Cracking Heads at GM, Ford and Chrysler
Nov 26th, 2008 | By Justice Litle | Category: Financial NewsThe private jets were the last straw. I speak of the chosen mode of transportation for the “Big Three” automaker CEOs last week. When the heads of GM, Ford and Chrysler made their trek to Washington, they did so in the style of fat cats. They should have flown coach.
I’m serious.
Flying coach would have been little more than a gesture, sure. But it would have said something at least. It would have shown that these knuckleheads aren’t completely tone-deaf. But they are tone deaf. They’re crap at the little things.
And in the end, it’s really all about the little things. When you add up all the little things, you get a big impact.
Take Honda, for example. Did you know Honda is in the soybean business? As Forbes tells it, “Honda couldn’t brook the sight of the shipping containers that brought parts from Japan to its nearby auto factories returning empty. So Harmony [a Honda soybean-growing subsidiary in Marysville, Ohio] now ships 33,000 pounds of soybeans to Japan.”
Is it any wonder the U.S. automakers are getting killed? Honda finds ways to eliminate waste just for fun. They approach logistical problems with the air of an excited kid. With Detroit, in contrast, the attitude seems to be “Not my fault… Not my problem… Not my job.”
Oh, sure, Detroit goes through the motions. In a recent cost-cutting move, GM even stopped buying batteries for the wall clocks and switched to cheaper pencils. Talk about rearranging deck chairs on the Titanic!
The difference is, no one has to tell Honda and Toyota to be efficient. (And I mean really efficient, not goofing around with pencils or wall clocks.) No one has to pound it into their heads that eliminating waste and constantly improving efficiency is, you know, maybe a good idea. That’s just how they do things.
Nor does the difference come down to country or geographic location. Honda and Toyota plants in the United States, staffed by Americans, do the same excellent work as the Japanese plants back home. (Same story with BMW and Mercedes.)
A Cynical Game of Chicken
Back to the reason for those jets: the Big Three’s performance on Capitol Hill was awful. They came with nothing but the same old rambling mess, threatening disaster and hoping for cash.
The worst of all was Rick Wagoner, the CEO of General Motors. What an utter slimeball this guy is. Wagoner actually tried to blame GM’s problems on “the global financial crisis” with a straight face – as if GM hadn’t burned through a whopping $72 billion in the past four years, most of it before the crisis hit.
GM is now burning up $2 billion in cash every month. They are well on the way to oblivion. And yet, amazingly, Wagoner admitted to no contingency plan, no plan “B” if rescue funds didn’t come his way (other then letting all hell break loose).
Wagoner came off as wooden and arrogant in his testimony, talking about all the successes his team has enjoyed – we’ve “taken this measure,” “cut that cost,” and so on – even while demanding a rescue. You’d think a little humility would be in order.
I think GM’s CEO is playing a cynical game of chicken at this point. (Chicken, if you’ll recall, entails two cars driving head-on at top speed. The object is to see who “chickens out” and swerves first.)
Wagoner knows the absolute havoc a forced liquidation of GM would wreak. He knows it would potentially vaporize large sections of the U.S. economy. Wagoner also knows that even if the Chapter 11 advocates get their way, taxpayers could still be on the hook for tens of billions – maybe as much as $70-80 billion – by way of pension liabilities for GM retirees. (The Pension Benefit Guaranty Corporation, or PBGC, backstops corporate pensions much as the FDIC backstops bank accounts.)
Wagoner furthermore knows he should be fired. GM has failed in the sense of no longer being a viable business – and thus its longtime CEO has failed too. To need a bailout is to have failed by definition… let alone a blackmail-style bailout in which the method of persuasion is putting a gun to the U.S. economy’s head.
And Then The Unions
And then we have the unions, who archly feel they have sacrificed “enough” – that their impossibly high-paying jobs and benefits should be preserved at all costs.
