The Myth of "Saving the ENTIRE Auto Industry"

 George Will: Liberalism, as we know it

 Excerpt:

Obama’s supposed rescue of “the auto industry” — note the definite article, “the” — is a pedal on the political organ he pumps energetically in Ohio, Wisconsin, Michigan and elsewhere.

Concerning which: He intervened to succor one of two of the U.S. auto industries. One, located in the South and elsewhere, does not have a long history of subservience to the United Auto Workers and for that reason has not needed Obama’s ministrations. He showered public money on two of three parts of the mostly Northern auto industry, the one long entangled with the UAW. He socialized the losses of GM and Chrysler. Ford was not a mendicant because it was not mismanaged.

Comment: Just to set the record straight

There is a U.S. auto industry that works

There is a U.S. auto industry that works

Excerpt:

there are 12 international car companies that have manufacturing operations in the United States. Collectively, they employ 113,000 Americans directly -- even though that is less than the 239,000 at Ford, GM and Chrysler. However, those international car companies sell more cars than the Big Three and their customers love their products. They have millions of American shareholders. They do sophisticated work like research, design and marketing in the United States. All in all, they add jobs and high value to the United States.

Comment: I have a Buick and I love it. But I am still against the Dem sponsored bailout.

Freakonomics: "When will they ever learn?”

What’s the Point of Bailing Out the Auto Industry?

Excerpt:

Where does the auto bailout fit in?

It certainly doesn’t make markets more competitive; instead it subsidizes American oligopolists. It certainly doesn’t spur innovation; while the provisions may talk about this, bailouts have proven to be a poor way of getting firms to innovate.

It doesn’t reduce transactions costs; Chapter 11 bankruptcy procedures exist for that purpose, and they do well at it. The only possible economic argument might be fear that a bankruptcy by G.M. might spook many other markets. What about a bankruptcy by Wal-Mart? It’s much bigger than G.M., so wouldn’t the spooking effect be bigger?

Let’s face it — the bailout is purely political, pushed by troglodyte companies and their unions of high-paid workers, and helped by their agents — elected representatives from the many states in which auto production occurs. Once again, as was true with the Chrysler bailout of the late 1970’s, the taxpayer will take a beating. To quote the old protest song, “When will they ever learn?”

Comment: The Senate Republicans (bless their hearts) are playing tough on this: Republicans Float Auto Bailout Alternative

That proposal would impose even tougher requirements on the automakers than the bill approved by the House, and it would mandate the “auto czar” overseeing the rescue plan for the federal government to force the companies into bankruptcy should they fail to meet the requirements.

Under his plan, which was the subject of intense negotiations with Democrats, the automakers would be required by March 31 to cut their debt obligations by two-thirds — an enormous sum given that G.M. alone has more than $60 billion in debt.

The automakers would also be required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees based in the United States, and the companies would have to impose equivalent work rules. The plan would bar any pay for idled workers other than “customary severance pay.”

Democratic Congressional aides said that the United Auto Workers union did not support the proposal, but was willing to negotiate.

On Autos - will Obama be "Chance the Gardener or Abraham Lincoln"

The Bailout That Won't

Excerpts:

Understand something: Ford and GM in Europe successfully sell cars that are small but not cheap. Europeans are willing to pay top dollar for a refined small car that gets excellent mileage, because they face gasoline prices as high as $9. Americans are not Europeans. In the U.S., except during bouts of high gas prices or in the grip of a Prius fad, the small cars that American consumers buy aren't bought for high mileage, but for low sticker prices. And the Big Three, with their high labor costs, cannot deliver as much value in a cheap car as the transplants can.

Under a law of politics, such truths were unmentionable in last week's televised circus because legislators are unwilling to do anything about them. They won't repeal CAFE because they fear the greens. They won't repeal CAFE's "two fleets" rule (which effectively requires the Big Three to make small cars in domestic factories) because they fear the UAW. They won't hike gas prices because they fear voters.

And make no mistake: An even more massive auto wreck lies ahead when a soon-to-be taxpayer-financed and taxpayer-owned auto industry confronts a California rulemaking that, in a silly gesture against global warming, would render most of its auto designs, profit centers and tooling unsalvageable.

We hate to admit it, but the only good idea from the bailout debate is the proposal for a new "auto czar." Along with disposing of Chrysler and downsizing Ford and GM, his job should be to confront Congress with its own policy cowardice and failure. If saving gasoline and Detroit are both worthy goals, let's ditch CAFE and institute a gasoline tax to make consumers value the cars government is forcing auto makers to build. If Congress doesn't have the tummy for that, at least ditch the "two fleets" rule so Detroit can import small cars to meet the mandate.

Alas, Barack Obama's vaunted "change" apparently doesn't include spending the political capital to make Congress acknowledge the failure of CAFE. If he can't do better than throw taxpayer money at a dismal policy disaster like our fuel-economy regulations (and so far he seems to be joining Congress in pretending it's all Detroit's fault), we might as well give up on his presidency along with any hope of progress on the nation's other unresolved dilemmas.

His campaign never really answered the question of whether he was Chance the Gardener or Abraham Lincoln. We might as well find out now.

