November 19, 2008
SCDigest: Is There Anything More Pathetic Than the GM Situation? And That’s a Shame
Commentary by Dan Gilmore
Through
a special arrangement, presented here for discussion is an excerpt of a
current article from Supply Chain Digest.
This post
is only loosely related to supply chain, but the death spiral of GM, Chrysler,
and I think to a somewhat lesser extent Ford, is certainly sad to watch.
How many
years has it been going on now? All three were losing big dough even in
the relatively good times of the past few years. Then came high gas prices,
which killed sales of highly profitable SUVs and trucks, and they are now
in deep, deep trouble with the credit crisis, which hits auto companies
as bad as the home builders, and the recession.
What is just
hard to grasp is the scope of the cost structure that GM and the
others built. I mean, with U.S. automakers in a multi-year decline, they
are still paying hundreds of millions or maybe even billions per year for
the idle workers playing cards in the "jobs bank."
The health
care costs were staggering. The cost per vehicle to GM for retiree health
care costs, not even current employees, was said to be $1,400. That was
before it shed many of those costs with the union agreement in 2007 that
put the UAW in charge of retiree health care – after GM seeded the
program with $50 billion.
It’s almost
like it was surreal, if you really stopped to look at it.
Word also
came this week that parts maker Delphi, the unit GM spun off a few years
ago and which has been in bankruptcy for three years now, received $5.69
billion from GM in the third quarter. The funds came in the form of cash
as well as GM’s assumption of certain unfunded pension liabilities for Delphi’s
work force, all related to terms of the original spin off. Now a deal is
a deal, but $5.69 billion more out the door in GM’s current condition?
This is no
way to run a railroad.
Yes, the
U.S. OEMs need to design cars customers want to buy and all that, but the
cost structure and financial position GM, Ford and Chrysler put themselves
in for the future when times were good is just hard to comprehend.
The pain
of strikes and labor strife is very real and understandably to be avoided,
but not at all costs, it should seem clear now. I am also happy to see
autoworkers make a good living, as they do at Toyota and Honda. But the
legacy cost structure for GM is just insane.
The airlines
used bankruptcy to bail themselves out of much of these legacy and structural
costs. The OEMs want to avoid that path, especially Ford, as a lot of the
Ford family’s wealth is in Ford stock, which would be wiped out in bankruptcy.
A government bail out of some kind is almost assured.
Will that
help? Who knows.
The whole
thing boggles the mind.
Discussion Questions:
In hindsight, what should have been done to avoid the problems at U.S.
automakers? Is there a way they could have avoided the burden of their
legacy cost structure? What lessons do the struggles of U.S. automakers
offer to other industries?
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Mitt Romney, son of an auto executive and candidate for the Republican nomination for president, on today’s OpEd page of the New York Times, says “Let Detroit Go Bankrupt.” He adds, “But don’t ask Washington to give shareholders and bondholders a free pass–they bet on management and lost.”
From an investment point of view, the cost of a bailout is likely less than the cost of letting them go down. The uncollected Social Security and lost income taxes from 3,000,000 workers over several years is far greater than a mildly successful bailout. However, the U.S. auto industry has been on the decline for 30-years. Why would we want to continue this legacy? Chapter 11 is the only chance for a revival of a NEW auto industry.
But, I also add, that while the current legacy costs are outlandish, they can not even be considered a cause. The reason the auto makers are going down is because they had no interest in making product that consumers wanted. Various statistics indicate that the legacy costs in each automobile exceed $2,000. However, with current pricing and rebates one could buy a U.S. made auto at $2,000 or more less than the comparable foreign (though made in the U.S.) competitor. And, still the foreign nameplates were preferred.
Charles Erwin Wilson, GM’s president back in the ’50s is credited with saying, “If it is good for General Motors, it is good for the U.S.” Arrogant and incompetent management brought down General Motors. It does sound like a bellwether for how the country has been run.
It began in the 60s. First, the VW bug came here. In the 1970s, the American car makers were SELLING cars rather than marketing them, charging extra for everything, even radios, building in obsolescence and saying to consumers, “This is what we’re selling. Take it or leave it.” The Japanese car companies like Toyota, Datsun (now Nissan) and Honda took advantage of this and actually did marketing research to find out what consumers wanted. This included one base price with most things included and a car that would last longer with fewer problems. Bottom line: Japan MARKETED cars. Thus began the decline of the American car makers. American Motors (remember them?) is already long gone. Chrysler survived a previous crisis when Lee Iacocca came in for a $1.00 salary and turned things around by among other things, innovating.
The Big 3 are bloated, poorly managed, held hostage by the greedy unions (who still refuse to give concessions to save the car companies), and have not come into the 21st century in terms of fuel efficient, greener cars. They are still in bed with the oil companies, or so it seems, as they continue to build gas guzzlers. They’re still asleep at the wheel (pun intended), and have no plan as they beg for more money from taxpayers.
Of interest is that Toyotas, Hondas and Nissans sold here are built here in the states. Toyota has something like 12 plants in the U.S. (right to work states) and employ American workers. If I recall correctly, many of the Big 3 American cars are actually built in Mexico or Canada.
