Should the US govt. bail out Ford, GM and Chrysler?

Rowley Birkin QC

Given their history of producing rubbish and horribly uneconomical cars for the US domestic market should they be allowed to wither and die of as natural selection dictates?

Or should the Govt. put in place some kind of rescue package to prop them up?

Good opinion piece in The Cork Examiner yesterday from Mitt Romney arguing against the industry being rescued. However this could simply be politics.

Mitt Romney wrote:

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.

Mitt Romney, the former governor of Massachusetts, was a candidate for this year’s Republican presidential nomination.

What do ye think? Let the old dogs die or prop them up but make them clean up their act?

Also the CEO's flying in by private jet (3 private jets!!) with begging bowl in hand was laughable!

shaywest

die dog die,or ****e the licence

Ferris

Voted yes but would have gone for a:

'yes, and fund further development of V8 noise and musclecars' option.

Was in california in 1996 and again this year. The difference in type of car was palatable, all pious prius's and Kia's and way less real cars

Rowley Birkin QC

I suppose that is the flipside, no more mass produced V8 engines if they do go under.

peasant

The flipside is just a tad bigger than the demise of growling V8's.

Ford Europe and it's subsidiaries, GM brands like Opel, Saab, etc

They all could be in serious trouble if not gone.

seclachi

No, they shouldn't be bailed out, at the end of the day in a capitalist world money : in > out or else you go bust. If the government overrides that too much then the whole econmoy suffers when currency is devalued, and they have done alot for banks, but that had to be done as the banks are the corner stone of the economy. The car industry needs to restructure itself, just as many other industry's seem to be doing right now.

unkel

Tough talk from Romney, but I totally agree with him.

-Chris-

Check this out, it's an interesting perspective that I kinda agree with!!

Seth Godin wrote:

What to do about Detroit

I was in Detroit last week... I have family there. I also drive a car. And I would rather that the world doesn't melt and the economy thrive. So I'm uniquely qualified to weigh in on the automobile industry.


Not only should Congress encourage/facilitate the organized bankruptcy of the Big Three, but it should also make it easy for them to be replaced by 500 new car companies.


Or perhaps a thousand.


That's how many car companies there were 90 years ago.


That's right, when all the innovation hit the car industry, there were thousands of car companies, with hundreds running at any one time. From Wikipedia:

Throughout this era, development of automotive technology was rapid, due in part to a huge number (hundreds) of small manufacturers all competing to gain the world's attention. Key developments included electric ignition (by Robert Bosch, 1903), independent suspension, and four-wheel brakes (by the Arrol-Johnston Company of Scotland in 1909).[16] Leaf springs were widely used for suspension, though many other systems were still in use, with angle steel taking over from armored wood as the frame material of choice. Transmissions and throttle controls were widely adopted, allowing a variety of cruising speeds, though vehicles generally still had discrete speed settings rather than the infinitely variable system familiar in cars of later eras.


Between 1907 and 1912, the high-wheel motor buggy (resembling the horse buggy of before 1900) was in its heyday, with over seventy-five makers including Holsman (Chicago), IHC (Chicago), and Sears (which sold via catalog); the high-wheeler would be killed by the Model T.

Back in its heyday, Ford Motor made every single part of its cars, including raising the sheep that grew the wool that made the fabric that upholstered the seats. That's not true any more. Now, suppliers make just about every part. We need those suppliers, and we need them to stay healthy.


What we don't need are giant companies with limited choice, confused priorities, private jets and a bully's attitude.


I'd spend a billion dollars to make the creation of a car company turnkey. Make it easy to get all the safety and regulatory approvals... as easy to start a car company as it is to start a web company. Use the bankruptcy to wipe out the hated, legacy marketing portion of the industry: the dealers.


We'd end up with a rational number of "car stores" in every city that sold lots of brands. We'd have super cheap cars and super efficient cars and super weird cars. There'd be an orgy of innovation, and from that, a whole new energy and approach would evolve. Betcha.

maidhc

Let them all sink.

I can see Ford Europe merging with someone else (maybe PSA or BMW), and continue to be profitable, and export cars like the Focus, Fiesta and Mondeo to the US.