Comments: Chance the Gardener: Being There. Another opportunity for Republicans to stand together and vote no! Some Chance quotes:

President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?
[Long pause]
Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.
President "Bobby": In the garden.
Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
President "Bobby": Spring and summer.
Chance the Gardener: Yes.
President "Bobby": Then fall and winter.
Chance the Gardener: Yes.
Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy.
Chance the Gardener: Yes! There will be growth in the spring!
Benjamin Rand: Hmm!
Chance the Gardener: Hmm!
President "Bobby": Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I've heard in a very, very long time.
[Benjamin Rand applauds]
President "Bobby": I admire your good, solid sense. That's precisely what we lack on Capitol Hill.

Cars designed in DC won't sell

Bridge Loan to Nowhere - Congress and business 'viability' rarely mix.

Excerpts:

All three restructuring plans are heavy on promises to build the "green" cars that a Democratic Congress wants built. GM promises 15 hybrid models by 2012 and 37 miles per gallon on average for its cars. Chrysler commits to putting flex-fuel engines, which can run on ethanol or gasoline, in half of its cars. Ford promises to save 16 billion gallons of gas by using "advanced technology" and to invest $14 billion to improve fuel efficiency.

...
This is not a bailout that Congress is debating. It is a federal takeover. We don't mean that in the sense that the feds will own the companies on paper, although that can't be ruled out. What Congress wants to own is their business plan, and Detroit seems prepared to oblige.

...
The core problem is that the companies can't pay their creditors in fuel-economy standards. Two economists testified that the ultimate cost of this bailout would certainly be much, much higher than $34 billion. Mark Zandi of economy.com put the number at up to $125 billion -- and he supports the bailout. NYU's Edward Altman said the company proposals were "doomed to fail." He proposed a prepackaged bankruptcy for GM and Chrysler, with the government providing the debtor-in-possession financing if necessary. His point, which ought to be sobering, was that outside of bankruptcy there is no way to make these taxpayer loans senior to existing secured debt -- meaning the government might never get paid back if the companies go bankrupt later.

...
The car makers' request for a bridge loan, by contrast, looks like a $34 billion bridge to nowhere. It has already morphed into an opportunity for political extortion -- and we don't even have a bill yet. When, in a couple years, costs have not come down as expected because of political pressure to keep the unions happy and the green cars aren't selling -- because they were designed in Washington, not for consumers -- the companies will be back for more money.

The bailout commitment, in other words, is effectively open-ended, no matter what anyone says. And with the feds so invested in the companies, it will only be a short step for Congress to begin to coerce consumers to buy the cars that Washington prefers. Mr. Friedman, the concerned scientist, is already planning for that day. He said Friday that we'll eventually have to impose a "fee" (read: tax) on cars that "pollute too much" or use "too much gas."

This fairy tale, in other words, does not end happily ever after. A bankruptcy, prepackaged or otherwise, keeps looking better.

Comment: What Washington gives ... it takes away.

Will Barack Obama stare down Detroit?

The Latest Song of Detroit - Barack Obama's opening to practice some tough love

Excerpt:

In addition to these measures, Congress must revisit one of its own special-interest shibboleths if it really wants to save Detroit. Requiring car companies to meet corporate average fuel economy (CAFE) standards forces them to lose money on small cars that people don't want so they can sell big cars that people do want, at least until gas prices soar out of sight. Proof positive came last month, when the Toyota Sequoia and Honda Pilot SUVs posted big gains while sales of most other cars plunged. The obvious reason: gasoline prices plunged too.

The reason Europe has fuel-efficient cars is high gas prices, not CAFE laws. What's more, the only times that Americans have switched to smaller cars is 1973, 1979 and the spring of 2008, when gas prices here were high. So the time has come for Congress to stop pretending that fuel-economy can be legislated and to put market forces to work. That means raising gasoline taxes -- offset by cuts in income taxes and by gas vouchers for needy people. These measures would succeed at raising fuel economy and in reducing automotive emissions where the CAFE law has failed.

There are no painless solutions here. But amid this dismal picture, there is a real opportunity for our new president-elect. If Barack Obama can stare down the UAW, the pro-CAFE environmental lobby and the corporate-welfare supplicants by insisting on the sort of tough-love measures outlined here, he'll establish himself as a true leader. Rahm Emanuel, the president-elect's designated chief of staff, says a good crisis shouldn't be wasted. That goes for presidents, too. Can you rise to the tough-love challenge, Mr. Obama? If so, a lot of people will be singing your praises.

UAW grants concessions, exec warns of depression

Excerpt:

Worried about their jobs and warned that the cost of failure could be a depression, hundreds of leaders of the United Auto Workers voted overwhelmingly Wednesday to make concessions to the struggling Detroit Three, including all but ending a much-derided program that let laid-off workers collect up to 95 percent of their salaries.

"Everybody has to give a little bit," said Rich Bennett, an official for Local 122 in Twinsburg, Ohio, representing Chrysler workers. "We've made concessions. We really feel we're doing our part."

Union leaders also agreed to let the cash-starved automakers delay billions of dollars in payments to a union-administered trust set to take over health care for blue-collar retirees starting in 2010.

In addition, they decided to let the Detroit leadership begin renegotiating elements of landmark contracts signed with the automakers last year, a move that could lead to wage concessions.

GM, Chrysler May Accept Bankruptcy to Receive Bailout

Excerpt:

General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions.