I don’t think the taxpayers should pay for the greed and mismanagement of the Big 3. My solution would be that Exxon Mobil should bail out the Big 3, using their record-breaking profits from this past year. Since the more cars that are sold, the more gas and oil is bought, it’s a win-win. Another alternative is for Toyota to take over GM, change the culture, reorganize the company, replace management, re-tool plants to build green cars and renegotiate union contracts to drastically reduce costs.
The automakers problems stem from a refusal to innovate and improve their product lines. As stated above, car companies knew in the 70s that oil supplies are finite and that consumers wanted (needed) efficient, reliable cars. What did they do? They fought with Congress to keep CAFE standards low. They introduced an electric car only to kill it later. The introduction of Saturn demonstrated some ability to change and grow with the needs of their market, but the promise of Saturn has not been kept.
The stock is already worthless. If we as a country believe in a free enterprise system, then we need to pay the short-term consequences. Otherwise, we are going to have a lot more long-term pain. As the airlines used bankruptcy to restructure and stay in business, so can the automobile industry. All of the jobs will not go away and all of the dealerships will not close and all of the parts companies and suppliers will still be needed. There will be more short-term pain. But the auto industry and the country will be stronger.
I’m not to familiar with the workings of the auto industry but it would seem that GM and Chrysler have serious management problems. First, they are making products no one wants. The focus has been on gas guzzling trucks and mundane sedans. Only now has GM come out with interesting products such as the Malibu and the new CTS. The Camaro is still a year away while Ford’s Mustang has been out since 2006! Where is the customer strategy in that play?
GM had an electric car (the EV1) years ago and turfed it in favour of using resources to build trucks while gas prices were at an all time high! I can’t even discuss Chrysler as their product portfolio is the worst it has ever been.
Another factor is change. GM cannot change quickly. Whether it is their cost and labor structure or their products, GM cannot effectively react to economic change.
I think unions destroyed the automakers. Workers make enormous wages for minimal work skills and get health care and pension benefits while most Americans only get health care benefits until they retire; pensions went out of style a long time ago.
The automakers need to slash wages in half, cancel pensions and eliminate health benefits after retirement. I think this would go a long way towards solving their financial woes. Then perhaps consolidate the big three into one company and reduce the number of makes and models. They also need to upgrade to Toyota quality and pricing. Perhaps a bankruptcy and restructuring would fix this. The airlines did this and I’m enjoying $200 round trips to just about any place I want to go.
I know it does nothing to help the situation looking backward, but maybe if we do, it will help other industries. Over the last 5 to 10 years, for how many quarters have the automakers been reporting HUGE losses? If that were any other smart, strategic-thinking company, the execs would have been sacked, and the company reorganized. Maybe even employees, both white and blue collar would have bailed out, rather than living off the few bright spots that existed.
This is a problem that did not spring up overnight; it has been with them for a while.
Now let’s look around the landscape. Are there any other industries or markets doing the same thing right now? Like author Jim Collins says, “Face the brutal facts first.” Which retailers are ignoring the facts of the products they sell and the way they sell them? Shouldn’t they invest in R&D (which it has been reported that the big 3 automakers don’t) and listen to the customer?
Oh let’s talk about that for a moment. Maybe the automakers and others need to listen to a broader range of customers, not just those who will bring big, quick profits. For the past few years, automakers were satisfying the wishes of only those who thought big was better. 4X4’s, Vans, ridiculously large SUVs that guzzled gas and polluted the air. Why was the Hummer made into a passenger vehicle? Now owners are giving them away, or they are up on blocks. Customers (we) are also to blame for the problems of America’s automakers by what we bought.
If only one of those self-important executives who were being questioned could answer this question, would I be interested in giving them the money they need: What is your company planning to build or do immediately to innovate transportation in America or the world? This is game-changing time, not just responding to what we already know.
Everything about the American auto industry is wrong–the models, the union contracts, the emphasis on quarterly earnings, the corporate jets, the rock star salaries. This is a defining moment in American capitalism. It’s time to allow it to reorganize in bankruptcy court, rather than billing our kids for yet another bailout.
Kicking guys when they’re down. Really cool discussion subject. Rather than rehashing the mistakes made by our Big Three, which are significant, where’s the plan to save the jobs and GNP? And, where were all the whining rehashers years ago when these mistakes were being made? It’s embarrassing, however, that the heads of the three auto companies flew into D.C. in individual corporate jets to meet with Congress to request bailout money. As quoted on the news channels, this is like emerging from a luxury jet with a tin cup in your hand, or showing up at a soup kitchen in a tux and top hat. In the meantime, someone should be investigating the transportation practices of UAW union executives (hint, they’re the same). The union, the biggest whiner in this kerfuffle, is also a high-profile co-conspirator.
This is beyond a “free enterprise” issue. The impact of so many jobs being lost, let alone the trickle-down affect on the economy is devastating. The government must step in to lend a hand, whether this is through loans or investments.
