Detroit's not flying the white flag just yet, but you can hear the unmistakable sounds of unfurling. Post Black Tuesday, GM CEO Rick Wagoner set about painting General Motors as a victim of unforeseeable circumstances; the switch from truck to car sales was faster than "anyone" could imagine. Chrysler CEO Bob Nardelli simply said everything's fine– a sure sign that nothing is. And earlier today, Ford President Mark Fields pleaded for government intervention to protect/create a domestic electric vehicle battery industry. Clearly, finally, The Big 2.8 are thinking ahead. To government bailouts.
Chrysler will be the first to file for Chapter 11. Ironically, the ailing automaker's also the least likely to receive government assistance. Yes, the feds bailed out Bear Stearns. Yes, the U.S. government provided Chrysler with hundreds of millions in loan guarantees the last time ChryCo was up against the wall– and received handsome rewards for Lee Iaccoca's rescue. But that was then. This is now.
Chrysler owners Cerberus don't want an auto company-shaped millstone around their neck. Any pretense that the private equity firm bought Chrysler to run as a going concern will disappear the day they file. Cerberus will use C11 to break-up the company, sell what it can, sue Daimler, settle out of court and run in the opposite direction. You want federal subsidies/guarantees/loans/whatever to keep this sucker afloat? YOU get ‘em.
No doubt Chrysler's new new owners will receive some kind of public assistance. But the idea that the entire company can be saved will be jettisoned by everyone except the unions– who'll take what they can get.
Even if the Chrysler's dissolution gives GM and Ford a dead cat bounce– and frankly, who could tell in this market?– GM will crank-up its lobbying efforts for government assistance. Massive hybrid tax credit for the electric – gas Chevrolet Volt? It's a given. Credits for "resurrecting" old factories will also reappear. In fact, all the creativity that should have gone into GM's cars will flow into shaping a massive, green-tinged begging bowl.
And then, catastrophe. All these bail-out band aids cannot staunch GM's wounds. The company will have to file. At that point, the tax-funded pity party will REALLY start.
While America doesn't need a nationalized automobile industry any more than England did, there's no question GM will find a willing partner in Washington. For one thing, bailing out Detroit will mean bailing out Michigan. The state is [still] too large and too powerful to let sink beneath the Great Lakes under the weight of a total GM failure– despite massive complicity. For another, the political narrative is pretty compelling. It's not just Detroit that's on its knees (so to speak), it's AMERICA! Let's keep America rolling! (Again.)
Of course, the southern states, where the transplants frolic, will be none too happy watching their patrons' profits attacked by federally-subsidized domestic competition. So there will be conditions placed on these subsidies/guarantees/loans/whatever. Lots and LOTS of conditions.
The days of excessive trough snuffling (i.e. Rick Wagoner's $14.4m annual pay packet) will be finished. Pay will finally be tied to performance. Current management will get a bit of a tongue-lashing on the Hill by the aforementioned southern reps, but the Powers that Were will drift off on their golden parachutes with their money and yes, pride, intact.
The unions will demand– and receive– job guarantees. The feds will stipulate that none of the money provided can be spent building cars overseas, including Mexico and Canada. While GM will sleaze this– building overseas cars here, importing parts– this stricture will condemn GM to complete oblivion. But hey, you can't fight the will of the working man.
And if that's not enough to turn a mediocre car company into an entirely non-competitive corporate entity, there will be enough embedded green initiatives to plant a good-sized forest. The word "sustainable" will echo through the loan agreement like a cannon fired in the Grand Canyon– with about as much effect on the environment.
I'd like to think that a new GM will rise from the ashes of the old. But it seems obvious to me that neither GM's custodians nor the feds will have the foresight, courage or political will to do what really needs doing: the breakup and sale of all GM's brands.
That strategy would "save" GM by destroying it. The talent locked-up within GM would be freed from the stifling, overarching bureaucracy, to emerge in a focused and streamlined fashion. But a life-saving break-up would require a fundamental shift in public consciousness. A politically incorrect recognition that the American free market cuts both ways; helping the losers weakens the system, rather than improves it. You can't create competitiveness through legislation any more than you can outlaw it.
It's a lesson GM will learn soon enough, one way or the other.
Interesting – lots of possible endings/loans. No matter what happens, I can’t imagine a scenario where whoever will be left as GM captain will have his pay tied to performance. Even Steve “Bankruptcy’s R US” Miller got smart and got a ton of cash up front.
I’m also not convinced that anyone will bail out GM, and I live in Michigan. I can see Nissan, VW, or Toyonda bidding on plants they might be interested in (with State tax incentives thrown in for good measure). GM’s hole is too deep and the stupidity is just too prevalent. Consider Exhibit A: the G3. Need I say more?
I can see Federal money being tapped to pay for Union workers to get a two/four year education so that they can get back on their feet. They’re first in line to get screwed when the ship sinks. The suppliers had better hope they’re portfolio of customers is diverse enough to sustain them when GM goes down or they’re just going to add to the ripple effect.
Will the last one out of Michigan please turn off the lights?
Sunshine, my only sunshine, you make me happy when skies are gray!
You are officially off my list of finalist for Motivational Speaker of the Year. Should I take my cyanide pill now or tommorrow, I can’t decide.
there is another way, it’s called “Return to Greatness” just waiting in the wings. Red Ink Rick would hear none of it. maybe the time has come.
