Let them fail!

[a_majoor]

Reality sets in at last. All that money extracted from you and I for exactly nothing....

http://www.damianpenny.com/archived/012686.html

From General to very specific motors

Things may be reaching the grim breaking point:

    General Motors Corp [GM-N], nearing a Tuesday [Feb. 17] deadline to present a viability plan to the U.S. government, is considering as one option a Chapter 11 bankruptcy filing that would create a new company, the Wall Street Journal said in its Saturday edition.

    "One plan includes a Chapter 11 filing that would assemble all of GM's viable assets, including some U.S. brands and international operations, into a new company," the newspaper said. "The undesirable assets would be liquidated or sold under protection of a bankruptcy court. Contracts with bondholders, unions, dealers and suppliers would also be reworked."

    Citing "people familiar with the matter," the story said that GM could also ask for additional government funds to stave off a bankruptcy filing.

    GM declined to comment, the story said...

More union problems doubtless a factor (and not the CAW):

    Talks between the United Auto Workers and General Motors Corp aimed at cutting costs and debt at the struggling automaker have broken down over union concerns about retiree healthcare, a person briefed on the talks said on Saturday [Feb. 14].

    A parallel set of talks between Chrysler LLC and the UAW over similar concessions were continuing over the weekend but little progress had been made in the past week, a person briefed on those negotiations said...

I do think GM Oshawa may well be for the chop. Whatever plan goes to the US government before President Obama's Feb. 19 visit to Ottawa, I can't see him making any serious effort to help save US automakers' Canadian plants if the companies suggest closing them. The poor prime minister will certainly get blasted (undeservedly in my view--what realistically can Canada do?) by the opposition and our pundits.

Product, product, product--what are Americans going to buy if sales stay at around 10 million for some four years?

Chrysler, for its part, looks pretty close to a goner to me. With Fiat taking a major share it won't be a major player much longer; and I can't see much future for most of the models it assembles in Ontario. Ominously, Nissan is putting a hold on previously-agreed plans to cooperate with Chrysler.

 

[a_majoor]

While Studebaker is long gone, the story of the Avanti contains a clue as to one possible future for the Detroit Three. Some very successful marques exist within the Detroit Three, and it is very possible that the production rights and tooling for such icons as the Corvette and F-150 (among others) might be purchased by enterprising individuals and carry on after the parent corporation is gone.

http://www.carlustblog.com/2008/07/car-lust-avanti.html

Avanti
by Cookie the Dog's Owner on July 22, 2008

I saw my first Avanti one summer in the mid-1970s when I was 12 or 13. It must have belonged to someone who liked to golf, because it showed up at the local par-3 course at least once or twice a week. Standing out from the rococo "personal luxury" cars surrounding it, the clean-lined Avanti was a jet-age marvel that belonged in the driveway of the House of the Future.

I immediately wanted it.

In 1961, Studebaker's energetic new president, Sherwood Egbert, was working hard to turn the fading car-maker's fortunes around. He retained legendary designer Raymond Loewy to style a new "halo car" that would attract attention. Forty days later, Loewy’s team finished their design. They called it "Avanti," an Italian word meaning "forward," and what they had designed was certainly going to attract attention.

The car was low and swoopy, with "Coke bottle" curves in the fenders and a short, up-swept tail. At a time when wide chrome grilles were the norm, the Avanti had nothing on its sharply-beveled nose above the bumper but two headlights. An asymmetric bulge ran down the hood and through the windshield to form the top of the instrument panel. There were no bright chrome side moldings, hood ornaments, or tail fins--just discreet stainless trim and modest bumpers.

The Avanti was swank and sophisticated and had "space age" written all over it. It was a car for Mercury astronauts and Boeing 707 pilots and Nat King Cole. If Dick Van Dyke and Mary Tyler Moore drove to a tiki bar for cocktail hour, they'd be driving there in an Avanti.

Egbert wanted to unveil the Avanti as a 1963 model at the New York Auto Show in April, 1962. Turning clay models and sketches into a production car in less than a year would be a challenge for any manufacturer. For cash-strapped Studebaker, creativity would have to make up for what the budget couldn't provide.  It didn't have the coin to engineer a new chassis or drivetrain, and it couldn't afford to produce the car's body panels in steel.

The body would be made out of fiberglass to cut tooling costs, with fabrication farmed out to the same vendor that made components for the Corvette. The frame came from the Lark convertible, the suspension from the Studebaker parts bin. The only truly new technical feature was the Dunlop disc brakes on the front wheels--the Avanti was the first U.S. production car to have them. To mate the fiberglass body to the narrow frame, the engineers bolted wide steel channels (called “hog troughs” by Avanti fans) to the outer frame rails. Avanti interior in stunning pastel turquoise

Inside, the instrument panel and console suggested an aircraft cockpit, a theme enhanced by putting the light switches on an overhead panel. The bucket seats were reverse-engineered from an Alfa Romeo Spider. In an unusual touch, the glove compartment contained a built-in vanity with mirror.