I think the situation is more dire for GM and particularly Chrysler.

ninty9er

I can see GM brands being cherry picked.

Isn't the German government talking about an assistance package for Opel subject to EU approval??

If they marketed cars that are profitable like the Mondeo, Euro Focus and Galaxy in the US they could make massive production savings, though the flipside is that some US made trip could find it's way to Europe if models are standardised.

Max_Damage

I can't understand how Ford are losing money, it's not like their vehicles aren't popular (the Focus was, and still is, a major hit world wide, and I remember reading the F150 pickup truck was the biggest selling vehicle in the world not too long ago).

Even in America, nearly every 3rd or 4th car on the roads is a Ford.

Max_Damage

ninty9er wrote: »

though the flipside is that some US made trip could find it's way to Europe if models are standardised.

Wouldn't mind seeing the Crown Vic being sold here!

DublinDilbert

Max_Damage wrote: »

I can't understand how Ford are losing money, it's not like their vehicles aren't popular

Is it a bit like DELL, they sell lots of PCs & Laptops, but make very little on each one.... Where as Apple sell a fraction of the number of computers, but is more profitable than DELL.

Rowley Birkin QC

Max_Damage wrote: »

Wouldn't mind seeing the Crown Vic being sold here!

But the price they would have to sell it at here when VAT and VRT would be taken into account would make it stupidly expensive.

mikemac

I seem to remember Lee Iacco (sp?) took over Chrysler years ago and got a government loan.
Not only did he turn around the company but he payed back the government loan early.
It's a well know business story

So maybe it can be done today

VolvoMan

I think they should be saved. With the exception of Chrysler Jeep they all have really pulled their act together and are now producing some seriously nice cars. The Linclon MKS looks a million miles away from the stodgy Town Car, the Ford Fusion Hybrid is one of the most efficient cars currently on sale there and GM are making fantastic progress with their Chevy Volt.

And besides if the big 3 all go bang, it will have a massive knock-on effect on all aspects of the motor industry around the world. Loads of suppliers will go bankrupt and millions and millions of people will be left unemployed. I mean, do you really wish that that many people will lose their jobs? I know I wouldn't.

SAAB, Opel/Vauxhall, Holden, Cadillac, Chevrolet, Volvo, Ford of Europe, Lincoln, and many more will all be pulled down with them. Around fifty per-cent of the motor industry will just disappear and Toyota will take over the world - The producer of the most soulless, dynamically flawed, characterless cars that may be totally reliable but of very poor quality otherwise.

Would everyone really rather this happen?

Bulmers

the japanese in the US can make the same car for cheaper, including export, the average worker in GM detroit is on $90k + bens (quite substantial in US) so it's a management issue really...

BlackWizard

Just handing them money wont work. They don't even have a solid plan in which to use this money. And suddenly producing good cars doesn't fix their financial and operational problems.

I would like to see senior management throwing in the towel. Letting go all the workers and stopping all manufacturing. Then with the bail out money, start all over again, be more strict with the unions ( IMO don't recognise unions ) and take a long hard look at how Honda and Toyota do their business in America.

I don't think there is an option for restructuring a huge company without their being financial devestation for all those directly and indirectly involved. But if they can do it while still operating normally, then that's excellent. But I find it hard to believe right now.

Don't Automate, Obliterate

pppspecial

If there not bailed out there will be serious problems here in europe mainly....ie the motor industry will crash.
As mentiond Toyota would take over market share German, French, Italian ,Korean will fight for the rest.
The only way to improve our situation here is to reduce car prices accross the board and work off lesser margins. The same needs to happen with these dimwits. Justmy 2c.... but yes they have to bailed out.

maidhc

pppspecial wrote: »

The only way to improve our situation here is to reduce car prices accross the board and work off lesser margins. The same needs to happen with these dimwits. Justmy 2c.... but yes they have to bailed out.

Reducing margins is NOT the answer. GM and Ford are in trouble, but BMW and Porsche are doing well.

I think Chapter 11 bankruptcy is the only alternative, and as mentioned above, renegotiate the whole labour situation.