Change will come, but it needs support through this calamity, just like the housing industry. There is nothing wrong with using federal funds to support and initiate change, since the government is acting like a bank/investor of last resort. In the interim, the companies can use this as a pre-packaged bankruptcy scenario and renegotiate their debts while repositioning their companies. The shareholders (yeah remember those folks?) would prefer this to an actual bankruptcy, and the majority of people who drive cars (these 3 still account for the majority of the cars being driven in the USA) and purchase these, would prefer to have a locally based company competing for their dollars.
Politicians and those who pay few taxes are generous with other people’s money. We have established a bad precedent by loaning (giving) taxpayer money to poorly managed enterprises. This is not a situation where an industry was impacted by terrorism or a natural disaster. This result is the determined product of stupidity, poor stewardship and greed.
I do not see dozens of investors or turnaround specialists lined up at the doors of these companies. Congress thinks that they see an opportunity that savvy business managers do not? Throwing taxpayer money at problems has never worked in the past, so I am thinking we need a new theory here.
Those folks who think a bailout of Detroit will work have an option. It is called “Stock Purchase,” and right now it is a hell of a bargain if you think the Automakers will prosper doing the same old, same old. Good luck with that.
All the people proposing a real (and inevitable) market solution to this are right. Every fair and logical analysis says they have to be allowed to sink and then hopefully swim.
Pragmatically speaking, however, I don’t think we can afford it today. Actually and psychologically, I think the market and the consumer has had about as much bad news as they can take for now. This is just too big a blow to add to all the others.
We should bail them out even if it is only buying some time before the inevitable. (It’s amazing how $25 billion sounds cheap these days.) However, it should only be done on condition that the appalling management responsible for this mess must be changed. They are a disgrace to this country. Just another necessary “change” in the leadership of this country.
Incidentally, it seems like more than a coincidence that as these people are being grilled in Washington that completely unconfirmed rumors appear about a Chinese buyout of GM and Chrysler.
No one wants to see over a million people left unemployed let alone the extended impact on all of the suppliers to the auto industry. Bottom line, make cars people want to buy and be accountable for your actions as a management team. The $25 billion is likely only a first down payment before the auto makers are back to Washington looking for more. I certainly hope the money is put to good use and that we see results including dramatic changes in the business models.
I think the causes of the situation the Big 3 find themselves in have been well documented. The issue is really what to do now. I’m not persuaded that a $25 billion bailout now isn’t throwing good money after bad, and merely delaying the inevitable. These companies are already functionally bankrupt, with little hope of long term sustainability, so the question is when is the best time for them to go.
The primary issue in my mind now is, how long would it take the surviving manufacturers in the U.S. to reformulate the supply chain and manufacturing capacity to create a far more flexible and innovative industry? How long and how severe would the dislocation be, and what’s got to be done for those individuals directly affected?
I remember following the negotiations between the UAW and GM a couple of years ago, and thinking way back then, if the UAW keeps playing hardball, they’re going to drive the company into bankruptcy.
A year ago the CEO of Ford was quoted in BusinessWeek saying that our current business model is broken but we don’t know which one works!
For 30 years the US automobile companies have not been willing to be open to information from the marketplace, especially changes taking place in the marketplace.
Twenty years ago, GM was quoted in the newspaper as saying by the time marketing research gets back to the design team they have already designed the next set of cars so they can’t take the information into account.
Companies that can’t manage to use marketing research, design what they want rather than what consumers want, and refuse to invest in alternative approaches while they stick to what they have done and what they want to do are not going to be successful.
The companies have continued to have financial trouble in good times. Now that the environment changed, gas prices have escalated, consumers are demanding (and finding fuel efficient alternatives), and the economy is suffering, they have neither a plan nor any financial reserve to adapt.
My question is, why is it a surprise that the US automobile companies are having trouble?
Obviously we cannot continue to support an industry that pays workers $81 an hour to wander aimlessly through a factory while robots do all the work. Then give them health care and pensions. Instead, we should be giving the $25 billion to Toyota and Honda to help them build plants in the US. They seem to have found a business model that works and we should be rewarding them instead of bailing out losers. We don’t give academic scholarships to dropouts so why should we so the same with corporations? Sure some jobs will be lost but more secure jobs will be created by smarter, better-managed companies.
Wow! What a question. There is no easy fix for the auto companies. Clearly they cannot continue to function as they have been. Nor should they be in a position to wreak havoc on the retirement and health plans of past and current workers. I watched a 59 year old friend’s pension get wiped out in United Airline’s bankruptcy and the impact on that pilot was immense.
There is no easy solution. It’s too easy to say the auto companies should enter bankruptcy and too easy to try to bail them out with $25 billion in loans. Clearly, they need to change the way they do business.
The Detroit 3 lost the battle years ago. Just like Kmart/Sears, you cannot have declining comp store sales and believe you are in the retail business. The car makers have lost market share for years. Why is simple; they don’t produce cars that consumers want to buy and their quality is below the acceptable bar of today. Any bailout from the Federal government will just be a waste of money. It will not be paid back and the companies will wind up in bankruptcy court at a later date. All the bailout will do is delay when they go into court.