In an ideal world, I personally don’t see a problem in bailing out a company with taxpayers money. Whatever anyone says, if any (or worse, all) of the big 2.801 were to file for bankruptcy, the ramifications would be felt across the world and would almost certain tip the balance into a recession. The big 2.801 still keep a lot of people employed and that many people losing their jobs would be a huge strain on the NA economy. NA needs to not make the same mistake the UK did in letting a free trade agreement mess up their economy. I found out the other day that Goverment ministers have been using taxpayers money to buy Ford Mondeos (which are built in Genk, Belgium), when they could have bought cars made in the UK (i.e Jaguars, Toyota Avensis, Vauxhall Vectras, take your pick), then they complain that the UK has a huge trade deficit! It is important to keep money flowing within one’s economy (i.e keeping it in the country). Which is why, a goverment bail out can be a good thing.
Louis Schweitzer was a civil servant for the French goverment. He was then dispatched to Renault, which was under French govermental control, to whip it into shape. Using taxpayers money, he transformed Renault from a maker of pretty poor cars, into the Renault we see today (contrary to popular belief, It wasn’t Carlos Ghosn who made Renault what it was today, it was Louis Schweitzer). This kept loads of people employed and made Renault so lean, that they took a chance on Nissan, pulled off the same trick and are now both in rude health.
If you ask me, British Leyland could have had the same ending, but there’s one crucial difference between both scenarios which caused them to have drastically different endings.
In the French bailout, management was overhauled. In the UK version, the same management was kept. And this is where a caveat of a US bailout would have to be.
Yes, let the feds bail out the big 2.801 and take each of those companies into national hands, but rip out the management and install competent executives. Don’t let the previous management keep their jobs. They clearly weren’t working. Install some civil servants to work on making them profitable and viable. It is possible, will the government think that far?
I strongly doubt that they will just hand money over to the big 2.801 and expect them to get on with it, that would be a worse scenario. They spunk that handout and come begging for more. No, no, no. When you make an investment of that size, you pay close attention to it and get rid of anyone who will jeopardise it. That’s what Mr Kerkorian did. He tried to push for a Renault-Nissan takeover, but lost because Rick Wagoner’s career was far more important than tens of thousands of peoples’ jobs.
But like I said, “in an ideal world”. What will probably happen is the Chinese or Indians will take them over and, maybe, leave some manufacturing in NA.
It’s going to require protective tariffs to have any real impact. Domestics will be considered toxic waste unless it is made clear that they will not be allowed to fail, or their warranties be voided.
As far as paying off the union, I doubt it will happen. You guys are having trouble with a new GI bill down there.
Best bet is to model the auto industry after the French one, but on the other hand you really lack the technocrats that are crucial to the job. Perhaps Carlos can be persuaded to do something as a vanity project.
Like it or not, America absolutely does need a domestic automobile industry. It makes sense to reform it and make it robust.
Buickman:
No one (except RF perhaps) wants a ‘Return to Greatness’ more than I.
Kettering engineering wrapped in Earl sheetmetal changed the world, once.
The difficulty is the tremendous lag time between reality and perception.
A lot of Vegas were sold before buyers knew the world had changed.
If Greatness Returns, it will be many years–years GM doesn’t have–before the customers come back.
Who gets Chevrolet? The Chinese?
Mr. Farago’s editorial seems pretty well thought out. I can’t really argue against his general theme.
However, I suspect that both Ford and GM will muddle through their problems and neither will actually file for Chapter 11.
I suspect that even ten years from now, Ford and GM will still be operating in similar, but changed forms.
Time will tell…
I have enough problems with my own economic troubles, it’s pretty unfair to MAKE me pay to fix there problems. Especially since I am currently stuck with one of there total piles of sh*t that I can’t drive, can’t get rid of because it becomes more worthless by the minute, and I can’t afford to fix for the 100th time. They made their bed it’s time to die in it. I don’t remember GM coming to their customers rescue when they sold them total crap, if I remember correctly they told them to go f*ck themselves with their warranty service. Karma boys.
We will still have a domestic auto industry, it’s called Toyota, Honda, Hyundai, Nissan, etc. the ones actually investing in our country instead of offshoring as fast as they can. I see good things happening in this country after the pain and lessons have been learned. That wont happen with a handout, we will just continue down the same sorry path with more zeros added to the countries already huge debt.
GM could be made to work if they dump all of the existing management and start over. Mike Bloomberg wants to be president? Make him CEO of GM instead. See what he’s really got.
Or, put together American Leyland. Mullaly could probably do a decent job running the whole thing (if given a free hand to fire anyone who got in the way).
I can’t see GM ever formally filing for bankruptcy. Is there a reason the “tax-funded pity party” can’t start before Chapter 11 is filed? We’ve covered here how bankruptcy filing can destroy a company’s reputation (and therefore, sales). GM can basically ask the government:
“We need money or we will have to file for bankruptcy, and the company’s image will never recover from that. Save us later, and run the risk of us dying anyway, or save us now, when it can actually save us.”
Of course, such a bail-out wouldn’t require the management to leave (unless specified), so that wouldn’t really solve anything…
i see ford coming out of this on top. they seem to have a huge head start on cleaning up. they seem to get it.