Auto executives have warned bankruptcy would lead to liquidation as customers abandoned the companies. Staff for three members of Congress have asked restructuring experts if a pre- arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation, a person familiar with that matter said.

“It’s essential for Congress to do due diligence on bankruptcy as an option so it gets a clear sense from independent people what the risks and possibilities are,” said Alan Gover of White & Case, who has been lead lawyer in $60 billion of corporate-debt restructurings.

Comments:

Re Barak Obama: I doubt he has the intestinal fortitude to address the Detroit issue

Re the UAW: Seems to be too little too late

Re GM and Chrysler: They waited until they were at the edge of the cliff (Think Tina and Louise!) before they began to get serious about their problem.

Bailouts mean the government will "tax you more for a very long time"

Even in Michigan, Not Everyone Wants a Lifeline

Excerpt:

Jeffrey Kerr, a real estate developer who lives in the Lake Michigan town of Saugatuck, objects to the personal costs that he says come with bailouts. “When the government starts bailing out private companies,” Mr. Kerr said, “what they’re basically saying is, ‘We’re going to tax you more for a very long time.’ ”

Pat Weber, a construction manager who was laid off last year in Fennville, near Saugatuck, largely agreed. “A bailout will cause a snowballing effect,” Ms. Weber said, “and it’s way too scary how it will come back on all of us.”

At the shop where Mr. Raterink makes tools and machinery, there used to be 15 men. Now there are five.

“They weren’t offered any bailout,” he said of those who lost their jobs. Then, of the Big Three and the mismanagement he perceives, he added, “The wolf you let loose is at your door.”

Comment: Interesting read about how the average Michigan "Joe" is disinclined to auto bailouts. See George Will column below for his view that government intervention actually exasperates recessions.

Same Old New Deal?

Excerpts:

In a 2004 paper, Harold L. Cole of the University of California at Los Angeles and Lee E. Ohanian of UCLA and the Federal Reserve Bank of Minneapolis argued that the Depression would have ended in 1936, rather than in 1943, were it not for policies that magnified the power of labor and encouraged the cartelization of industries. These policies expressed the New Deal premise that the Depression was caused by excessive competition that first reduced prices and wages and then reduced employment and consumer demand. In a forthcoming paper, Ohanian argues that "much of the depth of the Depression" is explained by Hoover's policy — a precursor of the New Deal mentality — of pressuring businesses to keep nominal wages fixed.


Furthermore, Hoover's 1932 increase in the top income tax rate, from 25 percent to 63 percent, was unhelpful. And FDR's hyperkinetic New Deal created uncertainties that paralyzed private-sector decision making. Which sounds familiar.

...

Barack Obama says that the next stimulus should deliver a "jolt." His adviser Austan Goolsbee says that it must be big enough to "startle the thing into submission." Their theory is that the crisis is largely psychological, requiring shock treatment. But shocks from government have been plentiful.


Unfortunately, one thing government can do quickly and efficiently — distribute checks — could fail to stimulate because Americans might do with the money what they have been rightly criticized for not doing nearly enough: Save it. Because individual consumption is 70 percent of economic activity, St. Augustine's prayer ("Give me chastity and continence, but not yet") is echoed today: Make Americans thrifty but not now.


Obama's "rescue plan for the middle class" includes a tax credit for businesses "for each new employee they hire" in America over the next two years. The assumption is that businesses will create jobs that would not have been created without the subsidy. If so, the subsidy will suffuse the economy with inefficiencies — labor costs not justified by value added.

Ford's Business plan submission

FORD MOTOR COMPANY SUBMITS BUSINESS PLAN TO CONGRESS; PROFIT TARGET, ELECTRIC CAR STRATEGY AMONG NEW DETAILS

Excerpt:

Ford Motor Company this morning submitted to Congress its comprehensive business plan, which details the company’s plan to return to profitability and outlines a request for potential access to a temporary bridge loan in case the current economic crisis worsens or there is a bankruptcy of a major competitor.

In the plan, Ford said the transformation of its North American automotive business will continue to accelerate through aggressive restructuring actions and the introduction of more high-quality, safe and fuel-efficient vehicles – including a broader range of hybrid-electric vehicles and the introduction of advanced plug-in hybrids and full electric vehicles.

Ford is asking for access to up to $9 billion in bridge financing, but reiterated that it hopes to complete its transformation without accessing the loan should Congress agree to make the funds available.

Despite the serious global economic downturn, Ford said it does not anticipate a liquidity crisis in 2009 – barring a bankruptcy by one of its domestic competitors or a more severe economic downturn that would further cripple automotive sales and create additional cash challenges.

Comment: Link below is full PDF (33 pages). Interesting comments on the economy.

FORD MOTOR COMPANY BUSINESS PLAN - SUBMITTED TO THE SENATE BANKING COMMITTEE

Excerpts:

The forward economic outlook is also negative, with a wide range of possible outcomes due to the uncertain financial market environment. Real GDP is projected to decline significantly in the current quarter, as much as 4% or more as compared to the prior quarter (at an annualized rate). Consumer confidence is the weakest since the early 1980s, with nearly three in four consumers expecting the recession to deepen in the months ahead, according to the recent Survey of Consumers report released by Reuters/University of Michigan.