How many retailers have we seen do the same thing? They simply do not adjust to the changing consumers or new competition. The result is, most are out of business. If the automakers do get a bailout, they should use the money to implement a pre-packed bankruptcy.
At something like $75 per hour for employees–thanks, UAW–compared to $50 for their competitor’s American employees and $30 for other manufacturing employees, the only market-way out is through bankruptcy. Whether this disastrous situation is the “fault” of management or not, America has NOT turned away from the root problems here, but embraced them fondly.
The coup de grace here would be propping up this death dance between management and labor, and then using “protectionism” to hinder American consumers access to American built Toyotas, etc., all the while piling on onerous manufacturing requirements based on hiccups in mathematical models.
I’m actually quite optimistic. :>)
I understood the reasons for the financial system bailout. Whether that has been deployed as effectively as possible remains to be seen. That was not about saving companies, per se, so much as it was about preventing total collapse of the credit market.
But I’m sorry, I don’t see it with the auto industry. As the article points out, they have systemic issues that have nothing to do with the current economic crisis. They have driven themselves into this position, and their failure would not “take down” the whole entire auto industry. In fact, getting their bloated companies and structures out of the way might open things up for more competitive American auto manufacturing–a new era for cars that are energy efficient, clean, high quality, and incorporating the latest and greatest in technology. Oh yeah, and with a retail angle–selling them how consumers want to buy them! That would be revolutionary.
Preserving these companies the way they are right now–it’s just not a good thing.
What could be done in hindsight? For someone to remember the 1970s.
High gas prices weren’t invented this year. Neither was the instability in the Middle East. Neither were tight credit markets. Or the word ‘recession’. All of these factors were present in the 1970s, the last time the auto industry needed a bailout.
But now, the auto industry faces a hostile public. It’s hard to have sympathy with UAW workers, who have full pay while they’re unemployed, when so many millions of Americans face unemployment. Also, the car companies pulled out of Alabama, Tennessee and other states. Who moved in, giving manufacturing workers jobs? Toyota, Honda, and other foreign auto makers.
It’s truly sad the way the rest of Michigan will likely suffer (restaurants, doctors, dentists, clothing stores) when the inevitable happens to the Big Three.
In hindsight, why didn’t the auto industry ask for assistance in shoring up innovation efforts to make hybrid cars? In fighting an impossible battle with the UAW? This kind of help might have avoided the wreck that is about to happen.
I have spent my entire life in Detroit. My dad lost two businesses over the years, trying to be a loyal supplier and customer of domestic car companies, most notably GM. I support him, he has no pension, no health benefits, not even a home any longer. Hundreds of local suppliers were squeezed into bankruptcy without mercy, sourcing was moved overseas, while the auto workers and manufacturers got wage increases and bonuses and big retirement/health benefit packages.
While bankruptcy will further destroy my beloved home town, and it makes me very very sad and even scared, I am not convinced it is the only way to go. It means members of my family will go under, it means hundreds of my dear dear friends will suffer horribly in their personal and family lives. It means spouses of my coworkers will lose jobs and families I work with every day with lose their homes. It means crime will spike as social unrest boils over in a city already on the rocks. It means my own opportunity to sell my home and use the money for retirement is over.
It brings tears to my eyes every single day. Most of you out in other cities just can’t even comprehend. It’s personal. We need more dedication to solution planning, not blame.
Welcome to the real world, GM. The problem that GM has found itself in has been around for a long time. And it is unfortunate that the people working for GM (suppliers included) have not adjusted their lives/business to this nose dive trend.
There are any number of willing accomplices to the long, steady decline of the Detroit 3 – Boards of Bystanders, clueless or inept Management, Willful ignorance of the facts by both sides of the table during contract negotiations, etc.
The current grasp for ‘relief’ is yet one more attempt to evade clearly evident and long-standing root causes.
Perhaps one of the most graphic examples of why this particular bailout was captured in a Wall Street Journal article from a few years ago that folks can Google on WSJ.com. The title says it all – “Detroit’s Symbol of Dysfunction: Paying Employees Not to Work.” (Rick Wagoner – Call your office)
It appears US manufacturing never quite took the lessons of the Japanese corporate culture of years ago to heart; the incentives of the end-product and its relevance to the consumer market far outweigh the internal, structural, and employee incentives within the company itself. In other words, it’s a team, and if the brand and product succeed, the team will be taken care of. Many US manufacturers, the auto industry for certain, operate backwards; bloated, over regulated internally, personnel and union driven; all the while producing under quality, over priced, increasingly irrelevant product. Now it’s time for the easy bailout; great for short term extension of the internalized mindset; nothing for valued change. Band-aid now, pay later; the new US “solution.” Good for votes at least, and we’re proving it and facilitating it more and more.
There’s a great analogy for the current economic and corporate crisis. It used to be assumed we must put out forest fires; it’s obvious they’re destructive and horrific to those impacted by it, human or animal. Only we learned that forest fires are critical to the clearing out of weakened, fallen, overrun, or dead matter preventing the new and fresh to surface and renew the land, air, plants and water that allow the inhabitants to survive and flourish. Why is this any different?