GM will probably get threw it all by the skin of their nose, they, wont learn or change anything. and continue on as they are. at least or a little while
chrysler will be in C11 before christmas and emerge a much leaner brand probably 1/2 or 1/3 the current size.
i could see a bail out as a huge back fire for GM. It will obviously be widely publicized if the gov’t hands them a check and people wont like that to much when the economy is the way it is. could end up in the general public turning there back on GM.
Well, after that grueling two hours in front of the Congressional committee, Ricky is going to need those six languid months in Aruba. As to the government coming in and taking over, well, if it means extremely high paid quasi incompetents like at Fannie Mae, well, what makes you think gov’mint really will do a better job than these current jokers? Here is the important note, the current CEO of Honda is an engineer that ran/designed a number of their most important motorcycle models (including their racing teams) before moving over to the car side. The engineers running the Domestic 2.37 are notable by their absence.
The fact is that the current domestic 2.37 situations are closer to “Whack-a-Mole” games than anything else. Other than a printing press the government has no means (i.e. expertise or knowledge) that would be beneficial to these large manufacturing firms in terms of relieving their self-inflicted miseries. Sure, we could try another version of Smoot Hawley to see if it works better this time around, but are you willing to bet the entire economy? RF has been essentially right all along, there are the elements of successful automotive companies amidst these large, now completely dysfunctional mammoths, but if they wait too long and allow the politicians to start suggesting the solutions, you can write off the whole shebang.
The way I see it, people today are looking for a “safe bet” when they buy a new car.
I think this explains the currently soaring success of Honda and Toyota, as they are seen as safe. A new car buyer already has expensive food, expensive energy, and perhaps a very expensive housing debacle and, for whatever reason, they’re in the market for a new car.
Inexpensive, durable, and fuel-efficient are the first things that come to mind in this situation and the first brands that satisfy those in most buyers’ heads are Toyota and Honda. Good resale doesn’t hurt either, given that they may have to bail on their purchase if things continue going down the tubes. Again, Toyota and Honda take stage center, whether the reputations are deserved or not.
So our hypothetical buyer is already skittish and already looking for the best bargain. He may be swayed by the sexy styling of the new Malibu, just might put his Citation, Celebrity, Corsica, and S-10 woes behind him, and take it for a test drive. He’s already on the fence, and the Chevy needs to hit a home-run on all accounts to get him to even consider signing on the dotted line.
Then… bankruptcy? Psshh. The Malibu could get 175 MPG and make his breakfast, and it’s off the list. In an instant.
I propose that Toyota built up extra capacity for the Tundra and Sequoia not out of sheer stupidity (although this is certainly a possibility), but because they know at least two of the D2.8 will bite the dust, and whatever remaining full-sized truck buyers left in existence will be assuming that the last Michigander standing is no longer a safe bet. Even with $5 gas, Toyota could max out capacity at their two truck plants if Rams and Silverados are saddled with a bankruptcy-burdened brand.
This isn’t 1979 and the majority of car buyers already don’t seem to care who builds their whip. I know many people who are actively cheering the demise of the D3, born out of hatred for the misery they were served when they bought a domestic product in the past.
Whatever momentum the domestics have at the moment will be toast in North America the moment bankruptcy is filed.
Let’s just put it to a vote. Let’s ask hardworking Americans if they would like to have what money is left after soaring food and gas prices taken out of their pay by force (and make no mistake- if they don’t pay men with guns will come and take it)… and this money will go to pay companies who for decades have sold them self-destructing trash, and will go to employees of those companies who enjoy far greater pay and benefits than those Americans could ever hope to achieve. And those taxpayers, who have no pension, will be shaken upside down to fund the sweetheart pensions of others.
For those who believe that taxpayer money should go to a bailout, there’s no reason to wait. You can start sending your donations to them right now.
Toyota has contingency plans, unlike the Detroit 3. The Canadian plant that will build RAV4s will probably open as scheduled. The Indiana plant that currently makes the Sienna, the Sequoia, and some Tundras will probably be converted to make Camrys and Siennas only, with the Sequoia and Tundras going to Texas. NUMMI in California will stop making Tacomas, with those being made in Mexico only, and that line will be converted to Priuses. The new Mississippi plant that was supposed to make Highlanders will be put on the back burner or converted to make Corollas or Scions.
Net result of all that nonsense is one new plant having a delayed opening and no closures. Toyota takes, say, a billion dollar financial hit from all the shuffling and moving from high-profit things like pickups and SUVs to lower profit things like hybrids and compact cars, but a billion dollars to Toyota is barely a head cold, considering that’s just a month’s worth of profit (not sales, net profit).
Now, some or all of that can be reversed if and when Chrysler collapses. Chrysler still sells about a two million vehicles a year in the US-those buyers have to go somewhere. However, Chrysler’s impending disapperance will probably help Ford and GM more than Toyota-and Ford and GM clearly need the help much more than Toyota. Compare the number of plants Ford and GM are going to close, net (a whole bunch) with what Toyota is going to close (basically none).
In any case, since Chrysler will go away soon, Ford and GM are probably safe in the short to medium term. In the long term, however…
The dead cat bounce when Chrysler files will mean huge bonuses at Ford and GM. When one of those two files some years down the road, the dead cat bounce will mean huge bonuses at the other.
If the government is just going to bail GM out whenever they are close to bankruptcy, then what incentive does GM have to get their shit together?
We will still have Ford even if Chrysler and GM go under, so why bother trying to keep Chrysler and GM propped up? They’re probably just going to offshore everything anyway, like they’re already starting to do.