It’s understandable to feel a sense of entitlement. Countless studies show human beings have a very strong “ownership bias.” That which has been “ours” for an extended length of time takes on the feel of being ours by moral right.
But then again, so what. None of us can claim a “right” to something just because emotions wish it so.
The unions should remember what they are asking for – and who they are asking it of – when they demand that non-unionized taxpayers shell out for their perks. On a 2,000-hour work year basis, the average U.S. wage is nowhere near the Detroit union wage. Does it make sense for someone with a $70-per-hour guaranteed job to turn to someone with a $25-per-hour non-guaranteed job and say: “Dig in your pocket to help me?” Of course it doesn’t.
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Adult Supervision Required
The trouble here is that the parties involved refuse to act like grownups. The Big Three CEOs continue to stick their heads in the sand. The unions cling to impossibly cushy terms, drawn up under dubious circumstances in much fatter times.
It’s true that outright failure remains a huge risk… maybe too big a risk. Those who say “let ‘em fail” forget the reality that “letting ‘em fail” could cost us big time. The risk of tens of billions down the drain – or hundreds of billions if the knock-on effect is severe enough – cannot simply be waved away. We don’t have the luxury of taking the high road without a pragmatic nod toward the cost of our actions.
The way I see it, that’s why this whole fiasco needs adult supervision in a serious way. In other words, these jokers need their heads cracked together. Hard.
The automakers are supposed to come up with a better plan in the next few weeks. “Show us the plan and we’ll show you the money,” Speaker Pelosi says.
As far as I’m concerned, the government needs to show the Big Three more than money at this point. A frying pan to the face might be good. If I were Uncle Sam, here is what I would say:
Look you idiots. You screwed up so badly this thing stinks to high heaven, and now we’re going to tell you what to do in order to fix it. All the current Big Three leadership – Wagoner, Nardelli, Mulally and so on – you guys are done. Out. Finished. You guys resign as soon as the handoff details are worked out. The captains go down with the ship, that’s just how it goes. Smart executives need to be incentivized to turn Detroit around – otherwise who would want the job – but it can’t (and won’t) be done by you. See ya.
And you, unions. You people take a massive cramdown too. Your legacy deals go away. You can work on the same terms as Honda and Toyota and Mercedes workers at those plants that are kicking your butts down south – or you can find something else to do. We’re all in this together, and the rest of America can no longer afford to prop up the sweetheart deal you laid out decades ago.
And to all those redundant dealerships in states around the country… no more local legislative protection for you. If the numbers don’t compute, it’s shutdown time – and no crying to the governor either. You guys get your share of the pain pie too.
It’s pain all around, folks, for the good of the country. All of you wrapped up in this mess have lost your right to autonomy… if these were more normal times, you would simply kick the bucket and that’s that. But this time of crisis is too deadly serious to risk major blowback – and so your collective incompetence and foot-dragging has now become a matter of national security.
And that’s why too, so help me, if any of you find a way to try and sabotage or slow down or delay the restructuring process necessary to get things back on track, we’ll find a way to throw you in jail. A random bankruptcy judge can’t be trusted to handle this thing – again, consequences of failure too big– but we’ll get someone on it and your marching orders will come soon. That is all.
The bottom line is, in a fragile time where failure puts the whole economy in peril, incompetence puts us all in peril too.
We need someone smart and objective (and perhaps a bit ruthless) to hold sway over the knuckleheads on both sides of this table – the auto bosses, the union leaders, the dealerships, all of ‘em – and crack skulls until a fix is worked out that doesn’t rip off taxpayers or blow up the U.S. economy.
That’s my take anyway. Now let’s hear what some of you had to say (in response to last week’s piece on whether or not GM should be saved).