In light of the current market conditions, allowing the big 3 to go into bankruptcy would be catastrophic not only to our economy, but worldwide. We no longer can view this as a U.S. problem.
I don’t believe in government intervention into private industry, but during this current crisis, a loan (not a bail out) is in order with very specific conditions and an oversight committee to monitor how the monies are being spent.
The big 3, along with the UAW (which in my opinion is as much to blame as big 3 management) needs to severely adjust their thinking. It appears that no one had any long-term fixes dating as far back as the 70s gas crisis. We never learn. A definition of insanity is “Making the same mistakes, but expecting different results.” Both the UAW and big 3 management are guilty!
Blame goes all around.
Management:
1. Giving in to union demands
2. Still plugging away with gas guzzling vehicles
3. Flood the market with cars, trucks and fleet vehicles
Workers:
1. Milk the company for every half penny its got left no matter if times are good or desperate. Never a bad time to strike and demand more money
2. Designing cars that pale in comparison to foreign auto makers. In general, American cars are uglier, less fuel efficient, poorer quality, and usually rank worse than foreign cars in any magazine or website review list
I cringe when I hear about automakers wanting $25 billion from the government. I wonder how much of that will actually be used effectively.
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Mitt Romney, son of an auto executive and candidate for the Republican nomination for president, on today’s OpEd page of the New York Times, says “Let Detroit Go Bankrupt.” He adds, “But don’t ask Washington to give shareholders and bondholders a free pass–they bet on management and lost.”
From an investment point of view, the cost of a bailout is likely less than the cost of letting them go down. The uncollected Social Security and lost income taxes from 3,000,000 workers over several years is far greater than a mildly successful bailout. However, the U.S. auto industry has been on the decline for 30-years. Why would we want to continue this legacy? Chapter 11 is the only chance for a revival of a NEW auto industry.
But, I also add, that while the current legacy costs are outlandish, they can not even be considered a cause. The reason the auto makers are going down is because they had no interest in making product that consumers wanted. Various statistics indicate that the legacy costs in each automobile exceed $2,000. However, with current pricing and rebates one could buy a U.S. made auto at $2,000 or more less than the comparable foreign (though made in the U.S.) competitor. And, still the foreign nameplates were preferred.
Charles Erwin Wilson, GM’s president back in the ’50s is credited with saying, “If it is good for General Motors, it is good for the U.S.” Arrogant and incompetent management brought down General Motors. It does sound like a bellwether for how the country has been run.
It began in the 60s. First, the VW bug came here. In the 1970s, the American car makers were SELLING cars rather than marketing them, charging extra for everything, even radios, building in obsolescence and saying to consumers, “This is what we’re selling. Take it or leave it.” The Japanese car companies like Toyota, Datsun (now Nissan) and Honda took advantage of this and actually did marketing research to find out what consumers wanted. This included one base price with most things included and a car that would last longer with fewer problems. Bottom line: Japan MARKETED cars. Thus began the decline of the American car makers. American Motors (remember them?) is already long gone. Chrysler survived a previous crisis when Lee Iacocca came in for a $1.00 salary and turned things around by among other things, innovating.
The Big 3 are bloated, poorly managed, held hostage by the greedy unions (who still refuse to give concessions to save the car companies), and have not come into the 21st century in terms of fuel efficient, greener cars. They are still in bed with the oil companies, or so it seems, as they continue to build gas guzzlers. They’re still asleep at the wheel (pun intended), and have no plan as they beg for more money from taxpayers.
Of interest is that Toyotas, Hondas and Nissans sold here are built here in the states. Toyota has something like 12 plants in the U.S. (right to work states) and employ American workers. If I recall correctly, many of the Big 3 American cars are actually built in Mexico or Canada.
I don’t think the taxpayers should pay for the greed and mismanagement of the Big 3. My solution would be that Exxon Mobil should bail out the Big 3, using their record-breaking profits from this past year. Since the more cars that are sold, the more gas and oil is bought, it’s a win-win. Another alternative is for Toyota to take over GM, change the culture, reorganize the company, replace management, re-tool plants to build green cars and renegotiate union contracts to drastically reduce costs.
The automakers problems stem from a refusal to innovate and improve their product lines. As stated above, car companies knew in the 70s that oil supplies are finite and that consumers wanted (needed) efficient, reliable cars. What did they do? They fought with Congress to keep CAFE standards low. They introduced an electric car only to kill it later. The introduction of Saturn demonstrated some ability to change and grow with the needs of their market, but the promise of Saturn has not been kept.
The stock is already worthless. If we as a country believe in a free enterprise system, then we need to pay the short-term consequences. Otherwise, we are going to have a lot more long-term pain. As the airlines used bankruptcy to restructure and stay in business, so can the automobile industry. All of the jobs will not go away and all of the dealerships will not close and all of the parts companies and suppliers will still be needed. There will be more short-term pain. But the auto industry and the country will be stronger.