The economy is projected to contract through the first half of 2009, with a peakto-trough decline in real GDP in the 2.0% to 2.5% range. The housing sector decline, as measured by housing starts and sales, is expected to weaken somewhat from already low levels.

Spending by consumers has already fallen at an annual rate of nearly 4% in the third quarter (as compared to the second quarter). A further contraction in consumer spending is underway in the current quarter, with an additional step down likely in the first quarter of 2009. Consumers are weighing likely further employment declines and responding by increasing their saving rates and pulling back on purchases, especially of durable goods such as automobiles.

The financial crisis, now 16 months old, persists. Despite the actions taken by the Federal Government and the Federal Reserve (and other governmental institutions around the world), there is no near-term end in sight.

... we are acutely aware that our supply base, our labor structure, and our dealer network, among other factors, are sized for an industry and a market share that the domestic companies can no longer support.

there are other important policies that will help enhance the industry’s global competitiveness. First, Ford was proud to support stronger CAFE standards, and we are absolutely committed to meeting them. However, we urge Congress to maintain one economy-wide set of national standards on fuel economy. A patchwork of standards would place enormous financial and engineering burdens on manufacturers and have the effect of reducing consumer choice -- all for little or no environmental benefit.

Throughout the 1990s and into this decade, we became increasingly dependent in the U.S. market on trucks and large SUVs, which were in heavy demand by consumers and generated large profits. Many of our competitors, both foreign and domestic, likewise followed market demand and added more truck and SUV products to their lineups. Our focus on these vehicles, however, left us exposed in the event of a market shift to smaller, more fuelefficient vehicles. In anticipation of such a shift, and inspired by the compelling vision outlined by our Executive Chairman, Bill Ford, we began to refocus our portfolio earlier in this decade, introducing a new line of mid-size cars (the Fusion, Milan, and MKZ) as well as the first hybrid sport utility (the Ford Escape -- still the most fuel efficient sport utility available with an EPA city mileage rating of 34 miles per gallon). When fuel prices shot up rapidly earlier this year, the shift occurred much more quickly and was much more pronounced than we or anyone else in the industry anticipated.

In addition, we had, over a period of many years, created a labor structure that was uncompetitive with the foreign-owned transplant operations that had been established in the United States. And, we made small cars in the United States largely because of a requirement to meet federal Corporate Average Fuel Economy standards.

Comment: A worthwhile read.

From the Big Three ... a Big One?

And Then There Was One - Distilling the Big Three into a single player could save Detroit.

Excerpts:

The notion of three powerful U.S. automakers is already an anachronism. These companies are husks of the mighty institutions that once ruled the road. Now they control less than half the U.S. auto market and will lose a combined $30 billion this year. Collectively they are burning through nearly $6 billion a month, and General Motors and Chrysler warn that by the end of the year they'll be broke. They'll head back to Washington this week (ideally by car pool) to beg for a bailout.

But Detroit actually has parts worth saving. Melding them into a single entity could buff up its best brands, like Chevy, Ford and Cadillac, while leaving the clunkers (Pontiac, Mercury, Saturn, et al.) by the side of the road. It would take a healthy dose of Nietzsche's "creative destruction," but that's preferable to total destruction, especially when you're talking about an industry that supports 2.5 million jobs. Other major American industries have undertaken calamitous consolidations to survive. Why should Detroit be spared from market forces?

...

After the Berlin Wall came down in 1989 and the end of the Cold War led to shrinking defense contracts, America's aviation companies began falling into one another's arms. Boeing grabbed up all U.S. civil-aircraft business, acquiring its chief domestic rival McDonnell Douglas in 1997. That allowed Boeing to take on the true competition: Europe's Airbus.

...

Like autos, foreign competition laid waste to the American steel industry. Beginning in 1986, more than 35 American steel makers went bankrupt. In 2002, billionaire investor Wilbur Ross agreed to buy up bankrupt LTV Steel, setting off a merger frenzy that saw 17 companies shrink down to three, while financial results reversed from a $1.1 billion loss in 2003 to a $6.6 billion profit in 2004. Ross used the bankruptcy courts to renegotiate labor contracts and hire back a fraction of the workers.

... some say Detroit's salvation could come in the form of a prepackaged bankruptcy, a quicker reorganization where creditors agree to cuts up front that would hopefully be less disruptive to the overall economy. With government backing to secure loans and preserve car warranties, buyers might not turn away.

Bankruptcy could solve another intractable problem: Detroit's glut of dealers and car brands. The Big Three need to cut their dealers by one third but are blocked by state franchise laws. In bankruptcy, carmakers can tear up franchise contracts and wipe out entire brands. The question is, would a Wilbur Ross-type speculator come along to consolidate the remains of the domestic auto industry?

Comment: I think "the Big Three" is essentially a misnomer. Chrysler is virtually a non-player. Maybe "the Big Two and a Half" or "The General, a Sergeant, and a buck private". My own solution is a "Government-Sponsored-Bankruptcy". Brands worth saving: GM: Cadillac, Chevrolet, Buick; Ford: Ford and Lincoln; Chrysler: Jeep and their mini-vans. Perhaps Ford should buy Chrysler and retain the Jeep brand. All will be interesting to see it unfold.

Tesla: Federal funds?

Only the Rich Can Afford It. Should Taxpayers Back It?

