Road Hogs

The Three Families of Detroit continue to threaten the US with economic catastrophe unless Taxpayers cough up at least $34 Billion NOW. And maybe more next year. Do they believe they are making an offer Taxpayers cannot refuse? If so, they had better adjust their thinking. Do they believe that America will collapse without them? If they do, then threatening the country with economic collapse if $34 billion is not forthcoming sounds worse than criminal extortion to me. It sounds like treason.

Why do the Auto Companies believe they deserve special consideration? Are the Big Three unaware of corporate history in this country? The answer must be Yes. It seems Chrysler CEO Nardelli has forgotten that it took over American Motors a couple of decades ago because the company was in collapse. What did Chrysler get? Jeep. Probably Chrysler's best line. Where did all the Ramblers go? Into the corporate history books. To business school case studies. Gone, and mostly forgotten.

The list of failed US car companies is long. But this time it's different. The heads of Detroit's Three Families refuse to do what managements are hired to do -- run profitable operations. Instead, they now want to acquire money from an alternative source -- the government. More accurately, the Taxpayers. What does this show? It shows that the auto companies have become the biggest rent-seekers in history. They refuse to be capitalists when it counts. They want to be socialists. Actually, it's worse. They're looking like communists.

According to the current plan, the government will acquire ownership of the means of production. Obama has said he wants to appoint a Car Czar. Central Planning, here we come!! Do we need a bureaucracy to tell us the number of cars to be built during the next 5-year plan?

Let's try this: Let's end the eternal struggle between Labor and Capital. If the Auto Companies want money, let the Taxpayers buy GM at its current market price of less than $3 billion and GIVE the stock to the UAW. Let the United Auto Workers own GM and let them take full charge of the company and make it work. I'll bet they'll find a way before Christmas.

The Auto Industry seems to have missed the business news during the last few decades. Probably because the main venue for getting that news is disappearing.

The Newspaper Industry is vanishing. Print media jobs have been disappearing for years. Now the Print Media itself is disappearing. Some newspapers are shutting down. Others are cutting back, becoming weeklies instead of dailies.That's just a gambit to slow the the pace of decline.

Is anyone crying over the loss of the Newspaper Industry? How about the Shoe Industry? We once made most of our own shoes here in America. Today we import 99%. Textiles. Similar story. Check your shirt collar. The label probably reads Made in Pakistan. By the way, has the loss of shoe manufacturing led to barefootedness among Americans? Or do we have so many shoe choices at so many price points that it's tough to decide which shoes to buy? How about shoe repair shops? They're everywhere.

So too are automotive repair shops. Transmission shops, Muffler Shops, Brake Shops, Oil Change facilities. Is there any part of a car that is left unserviced? No. Do people buy cars that lack comprehensive warranties? Yes. Millions of them every year. Used cars. They're cheaper than new cars, and the lack of warranty coverage is a big reason.

By the way, what's included in a warranty? Of course, the obvious. But GM loses about $1,500 per car. As we all know, warranties are a big source of profits. When a product is well built, the warranty is often a losing proposition for the buyer. Of course, if you have one of the few defective cars, then the warranty is a blessing. But given the higher quality of Detroit's vehicles, how much of the warranty price is actually absorbed by repair work?

The answer? Not much. The warranty is an overpriced insurance policy that is wildly profitable. But Detroit's labor & benefit costs are so high that even with a huge boost from warranty revenue, the companies cannot earn a profit.

Walmart is selling big flat-panel TVs. Why go to Walmart when you can get a better price on the same TV at Best Buy? Here it is: The Warranty. Walmart sells TVs for a little more than Best Buy. But it beats BB by a mile on the price of the warranty. Thus, the total price at Walmart is better than the total at Best Buy.

Maybe Walmart should get into the car dealership business. And maybe Toyota and Honda should teach Detroit how to make cars AND profits in the US.

UAW President Ron Gettelfinger = Roadblock

It is sad and depressing that Ron Gettelfinger believes the American public owes something to the UAW workers who make cars for the Big Three. Perhaps UAW members deserve sympathy for the straits in which they have found themselves. But financial support from taxpayers? Not a chance.

How did we get here? Through the combined efforts of Management and Labor. The two combatants in the auto industry have been going at it since 1935. Unfortunately, the UAW and its leadership have never fully grasped the notion of foreign competition. It seems the Union has fooled itself into thinking that its only goal was to extract as much as possible from management. The UAW seems to have ignored or denied the impact of its efforts on the auto market itself.

Why have the Big Three lost market share? Many reasons. But changing consumer tastes head the list. Thus, Detroit's problem boils down to intertia. It can't move fast enough to meet the demands of consumers. Sure, Detroit makes some popular vehicles. It makes enough of them to stay in the lead. But the lead continues to shrink and Detroit's losses are growing.

