The car company executives' new perspective upon having their jets taken away
The first news article I read that the auto companies of Ford, GM, and Chrysler were developing serious financial problems in the recession said that if things didn't turn around, they would be out of money by the Spring 2009. Next thing you know the CEOs of the Big Three are winging to Washington on private jets to ask for a "loan" [their word] of $25 billion.
In a session before the Senate banking committee, the executives were befuddled as to why anyone would question them as to why they were asking for the money. Their reasoning was something along the lines of "our very presence in Washington is sign that we need the money." The senators of the committee seemed to agree. There were no questions about just what the money would be used for or how it would be paid back. This assumed agreement whose rational was unclear except for the presence of the CEOs and the senators of the committee in the same room at the same time became unraveled when news reports surfaced that the CEOs had arrived in Washington via individual private jets.
The executives were told to come back with explanations for why they needed the money beyond sheer statements that they needed the money and to tell what they were going to do with the money if they got it. OK, the executives apparently thought, if you are not going to simply give us the money and you want to hold us accountable and are looking for some transparency, this is going to cost you. About two weeks later, the three CEOs returned to Washington by chauffeured cars. Having been required to think about what they were doing, the figure they now put forward to save them was $35 billion. Not only had it dawned on the CEOs that they needed $10 billion more than they said they had needed little more than a week earlier, but wouldn't you know, it dawned on them that without being given a big amount of cash, they weren't likely to survive past the end of the year, the coming holiday season. The figure of $25 billion was what they said at first they would need to ride out the recession. But on their second try, the CEOs said they needed $35 billion or they wouldn't survive another month. Apparently, the CEOs had thought some things over during their long drive to Washington.
The lesson for the country is, "Don't give these guys too much time to think. We can't afford it."
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Comments: 19
Taxpayers do not owe the banks or any other business a welfare check, its just another con job.
We are going into depression weather they get their bailout or not and when we emerge it will not be as a capitalist society it will be a socialist state and all corporations will be government controlled.
Oh yes, that's right, auto makers actually produce something and to do so they hire those nasty people who carry lunch boxes and wear blue collars! The uniform of the second class citizen!
I'm not crazy about loans to either industry but of the two, the auto makers didn't create this financial mess, the finance people did. So which one do we bow and scrape before?
Like you, I believe the auto companies should be helped over the finance and insurance companies if given a choice. But apparently we're past that - we've reached the point that any business sector that feels it can get in on the vast Federal response to the recession is going to give it a try. My post was not a criticism of the overwhelming majority of individuals in the automobile business, but rather a wry piece on how top executives try to wheedle money out of government. My default position for thinking of top executives for the most part is Enron. The top people at Enron got caught only after causing immeasurable harm for legions of others. I don't see that the top financial-industry executives, insurance executives, and even now auto executives are qualitatively different from the top executives at Enron. It's just that the Enron people got caught. For a long time now, I've simply assumed leaders of American instititutions across the board--government, religious, private, financial, medical, charitable, you name it--have simply been helping themselves to what they could get in exceedingly crafty ways. What we are seeing with the parade of executives in Washington is an extension of their double-talking and self-dealing. They've sucked up all they can out of the private and global sectors and are having to turn to Washington to keep their charade going. I'm struck by how the Federal treasury secretary and other top financial people have taken center stage to the virtual exclusion of others reflecting other areas of society, such as the labor secretary. This demonstrates the imbalance you refer to in your response to my post.
It has become patently obvious over the past thirty years or so that American automakers are incapable of competing in the global marketplace, and they have been obstinately unwilling to do what is necessary to change that fact. They have shown no interest or concern for issues like global warming and their contribution to the problem. They have resisted more restrictive CAFE standards at every turn. They continued (to this day) to focus on heavy-duty pickup trucks and SUV's like Hummers only because they are greedily obsessed with their bottom line profits, rather than the long-term viability of their industry. They have demonstrated NO vision.