Excerpts:

THE Tesla Roadster is an electric car that goes fast, looks sensational and excites envy. The seductive appearance, however, obscures some inconvenient truths: its all-electric technology remains woefully immature and don’t-even-ask expensive. If enough billionaires step forward to inject additional capital to keep the doors of its manufacturer, Tesla Motors, open, I’m happy for all parties.

If investors pass up the opportunity, however, why should taxpayers fork over the capital that Tesla needs? The Roadster is not much more than a functioning concept car that sells for $109,000. The company is requesting $400 million in low-interest federal loans as part of the $25 billion loan package for the auto industry passed by Congress last year.

The program is intended to encourage automakers to improve fuel efficiency, but should it be used for a purpose like this, as the 2008 Bailout of Very, Very High-Net-Worth Individuals Who Invested in Tesla Motors Act? Can you conceive any way that federal dollars could be put at greater risk — and for no equity in return, keep in mind — to benefit fewer people?

Tesla Motors, a privately held company based in San Carlos, Calif., has spent almost all of the $145 million in capital it has raised to date. It says it will soon receive another round of $40 million from its private investors to sustain operations.

In the start-up ecosystem of Silicon Valley these would be respectably large numbers, but in the automotive world, fully developing an entirely new line of technology can easily run $1 billion. That is what General Motors’ first attempt at an electric vehicle, the EV1, was estimated to have cost to develop in the 1990s.

Tesla says it cannot move forward on plans to bring out a second-generation car, a less expensive sedan seating five, without federal funds.

...

...for Tesla, batteries are based on chemistry and have nothing to do with Moore’s Law. Lawrence H. Dubois, chief technology officer at ATMI, a semiconductor industry supplier, said, “With batteries, you can’t just squeeze more energy into a smaller and smaller space the way you can squeeze more transistors.”

Elon Musk, the chief executive of Tesla, said his company would benefit from what he called “a weak Moore’s Law,” referring to the 8 percent annual improvements in the price performance of lithium-ion batteries. But 8 percent, compounded, would bring too few benefits, too late to Tesla: it would take nine years to halve the price of its battery pack.

Comment: My answer to this question: "Only the Rich Can Afford It. Should Taxpayers Back It?". NO! The way to raise capital is through IPO's, stock offerings, venture capital, bonds, and commercial loans.

Autos: The empty rhetoric of the Democrats

George Will: In Detroit, Failure's a Done Deal

Excerpts:

The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that improvident labor contracts can be unraveled, allowing the companies to try to devise plausible business models. Instead, advocates of a "rescue" propose extending to Detroit the government's business model for the nation — redistributing wealth from the successful to the failed, an implausible formula for prosperity.

...

Congress could help the Detroit Three by allowing them, when meeting CAFE (corporate average fuel economy) standards imposed by Congress, to count fuel-efficient cars they import from their overseas factories. Congressional Democrats oppose that because those imports are not made by members of the United Auto Workers. Those Democrats, their rhetoric notwithstanding, really care most about the union. "Saving the planet" comes second and last comes the health of the auto companies.


Some opponents of bankruptcy stress that it might terminate health-care coverage enjoyed by UAW retirees who are too young for Medicare. Think about that. If people want to retire before 65, or 35 for that matter, that is their business. But there is no public interest in protecting the luxury of retirement in the prime of life just because in palmy days a private contract between a union and a corporation established it as an entitlement for all seasons.

Comment: Again the CAFE standards!

Wagoner is GM’s best salesman - and that's not saying much!

Mean Street: Why Everyone Hates GM: Pity the poor one million General Motors shareholders.

Excerpt:

the inconvenient facts of decades of declining Big Three market share and grotesque overcapacity. Only in the World of Wagoner could the industry be making “tremendous progress.”

If pressed for time, skip to the hearing’s third hour when Democratic Sen. Bob Menendez uncovers the “big lie” of a Detroit bailout. The $25 billion number is a fudge. It would only plug the hole for a few months. Mendendez was blunt. Detroit will soon be back hat in hand.

And Menendez is a sympathetic voice. Ouch. Next comes, Bob Corker, Republican from Tennessee and a no nonsense businessman. He is brutal. “GM is spiraling downward.” Chrysler has “barely a heartbeat.” “Which of the three should survive and which shouldn’t?”

Corker dares to point out what everybody knows but nobody will say. The entire American car industry is already bankrupt. One and maybe two companies will have to go. Industrial triage is inevitable. That’s the way business works.

Corker’s brilliant maneuver is to have the “impartial” Gettelfinger — whose UAW has fleeced all three — rank them by viability. Gettelfinger’s answer: Ford, then Chrysler, then last, GM.

Minutes later, Wagoner’s detached statesmanlike composure finally gives way. His face grows red. His voice rises. It’s clear just how desperate GM has become.

Chrysler CEO Bob Nardelli and Ford boss Alan Mullaly at least know how to grovel properly. Of course, they don’t carry the emotional baggage of a longtime Motowner like Wagoner.

Nardelli has been at Chrysler for just over a year. He knows Chrysler’s days are numbered and looks like a man who just wants out. Every time he has the floor, he reminds lawmakers of Chrysler’s “fragile” position. Oddly, for someone who took home hundreds of millions in a disastrous stint as Home Depot’s CEO, Nardelli can still elicit sympathy. That’s good salesmanship. He should be on a Chrysler lot.