GM has the tin cup out for government assistance and will probably get it. Detroit perfectly oblivious to a gasoline crisis that’s been brewing for years. 2006 cars, SUV’s, PU’s, vans consumed 136,000,000,000 gallons of gasoline. 70 percent of crude imported plus drilling and refining restrictions. CEO’s paid multiple millions to manage to the future. Toyota, Honda with those silly hybrid toys at great corporate expense. Now Detroit needs help due to circumstances beyond their control. That’s America.
I propose that Toyota built up extra capacity for the Tundra and Sequoia not out of sheer stupidity (although this is certainly a possibility), but because they know at least two of the D2.8 will bite the dust, and whatever remaining full-sized truck buyers left in existence will be assuming that the last Michigander standing is no longer a safe bet.
This is what I think.
I disbelieve a “dead cat bounce” will occur. The moment the first D3 member bites the dust, pundits and writers will begin discussing the “paradoxical” sales increases of Toyota and the other Detroit automakers’ losing nearly all of their sales overnight.
I showed my uncle a list of cars: Chevy Colorado, Jeep Patriot, Ford Focus, Honda Civic. He’s a union supporter, as is my entire family (my other uncle is the local head of the Pipefitter’s Union). He told me, “The foreign one will be the safest bet.”
Even Detroit’s most ardent supporters don’t support it anymore, in the same way even some of the most ardent Republicans have given up on Bush.
I doubt that the bailout scenario will take place. The two coasts dominate the political landscape more and more each day, and the customers/voters there have already tossed Detroit overboard. The US treasury and federal reserve are a bunch of bankers who care about keeping banks afloat (Bear Sterns, etc.), but they have shown no concern about manufacturing companies going away. When the US based tire and steel businesses collapsed, the politicians yacked some, but did little.
A much more likely scenario is foreign companies and/or governments buying bits and pieces at fire-sale prices. Which, by the way, is what is actually keeping the big money center banks afloat right now. That $1.5 Billion leaving the US every day to buy oil puts massive stacks of cash in the hands of sovereign wealth funds.
I have a contrarian opinion. It’s worth it to Toyota to be able to put GM and Ford out of business any time it wants. Just cut truck prices to the bone…start an even bigger price war. Who dies first? Toyota can break even while sending GM to the wall.
As for government run businesses…compare the two cafeterias in the capitol building. The senate building averages two new menu items per decade, costs more, has bad food, is mostly empty and loses money. The cafeteria on the house side makes money, has better food with a regularly changing menu, and lines out the door. Not surprisingly, the government owns the senate cafeteria and has privatised the house side…
“””Redbarchetta :
June 12th, 2008 at 6:25 pm
I have enough problems with my own economic troubles, it’s pretty unfair to MAKE me pay to fix there problems. Especially since I am currently stuck with one of there total piles of sh*t that I can’t drive, can’t get rid of because it becomes more worthless by the minute, and I can’t afford to fix for the 100th time. They made their bed it’s time to die in it. I don’t remember GM coming to their customers rescue when they sold them total crap, if I remember correctly they told them to go f*ck themselves with their warranty service. Karma boys.
We will still have a domestic auto industry, it’s called Toyota, Honda, Hyundai, Nissan, etc. the ones actually investing in our country instead of offshoring as fast as they can. I see good things happening in this country after the pain and lessons have been learned. That wont happen with a handout, we will just continue down the same sorry path with more zeros added to the countries already huge debt.”””
AMEN.
I thought with my heart vice my brain.
2004 and I was peeking at new vehicles. Mini-van, pick-up…. I sensed upcoming economic woes and wanted something a single male could live in if the worst happened. Having been homeless in the past, that 1975 Honda Civic keping the rain off the head and the wind off the body until finances improved, was much better than being on the streets.
Opted for a Chevy pick-up with an 8-foot bed and a shell atop that bed. Slept in it during long trips and it was like a mansion compared to the Civic of yore!!!
Went against my instincts and strayed from Toyota. I saw the Ft. Wayne, Indiana factory source sticker and thought I would assist the “home team.”
Sadly, I learned the hard way that “loyalty” is not always returned. After 35 years of driving, from semis to ships to 4-wheelers and performing maintenance and repair on many equipment-types, I know a defect when I encounter it, and I did, many times, with that Chevy.
I soon learned that expecting the dealer to actually diagnose a defect and fix it was impossible. Sure, if a defect/problem jumped out and bit the parts-replacer on the nose the problem was worked upon BUT, if any true diagnosis was required I heard the same mantra using the same words (very suspicious, I thought) to explain why the defect was my problem to live with because…
“We can’t replicate the problem.”
Multiple dealerships yet the same refrain.
Water cascading through the dash, shorting out the blower motor, flooding the passenger floor board, just ONE of numerous problem-types? Well, silly me, I should have learned by then… just ANOTHER defect I had to live with since the problem, “Can’t be replicated.”
Corporate GMC responded with, “Take the vehicle to the dealer.”
Yeah, that did a lot of good.
Couldn’t afford a lawyer. My state is extremely pro-business and anti-consumer. I was stuck. If a firm refuses to back up its warranty, well, there’s not much you can do!!! Except try to warn others and shun that firm in the future.