Though cobbled together in haste and on the cheap, the Avanti drove as well as it looked.  A base-model Avanti would go from zero to 60 in 10 seconds, a respectable turn of speed for 1962. Reviewers praised the car's braking and handling. With its sophisticated looks and sporty performance, it was the 3-series BMW of its day.

The base engine for the Avanti was the "Jet Thrust R1," a 289 cubic inch V-8 which produced 244 horsepower. Most buyers ordered the optional R2 engine with a Paxton supercharger, tuned by racing legend Andy Granatelli and his brothers Vince and Joe. The R2 produced 289 horsepower--one horsepower per cubic inch--and propelled the Avanti from zero to 60 in around seven seconds. An R2 Avanti could accelerate with the contemporary E-type Jaguar and Corvette Stingray, and outrun the 1964 Mustang.

The ultimate Avanti was the supercharged R3, of which there were two prototypes and nine production examples. The Granatelli brothers bored out the R3's engine to 304.5 cubic inches and fitted larger valves and hotter cams. It produced either 335 or 400 horsepower, depending on whether you believe the official Studebaker press releases or later comments from the Granatellis. Whatever the correct horsepower rating was, an R3 could scream from zero to 60 in five and a half seconds. The prototype recorded a top speed of 171.10 MPH on the Bonneville salt flats, making the Avanti the fastest production car in the world.

The R3 was a true fire-breathing muscle car--the swankest, most uptown fire-breathing muscle car ever built.  It was the only fire-breathing muscle car with a built-in vanity in the glove compartment as standard equipment. You could even order it in pastel turquoise! (Two customers actually did.)

Though an artistic and engineering success, the Avanti was not enough to save Studebaker. It was a little too radically styled for its own good, and the perception of Studebaker as a fading brand surely didn't help. Full production was delayed by numerous engineering bugs (a consequence of the shoestring development budget) which led to canceled orders and lost sales. When Sherwood Egbert left Studebaker in late 1963 due to illness, the company's newfound energy left with him. Studebaker closed its South Bend plant, and the Avanti model was dropped after only 4,647 had been built.

The story would have ended there but for Nathan D. Altman, a Studebaker dealer in South Bend with a great love for the Avanti. In what is perhaps history's greatest example of car lust, he bought the tooling, design rights, and parts inventory from Studebaker, along with part of the abandoned South Bend factory, and started his own automobile company just to keep it alive.

From 1965 through 1985, Avanti Motor Corporation hand-built between 50 and 200 "Avanti II" vehicles each year. Customers ordered them direct from the factory. You could have your Avanti II painted any color, and fitted with any upholstery and carpet found in the civilized world. The build quality was, of course, superlative.

As Studebaker had discontinued the 289 V-8, the Avanti II used a Chevrolet engine. When the supply of 1963-vintage Powershift automatic transmissions ran out, GM Turbo-Hydramatics were substituted. In the early 1980s, body-color bumpers were introduced. Other than that, the basic 1962 design (with the squared-off headlight bezels introduced for the 1964 model year) remained in production--Coke-bottle curves, overhead switches, built-in vanity, and all--until the stock of Lark convertible frames was finally used up.

Even then, the Avanti did not quite die. Seven hundred or so Avantis were made from 1987 through 1992 by putting fiberglass body panels on Chevrolet chassis. A reconstituted Avanti Motors resumed production in 2000, fitting a modified version of Raymond Loewy's Coke-bottle curves to a Ford Mustang platform.

Loewy's design is now nearing fifty years old, but the Avanti still looks like a car out of science fiction.  Avantis have been cast as background vehicles in sci-fi productions such as Gattaca and the new Battlestar Galactica precisely for their crisp retro-future looks. Park one next to a 21st-century Camry or Taurus, and it's no contest--the Avanti has them completely out-swanked and out-futured.

Once I learned that Avanti Motor Corporation was still in business, I spent much of that summer lobbying my father to take the '72 Ford Galaxie to South Bend and trade it in for an Avanti II. It didn't work. Dad's taste in automobiles didn't run to exotic sports coupes.

I still want one. Both Studebaker Avantis and Avanti IIs show up regularly in the used car listings, and they're not that expensive as collector cars go. The fiberglass bodies have held up well, but one must be wary of rust in the frames and hog troughs. If I ever get one, I'll have to dress appropriately-- Botany 500 suits and narrow ties--and rig a hidden CD changer to play Brubeck and Mancini, Sinatra and Nat King Cole through the radio speakers. Anything less ... well, it wouldn't be cool enough.