What has slowed Detroit's capacity for change? Union wages & benefits; Government mileage standards; laws relating to dealerships; insufficient foresight in Top Management.

Ron Gettelfinger has pointed the finger at Management for his entire career as UAW President. Okay. And now he's in a position to do something about it. But, he won't. Why? Because he's a moron.

If Ron Gettelfinger and the UAW believe management has been an impediment to the health of the domestic auto industry and the UAW, then it's up to the union members to do something about it. Now they can. They can buy General Motors -- for a song.

A couple of weeks ago General Motors stock was trading around $3 a share. There are six-hundred million GM shares. Hence, the UAW could have bought the company for $1.8 billion. Easily affordable. Of course no move to buy the company was made. Why? Because a Chapter 11 bankruptcy would wipe out their stock-market investment, as bankruptcy filings always do.

Recent panhandling in Washington by the CEOs of the Big Three injected some hope into auto company stock prices. General Motors stock is now about $5 a share, pushing the buyout price to $3 billion.

Gettelfinger seems ignorant of all aspects of finance and economics. He clearly knows nothing about the value of buying the debt of General Motors.

If the UAW were to buy the debt of General Motors, it would have the power to cancel it. At its current prices, GM debt is as much a bargain as its stock -- for the right buyers. GM's debt totals $45 billion. As a result of the company's vast problems and subsequent reductions of its credit ratings to junk status, the debt is selling for a fraction of its face value.

He who owns the debt controls the company. Thus, the UAW, if it wants to make the smart move, can buy GM stock as well as its debt. If the Union buys the debt with the aim of extinguishing it, the stock will rise. If it takes a more moderate path of exchanging the old debt for new debt or equity, the company will get extra breating room.

Bottom line: The Union can own the company. That means full control of the company the UAW claims has been mismanaged by Rick Wagoner and his predecessors. The Union can then negotiate with itself on all issues that continue to put profits out of reach. Seems simple enough. For a small investment the UAW can eliminate the segment of the company that UAW members blame for the problems. What are they waiting for?


GM board reviews new turnaround plan for bailout
Sun Nov 30, 2008 6:32pm EST


DETROIT (Reuters) - The board of General Motors Corp met on Sunday to review a restructuring plan intended to cut costs and win support for up to $12 billion in emergency funding from the U.S. government, a person familiar with the deliberations said.

The GM board meeting came on the same day that United Auto Workers president Ron Gettelfinger signaled his union was prepared to offer further concessions in order to win support for the bailout provided management shared in the sacrifice.

"They need to establish that executive compensation is something that they're willing to curtail," Gettelfinger said in an interview on CNN. "They can also give the government an equity stake in the business.

House and Senate Democratic leaders, in a letter to GM, Ford and Chrysler executives, said the companies demanded that each submit a "credible restructuring plan" by Tuesday.

That is the same day that major automakers are expected to report bleak November sales results that show an only limited bounce from October when the consumer uncertainty and tight credit combined to send sales to 25-year lows.

NOVEMBER SALES SEEN BLEAK

November sales are expected to show the auto industry running at a U.S. sales rate of about 11 million vehicles on an annual basis, down by almost a third from 2007's tally.

Analysts see a chance for GM to stop burning cash if the industry recovers back above a sales rate of about 13 million vehicles and it succeeds with a stepped-up restructuring backed by federal funding in a deal that would involve steep concessions from creditors, executives and the UAW.

The union is under pressure to surrender protections that allow laid-off factory workers at the Detroit automakers to collect over 90 percent of their pay by shifting to a jobs bank. The union agreed to restrictions on the program

A potentially more important concession would be winning new terms for payments by GM and other automakers into a $48 billion trust fund scheduled to take over funding health care benefits for retired autoworkers from 2010.

The revised plan GM is set to submit to Congress is also expected to show cuts to executive pay. The automaker paid its top executives more than $40 million in 2007, even as its stock dropped 19 percent and it posted a loss of $39 billion.

In addition, the GM plan is expected to indicate that the company will ask some bond holders to accept equity and a limited cash payout to redeem the debt they hold.

That proposed debt swap is seen as crucial because GM has more than $44 billion in debt on its balance sheet, analysts have said.

The automaker burned through $6.9 billion in the past quarter and ended September with $16.2 billion. It needs a minimum of between $11 billion and $14 billion to operate and pay suppliers and has warned it could fall short of cash early next year without government help.

The revised plans from all three Detroit automakers are expected to focus on their investment in fuel-saving technology and alternatives like GM's battery-powered Chevrolet Volt.

Analysts expect the automakers to detail confidential product plans that show they have a game plan for meeting federal requirements for a 40-percent improvement in fleet-wide average fuel economy to 35 miles per gallon by 2020.