As for Mullally, he makes it clear numerous times that Ford doesn’t even have to be in Washington asking for money. It’s the troubled, ne’er -do-well Rick Wagoner at the end of the table that’s bringing him there. “I’m here because GM is here,” Mullaly intones with aw-shucks brotherly love.

That, of course, is disingenuous. Mulally concedes that by 2010, without an upturn in the U.S. economy, even Ford will run out of money. Nor does he mention that Ford’s share price closed the day at less than two bucks.

Luckily for the Big Three, the Detroit bailout will be resurrected early next year when a new Congress and Barack Obama are sworn in.

Mulally and Nardelli will have a few months to brush up on their performances.

Wagoner may not be as lucky. His board can put up with a failure to turn a profit, but it probably won’t stand for his failure to bring money back from Washington. If this is GM’s best salesman, no wonder the company can’t move cars.

Comment: Interesting: UAW's triage

... the “impartial” Gettelfinger — whose UAW has fleeced all three — rank[ed] them by viability. Gettelfinger’s answer: Ford, then Chrysler, then last, GM.

Also interesting that these guys didn't corporate jet pool together. Three corporate jets flew them there. Ford's CEO private jets back and forth to Seattle every weekend!

Big Three auto CEOs flew private jets to ask for taxpayer money

"There is a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hand, saying that they're going to be trimming down and streamlining their businesses," Rep. Gary Ackerman, D-New York, told the chief executive officers of Ford, Chrysler and General Motors at a hearing of the House Financial Services Committee.

"It's almost like seeing a guy show up at the soup kitchen in high hat and tuxedo. It kind of makes you a little bit suspicious."

He added, "couldn't you all have downgraded to first class or jet-pooled or something to get here? It would have at least sent a message that you do get it."

Mitt Romney: Let Detroit Go Bankrupt

Let Detroit Go Bankrupt

Excerpt:

I have several prescriptions for Detroit’s automakers.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.

Comment: I agree with Mitt. Some Republicans see him as again flip/flopping: Already, Mitt?

The Big 3 should become the Big 2!

BofA CEO: There are '1 too many' Detroit 3 members

Excerpt:

Two of the struggling Detroit Three automakers should combine and prove to the government they are worthy of a $25 billion rescue package being considered for them, Bank of America Chief Executive Kenneth Lewis said Tuesday.

"There are one too many" automakers, Lewis said, adding that he would require consolidation if he was deciding on a bailout.

"I think the American people are suspect of just giving more money and buying more time," Lewis told reporters after a speech to the Detroit Economic Club. "They want to see that the companies have in fact changed and the strategies have changed."

Comment: There are too many brands. Eg. Ford does not need a Mercury. GM does not need GMC, Pontiac, or Saab, or Saturn (or Hummer). There are too many dealers as well.

GM: Why chapter 11 is the solution & its Gigantic hybrid

A Bridge Loan? U.S. Should Guide G.M. in a Chapter 11

Excerpts:

G.M is using money so quickly that a $10 billion infusion made today would disappear by February. That is why taxpayers shouldn’t fork over a cent, at least until shareholders are wiped out, management is tossed out and the industry is completely reorganized.

But there is a fix. Call it a government-sponsored bankruptcy, a G.S.B., if you will. It might sound a bit like an oxymoron, but it is an idea that has been quietly making the rounds in Washington. It makes a lot of sense.

Here’s how it could work:

First, let’s recognize that G.M. doesn’t need life support. What it needs is Chapter 11. The bankruptcy process is not a bad thing — indeed, it should be embraced. Bankruptcy allows companies to do tough things they could never do in the normal course of business. It has helped many companies turn themselves around and come out even stronger.

Bankruptcy would give G.M. enormous leverage with its debt holders — and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships. In fact, unless G.M. files for bankruptcy, state laws would make it prohibitively expensive to shut dealerships.

So, first, the government would force G.M into a prepackaged bankruptcy now — even before policy makers may think it needs to be. As an inducement, the government would allow the merger with Chrysler to go forward. (There’s a lot of resistance to saving Chrysler too, but we need to look at the industry as a whole. And don’t worry: Cerberus, the private equity firm that owns Chrysler, would have its equity wiped out too.)

The merger should reduce costs by as much as $7 billion. But that’s not the tough stuff. The harder decisions are these: Both companies would have to jettison brands — lots of them. In the case of G.M., frankly, the only ones worth saving are Cadillac, Chevy and Buick. (Buick? Yes. Despite its lackluster sales and fuddy-duddy image in the United States, it’s a huge seller in China.)

That means Saturn, Pontiac, GMC and Saab would all disappear. Deutsche Bank estimates that reducing G.M.’s brands from eight to three would bring down the company’s cost base by $5 billion annually. If you’re able to shut the dealerships too, lop off another $4 billion. Chrysler is an even sadder situation: the only brand with any value is Jeep. Its Dodge Ram truck lineup could be merged with Chevy, which would also pick up pieces of the GMC business. And Chrysler’s minivan business could be combined into the Chevy brand as well.

In all, the 35 plants of G.M. and Chrysler would probably be cut by half.

Then the auto workers, whose benefits are off the charts.