See you at the tiki bar.

The commercial art paintings and the uber-cool cocktail party scene (with Raymond Loewy and Sherwood Egbert making cameo appearances in the background!) are Studebaker promotional images found at theavanti.com, which also provided the interior photo showing the built-in vanity cleared for action. The brightly colored Avanti IIs (including the pink "Malibu Barbie custom edition") come from the gallery pages at the Avanti Source website.

 

[retiredgrunt45]

Seeing that my "Ricer" minivan hasn't lived up to all its lofty hype. I tried both American and Japanese and have been left with a thin wallet both times. I think i'll save my money and go Omish next time with a good horse and buggy. I hear you can get a bail of hay for about $3.00 and theres no need for insurance, savings all around.

 

[Kirkhill]

Seeing that my "Ricer" minivan hasn't lived up to all its lofty hype. I tried both American and Japanese and have been left with a thin wallet both times. I think i'll save my money and go Omish next time with a good horse and buggy. I hear you can get a bail of hay for about $3.00 and theres no need for insurance, savings all around.

Not to mention all that free, and marketable, fertilizer. 

 

[retiredgrunt45]

Not to mention all that free, and marketable, fertilizer.

Good idea "kirkhill", my own sh** pile to park the POS pile of Honda rice beside, along with the POS buick thats still sitting in my driveway.

Maybe I can recoupe some of the money I spent fixing these two POS by selling my horse poo.  ;D

 

[daftandbarmy]

Abridged letter from Troy Clarke, President of General Motors

Looks like it’s true:

http://www.snopes.com/politics/soapbox/knox.asp
======================================

Dear Employee,

Next week, Congress and the current Administration will determine whether to provide immediate support to the domestic auto industry to help it through one of the most difficult economic times in our nation's history. Your elected officials must hear from all of us now on why this support is critical to our continuing the progress we began prior to the global financial crisis...................

As an employee, you have a lot at stake and continue to be one of our most effective and passionate voices. I know GM can count on you to have your voice heard.  Thank you for your urgent action and ongoing support.

Troy Clarke
President
General Motors North America
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Here is a response from one supplier:

In response to your request to call legislators and ask for a bailout for the United States automakers please  consider the following, and please also pass this on to Troy Clark, the president of General Motors North America for me.

You are both infected with the same entitlement mentality that has bred like cancerous germs in UAW halls for the last countless decades, and whose plague is now sweeping the nation, awaiting our new "messiah" to wave his magical wand and make all our problems go away, while at the same time allowing our once great nation to keep "living the dream".  The dream is over!

The dream that we can ignore the consumer for years while management myopically focuses on its personal rewards packages at the same time that our factories have been filled with the worlds most overpaid, arrogant, ignorant and laziest entitlement minded "laborers" without paying the price for these atrocities and that the masses still will line up to buy our products.

Don't tell me I'm wrong. Don't accuse me of not knowing of what I speak.  I have called on Ford, GM, Chrysler, TRW, Delphi , Kelsey Hayes, American Axle and countless other automotive OEM's and Tier ones for 3 decades now throughout the Midwest and what I've seen over the years in these union shops can only be described as disgusting.

Mr Clark, the president of General Motors, states: "There is widespread sentiment in this country, in our  government, and especially in the media that the current crisis is completely the result of bad management. It is not."  You're right - it's not JUST management. How about the electricians who walk around the plants like lords in feudal times, making people wait on them for countless hours while they drag ass so they can come in on the weekend and make double and triple time for a job they easily could have done within their normal 40-hour week?

How about the line workers who threaten newbies with all kinds of scare tactics for putting out too many parts on a shift and for being too productive (mustn't expose the lazy bums who have been getting overpaid for decades for their horrific underproduction, must we)? Do you really not know about this stuff? 

How about this great sentiment abridged from Mr. Clarke's sad plea: "Over the last few years,we have closed the quality and efficiency gaps with our competitors."  What the hell has Detroit been doing for the last 40  years?!?  Did we really JUST wake up to the gaps in quality and efficiency between us and them?  The K car vs. the Accord?  The Pinto vs. the Civic?  Do I need to go on?

We are living through the inevitable outcome of the actions of the United States auto industry for decades.  Time to pay for your sins, Detroit ..

I attended an economic summit last week where a brilliant economist, Alan Beaulieu surprised the crowd when he said he would not have given the banks a penny of "bailout money".  Yes, he said, this would cause short term problems, but despite what people like George Bush and Troy Clark would have us believe, the sun would in fact rise the next day.  And something else would happen.  Where there had been greedy and sloppy banks new efficient ones would pop up.  That is how a free market system works.  It does work . . . ...if we would let it work.  But for some reason we are now deciding that the rest of the world is right and that capitalism doesn't work - that we need the government to step in and "save us".