Unfortunately, unlike China, we can't summarily arrest and jail those in management who are personally responsible for this kind of mismangement. Despite their belated "sackcloth and ashes" mea-culpa bowing and scraping, the sad fact is that these executives have driven their industry over a cliff. The American auto industry is no less obsolescent than the erstwhile American steelmaking industry, and it is destined for the same fate.
Some part of the industry may survive, after re-organization, consolidation, down-sizing, retrenching and a truly serious effort to completely revolutionize their business strategy. It is STUPID, and irresponsible, for government to expect taxpayers to pour billions of dollars into keeping this industry on life support. It's time to pull the plug.
You expressed yourself very well in your article! I'm not implying that there is a significant difference between financial executives and auto. The are cut from the same cloth and recognize that the only reason to have a corporation is to enhance the bottom line, regardless whether it is in the best interests of anyone else or not. The very nature of corporations pushes those who fill those positions to act in an indiscreet manner to profit.
Regardless how durable and good the decisions made might or might not be, if the bottom lin goes up the executives are rewarded. There is no qualitative analysis exercised by a corporation to induce enhanced ethics, judgment, etc. That, of course, is the reason that corporations require government oversight for the protection of the populace.
We do need to keep in mind that no one is suggesting that we give the auto makers money. It would be loans and lines of credit. To put them into bankruptcy would be the death of the industry in this nation and we cannot afford to loose this major manufacturing capability. No thinking person is going to buy a vehicle from a company in bankruptcy, unless they get it so cheap that a part not being available in four or five years would be an acceptable consideration. To fly on an airplane of a bankrupt company is considerably less risk than to purchase a $25,000 automobile. You buy your plane ticket and ride, and you've got your investment recovered. No need for continued representation by that company down through the years. One cannot fairly equate the two businesses.
No one is suggesting lending them the money without a suitable business plan and a general reorganization to insure that we get our money back.
I believe that a majority of people oppose any loans to the industry, I also believe that the majority of people would be making a grave error in denying the assistance, if the conditions can be met. The auto companies management has indicated that being under a board with the same powers as a bankruptcy court would have, would be an acceptable consideration for them. The unions have indicated they will accept cutting job banks which run the cost of labor sky high. These are serious considerations to ponder in this decision.
In my personal opinion, the loans will be made in some form or another as we simply cannot afford to loose these industries and give them up to offshore industries.
Thanks for the response!
You are absolutely correct that the inavailability of loans for the purchasers is a major problem for the dealers and, by extension, the auto makers. Hopefully, the finance industry will behave in a manner that is consistent with the needs of the nation and start making the reasonable loans. That is why they received their loans! We just failed to provide the con trolls and oversight needed to keep them responsible.
When the finance industry purchased about fifty trillion dollars worth of "credit default swaps" that have nothing to back them up, they established that they are not capable of making the decision to act in the nation's best interests.
I'd ask all the auto CEOs to demonstrate their willingness to correct the problems by working for one dollar a year until the business is profitable again. Those that don't want to work for that can be replaced, not necessarily for a dollar a year. But then you'd have new blood in there making decisions. I'd also require major concessions from the UAW to be effective until the business was once again profitable.
When we bailed Chrysler out a number of years back, that was not a popular decision either, but they paid it back ahead of schedule and with interest so we made money on that loan. We should make money on loans to the auto industry now as well.
Dream on, James.
And, btw, the argument that if GM, say, goes bankrupt owners of GM vehicles will be SOL when it comes to getting replacement parts for their cars and trucks is a crock. Auto makers make cars, not parts. Believe it or not you can still find parts for a 1948 Studebaker. As long demand exists that demand will be filled by some enterprising entrepeneur.
I'll readily acknowledge that most parts will continue to be available on the aftermarket. However, there are parts that are specific to the vehicle and manufactured only by the maker. If they are not there, most of these would be too expensive for after market to tool up to build. That is why they are not building them now.
I've hunted for, an not obtained, parts for something a lot more common than a 48 Studebaker. However, many parts are available. The last Studebaker I needed real hard parts for was back in 1966 and I could still get them out of Canada where they were still being made. It took close to a month and the parts were labeled for no returns if wrong!