There is no way that the American automobile industry can survive in its present form. The UAW, in its infinite appetite for greed, has saddled the automakers with costs that make their survival impossible. As a retired airline employee who went through three Chapter Elevens and lost my retirement, I speak from real-life experience. The only chance that some of the workers have to retain a job is to accept the harsh realities of the situation. The industry can’t compete with the legacy costs that are added to the price of each car. The only way to restructure those costs is to file Chapter Eleven. The American taxpayer is already up to his or her ass in alligators just trying to make ends meet. There will be other cars and other jobs. I feel the worker’s pain, but they will just have to cope with the consequences of their own doing. They had to know that their contract demands were putting their futures in jeopardy. As Americans we choose to embrace the free-market system. The workers, unfortunately, are victims of the failure of management to produce appropriate products. The workers, the UAW, and management all share responsibility in the failure to control costs. They did indeed, kill the goose that laid their golden eggs.
- TD Reader Hervey M.
Well said Hervey. I agree 100% that the auto industry has no chance of surviving in its present form. (Or make that the Detroit half at least – the auto industry down South seems to be doing just fine.)
I wonder, though, if Chapter 11 is the best option (as opposed to some kind of binding arbitration). The trouble is that bankruptcy can be a long and messy process with no one really in charge. The risk of shutdown and chain-reaction failure in an undirected process like that is high. In my view we need someone competent in charge from the start.
Let GM GO!!! Yep, hopefully, there WOULD be a HUGE failure vortex. If we are all EXTREMELY lucky, it would be a large enough one to suck in the REAL perp of the whole situation– the out-of-control, totally un- and extra- Constitutional federal government, along with several governments of the less responsible (ersatz) ’sovereign’ states!! We may yet learn that Dick Armey and Tom DeLay have achieved their previously STATED goal – to SPEND the leviathan into death, since the (righteously) necessary votes to dismantle it could never be collected !!
- TD Reader Greg
Extremely lucky, Greg? Only for those fully stocked up on bottled water, canned food, and shotgun shells. I’ve always thought the Mel Gibson “Mad Max” movies were cool, but never had the urge to live one out.
Good summary on the GM situation. I still side with the “let ‘em fail” argument. For decades, GM and the other US automakers have refused to listen to the consumer. At one time or another, they have all produced some wonderful, very popular vehicles. The Ford Mustang is a great example. After a few years and good acceptance, they begin making it larger until it no longer resembles its former self and only appeals to those looking for a “muscle” car. The Japanese learned long ago that the American consumer wants smaller, reliable, fuel-efficient cars. They have produced products to fill this desire. They have succeeded in gaining market share in the Big Three’s back yard. There seems to be a lesson here. If GM and the others haven’t learned this lesson by now, the small amount of time provided by a big bailout probably won’t help much. It will merely postpone the inevitable. That seems like a waste… of both time and money.
- TD Reader Webb G
Thanks Webb – can’t argue with you on the Big Three losing touch. That’s why I think whatever happens, current management needs to be shown the door.
Einstein once noted (paraphrasing here) that a problem can’t be solved by the same consciousness that created it. That statement really rings true in this case. The industry needs new blood and new talent – with profit incentives to draw that talent in. Overall I think Detroit just needs completely newmanagement, with the guts and the go-ahead to slaughter every sacred cow in sight.
The Big Three must be saved and here’s why: Having owned foreign vehicles in my younger days (because they were small, cheap and economical) and now that I’m older and taking comfort, safety, economy and reliability into account, you cannot beat an American big three auto!! I am amazed when I pull up to a traffic light and notice 3/4 of the cars at the light are foreign. These same people are asking “What’s wrong with our economy.” Wake up morons, we make the best cars in the world but you are too stupid to test drive one and instead listen to the crap written about foreign car superiority. They are not built better, and they are not safer nor do they last longer, that is just a false perception. You might even consider that you are Americans and as such you should and could buy American products and help the country and yourselves as well. If people bought American products when possible we wouldn’t be in a recession now. Wake up, help the country you pledge allegiance to, buy American, we make the best in the world. GM, Ford, and Chrysler, must succeed or soon every auto in the U.S. will be foreign made and even though they may be built in the U.S. the profits will go offshore, out of the U.S. to their country of origin. I can’t wait to hear the response to this.