Chevy/GMC did me wrong and I hope they collapse. It is just a shame that the higher-ups earn/earned enough in ONE year to lead lives of luxury. Did those folks actually EARN that wealth, more in one mere yer than most folks do in a life-time of work? I hope that somebody with more assets than I have can sue those higher-ups if GMC falls.
Those corprate elites do not deserve a life of luxury. But, the elites class of the USA pretty much takes care of each other. They will spit in the face of the little guy, the commoner, who economically sacrifices for years to buy but one unit of their corporate output only to be shat upon when that product exhibits numerous ongoing defects.
Oh how I wish I had bought Toyota where I was always treated fairly when I took my vehicles in for repairs.
GMC, your horrid treatment of me will never be forgotten. I also note what appears to be a down-playing of the relatively new 5 year / 50,000 mile powertrain warranty. Maybe the word has gotten out how you treated me with your faux warranty that is evaded with “Can’t replicate the problem.”
I have also read on various message boards where others have mentioned the same or very similar problem with mention of a dealer unable to determine the problem’s source.
Whatever the case… I hope GMC falls and that those with the funds can yank some of that undeserved wealth from those corporate higher-ups that have spit in the face of the common folks for far too long.
There’s another alternative: GM bails itself out. Less than two weeks ago, Barron’s targeted GM stock to be between $30 and $45 by 2010, up from $17 the day of their article, based on the continuing stream of new models, emergence of the Volt, and the recent cost-cutting drive and resulting contracts rolling into their financial results. Barron’s isn’t a sunshine-and-strawberries rag. The publication admits anyone betting on GM will have to endure 12 – 18 months of pain, but the payoff will come, in their opinion. Rampant skepticism or not, the book isn’t yet written on GM’s ordeal.
I wouldn’t object to a large Federal subsidy for vehicle-grade battery development, but I also have modest expectations for success directly attributable to such a program. It reminds me of the half-billion dollar subsidy for US flat display panel development, when reclaiming participative momentum in next generation displays was considered a high-tech strategic imperative for the United States. The ‘Made In X’ stickers on the flat panel displays peppering your office and home suggest that program fell short of objectives beyond the “R” in R&D.
I also wouldn’t object to the Feds mitigating the risk of lending to or otherwise financing the D3, but the rub comes in oversight. The government has no one anywhere suitable to be trusted with direct management of an auto manufacturer. It also can’t be trusted to hire a new management team that improves upon the current one in any of these companies. The key question to be answered is, how will Federal backstop be linked to composition of the Board?
Complain about Rick, et al all you want; the board of directors in each of these companies is in the premier position of fault. No D3 directors should survive Federal aid. While I do not have any confidence that any federal entity can hire a suitable CEO for GM or the others, I have *some* confidence that a Federal entity can be found to oversee the selection of directors who in turn must hire a task-appropriate CEO and approve his or her selection of direct reports. If you don’t like Lutz, blame Wagoner with some BOD complicity. But if you revile Rick, it ain’t his fault. He’s making the best deals for himself that he can, just like most people would. Wagoner’s failures are on the BOD’s neck. Start with firing them. Fixing these companies begins with eliminating the CEO’s right to pack his board of bosses with friendlies.
Phil
Do we really think we live in the same US that it was in 1979 when Chrysler last got bailed out? First we now have a large alternative auto industry that could absorb the production loss of one or two of the big three. Second the US is bankrupt it is borrowing, selling assets to foreigners, and finally printing money. Remeber gas didn't go up to $4.00 a gallon your dollar went down to just over 50 cents. The Europeans are buying oil with a nearly $1.60 Euro, and that eases a lot of pain. What will our dollar be worth if the US keeps printing money for more bailouts like they did with the large banks? The banks were needed to keep the Country going, the auto plants can go and we survive.. Thus, other than some tax credits (which will have to go to the transplant builders also) and other minor help, a complete bailout of Detroit is not possible or desirable. Finally, The days that Michigan can sway Congress into taxing more populous States like Ca, Fl, Tx, are long gone, and the population keeps moving away from Detroit.(With lost population comes lost representation in DC) if you would check Michigan was relatively much more powerful in DC in the 70's than it is now.
Most GM Deathwatch articles are either about current events, specifically recent GM faux pas, or historical retrospectives of GM’s past blunders. This one is almost entirely predictive. It was an entertaining read, akin to watching a train wreck, but to me it doesn’t fit the “Deathwatch” theme very closely.
On another predictive note, it’s often said that C11 reorg will “save” one of the big 2.8, or that the remaining North American players will benefit from a “dead cat bounce” increase in sales. (As you said in this article Robert, who can tell in this market?) If the recent events at Plastech are any indication, I question whether either of those ideas have merit.
How many other big-2.8 suppliers are in the same position as Plastech? ie: if one of the big 2.8 pulls their business, by choice or by insolvency, the supplier will be forced into Chapter-11. Granted, parts won’t necessarily stop flowing out the doors the moment a supplier files C11, but I would bet that this puts strain on the supply chains on all the Detroit manufacturers, and the bad press from news about more suppliers in C-11 will give consumers pause before they buy a new vehicle from a domestic brand.