I've spent my entire career in the automotive repair business and know from personal experience that not all parts would be available. You can run into that even today because the maker quits supporting a particular part after so many years due to limited sales and the demand is insufficient for an aftermarket manufacturer to tool up to build them. And if it is my car that needs that part, I'm screwed! The wrecking yard is your only hope at that point. I've been there and done that!
So, no, it is not a crock but a real and active consideration, and to deny that is not being realistic. It will significantly effect and limit sales. I personally, would not want to purchase a $25,000 automobile from a bankrupt auto maker. Too many businesses in this type of bankruptcy fail before it is over.
I'll admit there may be many people who think like you and would purchase such a vehicle if the price were low enough to tempt them, and then face the hard facts sometime later. But depending on "some enterprising entrepreneur" to handle your part need on obsolete vehicles would not be a good decision. We are not risking a 250 dollar TV set here, that one can afford to discard if there is a problem!
And yes, if it is done correctly and there is some break in this economic hell we are experiencing, we will get our money back with interest, just like was done by Chrysler. It's a hell of a lot better loan than many made by the finance industry and better than the investment in "credit default swaps" by a country mile!
I understand your pessimism Paul, but believe it is misplaced here. I acknowledge that Chrysler was not facing an economy dumped in the toilet by the finance industry but hopefully, that will start turning around next year. Have a little faith in America and American companies and workers. I want to bet on the American manufacturers and workers, not against them!
Four years of Carter brought us Reagan!
Yes, and your point would be?
(1) Bankruptcy really isn't in option for a carmaker who wants to continue on because a whole lot of people won't buy from a bankrupt carmaker, so bankruptcy essentially means that a carmaker the size of GM would be unable to exist.
(2) Bankruptcy would mean that the carmakers would have to shed costs, but those costs, such as pensions, would either be put on either the government (government pickup up pensions, for example, would be almost guaranteed) or particularly from the unions (Obama was highly backed by unions=this would never happen). It would probably cost the government more money to let them go bankrupt than any loans ever would.
(3) Many parts makers would go out of business, meaning that the bankruptcy of the big-3 would hurt many of the parts suppliers who supply many different companies, even the likes of Toyota/Honda.
Also, most people who chide the big-3 for making poor small cars forget that the reason they underinvested in them is that for years, the big-3 couldn't make a profit on small cars because of the weight of labor costs that the Japanese car companies don't share. For example, the Chevy Cobalt, which is the highest selling small car amongst the big-3 when it first came out was sold at a loss, and likely still is (the new labor contracts makes them somewhat more profitable). The Japanese car companies probably wouldn't be able to sell small cars at a profit if they were on the hook for the healthcare costs and pension costs of a population 5 times the size of their existing workforce a la GM, and would probably have underinvested in them.
And it's not like Toyota/Honda are doing good right now either. Toyota's sales are down about 25% against last year, despite being having the cash on hand (that the big-3 don't) to make attractive financing offers. In terms of overall quality, the Japanese companies have actually started to stumble, while the big-3 (with the exception of Chrysler) have been gaining handily. Toyota gambled big and lost big on the Tundra, which has had mechanical difficulties, and the only mass market pickup that didn't achieve a 5 star safety rating. Honda's new Accord has gotten underwhelming reviews, and has packed on so much weight it's now considered a full sized sedan (instead of a midsize). Meanwhile, the Chevy Malibu by many reviews is better than the Corolla or the Accord, Cadillac has become a serious competitor to any of the German/Japanese luxury carmakers, the Ford Fusion and Focus have both gotten good press, and both Ford and GM have done quite well in the crossover segment.
14 BILLION without any union concessions! Right down the drain, out the window, down the toilet! Money we will never see again!
The union has stated their willingness to accept concessions including the removal of the job banks that have run costs up excessively. If these concessions do not come to fruition, it is hardly the fault of the unions.
And I agree that we do want our money back. But we will loose far more money from the auto makers shutting down so what do we do? Damned if we do and double damned if we don't!
Where will it end? A fair question! It can end, if we try just a little bit, with a full blown depression with the 25% unemployment and people starving as they did in the thirties.