- TD Reader Wes
Hmm. You’ve got me scratching my head with this one Wes… how can a car built in the United States be considered foreign made? If the workers are American, the suppliers are American, and the buyers are American, what’s truly “foreign” about an Ohio-made Honda or an Alabama-made Mercedes (except the company of origin)?
Also, what about the world beyond cars? On the whole, America benefits more from free trade than any other country in the world. We ship the lion’s share of the highest profit-margin products in the world. We are home to more world-class multinationals than any other country in the world.
Do we really want to shoot ourselves in the foot with a protectionist machine gun, then, just to save Detroit from self-inflicted wounds?
As for the truth about who really makes the best cars: so it’s actually the Big Three eh? I’m glad to hear it! But that begs another question – if the Big Three are truly superior, why do you see all those foreign models at the stoplight? Why is America so confused? Maybe it’s the marketing… that must be Japan’s secret weapon. Could Madison Avenue save GM?
Instead of giving GM $75 billion (or so why not give every taxpayer $20,000 to $30,000 to buy a GM, Ford or Chrysler car. That amount would be less than a GM bailout and keep plenty of autoworkers working. Plus pumping all that cash back into the economy.
- TD Reader Donald J.
Unfortunately the math doesn’t quite work. There are well over 200 million driving-age adults in the United States. Even if you cut the number of qualifying taxpayers down to just 100 million, that would still amount to $2 trillion at $20,000 a pop.
The vortex I fear is all of American big business being sucked into federal ownership. Then the remaining little guys will have to compete with the federal govt. and will, of course, fold because they have to pay taxes and the Feds surely will not pay taxes on that which they have seized ownership of. The natural evolution then will be the elimination of all business except government-run (er…bungled) ones – a fully socialist economy. And all of this says nothing about the evils of making the public bear the cost for saving these turkeys – by additional taxes and by the inflation that will rip thru the economy in response to the funny-money being created. The government has no MONEY to bail anybody. No, Justice. YOU are wrong. It was not a mistake to let Lehman crash. The mistake was to not let the other scumsuckers crash as well. We squandered a golden opportunity to rid the country of a large part of our invisible government. But it is because they ARE a part of the invisible government that most of them were ultimately bailed out. Friends don’t let friends go bankrupt–- especially if they have the power to make the taxpayers rescue their troubled friends.
- TD Reader Phil H.
Phil, we can agree to disagree on Lehman. What I can’t tell is whether you recognize the fact that actions have consequences.
Letting all the scumsuckers crash might feel great – but where does that put us if the economy is left in ruins? Starting from zero isn’t really an option, unless, like Greg, we’re happy to sign up for the headaches of systemic financial failure, total credit evaporation, mass logistical failure, urban shutdown, and starvation riots in all major cities.
You can’t just shut down a complex system. Remember the movie Jurassic Park? Maybe it was a dumb idea to bring the reptiles to life in the first place. But letting the grid go down wasn’t a hot move either. It’s sort of like the fossil-fuels dilemma: if we are to transition to a saner world, we’ll have to do so one step at a time. Total collapse doesn’t take us back to a better place. It takes us back to square zero – nature red in tooth and claw.
As for little guys competing with the government – my money would be on the little guys in that kind of match-up. And if the goons succeed in killing our diehard entrepreneurial spirit, then we deserve to hand the flame over to Estonia or New Zealand or some other such place.
