the company was bleeding so badly. So they're gone, along with their profits, ford's share in Mazda has now been cut to about 13%, and they're left basically with their own product line up which is shaky at best.


Daimler Chrysler - Well, they've got the least imagination and the weakest line-up IMO, with very few interesting cars, nothing exciting except stuff which makes zero sense in this day and age (i'm looking at you, truck-engined viper). There are a couple of things which could help them though: firstly, despite how old-fashined it looks now, thanks to oil, the Viper could be sold off as a "brand" - and a very exciting one at that. One that could spawn its own line-up. I think the potential is there, and if theres the right buyer, it could net them some cash. The other desireable thing about Chrysler is one of their brands: Jeep. Anyone who owns that badge could sell cars, and that should make Chrysler as a company desireable to prospective buyers of the entire company.

[pfft]

the big three killed my baby.

[The Dude]

I live in Oakland County Michigan, it takes me 5 minutes to get to the Chrysler World HQ, and about 30 minutes to Ford and the GM HQ. I lived my whole life here and could not give a damn if they survived. There is so much shit going on with the American auto industry I don't even know were to start. The ridiculous CAFE standards that exclude their European divisions and make them waste money on building cars Americans don't want. The legacy costs from pension funds set up by the UAW. The closed shop rule. I can go on and on.

Ultimately living here has shown me how politicians can kill an entire industry.

[Xer0]

Chrysler is up a creek without a paddle. Jeep will survive and maybe a couple stand alone models (Ram, minivans) one way or another.

GM is in a big shithole with the UAW and dealers having a firm grasp on their balls. And with them announcing that they will be slowing down the release of new products, its not looking good.

Ford seems to be in the best place right now, with a steady stream of new products coming out that look to be at or near the top of their class.

Whatever happens, the UAW needs to go suck on it, they have become nothing more then a parasite now. And in GM's case, they need to find a way to get rid of a lot of brands, but with all of the dealer contracts, that wont be easy, or cheap.

[Xer0]

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.

But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.



http://www.nytimes.com/2008/11/19/opinion/19romney.html?ex=1384837200&en=3616fe7f95dd6a7b&ei=5124&partner=digg&exprod=digg

Personally, I agree with a lot of what he has to say on this mater.