Sometimes I look not only at cars, but also at anything that moves or has movement in it. For example bicycles. And what do i see there? I see there Shimano. A japanese company. Even if it is an american bike, there is always japanese movement, cogs nad gears. Then I philosophically wonder to myself. Why is it never vice versa? That complex mechanisms built and engineered in USa be put on japanese products. whenever there is simplicity there always shines a proud US flag, whether on a cannondale bike frame or coke corkscrew. Whenever there are more details that need to work mechanically together, US flag magically dispppears .Everywhere, whenever it is a simple loudspeaker with a magnet and 2 wires, there is a chance of seeign `uS` on it, whenever a product consists of something more, like movement, digital screens, `us` letters magically evaporate. Draw parallels to detroit. ASk your engineers, how come that they can`t engineer competetive cars? trains? You name it! Engineering is always married to discipline and IQ. you skip one and you are out of the equation. Always was so, always will.
What makes a japanese engineer to nitpick the godddamned details and disciplines himself? How do you make their hands assemble precisely, while amrican workers and immigrants fail at those factories?
There is something that stands beyond money. And even paying more money , or trippling bonuses for a japanese worker, he will say that he can`t improve his work, because he already gives 100% of himself. And you can`t push someone to love, you can`t push americans to work harder or better, if it hasn`t been done before…by their moms and dads, by their whips, and witty grandfather`s winking moustache. If they were able to betray their schoolmates for the greenback, they will be able to betray their country, whether at executive offices in GM headquarters or shuffling foreign platforms.
The easyness of work and quality of work your offsprings see in you, they will put it as a benchmark for themselves. If teachers don`t raise the bar, or do not encourage to do it, there is no way of getting back to track.
Grandfathers, you live in a time, in an arena where your sons and daughters waste your labours and sweat, for every inch of a factory or wheatfield you fought they have filled themselves with a virus of sloth and easy money. For every capital you built, they make a negative reflection and illussion of strength by increasing external debt and consuming foreign goods.There is a pattern, a nationwide virus which affects only- precision engineering. Wonder why?
.
Wow, a lot of terrific comments here today. Redbarchetta, you, sir, hit the nail squarely on the head.
Likewise, jurisb. Being just over 1/2 century on earth and having lived in other countries, and also having paid attention to the rest of the world – and using discernment – I have to agree with your assessment.
Interestingly, Scotland was also once known for excellent engineering. Now, what is Scotland known for? Whiskey? Tourism? How about drug addled, down-trodden yobs?
When we visited sister-in-law in Scotland 3 years ago, she warned us to not walk on the grass in the parks. Don’t sit on the benches without carefully looking. Huh? Why? Disused druggie needles. Um, er, oh.
We walked through a recently improved picturesque area with a nice modern bridge (someone’s tax moneys went to good use). The “vandal proof” lamps on the bridge were – smashed. Perhaps just to prove that it could be done, who knows?
My Scotish neice lived with us in Michigan for a little while. She was lazy, thought very highly of her intellect and her “computer knowledge” but in reality was a no-account (which in southern American speech, means – a useless individual). She supposedly had the best tax-paid education in a semi-private Catholic school system, in Scotland. In reality, she was no smarter than the lowest-common-denominator-public-school-education-system results coming out of American schools.
So Scotland has gone, so America is going.
jurisb: How do you make their hands assemble precisely, while amrican workers and immigrants fail at those factories?
Someone forgot to tell Toyota, Honda, Nissan, Hyundai and Mazda that American workers can’t handle precision assembly methods. All of those companies build vehicles in the USA (and they are increasingly engineering and styling them here, too), and those vehicles score quite well in comparison tests and reliability surveys. For that matter, look at the build quality of the CTS and the Corvette…no apologies needed there.
Just to prove my point – coincidentally, I just saw this link on http://www.joesherlock.com (hey, he refers to TTAC all the time – why not reciprocate?)
http://smallestminority.blogspot.com/2008/06/george-orwell-daycare-center.html
Yes, geeber, but interestingly enough these same transplants have much more stringient hiring standards than do the (unionized) Detroit 2.8.
Case in point; when I toured the Hyundai factory near Montgomery Alabama* the guide told us that ONLY high school (or GED) graduates were hired; no drop-outs. Plus, from what I can gather, they do aptitude, intelligence tests and ability tests when hiring. Wow, imagine that! Making sure that the workforce can actually do the work! What a novel idea!
Hey, wait a sec, why can’t Detroit Inc do that? Well, for one, they’re way too busy exporting jobs to other countries. To save 1/10th of a penny per car. Or, whatever.
*here was me, born and bred in Michigan, in January having to drive 2300 miles round-trip to go see cars being made – FINALLY – since every car-guy should see cars being made new, right? Right. Isn’t it ironic that the Detroit 2.8 factories don’t do tours? (And no, I didn’t want to see F150’s being built – I’m a CAR guy – nor did I want to see Corvettes being built – that’s not representative of true mass-production cars, but a specialty factory).
How would you breakup and sell GM’s brands?
None of them except HUMMER and maybe Saab are worth anything outside of GM nor independent of GM. They are simply names the same people stick on the cars they come up with.
menno Great links, the sad state of the education system in our country if dooming out future. We are very close to home schooling our two children even if we have to live a little poorer to do it. And their aunt is about to become a public school teacher, talk about a slap in the face.
Rix :
June 12th, 2008 at 11:38 pm
I have a contrarian opinion. It’s worth it to Toyota to be able to put GM and Ford out of business any time it wants. Just cut truck prices to the bone…start an even bigger price war. Who dies first? Toyota can break even while sending GM to the wall.