I’m not to familiar with the workings of the auto industry but it would seem that GM and Chrysler have serious management problems. First, they are making products no one wants. The focus has been on gas guzzling trucks and mundane sedans. Only now has GM come out with interesting products such as the Malibu and the new CTS. The Camaro is still a year away while Ford’s Mustang has been out since 2006! Where is the customer strategy in that play?
GM had an electric car (the EV1) years ago and turfed it in favour of using resources to build trucks while gas prices were at an all time high! I can’t even discuss Chrysler as their product portfolio is the worst it has ever been.
Another factor is change. GM cannot change quickly. Whether it is their cost and labor structure or their products, GM cannot effectively react to economic change.
I think unions destroyed the automakers. Workers make enormous wages for minimal work skills and get health care and pension benefits while most Americans only get health care benefits until they retire; pensions went out of style a long time ago.
The automakers need to slash wages in half, cancel pensions and eliminate health benefits after retirement. I think this would go a long way towards solving their financial woes. Then perhaps consolidate the big three into one company and reduce the number of makes and models. They also need to upgrade to Toyota quality and pricing. Perhaps a bankruptcy and restructuring would fix this. The airlines did this and I’m enjoying $200 round trips to just about any place I want to go.
I know it does nothing to help the situation looking backward, but maybe if we do, it will help other industries. Over the last 5 to 10 years, for how many quarters have the automakers been reporting HUGE losses? If that were any other smart, strategic-thinking company, the execs would have been sacked, and the company reorganized. Maybe even employees, both white and blue collar would have bailed out, rather than living off the few bright spots that existed.
This is a problem that did not spring up overnight; it has been with them for a while.
Now let’s look around the landscape. Are there any other industries or markets doing the same thing right now? Like author Jim Collins says, “Face the brutal facts first.” Which retailers are ignoring the facts of the products they sell and the way they sell them? Shouldn’t they invest in R&D (which it has been reported that the big 3 automakers don’t) and listen to the customer?
Oh let’s talk about that for a moment. Maybe the automakers and others need to listen to a broader range of customers, not just those who will bring big, quick profits. For the past few years, automakers were satisfying the wishes of only those who thought big was better. 4X4’s, Vans, ridiculously large SUVs that guzzled gas and polluted the air. Why was the Hummer made into a passenger vehicle? Now owners are giving them away, or they are up on blocks. Customers (we) are also to blame for the problems of America’s automakers by what we bought.
If only one of those self-important executives who were being questioned could answer this question, would I be interested in giving them the money they need: What is your company planning to build or do immediately to innovate transportation in America or the world? This is game-changing time, not just responding to what we already know.
Everything about the American auto industry is wrong–the models, the union contracts, the emphasis on quarterly earnings, the corporate jets, the rock star salaries. This is a defining moment in American capitalism. It’s time to allow it to reorganize in bankruptcy court, rather than billing our kids for yet another bailout.
Kicking guys when they’re down. Really cool discussion subject. Rather than rehashing the mistakes made by our Big Three, which are significant, where’s the plan to save the jobs and GNP? And, where were all the whining rehashers years ago when these mistakes were being made? It’s embarrassing, however, that the heads of the three auto companies flew into D.C. in individual corporate jets to meet with Congress to request bailout money. As quoted on the news channels, this is like emerging from a luxury jet with a tin cup in your hand, or showing up at a soup kitchen in a tux and top hat. In the meantime, someone should be investigating the transportation practices of UAW union executives (hint, they’re the same). The union, the biggest whiner in this kerfuffle, is also a high-profile co-conspirator.
This is beyond a “free enterprise” issue. The impact of so many jobs being lost, let alone the trickle-down affect on the economy is devastating. The government must step in to lend a hand, whether this is through loans or investments.
Change will come, but it needs support through this calamity, just like the housing industry. There is nothing wrong with using federal funds to support and initiate change, since the government is acting like a bank/investor of last resort. In the interim, the companies can use this as a pre-packaged bankruptcy scenario and renegotiate their debts while repositioning their companies. The shareholders (yeah remember those folks?) would prefer this to an actual bankruptcy, and the majority of people who drive cars (these 3 still account for the majority of the cars being driven in the USA) and purchase these, would prefer to have a locally based company competing for their dollars.
Politicians and those who pay few taxes are generous with other people’s money. We have established a bad precedent by loaning (giving) taxpayer money to poorly managed enterprises. This is not a situation where an industry was impacted by terrorism or a natural disaster. This result is the determined product of stupidity, poor stewardship and greed.
I do not see dozens of investors or turnaround specialists lined up at the doors of these companies. Congress thinks that they see an opportunity that savvy business managers do not? Throwing taxpayer money at problems has never worked in the past, so I am thinking we need a new theory here.
Those folks who think a bailout of Detroit will work have an option. It is called “Stock Purchase,” and right now it is a hell of a bargain if you think the Automakers will prosper doing the same old, same old. Good luck with that.
All the people proposing a real (and inevitable) market solution to this are right. Every fair and logical analysis says they have to be allowed to sink and then hopefully swim.