G.M. currently employs about 8,000 people who actually don’t come to work. Those who do go to work are paid about $10 to $20 an hour more than people who do the same job building cars in the United States for foreign makers like Toyota. At G.M., as of 2007, the average worker was paid about $70 an hour, including health care and pension costs.

That Rick Wagoner, chief executive of G.M., can say with a straight face that he still deserves to run this company is laughable. It would be impossible for him to put in place the serious changes that need to be made because he carries too much baggage. He’d have to undo years of his own neglect.

After all that is agreed, and only then, the government should come in with what’s known as debtor-in-possession financing to help the company through the bankruptcy process. Ideally, the government would be a “seed investor” and others would join it.

The goal should not be to keep these companies from filing Chapter 11, but from filing for Chapter 7 — which would mean liquidation.

With the debt market virtually closed, this is the time the government can come in and try to help. But to jump in front of the train now, without the requisite changes made to the industry first — which we all know can’t be done without Chapter 11 — would be foolish.

Behind the Wheel | 2009 Cadillac Escalade Hybrid: My Hybrid Is Bigger Than Your Hybrid

Excerpt:

I managed to eke out 22.3 miles a gallon on one highway-biased trip, and about 20 m.p.g. over all. The hybrid system’s benefit is most pronounced in urban driving, where Cadillac claims a 50 percent improvement in fuel economy. (The gas-only Escalade is rated 12 m.p.g. in town, 18 on the highway, with all-wheel drive.)

Bizarrely, the Environmental Protection Agency does not provide mileage estimates for the four-wheel-drive Escalade Hybrid because its weight vaults it into the category of heavy-duty trucks, which need not be rated.

This is like McDonald’s adding a low-fat burger that has no calorie count because the F.D.A. says it’s too big to be classified as food.

...
The total as-tested tab was $75,330, although you get a $2,200 federal hybrid tax credit unavailable to the wastrel who instead buys a Honda Fit.

Comment: The US should provide tax credits (if we do at all) for people to buy small cars! I doubt I know one person who could afford the Cadillac Giganticus

The South is Detroit's automotive rival

Comment: an interesting perspective that I had not previously considered.

An emerging Southern view of the Detroit bailout

Excerpts:

The jet-black, $37,500 Borrego sports utility vehicle showed up in the governor’s Capitol parking spot last month, a gift to the state from the South Korean car maker - which is now building a $1.2 billion plant in west Georgia.

...

In its own way, the governor’s new ride may be as meaningful as the demolition of the Ford plant in Hapeville, or the abandonment of the General Motors plant in Doraville.

For behind the philosophical back-and-forth over government intervention, scheduled to begin Monday in the U.S. Senate, is a cut-throat, economic reality: the South has ambitions of becoming Detroit’s rival.

And a federal dollar that artificially props up manufacturing on the northern end of I-75 is a dollar that hinders the creation of new economic models downstream, some Southern politicians maintain.

Last week, Gov. Mark Sanford of South Carolina argued that the refusal of the federal government to bail out the Pittsburgh-based steel industry in the 1970s ultimately led to the establishment of new steel mills in the South. Which permitted the birth of a new facet of the auto industry - highly automated, mostly non-union, and foreign-owned.

“There wouldn’t be a BMW in South Carolina or a whole host of other auto industries scattered across the South, because we would have just kept them all in Detroit,” the Republican said.

Georgia’s Kia plant is scheduled to open next November, employing as many as 2,500 workers. The site is located within U.S. Rep. Lynn Westmoreland’s 3rd District. Westmoreland, like other House Republicans, voted against the $700 Wall Street bailout.

He’ll vote against a Detroit rescue as well - on the grounds that it would create a slanted field of play for the workers he’ll soon represent.

The U.A.W.: the enemy of turning around the Big Three

Comment: The Big Three is more like the Big One (GM), the Half Pint (Ford), and the Dwarf (Chrysler).

Seeking Aid, Automakers Have a Friend in the U.A.W.

Excerpts:

Ron Gettelfinger, president of the United Automobile Workers union says:

“It’s not just G.M. going bankrupt, ... It’s all the rest of the industry that goes with it. Two of the three companies would go under, and there’s a high probability all three would go.”

The problem (high wages relative to Honda, Nissan, Toyota - even in the US where these "foreign" makers have plants!):

Mr. Gettelfinger expects the union to be labeled part of Detroit’s problems, and to defend its $27-an-hour wages and top-of-the-line health care benefits and pensions.

...

... union rules that provide workers with 95 percent of their wages while on layoff and other job-security provisions.

The Future of the U.A.W. is at stake.

“The future of the U.A.W. will be determined over the next two weeks,” said Gary N. Chaison, a professor of labor relations at Clark University. “If G.M. goes bankrupt or doesn’t get a bailout, it’s just going to be a shadow of what it was 50 years ago.”

Why the Democrats care so much (and the Republicans so little!):

The U.A.W. was instrumental in the pivotal victories in Michigan and Ohio by Barack Obama in the presidential election, and two union loyalists in Michigan, Gov. Jennifer M. Granholm and former Representative David E. Bonior, are members of Mr. Obama’s economic advisory team.

Why bankruptcy of GM is better than a bailout:

A carmaker’s bankruptcy would abrogate workers’ contracts

Final comment: A bailout of GM would not solve the seminal problems: high labor costs, rigid Union rules, and bad management.

