Car-mageddon Update.

The CEOs are up on Capitol Hill, hats in hand, begging for small change. $85 Billion in change, to be exact. And the Big Three have marshaled the troops to hit all the news shows, declaring (in no uncertain terms) exactly why bankruptcy is not the answer, and why we MUST give them a “loan” to keep them afloat. Here are some unanswered questions – and oddly enough, for once they are the questions that some in Congress are actually asking the Big Three honchos:

  • How much money do you need – worst case scenario – to keep you afloat until March 30?
  • Since your current business model is not sustainable, what are you doing to change the way you do business to make sure you can survive, if given the money?
  • Why wouldn’t bankruptcy be a better way to reorganize, since you’ve shown no inclination to make the fixes you’ve known needed to be made for the past 10 years?
  • How are you going to repay this money…and how soon would you anticipate doing so?
  • Since you’re the guys that screwed up the car companies in the first place, why should we give YOU the money?
  • Shouldn’t we require someone else to step in that would have the cojones to make the changes that are needed?
  • What assurances can you give us that you won’t be back in three months, begging/pleading/demanding even more money from the taxpayers?

Great questions all. The problem is that you’ve got an entire industry – including the CEOs, the boards of directors, upper management, middle management, the unions, and the investors – that are all in deep denial. Nobody’s willing to make the sacrifices on their own to save the industry…they are all expecting the other stakeholders to take the hit. Here’s an example…

Last year, the UAW’s Ron Gettlefinger made what they called “huge concessions” to the Big Three, to do Labor’s part to save the industry. Here’s what he calls “concessions”: They will take over the pension plans…as long as the Big Three puts massive amounts of money up to fund them now. (Newsflash: they don’t have the money. This won’t save the Big Three one dime.) He’s agreed to reduce the salaries of new union workers, but if anybody gets laid off, they still MUST be paid 80% of their salary. (Um…isn’t the purpose of layoffs so you don’t have to pay their salaries?)

The CEOs won’t close plants – and run the risk of a labor strike. The labor unions won’t give an inch in real concessions, because they don’t want their members to wonder why they pay dues. The investors want profits at any cost – not a restructuring that will diminish the worth of their investments. The middle managers just want to maintain the status quo, so they design products that are “safe” – and play by all the rules.

The solution is a financial hycolonic – bankruptcy. But the stakeholders in the country’s most poorly-run business all insist that bankruptcy would be catastrophic for the country. Sort of a “what’s bad for General Motors would be a disaster for America” theme. Problem is – that’s simply not true.

They argue that nobody – here or abroad – would buy an American car if they were in bankruptcy. Nonsense. As long as everyone knows that it’s a restructuring – and not a liquidation – people will buy. What the government SHOULD do, is to allow the companies to go through bankruptcy, but use the government’s dollars to keep vehicle warranties in force. That would take away the main fear of new car buyers right there.

They argue that the trickle-down effect would kill suppliers, and that this would, in turn, damage a host of related – and unrelated – businesses and workers. Lemme ask you a question…when GM is typically going 120 to 180 days to pay invoices…and often times makes only partial payments, do you really think that bankruptcy would be worse? The courts would force GM to make timely, structured payments to their suppliers. They would relieve the manufacturers from paying for “Job Bank” workers – those guys who are laid off but still receive 80% of their salaries. Bankruptcy would actually give suppliers relief, if only because they would know that future orders would actually be paid for on time.

They argue that the automobile business is essential to America. I don’t disagree, save for the addition of one word – a HEALTHY automobile business is essential to America. What we have now is unsustainable. It is demonstrably unprofitable – and unlikely to change. And it is a drain on American resources and the American economy. I love American automobiles. I want to see us fix what’s wrong with American automobile manufacturers. To bail them out now is applying a BandAid when what’s needed is major surgery. Let’s stop ignoring the problem and make the hard choices to fix it.

2 thoughts on “Car-mageddon Update.”

  1. The author of the article has a nice and touching point of view. Of course that it's always about the Laws and money. Such cars as that from the picture are nothing impossible to be realized or created. And of course a cheap car insurance would always be in the car's favor and nothing above the law. Besides you have the possibility to save some money as well and to keep the car as new as possible for a long period.

  2. The author of the article has a nice and touching point of view. Of course that it's always about the Laws and money. Such cars as that from the picture are nothing impossible to be realized or created. And of course a cheap car insurance would always be in the car's favor and nothing above the law. Besides you have the possibility to save some money as well and to keep the car as new as possible for a long period.

Leave a Reply