Save us?  Hell, we're nationalizing.  And unfortunately, too many of this once fine nation's citizens don't even have a clue that this is what's really happening.  But they sure can tell you the stats on their favorite sports teams.  Yeah - THAT'S important.  Does it occur to ANYONE that the "competition" has been producing vehicles, EXTREMELY PROFITABLY, for decades now in this country?....  How can that be???

Let's see:
* Fuel efficient
* Listening to customers
* Investing in the proper tooling and automation for the long haul
* Not being too complacent or arrogant to listen to Dr W Edwards Deming four decades ago
* Ever increased productivity through quality, lean and six sigma plans
* Treating vendors like strategic partners, rather than like "the enemy"
* Efficient front and back offices
* Non-union environment.

Again, I could go on and on but I really wouldn't be telling anyone anything they really don't already know in their hearts.

I have six children, so I am not unfamiliar with the concept of wanting someone to bail you out of a mess that you have gotten yourself into - my children do this on a weekly, if not daily basis, as I did at their age. I do for them what my parents did for me (one of their greatest gifts, by the way) - I make them stand on their own two feet and accept the consequences of their actions and work them through.  Radical concept, huh.  Am I there for them in the wings?  Of course - but only until such time as they need to be fully on their own as adults.

I don't want to oversimplify a complex situation, but there certainly are unmistakable parallels here between the proper role of parenting and government.  Detroit and the United States need to pay for their sins. Bad news people - it's coming whether we like it or not.  The newly elected Messiah really doesn't have a magic wand big enough to "make it all go away".  I laughed as I heard Obama "reeling it back in" almost immediately after the vote count was tallied.  "We might not do it in a year or in four."  Where was that kind of talk when he was RUNNING for the office.  Stop trying to put off the inevitable.

That house in Florida isn't worth $750,000.

People who jump across a border really don't deserve free health care and welfare benefits.

That job driving a forklift for the big 3 really isn't worth $85,000 a year.

We really shouldn't allow Wal-Mart to stock their shelves with products acquired from a country that unfairly  manipulates their currency and has the most atrocious human rights infractions on the face of the globe.

That couple whose combined annual income is less than $50,000 really shouldn't be living in that $485,000  home.

Let the market correct itself people - it will.  Yes it will be painful, but it's gonna be painful either way.  And the bright side of my proposal is that on the other side of it is a nation that appreciates what it has, doesn't live beyond its means, gets back to basics, and redevelops the work ethic that made it the greatest nation in the  history of the world, and probably turns back to God.

Sorry - don't cut my head off. I'm just the messenger sharing with you the "bad news".

Gregory J Knox
President
Knox Machinery, Inc.
Franklin , Ohio45005 

 

[retiredgrunt45]

Good read, but the only thing he did got wrong was that to allow the world market to correct itself as he suggests at this point we will end up in a fatal depression that will make the 30's look like childs play. I do agree with most of what he writes but I think its a bit to late, because we've gone far beyond the point of no return this time.

 

[[RICE]]

Good read, but the only thing he did got wrong was that to allow the world market to correct itself as he suggests at this point we will end up in a fatal depression that will make the 30's look like childs play. I do agree with most of what he writes but I think its a bit to late, because we've gone far beyond the point of no return this time.

Indeed, he makes it sound like some other company will spring out of the ground to cover their retreat and the whole ordeal will be painless. At this point, I don't think Hayek's economics are suitable, as the big 3 are a little too big. Keynesian economics worked with the airlines, why not with the auto industry?

 

[a_majoor]

Indeed, he makes it sound like some other company will spring out of the ground to cover their retreat and the whole ordeal will be painless. At this point, I don't think Hayek's economics are suitable, as the big 3 are a little too big. Keynesian economics worked with the airlines, why not with the auto industry?

Keynsian economics worked with the airlines? Only for political rent seekers who got the bailout money, and the free market airlines like WestJet here in Canada are doing far better than the one with the subsidies and special Keynsian favors...

As for car companies ready to spring from the earth, just go back a bit on this thread (I'll even help you: here) and you will see ten American companies who's products will never see the light of day if billions of investment dollars are taxed away to support the Detroit three. As well; individual makes and models from the existing lineup might continue: do you think people might want a Corvette or F-150 without the rest of GM or Ford?

 

[retiredgrunt45]

do you think people might want a Corvette or F-150 without the rest of GM or Ford?

I don't think Ford or GM are going anywhere and there will always be a market for whether it be a GM Siverado, Ford F-150 or a Toyota Tundra.