Toyota’s management is amazingly paranoid that the US Congress will put up trade barriers and block imports of their vehicles. They do not want the Detroit 3 to collapse, because they fear the backlash from Congress will hurt them.
Thing is, they don’t have to worry about that. They’ve been real smart. Note that all their plants are in different states. Every time they build a new plant in a new state, they get two Senators on their side. From an efficiency standpoint, it’s horrible to spread their plants around the country, but from a political standpoint, it’s great.
Meanwhile, the Detroit 3 are closing plants all over the country-especially ones far from Detroit. Again, it’s good from a efficiency standpoint to have all your facilities close together, but horrible politics. I don’t think Senators from Georgia or Oklahoma (to name just a couple of states with recently closed plants from Detroit automakers) are really inclined to support the Detroit 3 now.
Even ignoring that, Democrats are pro-Toyota because of the Prius, and Republicans don’t really care about job losses, provided the job losses aren’t in their district/state.
Now, Toyota realizes that, unless they really want to go out of their way to prop up the Detroit 3, one or more of them will go out of business at some point. They were thinking that day would be in the future, but the must realize that it’s coming soon. I just hope they also realize nobody (well, few people) will attack them when it happens.
@jurisb @menno @Redbarchetta
How does the sad state of our educational system explain the downhill slide of the big 3? Gen X, Y, or the Millennials are not running these companies. As far as I know, Rick Wagoner was never a Starbucks barista. If there are young people in the factories, they certainly weren’t there in the 70s and 80s when the slide began. I’m just not connecting the dots on poorly educated young folks and the Chevy Uplander.
I know my Generation (X) is a bunch of nitwits that is going to blow up the planet with our ignorance, but I’d rather not have the big 3’s demise resting on my shoulders when we do.
I never said the 2 were related, just thanking menno for the link. The Big 3’s problems almost all fall on the managements shoulders and probably back to their Ivy League educations and buddy buddy connections. Chances are those are the same group of screwups ruining our education system. The thinking in our goverment and in the Big 3’s board rooms often doesn’t seem very different.
galaxygreymx5:
I know many people who are actively cheering the demise of the D3, born out of hatred for the misery they were served when they bought a domestic product in the past.
I suspect I’m in good company in not at all wanting the demise of the D3. I’d love to see GM, Ford and Chrysler survive and prosper. In recent years, quality has improved, the cars have improved, but the thing which has not improved is management. I’d like to see a special bankruptcy category in which an ailing company first reneges on all “golden, silver and multi-hued” parachutes along with all extended managerial benefits, then is required to sack the entire management team. Their collective assets (which really belong not to them but to the corporation which overpaid them) are auctioned off to help hire competent managers who are compensated at no more than $200k/year, plus a share of the growth in corporate value in ten years. The share will be the same share earned by the good people who actually design and build good automobiles.
I realize this dream could not occur under our current political system, where robber-barons like Rick Wagoner and his ilk are the friends of the political elite, but it sure is nice to dream…
edgett for President. I love that plan, unfortunately your right it would go no where with our current political elite, their not going to sack their closest friends. They would rather sack the rest of us.
menno,
I read that link. Interesting, though, that children in significantly-more-socialist western Europe or Asia test far better than those in the considerably-less-socialist United States. Just a point. GM’s problems are the result of groupthink, but it’s distinctly well-educated, MBA-driven, too-abstracted-from-reality groupthink.
No one at GM can really admit they’re wrong, or tell their boss that he/she is wrong, because that would imply that they could have been (and likely were) wrong about so much else. It’s like telling a little lie; it forces you to tell a larger one to cover it, and then another one that’s larger still. Eventually, the whole house of cards gets so big that it collapses under the weight of misconception.
It’s also what amazed me about Kat Watanabe: hearing him confess, to an audience, that Toyota has slipped up due to over-rapid growth but is taking steps to fix the problem. Amazing. By the American or European metric, Toyota could kill kittens wholesale their balance sheet would absolve them of responsibility. But they don’t–they recognize their problems, address them and move on.
I think a whole lot of good could from someone like Rick Wagoner admitting to GM stockholders, dealers and customers that
1. GM has done stupid things in the past, such as a, b and c.
2. GM is going to do x, y and z to correct it.
The message that would send through GM’s corporate culture would be important: this is not the old GM. The old GM was wrong, here’s why, and here’s how we’re going to fix it. No blamestorming, no cover-your-assism, just “let’s fix it”.
I’d be impressed if the fear of lawsuits and/or collective corporate ego would allow that to happen.
psarhjinian:
I’m the author of that essay. You note: “I read that link. Interesting, though, that children in significantly-more-socialist western Europe or Asia test far better than those in the considerably-less-socialist United States. Just a point.”
Quite right. Teachers in those systems don’t have to waste their time indoctrinating their students in the “Wonders of Socialism.” Since the students are immersed in the system already, they know better to begin with, so the teachers can get on with the important jobs of teaching mathematics and language – the tests those students score far better at than ours do.
Oh, and thanks, menno, for the link. I probably received a couple hundred hits from this site today.
I’m not confident there’s going to be a bailout. In part, for reasons others have already mentioned. The Big 2.X are far more geographically concentrated than they once were, giving them far few Senators Who Care. Also, I think their continual fights against economy rules on the grounds that they’re Not What The Consumer Wants, followed almost immediately by a mad rush to close truck plants and add shifts to car plants, can’t possibly help them with Senators Who Are Indifferent. Their former arguments are now…inoperative, as is the credibility of Senators Who May Have Listened To Them.
