The Big Three Are Looking for $25 Billion Plus to Help Weather a Longer Than Expected Recession

I talked yesterday about my feelings surrounding the auto-bailout for Chrysler, Ford and General Motors, and the more I read about what Congress is doing and the debates that are flying around the more frustrated I get.  Now CNN is reporting that Congress wants the automakers to show how they plan on spending their bailout dollars before they’re willing to offer any.  Generally speaking this isn’t a bad idea, but what I find most frustrating is that they haven’t publicly asked the same from companies like AIG or banks taking money from the already approved $700 billion bailout.  Doesn’t it seem logical that any company coming to Uncle Sam for a loan/bailout would be held to the same standards?

At the same time they’re asking for $25 billion in taxpayer money – these auto company CEOs are idiots.  They all came from the same state in their own private luxury jets.  The average American will never see first class, let alone the inside of a private luxury jet, and while continuing to pay their taxes will probably end up eating Mac-and-Cheese to get through this depression recession and these beggars can’t even share a ride or fly commercial.  That’s saying two things – they are neither green nor frugal, and that should be disconcerting to everyone.  These companies need to get both quickly and those changes need to start at the top.

I’ve voiced my opinions about what needs to be done for the economy, and now I would like to talk about what needs to be done for the auto-industry to succeed.  My experience is limited, my economic knowledge is nill, but I am a consumer and do understand that there are obvious changes that should be visisble to anyone with half an interest in fixing these problems.

• Become Competitive With Toyota and Honda. The Big 3 have lost their edge.  Americans have lost their faith in these companies and it’s not going to get better for them overnight.  With few exceptions, the American auto industry has lost its vision, quality, and competitiveness in today’s market.  Their cars are dated, of lower quality, and often priced higher than the foreign competitors.  Until they realize that the competition isn’t amongst each other they will never reach a level of success that can sustain the industry.
• Reduce Costs and Long-Term Obligations. A huge problem with the Big Three right now is simple – the Unions.  They’ve done an outstanding job of increasing the costs of their members through collective bargaining, but in times like this they’re a roadblock to solving the big problems that face all three manufacturers.  In order to survive these companies are going to have to reduce their medical expenses, reduce their pension costs, and reduce their labor costs.  If the Union isn’t going to work with them to make these changes it’s going to be a nearly impossible battle for these companies.
• Reduce Their Corporate Perks and Salaries. Being the president of Ford can be a very, very rewarding job.  But the payroll numbers are only half the story, and looking back to the Lee Iacoca days of Chrysler it’s obvious that the private lunchrooms, limousines in waiting and private air travel are going to have to be cut.  The extravagant car shows, announcements and excessive advertising will have to be dropped, too.  Salaries for all levels will have to be adjusted to help these companies survived and the people at the top will need to accept that for a while it’s going to be very, very lean.
• Improve the Car Buying Experience. If you asked most Americans if they would prefer to buy a new car or go to the dentist and I would be willing to bet that a very high percentage would prefer to visit the dentist to have their teeth pulled without Novocaine.  Buying a car has become that bad of an experience – especially for domestic brands.  GM did a good thing with Saturn – their one-price structure – and it worked very well.  Why they wouldn’t bring that out company-wide, I still don’t understand.  Using Scion as an example – everything is spelled out for you.  From the cost of each service to the cost of every accessory.  You don’t need to negotiate and you don’t need to worry about being taken advantage of.  This model works and it works well – generally the consumer will appreciate being treated like an adult and the margins for the dealers, while not huge, will not vary, which means that they can consistently budget for their business.

These are obviously a non-auto-executives ideas.  I don’t know anything about the car business, but I do know what it takes to succeed in business and these guys aren’t doing it.  They need help and they need to take their thousands of employees and become lean and mean to become competitive again.  For now, I am simply saying loan them the money and give them a chance to deal with lean times.  If they then fail, at least it’s not for lack of trying.

Ranter

The problem that I have with the proposed auto-bailout is that it’s starting to look like the prejudices are coming out.  Most vocal are the same people that supported the recent $700 billion bailout.  These rich folks in office want to protect the companies and individuals that have backed them the most and aren’t worrying as much about the average American.  Most government officials have forgotten who votes in this country, and unfortunately when it comes time to vote again most will have long forgotten about the decisions made today.  Think about it – until recently most of the country has never heard of a company named AIG.  Yet, the government had us all convinced that if they went under hundreds of thousands would be impacted.  To this point already, AIG has been “loaned” over $150 billion and it’s still questionable if they’ll survive.  That billion with a “b” and taxpayer money.

On the other hand, I think you would be hard pressed to find a person in the United States over the age of six who hasn’t heard of General Motors.  Most over 10 probably know how successful they used to be and their impact on America.  Right now their industry needs a lousy $25 billion and they’re getting denial every step of the way.  Senator Christoper Dodd, (D) from connecticut, who also happens to be the Chairman of the Senate Banking, Housing, and Urban Affairs Committee is quoted as saying:

“Their board rooms in my view have been devoid of vision. They have promoted and often driven the demand of inefficient, gas guzzling vehicles, and dismissed the threat of global warming.”

Anyone want to bet on whether the boardrooms of AIG and the banks benefiting from the bailout were any more visionary in their foresight on the mortgage crisis impacting the world today?  Sure seems like that would have been easier for everyone to see that coming then it would be to imagine those same companies bringing the economy to its knees leaving consumers unabe to afford to buy cars from GM, Ford and Chrysler.  Befitting his title, Senator Dodd goes onto justify the reason that banks need help by saying:

“I appreciate the Treasury Department’s willingness to adjust to the current situation in our financial markets.  I am also gratified that they listened to Congress when we insisted on including alternative strategies, such as liquidity injections, in the financial rescue legislation.  It is alarming to imagine how limited the Treasury’s options would be if Congress had not made substantial changes to their three page proposal.”

…, it is becoming increasingly apparent that a robust and aggressive program to stem the tide of foreclosures sweeping across the nation is critical to any policy to put our economy back on track.  I am concerned that we may have to wait until the next Administration before we have the real change in economic policy that our nation needs, but it is my sincere hope that Secretary Paulson collaborates with Chairman Bair to get this program up and running as soon as possible.  There is no legitimate reason why they would be unable to do so.  Secretary Paulson should be as quick to realize that the foreclosure issue is critical to solving our problems as he was in realizing that equity purchases were necessary.”

Any questions about where Dodd’s allegiances are?  I guess there’s not a ton of car money in Connecticut.  Unfortunately, at this point for the government it is probably all or nothing.  The government either needs to look at these companies and say they cannot be replaced or continue heading down the path of rescuing those that are most in need.  Obviously this isn’t trickle-down to even the smallest companies, but I think that GM, Ford and Chrysler would have to qualify and it’s amazing to me that the same government that rubber-stamped $700 billion can’t see it.

Ranter