The Japanese market share are hurting right now right along with the big three. How much longer do you think they can go before they have their hands out also, 6 months a year maybe if this market meltdown continues into 2010-11? They may have been in better shape at the beginning of this meltdown than the big 3 but if your not selling cars and your market share has dropped of by 70%, their going to be in the same shape GM is in right now a year from now, Layoffs- and handouts. No ones immune, not even the mighty Toyota and if this made in America solution doesn't work, we won't have to worry to much about what we drive, because all us working poor are going to be able to afford are bycycles anyway.

This is just the beginning: http://www2.canada.com/cars/toyota+jobs+canada/1211681/story.html?id=1211681

The big American consuming machine has stalled and has thrown a monkey wrench into the Asian markets: http://www.pbs.org/newshour/bb/asia/july-dec08/globaleconomy_12-24.html

 

[COBRA-6]

And there are many other automakers out there that could move in to fill the gap left by the breakup of the big 3, ie Alfa Romeo, Peugeot, and a bunch of other brands that make cars people may actually want to buy!

 

[retiredgrunt45]

And there are many other automakers out there that could move in to fill the gap left by the breakup of the big 3, ie Alfa Romeo, Peugeot, and a bunch of other brands that make cars people may actually want to buy!

ya and I can just see how much it will cost you to repair that Alpha Romeo or Peugeot when it breaks down.

I went form American made to Japanese in 2004 and I'm still having the same problems with my Japanese made van as I had with my American one, only this time its costing me more to repair. You want to hype about how well Japanese cars are made, I also listened to the hype and read all the reviews before I purchased my van and what I was left with was another lemon and I'm not the only one.

There may have been a time when Japanese and German cars were far superior to anything that the North American industry could put out, but from my empty wallet it has become painfully clear to me that its mostly and illusion these days.

Transmission replacement for 1999 Dodge Minivan $2400.00
Transmission replacement for 2004 Honda Odyssey $3200.00

http://www.consumeraffairs.com/automotive/honda.html
http://www.ohiolemonlaw.com/honda-lemon.shtml
http://www.carcomplaints.com/Honda/Accord/2003/transmission/
http://www.hondaproblems.com/Accord/transmission-failure.shtml
http://blogs.cars.com/kickingtires/2008/05/honda-owners-fo.html Issuing a TSB doesn't mean they have to repair it as I found out the hard way.

The avergage shelf life of any car today is about 6 years after they reach 100,000 Kms or more they literally self destruct. On both my vans, the Dodge and the Honda the transmissions went at almost the same mileage, that tells me that this so called Japanese quality is an illusion and the only difference now is that it will cost me more to repair the Japanese car. The grass always looks greener on the other side of the fence, until you step over...

The only reliable mode of transportation right now is your feet or a bicycle.

Anyone in the market for a used minivan , give me call and make sure you buy a good used car warranty.

 

[[RICE]]

Keynsian economics worked with the airlines? Only for political rent seekers who got the bailout money, and the free market airlines like WestJet here in Canada are doing far better than the one with the subsidies and special Keynsian favors...

As for car companies ready to spring from the earth, just go back a bit on this thread (I'll even help you: here) and you will see ten American companies who's products will never see the light of day if billions of investment dollars are taxed away to support the Detroit three. As well; individual makes and models from the existing lineup might continue: do you think people might want a Corvette or F-150 without the rest of GM or Ford?

I'd prefer to have to have a larger and competitive variety in the auto industry, but the period between now and then is what I'd rather do with out. I should have been more clear: I didn't mean to advocate Keynesian economics entirely, rather some measure of redundancy to prevent a total collapse.

 

[a_majoor]

The market is redundency; interference in the markets is what is causing the problem.

Wagner act unionism strangles the labour market in the auto industry (non unionised plants in Canada and the US have few of the labour costs or issues that Detroit Three plants have), government mandates on saftey and fuel economy burden the automakers with fixed costs (affects all: it's a wash), government interference in the Financial markets caused the current collapse (see how the Democratic Congress refused to allow oversight and regulation of "Freddie Mac" and "Fannie Mae" in 2003 and 2006), and billions in TARP money and bailouts takes resources away from those who could fill the gaps.

Really, all that is happening now is the Obama Administration is paying off its supporters in the unions, and the collapse of GM and Chrysler may have been staved off for a few years at the expense of the destruction of literally billions of dollars of taxpayer wealth (if GM loses $2 billion/month, how likely will it be for any of the bailout money to be repaid?)

The best solution would be to write off the losses, allow a chapter 11 bankruptcy so the Detroit three can rewrite their business plans, contracts and obligations and rebuild from there. If Ford, GM and Chrysler are overtaken by "Carbon Motors" or foreign competition, then that is a natural result of the market, and we don't cry too much about the fact that "Wang Microcomputers" or "NeXT" no longer compete for our IT business.