And to get a Green Tax Break for the Volt GM has to actually Produce The Volt. So far, despite plainly obvious Market Demand, that’s been a major hurdle.
KBaker, look, under your bed! Socialism!
A bit off topic, but the issue has been raised.
If one doesn’t know the difference between they’re, their, and there, one should not contemplate homeschooling one’s children. Believe me, I don’t criticize anyone’s spelling – just sayin.
There are somewhere around 6000 + school districts in the US. Though they get federal funds, most of the funding is local, and so is most of the management. Your local school board isn’t very likely to be staffed by ivy league MBAs, but more likely local businessmen – the kind of men and women who run hardware stores or beauty salons, realty companies, grocery stores, Dentists, and the like.
Getting back to GM – I can’t see money being given with conditions. It would be nice, but I just don’t see it happening.
Phil is right – the boards of bystanders need to go first.
M1EK:
It is not my intention nor desire to hijack this comment thread (which is supposed to be about the death of GM and the rest of the Big 2.X in Detroit – you know, market forces and capitalism), but if you have a better explanation (with evidence) for the collapse of America’s schools, I’d be happy to hear it.
Perhaps you’d like to read this Open Letter from the Arizona State Superintendent of Public Instruction, wherein a director of “ethnic studies” here in Tucson is quoted as saying: “Our teachers are left-leaning. They are progressives. They’re going to have things (in their courses) that conservatives are not going to like”. That director keeps a poster of Ché Guevara on the wall of his classroom.
Somehow I doubt that the “ethnic studies” director is teaching John Locke, Adam Smith, or F.A. Hayek in his classroom.
Can you explain, for instance, why Ché seems to be so popular with some government officials, and even campaign workers for the presumptive Democrat nominee for President?
It is not my intention nor desire to hijack this comment thread
But, of course, that’s exactly what you’re doing, and what you went on to do after typing those words.
Therefore it was your intention, and or, desire.
OK, I concede your point. Therefore, should anyone wish to continue the off-topic conversation, my email address is gunrightsATcomcastDOTnet, or you may leave a comment (on-topic) at the education post in question.
WRT to the Big 2.X, I think market forces ought to be left to work this time, and GM, Ford, and Chrysler should sink or swim on their merits, not their ability to get grants or government guaranteed loans.
Insanity is doing the same thing and expecting a different result.
I remember 1984. I was doing an MBA and our HR lecturer said something like, “The biggest company in the world is doing the biggest reorganization in its history, and no one’s interested enough to discuss it.”
I dutifully bought a Time magazine which explained that Roger Smith would split GM up from a single monolith to two smaller monoliths but with common bits like Fisher Body (I forget the details).
Ho-hum, where would you like to work: Large Car Group or Small Car Group?
All the commentators of that time were agreed that GM’s main problem was lost brand loyalty. This applied to the designers, engineers and workers. They would work late into the night to make e.g. Chev better than its competitors, but not strive to make some distant accountants in head office look good. And it applied to the customers. They were offered bland badge-engineered offerings in the name of economies of scale, and no longer bought into what one might call the “Chev spirit.”
This is what happens when the boss says, “General Motors doesn’t make motor cars, it makes money.” A crumpled dollar bill is worth the same as a new one.
Where is his respect for the pride and dedication of the people who thought they were making motor cars, and damn fine ones at that, and the loyalty of the people who bought those motor cars?
Exactly the same thing happened at British Leyland. Individual brands were merged into a huge blob of a corporation in the name of economies of scale. Loyalties evaporated and workers and management lived only to screw each other. The government poured millions after millions of pounds into it, and where is the British car industry today?
When the Jaguar factory became Large Car Plant no 9 under British Leyland, Lord Stokes the ex-head of Jaguar stalked into the boardroom and took down his portrait in protest at the loss of identity. He had built cars for “Grace, space, and pace.” His successors were building cars for, I dunno, it’s a job innit? I mean, one job’s as good as another. At the end of the day it’s what’s in yer pay packet, knowhatimean?
Nothing has changed. GM will become the US British Leyland.
Dynamic88 I’m pretty sure your comment was directed at my post. No sure where you learned your definition of “their” from but here it is for future reference:
“Their” is a possessive pronoun like “her” or “our” “They eat their hotdogs with sauerkraut.” Everything else is “there.” “There goes the ball, out of the park! See it? Right there! There aren’t very many home runs like that.” “Thier” is a common misspelling, but you can avoid it by remembering that “they” and “their” begin with the same three letters. Another hint: “there” has “here” buried inside it to remind you it refers to place, while “their” has “heir” buried in it to remind you that it has to do with possession.
And here is the link if your interested, their.
I also find it odd how you can defend our education system right now when we are far behind other nations. It wont be long before developing countries start putting us to shame.
netrun: GM’s hole is too deep and the stupidity is just too prevalent. Consider Exhibit A: the G3.
Exhibit A??! Try Exhibit Q.
Exhibit P: Opel Saturn Astra
Exhibit O: W-body cars. In 2008?
Exhibit N: Lacrosse and Lucerne
Exhibit M: $Billions to develop the finest 18 MPG vehicles the world has ever seen.
Exhibit L: Failing to market their few bright, unique vehicles, like the Malibu Maxx.
Exhibit K: Cobalt
…and so forth…