The Big 3 Bailout

John Stossel did a report last week about the bailout of the "Big 3."

text: http://abcnews.go.com/Business/Autos/story?id=6402552&page=1

MY COMMENTARY:

I have been against all bailouts. Look no further than my industry, to see examples of what happens when businesses/airlines fail. Some liquidate (Ch. 7) some reorganize (Ch. 11.) While I like the Stossel report I feel he actually left out some very valid comparisons, instead of spending so much time beating up the unions.


I definitely do not like the fact that the union segment led his story, by doing so I think it misrepresents where the problem is. If the labeling of the American automobiles was solely, "buy from the Big 3, where cars are built by union employed Americans." This couldn't be further from the truth. Where does the Big 3's revenue come from? duh, selling automobiles. First and foremost, the big 3 have a PRODUCT problem not a PEOPLE problem. If the big three were building Civics, Accords, Camrys, Carrolas, Fits, and so on and the foreign autos were the ones trying to sell 150's, Expeditions, 300's, Taurus (hey that's what I got), Crown Victoria, etc. What would be the reality right now? I actually pulled up the best and worst of 2008 and no Big 3 cars were even in the top half of the best list. Sorry this is just the facts and numbers, minus the emotion that keeps getting blasted at us by the media. You can see all the numbers for yourself (I linked financial and consumer survey and purchasing data throughout this post.)


Don't think I am going easy on the UAW/Union folks, I will get to them. But next (something completely absent in the Stossel report) is distribution. Look at GM brands. Chevy, GMC, Saturn, Buick, Cadillac, Hummer, Pontiac, Saab, and a few other foreign brands. Initially on the utilization of parts, frames and so on, it is great. They start with one platform that actually makes 5 different cars. Same underpinnings but different body molds, options (more for luxury, Caddy, less for budget, Chevy, more ergonomic, Buick, more sporty, Pontiac, and so on.) The downfall, how much competition have you created within your own brand. A guy wants to purchase a fully loaded Chevy Trailblazer, but finds he can shop GM Envoy, or an entry level Buick Ranier. He also can probably shop those three brand at 12 different dealerships within a 1 hr drive. Yikes!


On the other had Toyota has Lexus and Scion, Honda has Acura, Nissan has Infiniti. Here is what I found with a little internet research:

Ford: ~5,000 dealerships (All FORD= ytd 2008 sales: 1,774,492; -19.0% from 2007)
Chevrolet: ~4,300 dealerships (All GM= ytd 2008 sales: 2,714,600; -21.8% from 2007)
Pontiac: ~2,800 dealerships
Cadillac: ~1,600 dealerships
Buick: ~3,000 dealerships
Dodge: ~3,000 dealerships (All CHRYSLER= ytd 2008 sales: 1,363,309; -27.7% from 2007)
Chrysler: ~4,500 dealerships
Lexus: ~180 dealerships
BMW: ~350 dealerships
Acura: ~250 dealerships
Toyota: ~1,200 dealerships (All TOYOTA= ytd 2008 sales: 2,075,711; -13.4% from 2007)
Honda: ~1,000 dealerships (All HONDA= ytd 2008 sales: 1,342,680; -5.4% from 2007)
Nissan: ~1,100 dealerships (All TOYOTA= ytd 2008 sales: 889,248; -9.1% from 2007)


I couldn't find all the numbers but I think you can see my point. Chainsaw math is that a GM dealer (all brands) is selling on average, almost 1 car per day. On the other hand, a Toyota dealer is selling almost 5 cars per day. Huge inefficiency! Stossel missed a big one!


Back to the unions, Stossel jumps all over them about job banks and didn't get into the particulars, but that is why they have to give meaty buy-outs to get people off the gravy train. The wages and bennies (healthcare, pensions, etc) are getting an undue bad rap. The figures some media give is a much as comparing a $40/hr total compensation package for a Toyota worker vs. $70/hr for the UAW Big 3 worker. I think this was actually given by one of the CEO's during testimony. The fact is that wage estimate provided is inaccurate b/c they lumped in the pensions of the currently retired onto the wage of the person still working... umm that is not how a pension works. A worker agrees to work for $10/hr when he starts, knowing that under the current contract he will top out at $35hr at 20+ yrs of service (this is for example only) Part of his benefit is that for every hour he works during his 25+ yrs of work the company is putting $5/hr into his pension fund. He doesn't care or know what actually happens with the money. The worker only knows by a chart based on yrs of service what the pension amount will be when retiring after XX yrs of service. From what I gathered from those crooks sitting at the table in Washington, was that while over the past decade CEO compensation has increased over 1000% (that is right, I didn't add too many zeros) they are now calculating current retiree benefits off the current workforce??? The pension money SHOULD already be there... unles you weren't contributing it all along into the pension fund. That is criminal in my mind!


The UAW needs to bull rush in and deal with the product problem as well. They need to restructure their contracts and remove things that impede the Big 3 from advancing production strategies. Move away from the old assembly line techniques and move into the future. Personally I think the last thing those slimy hands of upper-mgt should be reaching for is the salaries off the backs of the people who will be needed as a team to produce vehicles that Americans will want to buy. If they want to try and beat the workforce down then depend on them, big mistake. Maybe the UAW folks will agree to a percentage of their wages be paid base on future successes (profit sharing) but only on a temporary basis. If fixing the product(s) ends up not being enough, then this can be revisited.


However, all the rest of Stossel's report is dead on. This bailout has created a "Car Czar." Um think about that... that is scary, Socialism, Communism, not pointing towards Capitalism, where the free market and profits/losses determine success or failure... but some guy that reports to the government, will be able to use his Czarish-ness backed by power in Washington. If I was up top of one of these companies, I would prefer the almost similar system known as bankruptcy. The bankruptcy court sounds more favorable than some "Car Czar."


The media doesn't understand bankruptcy, and I applaud Stossel for pointing that out. Instead here in SE Michigan all you will here is, "hundreds of thousand of jobs lost if the Big 3... fail... go-under... close their doors... shut-down..." I have tried to explain BK a little around here but have somewhat been quickly strung-up as anti-Michigan. Ch 11 is the system that allows the Big-3 if needed (out of liquidity/cash strapped) to seek protection from debtor(s) and reorganize with the BK court. The doors don't shut, no one goes under. Employees show up for work, secured creditors get paid, un-secured, well they have to get in line after returning all payments made in the last 90 days. They will get a percentage of what they are owed in a settlement from the BK judge. Meanwhile the CEO's lose sole operational control and have an appointed agent from the court. All decisions will get made jointly within the BK court. This is protection for everyone. Instead we are going to send the money first and look for results later, governed by the "car-czar." This money is our tax dollars.. oh wait, we don't have it... This money will come from China to be repaid by the American people with interest. They are claiming this is just a loan (assuming all ends well.) Now we have a stake to force something or we (the American people) are at the loss.. out the money. Hmm BK sounds alot better, costs us nothing but the same supposed practice/restructuring occurs to get future success to emerge from BK. Folks this is all backwards. Government, and its scope, keeps getting bigger and bigger every time Congress convenes. We all know how efficient the government is, or maybe we don't... yet!