 

[TimBit]

The market is redundency; interference in the markets is what is causing the problem.

Wagner act unionism strangles the labour market in the auto industry (non unionised plants in Canada and the US have few of the labour costs or issues that Detroit Three plants have), government mandates on saftey and fuel economy burden the automakers with fixed costs (affects all: it's a wash), government interference in the Financial markets caused the current collapse (see how the Democratic Congress refused to allow oversight and regulation of "Freddie Mac" and "Fannie Mae" in 2003 and 2006), and billions in TARP money and bailouts takes resources away from those who could fill the gaps.

Really, all that is happening now is the Obama Administration is paying off its supporters in the unions, and the collapse of GM and Chrysler may have been staved off for a few years at the expense of the destruction of literally billions of dollars of taxpayer wealth (if GM loses $2 billion/month, how likely will it be for any of the bailout money to be repaid?)

The best solution would be to write off the losses, allow a chapter 11 bankruptcy so the Detroit three can rewrite their business plans, contracts and obligations and rebuild from there. If Ford, GM and Chrysler are overtaken by "Carbon Motors" or foreign competition, then that is a natural result of the market, and we don't cry too much about the fact that "Wang Microcomputers" or "NeXT" no longer compete for our IT business.

Wouldn't writing off the losses be intereference in the market? They're failing because people don't buy their cars: that is markets in action. I agree with you, interference in the market is part of the problem. But I think writing off the losses would only perpetuate the american motor industry's lack of judgement as well as  the "market's" greed and lack of long-term vision. GM's decision to go with Hummers and big trucks instead of EV's and fuel-efficient vehicles is a bad strategic decision and a lack of forethought, and should be punished by the markets.

 

[a_majoor]

Wouldn't writing off the losses be intereference in the market? They're failing because people don't buy their cars: that is markets in action. I agree with you, interference in the market is part of the problem. But I think writing off the losses would only perpetuate the american motor industry's lack of judgement as well as  the "market's" greed and lack of long-term vision. GM's decision to go with Hummers and big trucks instead of EV's and fuel-efficient vehicles is a bad strategic decision and a lack of forethought, and should be punished by the markets.

Writing off bad debts is part of the clearing house function of the markets, and if you were to hypothetically default on a credit card or mortgage, the bank sells your debt for pennies to the dollar to collections and writes it off. The problem arises when these debts are not written off; the banks still carry them as valuable assets on the books, but in reality they cannot utilize this "asset".

Handouts are what would perpetuate the lack of judgment on the part of the US auto industry, that is, if the Administration dosn't nationalize GM and Chrysler and drive them into the ground the way the UK motor industry was destroyed (in which case much more taxpayer wealth is written off and a greater deflationaly surge is set in motion. I doubt this will be timed or sized to counteract the Administration's inflationary "surge" either).

The decision to go for trucks and SUV's was indeed a bad one, and the market corrected it very swiftly last summer when gas prices spiked and sales dropped 50% and more. The real problem is most consumers don't have much interest in small fuel efficient vehicles, or see the opportunity costs as negative (I spend "x" on a fuel efficient car but the payback in savings is longer than the lifetime of the car, or the car is too small to carry my stuff/get me across America or some combination of factors).

The market is like a complex ecosystem, and companies are a bit like living things in the ecosystem, they must adapt to their immediate environment or die. Suggesting they change their business plans to satisfy a bureaucrat's vision or to fulfill some "green" fantasy simply sets them up for death or endless life support on taxpayers monies (with the irony being taxpayers are now less able to afford a car....)

 

[a_majoor]

The only good thing about the Obama administration nationalizing the auto sector is the ultimate failure will clearly belong to the Administration. Their attempts to keep the UAW afloat will run into serious difficulties as the legacy costs increase to $6 billion/year....

http://business.theatlantic.com/2009/03/whither_gm.php

Whither GM?
The more I read about these plans, the more I wonder what the end game is supposed to be.  The administration is acting serious:  firing Wagoner, and threatening to cut off funds if Chrysler doesn't make a deal with Fiat.  Then you read the report, and the government's statements seem . . . kinda silly.  It recognizes GM's deep problems.  Some highlights:


        * GM has been losing market share slowly to its competitors for decades. In 1980, GM's US market share was 45%; in 1990, GM's US share was 36%, in 2000, its share was 29%. In 2008, its share was 22%. In short, GM has been losing 0.7% per year for the last 30 years.