GM's "ripple" video

Multiple views on Detroit bailout

If Detroit Falls, Foreign Makers Could Be Buffer

Excerpts:

many industry experts say the big foreign makers are established enough to take control of the industry and its vast supplier network more quickly than is widely understood.

“You would have an auto industry in the United States more like that of Mexico and Canada: foreign-owned,” said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich., which describes itself as a nonprofit organization that has “strong relationships with industry, government agencies, universities, research institutes, labor organizations” and other groups with an interest in the auto business.

The transition to that new equilibrium would surely be painful. The big American companies employ about 240,000 workers, and their suppliers an additional 2.3 million, amounting to nearly 2 percent of the nation’s work force.

The outright failure of General Motors would eliminate the biggest auto employer and more than 100,000 manufacturing jobs. That is roughly the number of jobs already lost this year at the nation’s automakers and their suppliers.

...

the new kings of the auto industry would presumably be Toyota, Honda, Nissan, Volkswagen, Ford, Mercedes-Benz, BMW and Hyundai-Kia. (Volkswagen has not yet opened a plant in the United States, and BMW and Hyundai each have one plant.)

Like the Big Three, they would together dominate manufacturing in the United States, becoming big customers for steel, aluminum, plastics, glass, machine tools, computer chips and rubber.

UAW head says that unions aren't to blame for Detroit's problems

Excerpt:

Rather than admit that the UAW's plum labor agreements and contentious negotiations have contributed to the current gloomy situation, the United Auto Workers head man says that the economic downturn is to blame for everything, and that Congress should approve loans to the auto industry, saying "We cannot afford to...see this industry collapse."

An America without manufacturing becomes a starkly divided society

Excerpt:

I am a black child of the Deep South who watched legions of neighbors and relatives flee economic apartheid in pursuit of opportunity in the automobile factories of Michigan and Ohio and in the steel plants of Pennsylvania and Indiana.

Those black men and women often were assigned the dirtiest, most dangerous, least desirable jobs in those factories. But if whites happened to be working alongside them, they tended to be paid equally for the same tasks. There was hope for the future in that treatment, a quantum of dignity.

That hope and dignity eventually became codified in contracts between the car companies and the United Auto Workers union, as it did between other manufacturing entities and their labor organizations.

But, alas, hope and dignity were corrupted by greed on both sides -- on the part of unions that always wanted more, and on the part of domestic car companies, which became more interested in building Wall Street portfolios than they were in turning out cars and trucks of superior quality.

People make mistakes. But redemption is found in the good that they do, and the domestic automobile industry has done a lot of tangible good for this nation.

The American Three -- General Motors, Ford and Chrysler -- largely have been responsible for the development of a black middle class in this country. Many children of factory workers followed their parents onto automobile assembly lines. But many others went to colleges and universities, medical and technical schools, thanks to good UAW salaries and educational benefits.

Comment: Interjecting race into the auto bailout issue. Keep race out of it!

G.O.P. Senators Oppose Auto Bailout

Excerpts:

Top Republican senators said Sunday they will oppose a Democratic plan to bail out Detroit automakers, calling the U.S. industry a “dinosaur” whose “day of reckoning” is coming. Their opposition raises serious doubts about whether the plan will pass in this week’s postelection session.

...

Senators Richard Shelby of Alabama and Jon Kyl of Arizona said it would be a mistake to use any of the Wall Street rescue money to prop up the automakers. They said an auto bailout would only postpone the industry’s demise.

“Companies fail every day and others take their place. I think this is a road we should not go down,” said Mr. Shelby, the senior Republican on the Senate Banking, Housing and Urban Affairs Committee.

“They’re not building the right products,” he said. “They’ve got good workers, but I don’t believe they’ve got good management. They don’t innovate. They’re a dinosaur in a sense.”

Mr. Kyl, the Senate’s second-ranking Republican, added, “Just giving them $25 billion doesn’t change anything. It just puts off for six months or so the day of reckoning.”

Comments: Good to see the GOP offer some common sense. Recent "innovations" of the big three: Hummer, the new Camaro, the new Dodge Challenger, the Chevrolet Avalanche. My own conclusion: let GM file for chapter 11. Let them innovate through restructuring.

Auto bailout: Pelosi's non-starter

Pelosi outlines aid package for US automakers

Excerpt:

Pelosi said the plan would call for "immediate, targeted assistance" and must include several principles, including the restructuring of the companies "to ensure their long-term economic viability," new fuel-efficiency standards, and the development of advanced vehicles.

She said it would include "even stronger limits on executive compensation and assurances to protect the taxpayer." House aides said the legislation was still being developed and a specific funding level had not yet been reached.

Pelosi did not mention any plans for the UAW to make any concessions as part of the legislation. UAW president Ron Gettelfinger told reporters earlier Saturday the problem is not the union's contract with the auto companies.

"The focus has to be on the economy as a whole as opposed to a UAW contract," Gettelfinger said. The union has said it made several concessions in its 2007 labor agreement, setting lower pay for new hires and placing retiree health care liability into a trust run by the UAW.

Comment: Unless labor is addressed ... it isn't a solution at all. Don't expect Nancy Pelosi to address labor. I hope that Bush does nothing and lays this mess on Obama!