Congress should make a fund which would take care of Union costs such as pensions, health, retirement, unpaid leave etc. and THEN give a bail-out amount for the companies to do business with less executive pay, other savings etc. A level playing field without the burdens on these companies would give them a chance to be competitive in the world. Their divisions in China and Russia are doing well without these legacy employee costs. To avoid throwing good money after bad the restructuring of these burdens should come first or simultaneously with the loans. On the other hand, the total failure of these American auto companies would have a drastic, negative impact on the economy and would certainly make this a severe depression that would last a very long time. A simple loan will not help in the long run. Confidence that these companies can survive profitably for the long term is a must for consumers, shareholders, creditors and for the millions involved in transactions with the automobile companies. A semi-government fund should be formed much like the FDIC or Freddie Mac and Fannie Mae to take care of this American industry. This is not so far fetched since the new administration planned to do as much for health care and other needs of the nation.
- TD Reader DhunMai D.
Interesting and well-articulated thoughts DhunMai. My guess is you’re probably closest to what the Obama administration will actually propose. Whether they succeed or not is anyone’s guess.
Happy Thanksgiving to all – and thanks again for the record outpouring of responses. I regret we could only post a small fraction of your worthy replies.
Justice Litle, Editorial Director, Taipan Publishing Group
Source: Cracking Heads at GM, Ford and Chrysler: Your Responses on the Big Three Bailout
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Justice Litle is Editorial Director for 
They did this to themselves. We allowed them to do this to themselves. Then we fly to meetings in a leer jet to beg for a handout. What an utter gross sense of entitlement these guys seem to have. This is no easy situation. If you had say, a store that had bad management and ran the store in the ground, would you hand them a chunk of money and business as usual. No, first thing you would do is bring in new blood. What a mess our country is in. There is no easy answer. We bail out everybody and his brother and one major aspect to all of this is the role was the historically high price of gas this past year. That one aspect alone did more damage to our economy and society alone. Jobs and homes have been lost at a record rate as a direct result of the high fuel prices. Production and shipping costs were passed on to the consumer in every imaginable product from food to our utility bills. We cut back because we had less to spend. That resulted in even more jobs lost. We need to take some of these billions and first bail America out of its dependence on foreign oil. Yes gas prices are low. NO they are not going to stay low.
OPEC is planning to cut production further and will continue to do so until they get prices back up where they want them to be. While we are doing the happy dance around the pumps we are totally missing the next chapter in our dependence on foreign oil. Someone said in an article yesterday it is rather like trying to talk to someone standing in the pouring rain under an umbrella about a possible upcoming drought. How true. America has tunnel vision. And short term memory loss when it comes to oil and our dependence on it and their control over us. They have us over a barrel literally and they know it. When will we all get that? We need to get on with utilizing alternative energy. Jeff Wilson has a new book out called The Manhattan Project of 2009 Energy Independence NOW. Very interesting and insightful. http://www.themanhattanprojectof2009.com I just think too little attention is given to the oil prices last year and their role in all of our economic woes.
Any idea of giving American taxpayers money to buy decrepit, ill designed UAW built cars is about as dumb as giving tax credits for gas guzling SUV's for soccer moms (oops, hockey moms) to run to the local mart to buy milk and eggs. The "deal" between the government and to collective oil and car manufacturing industries must end. This is the 21st century. Focus should be on mass transit, efficient delivery for goods, and the communication infrastructure that moots the need to move humans. Move human intelligence not human flesh.
Instead of focusing on what UAW workers make, and saying they ought not ask lesser paid taxpayers to assist an industry in which each of these workers toil with deadly and excessively repeative jobs, ask what penalty applies to the executives who ran the company into the ground. Don't kill the worker and spare the boss who made bad decisions.
Those who trade equities have much to share with blame. Day traders are demons, true pirates on the sea of capitalism. Gone are the days of investment with stable equivilents, decent markets, fundamental balance sheets and income statement. Enter the day of emotional investment that is tied directly to those who control the political purse strings. Essentially, reverse back to the times where those with the ability to control money decide what makes money and hard work, good decision making and intutition mean nothing.
Gladly we should applaud the death of capitalism, for it is not capitalism where those businesses which should fail are kept alive to thereby kill the desire to succeed. Capitalism requires competition and competion does not exist when money mongers quash those who would bring forth innovation.