        *  Fundamentally, the lingering consumer perception is that GM makes lower-quality cars (despite  meaningful improvements in the last few years), which in turn leads to greater discounting, which harms GM's price realizations and depresses profitability. These lower price points are an important impediment to enhanced GM profitability and need to be reversed over time in order for GM to bring its margins into line with its best-in-class peers

        *  GM earns a disproportionate share of its profits from high-margin trucks and SUVs and is thus vulnerable to energy cost-driven shifts in consumer demand. For example, of its top 20 profit contributors in 2008, only nine were cars.
        *  GM is at least one generation behind Toyota on advanced, "green" powertrain development. In an  attempt to leapfrog Toyota, GM has devoted significant resources to the Chevy Volt. While the Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable
        *  Absent the successful introduction of a number of new-generation nameplates, as described in the Company's plan, GM's product portfolio is more vulnerable to CAFE standard increases than the portfolios of many of its competitors (although GM is in compliance today with current standards). Many of its products fail to meet the minimum threshold on fuel economy and rank in the bottom quartile of fuel economy achievement.
        *  As GM moves through its forecast period, its cash needs associated with legacy liabilities grow, reaching approximately $6 billion per year in 2013 and 2014. To meet this cash outflow, GM needs to sell 900,000 additional cars per year, creating a difficult burden that leaves it fighting to maximize volume rather than return on investment.

In other words, when competition from Japan made it impossible to continue supporting a bloated and very highly paid semi-skilled workforce with gold-plated benefits, GM tried to grow its way out of the problem by skimping on quality.  Instead it generated volume through fleet sales, and poured most of its energy into larger vehicles where higher prices and less fierce competition allowed them to preserve better margins.  When oil prices spiked, they were totally hosed.  The result is a motley collection of badly tarnished brands and an unsustainable cost structure.  The government's plan to fix all this?

        *  Sustainable profitability: A viable GM should be able to generate meaningful positive free cash flow in a normalized business environment, generate net free cash flow over the course of a business cycle and invest capital in research and development and capital expenditures sufficient to maintain or enhance its competitive position while also earning an adequate return on its capital.
        * A healthy balance sheet: The restructuring must substantially reduce GM's outstanding debt and existing liabilities to a level where they are consistent with both its normalized cash flow and the cyclical nature of its business. Given the deterioration in the auto market since late last year, this will require substantially greater balance sheet concessions than those called for in the existing loan agreements.
        * More aggressive operational restructuring: The restructuring plan must rapidly achieve full competitiveness with foreign transplants and more aggressively implement significant manufacturing, headcount, brand, nameplate and retail network restructurings.
        * Technology leadership: The new GM will have a significant focus on developing high fuel-efficiency cars that have broad consumer appeal because they are cost-effective, have good performance and are reliable, durable and safe.
         
          In order to execute a new, more aggressive restructuring plan within 60 days, we will work with GM to use all available tools to implement this plan. The best path to achieve this may well be an expedited, court-supervised process to extinguish unsustainable liabilities, should an out-of-court restructuring not be possible. The Administration is prepared to stand by GM throughout this process to ensure that GM emerges with a fresh start and a promising future. Consumers thinking about buying a GM car and workers and communities that depend on this iconic American company should have confidence that GM can and will come out of this crisis as a stronger, leaner and more competitive car company.


What does this remind me of?  Oh, right: (video link to the South Park "Underpants" episode)

As Mark notes, the government's plan largely seems to consist of pointing out that Toyota is more profitable than GM, so GM should be more like them.  The details, like how GM is going to handle those infamous legacy costs, are not present.

To be sure, many of them still have to be worked out.  But this plan doesn't really make it clear why they're being worked out by the administration, rather than the Bankruptcy courts.  The core tangible pieces of the plan, like making creditors take a honking big haircut, are just the sort of thing that bankruptcy courts excel at--indeed, they are much better than the administration, which doesn't actually have any authority to make a single creditor do anything.  The only part where the government is even arguably making a unique contribution is in the warranty plan, which it could surely do even if the companies go into bankruptcy.

Presumably, the administration is keeping its hand in to try to minimize the impact on Michigan, and the UAW.  But this is working at cross purposes with the desire to create a healthy company.  Conservatives are too prone to exaggerate Detroit's labor cost problem--which is certainly large, but by no means the only problem the Big Three have.  It can't be denied, however, that it is a big problem.  But the bigger problem is that GM needs to get rid of a lot of its bad marques, which would mean cutting a lot of jobs even if the workers were being paid minimum wage.  A GM rescued with the explicit purpose of minimizing the impact on autoworkers will be a GM even less likely to long survive its reorganization.