Pragmatically speaking, however, I don’t think we can afford it today. Actually and psychologically, I think the market and the consumer has had about as much bad news as they can take for now. This is just too big a blow to add to all the others.
We should bail them out even if it is only buying some time before the inevitable. (It’s amazing how $25 billion sounds cheap these days.) However, it should only be done on condition that the appalling management responsible for this mess must be changed. They are a disgrace to this country. Just another necessary “change” in the leadership of this country.
Incidentally, it seems like more than a coincidence that as these people are being grilled in Washington that completely unconfirmed rumors appear about a Chinese buyout of GM and Chrysler.
No one wants to see over a million people left unemployed let alone the extended impact on all of the suppliers to the auto industry. Bottom line, make cars people want to buy and be accountable for your actions as a management team. The $25 billion is likely only a first down payment before the auto makers are back to Washington looking for more. I certainly hope the money is put to good use and that we see results including dramatic changes in the business models.
I think the causes of the situation the Big 3 find themselves in have been well documented. The issue is really what to do now. I’m not persuaded that a $25 billion bailout now isn’t throwing good money after bad, and merely delaying the inevitable. These companies are already functionally bankrupt, with little hope of long term sustainability, so the question is when is the best time for them to go.
The primary issue in my mind now is, how long would it take the surviving manufacturers in the U.S. to reformulate the supply chain and manufacturing capacity to create a far more flexible and innovative industry? How long and how severe would the dislocation be, and what’s got to be done for those individuals directly affected?
I remember following the negotiations between the UAW and GM a couple of years ago, and thinking way back then, if the UAW keeps playing hardball, they’re going to drive the company into bankruptcy.
A year ago the CEO of Ford was quoted in BusinessWeek saying that our current business model is broken but we don’t know which one works!
For 30 years the US automobile companies have not been willing to be open to information from the marketplace, especially changes taking place in the marketplace.
Twenty years ago, GM was quoted in the newspaper as saying by the time marketing research gets back to the design team they have already designed the next set of cars so they can’t take the information into account.
Companies that can’t manage to use marketing research, design what they want rather than what consumers want, and refuse to invest in alternative approaches while they stick to what they have done and what they want to do are not going to be successful.
The companies have continued to have financial trouble in good times. Now that the environment changed, gas prices have escalated, consumers are demanding (and finding fuel efficient alternatives), and the economy is suffering, they have neither a plan nor any financial reserve to adapt.
My question is, why is it a surprise that the US automobile companies are having trouble?
Obviously we cannot continue to support an industry that pays workers $81 an hour to wander aimlessly through a factory while robots do all the work. Then give them health care and pensions. Instead, we should be giving the $25 billion to Toyota and Honda to help them build plants in the US. They seem to have found a business model that works and we should be rewarding them instead of bailing out losers. We don’t give academic scholarships to dropouts so why should we so the same with corporations? Sure some jobs will be lost but more secure jobs will be created by smarter, better-managed companies.
Wow! What a question. There is no easy fix for the auto companies. Clearly they cannot continue to function as they have been. Nor should they be in a position to wreak havoc on the retirement and health plans of past and current workers. I watched a 59 year old friend’s pension get wiped out in United Airline’s bankruptcy and the impact on that pilot was immense.
There is no easy solution. It’s too easy to say the auto companies should enter bankruptcy and too easy to try to bail them out with $25 billion in loans. Clearly, they need to change the way they do business.
The Detroit 3 lost the battle years ago. Just like Kmart/Sears, you cannot have declining comp store sales and believe you are in the retail business. The car makers have lost market share for years. Why is simple; they don’t produce cars that consumers want to buy and their quality is below the acceptable bar of today. Any bailout from the Federal government will just be a waste of money. It will not be paid back and the companies will wind up in bankruptcy court at a later date. All the bailout will do is delay when they go into court.
How many retailers have we seen do the same thing? They simply do not adjust to the changing consumers or new competition. The result is, most are out of business. If the automakers do get a bailout, they should use the money to implement a pre-packed bankruptcy.
At something like $75 per hour for employees–thanks, UAW–compared to $50 for their competitor’s American employees and $30 for other manufacturing employees, the only market-way out is through bankruptcy. Whether this disastrous situation is the “fault” of management or not, America has NOT turned away from the root problems here, but embraced them fondly.
The coup de grace here would be propping up this death dance between management and labor, and then using “protectionism” to hinder American consumers access to American built Toyotas, etc., all the while piling on onerous manufacturing requirements based on hiccups in mathematical models.
I’m actually quite optimistic. :>)
I understood the reasons for the financial system bailout. Whether that has been deployed as effectively as possible remains to be seen. That was not about saving companies, per se, so much as it was about preventing total collapse of the credit market.
But I’m sorry, I don’t see it with the auto industry. As the article points out, they have systemic issues that have nothing to do with the current economic crisis. They have driven themselves into this position, and their failure would not “take down” the whole entire auto industry. In fact, getting their bloated companies and structures out of the way might open things up for more competitive American auto manufacturing–a new era for cars that are energy efficient, clean, high quality, and incorporating the latest and greatest in technology. Oh yeah, and with a retail angle–selling them how consumers want to buy them! That would be revolutionary.