And frankly, this plan doesn't make survival look all that likely at anything remotely approaching GM's current size--not if by "survival" we mean "weaning itself from taxpayer cash".  The government can guarantee warrantees.  But it will be less effective at shedding all sorts of obligations than bankruptcy court.  The administration won't be reorganizing the way a bankruptcy does; it will be negotiating.  To be sure, bankruptcy judges, too, negotiate, particularly among the various creditors.  But they do so with the power to cramdown firmly in their hands.  If the administration wants to wield that kind of power, it will have to find new and inventive threats to level at the creditors.  They may not find them.  And if they do, it's not really in the best interests of the nation for the government to find lots of new and innovative ways to threaten private investors.

But even if the administration were just as successful at cramming down, and somehow developed the will to piss off the labor movement by forcing unwilling concessions from the UAW, they would still find themselves struggling to make GM a successful car company again.  The other thing this reminds me of is a conversation I once had with a drunk management consultant about his most recent gig at an apparently unsalvageable franchise operation.  "Some companies," he said owlishly, "are . . . just . . . screwed."  Companies in trouble can enter a vicious downward spiral:  the best employees, and distributors (like franchisees and dealers) leave when the brand erodes, and so you end up with both a nasty brand legacy, and less committed or competent people available to help you execute a turnaround.  In Detroit, the problem is particularly acute because people haven't merely left the company, or even the industry, but the whole region where they need to recruit.

With what money, or starry-eyed dreams of success, is GM going to attract the top talent they will need to build an industry-leading drive train?  What charismatic leader is going to gut-rehab the corporate culture of a firm whose employees number in the hundreds of thousands?  Companies this large are like battleships--they do not turn around on a dime.  In either sense of the phrase.

 

[Fishbone Jones]

Nationalized auto company.

Can you say, Lada? Or will it be named something more domestic? Like Obamobile 8)

 

[karl28]

        This is a very sticky situation with the Auto industries . I agree that the blue caller workers in the auto industries should make some concessions for Roll back of there extremely high wages but at the same time what about the white caller workers in these plants  you don't here any thing about them taking cut backs  ?   
      Now comes the sticky part of this situation is if the Auto industries can force the CAW members to take deep pay cuts than other industries can do the same to other workers and blame it on the rough economy situation ,  but some of these people may not be able to afford the cuts in other industries .  We already saw the liberal Government in Ont try to due that with next years (2010)minimum wage increase but due to public and media pressures they decide to proceed with the next years minimum wage increases .      All I can say is that its scary times ahead for every one  .

 

[a_majoor]

Well no wonder the Detroit three are in trouble!:

http://www.politico.com/politico44/perm/0309/white_house_by_car_4f93340a-58bb-44c9-ae1b-44c741fa5c3a.html

Who's driving what?

By AMIE PARNES & CAROL E. LEE

With President Barack Obama showing the ailing U.S. auto industry some tough love Monday, POLITICO wondered -- what's ...

... in the driveways of White House aides? A lot of foreign cars, as it turns out.

A survey of West Executive Drive, where White House staffers park, revealed only five American cars out of 23 --a Dodge Grand Caravan, two Ford Escapes, a Jeep Cherokee and a Cadillac.

The lot was sprinkled with BMWs, Mercedes, Hondas, Toyotas, Saabs, Audis, Volkswagens and a Volvo.

Obama himself owns a Ford Escape Hybrid (apparently sitting in Chicago), according to his press secretary Robert Gibbs, who said he drives a gray Ford Escape. (Interpolation: During the campaign it was revealed then Senator Obama drove a compact, fuel efficient Chrysler 300)

As for Obama's presidential task force on the auto industry, The Detroit News reported what many of them drive when the task force formed. The News said:

Timothy Geithner owns a 2008 Acura TSX and once owned a 1999 Honda Accord, as well as a 2002 Acura MDX.

Larry Summers owns a 1995 Mazda Protégé and previously owned a 1996 Ford Taurus GL.

Peter Orszag owns a 2008 Honda Odyssey and a 2004 Volvo S60, and he previously owned a 1997 Jeep Grand Cherokee and 1982 Datsun.

"Climate czar" Carol Browner has recently said she doesn't own an automobile, although she used to own a 1999 Saab 9-5 SE.

Energy's Steven Chu's wife told the Free Press that he doesn't own a car.

The vice president's economist Jared Bernstein owns a 2005 Honda Odyssey.

Obama's economic adviser Austan Goolsbee owns a 2004 Toyota Highlander.

Midwest recovery chief Ed Montgomery owns a 1991 Harley-Davidson and previously owned a 1990 Ford Taurus L station wagon.

Gene Sperling, counsel to the Treasury secretary, owns a 2003 Lincoln LS, and previously owned a 1993 Saturn SL2.

A search by POLITICO on Transportation Secretary Ray LaHood shows he owns a 1997 Buick Regal and a Ford Escape Hybrid. He previously owned a Cadillac Deville.

Records could not be found for Christina Romer and Gary Locke.
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