Preserving these companies the way they are right now–it’s just not a good thing.
What could be done in hindsight? For someone to remember the 1970s.
High gas prices weren’t invented this year. Neither was the instability in the Middle East. Neither were tight credit markets. Or the word ‘recession’. All of these factors were present in the 1970s, the last time the auto industry needed a bailout.
But now, the auto industry faces a hostile public. It’s hard to have sympathy with UAW workers, who have full pay while they’re unemployed, when so many millions of Americans face unemployment. Also, the car companies pulled out of Alabama, Tennessee and other states. Who moved in, giving manufacturing workers jobs? Toyota, Honda, and other foreign auto makers.
It’s truly sad the way the rest of Michigan will likely suffer (restaurants, doctors, dentists, clothing stores) when the inevitable happens to the Big Three.
In hindsight, why didn’t the auto industry ask for assistance in shoring up innovation efforts to make hybrid cars? In fighting an impossible battle with the UAW? This kind of help might have avoided the wreck that is about to happen.
I have spent my entire life in Detroit. My dad lost two businesses over the years, trying to be a loyal supplier and customer of domestic car companies, most notably GM. I support him, he has no pension, no health benefits, not even a home any longer. Hundreds of local suppliers were squeezed into bankruptcy without mercy, sourcing was moved overseas, while the auto workers and manufacturers got wage increases and bonuses and big retirement/health benefit packages.
While bankruptcy will further destroy my beloved home town, and it makes me very very sad and even scared, I am not convinced it is the only way to go. It means members of my family will go under, it means hundreds of my dear dear friends will suffer horribly in their personal and family lives. It means spouses of my coworkers will lose jobs and families I work with every day with lose their homes. It means crime will spike as social unrest boils over in a city already on the rocks. It means my own opportunity to sell my home and use the money for retirement is over.
It brings tears to my eyes every single day. Most of you out in other cities just can’t even comprehend. It’s personal. We need more dedication to solution planning, not blame.
Welcome to the real world, GM. The problem that GM has found itself in has been around for a long time. And it is unfortunate that the people working for GM (suppliers included) have not adjusted their lives/business to this nose dive trend.
There are any number of willing accomplices to the long, steady decline of the Detroit 3 – Boards of Bystanders, clueless or inept Management, Willful ignorance of the facts by both sides of the table during contract negotiations, etc.
The current grasp for ‘relief’ is yet one more attempt to evade clearly evident and long-standing root causes.
Perhaps one of the most graphic examples of why this particular bailout was captured in a Wall Street Journal article from a few years ago that folks can Google on WSJ.com. The title says it all – “Detroit’s Symbol of Dysfunction: Paying Employees Not to Work.” (Rick Wagoner – Call your office)
It appears US manufacturing never quite took the lessons of the Japanese corporate culture of years ago to heart; the incentives of the end-product and its relevance to the consumer market far outweigh the internal, structural, and employee incentives within the company itself. In other words, it’s a team, and if the brand and product succeed, the team will be taken care of. Many US manufacturers, the auto industry for certain, operate backwards; bloated, over regulated internally, personnel and union driven; all the while producing under quality, over priced, increasingly irrelevant product. Now it’s time for the easy bailout; great for short term extension of the internalized mindset; nothing for valued change. Band-aid now, pay later; the new US “solution.” Good for votes at least, and we’re proving it and facilitating it more and more.
There’s a great analogy for the current economic and corporate crisis. It used to be assumed we must put out forest fires; it’s obvious they’re destructive and horrific to those impacted by it, human or animal. Only we learned that forest fires are critical to the clearing out of weakened, fallen, overrun, or dead matter preventing the new and fresh to surface and renew the land, air, plants and water that allow the inhabitants to survive and flourish. Why is this any different?
In light of the current market conditions, allowing the big 3 to go into bankruptcy would be catastrophic not only to our economy, but worldwide. We no longer can view this as a U.S. problem.
I don’t believe in government intervention into private industry, but during this current crisis, a loan (not a bail out) is in order with very specific conditions and an oversight committee to monitor how the monies are being spent.
The big 3, along with the UAW (which in my opinion is as much to blame as big 3 management) needs to severely adjust their thinking. It appears that no one had any long-term fixes dating as far back as the 70s gas crisis. We never learn. A definition of insanity is “Making the same mistakes, but expecting different results.” Both the UAW and big 3 management are guilty!
Blame goes all around.
Management:
1. Giving in to union demands
2. Still plugging away with gas guzzling vehicles
3. Flood the market with cars, trucks and fleet vehicles
Workers:
1. Milk the company for every half penny its got left no matter if times are good or desperate. Never a bad time to strike and demand more money
2. Designing cars that pale in comparison to foreign auto makers. In general, American cars are uglier, less fuel efficient, poorer quality, and usually rank worse than foreign cars in any magazine or website review list
I cringe when I hear about automakers wanting $25 billion from the government. I wonder how much of that will actually be used effectively.