The Big Three Crisis: Stocks Plunge as Politicians Moralize

For the second time a needed bailout that was, wasn't. Friday's market session traded higher by mid-day as Traders were looking for US lawmakers to outline a plan to bail out the American automotive industry. Instead they got grand-standing and lecturing from US senators bent on making automotive executives look foolish in the political spectrum.

A $25Billion package for the big 3 American automakers seems like peanuts compared to the $700Billion package passed to bail out banks and mortgage lenders, however Ford (F), General Motors (GM) and Chrysler were forced to beg hat-in-hand at the feet of Washington's might.

It doesn't take a rocket scientist to see trends that have been developing in America. Big Trucks and SUVs were selling furiously, taking up all showroom space, and more importantly was the development time and dollars within American factories. All the while strong smaller Japanese and European models made their imprint on the buying habits of American consumers.

Then oil spiked higher and credit froze. The big 3 were unable to resell virtually any of their gigantic fleet of leased vehicles, mainly because even Americans were not buying Trucks with gas at $4/gallon. This led to substantial write-downs and quarterly losses, and a situation where the companies were burning through cash so quickly they are unable to sustain themselves any further. To complicate matters more, Union contracts that have been crippling the business slowly for years are now coming to the forefront showcasing just how much money is spent on pensions, insurance and benefits for American Autoworkers. Oh and then of course Americans went into full out Recession mode in October and stopped buying cars at all.

Chevrolet's answer to the problems, the Volt, coming in 2011, could be too little too late. Ford is trying to put "hybrid" on just about every model and seemingly can not find the wisdom to bring some of their more successful small European cars into the American market. All the while Toyota (TM) and Honda (HMC) continue to lead in fuel efficient vehicles while Germany's big 3 dominate mind-share in the luxury segment.

So Detroit went to Washington for help and got smacked around by lawmakers trying to look political as markets around them fell further with every word. The United States Auto Industry is broken, everyone knows it, Senators in a special session will not have uncovered the Lost Ark by saying so. The grand-standing under the guise of "protecting the tax-payer" is all well and good but wouldn't those tax payers be more concerned if their retirement packages, employee stock plans and investment accounts were worth half as much as they were last year?

Did these not people learn anything the first time around when the initial banking bailout failed to pass? Senators and Congress made a lot of speeches about concerned citizens calling worried about their tax dollars going to bailout Wall St. Then the market dropped 700 points in the span of a couple of hours and Joe Q. Public started calling not about his taxes but about his retirement account.

Now Lawmakers have every right to ask Detroit for a turn-around plan before they give them any handouts but this type of thing can not be all or nothing. Authorize an influx of $9Billion to keep the companies and all their workers solvent till the end of the year and then reconvene later to authorize another $16Billion contingent upon seeing evidence of new company direction in the face of a changing industry. And like everything political in America, of course the $25Billion in question had already been set aside for the Auto Industry to use for other means.

But Lawmakers did a lot of shouting and finger pointing but little else, thus leading the S&P to an almost 50% decline year-to-date. Among the trillions in market losses already sustained by economic and recessionary pressures what's another $25Billion if it will instill some hope to the millions of workers employed by the industry, the markets and the US economy in general.

But then again gas prices fell below $2/gallon so maybe Trucks will sell again. Once this pesky recession subsides that is.

Disclosure: Author holds no position in any aforementioned companies

Comments

[Midas1:]

The CEO's (2) of Ford and GM make a combined $40 million. Thirty-seven (yes 37) executives at Toyota make a COMBINED $35 million. Toyota will always have my business. They treat their customers well and they don't pay multimillion dollar bonuses to a few. When Ford and GM went graveling for money, neither could present a plan. These overpriced incompetents ran the companies into the ground and now expect the taxpayer to keep them going. The UAW stinks as bad as the management. In the Japanese culture, benefitting a few at the expense of many is a shame factor. For all the years Ford and GM told their customers to pound sand when the blasted transmissions went out of their cars at 800 miles and the customer was conveniently blamed, I have no respect or sympathy for their present predicament. Toyota and Honda are simply superb companies that back their product. Both are forward-thinking and both treat their employees with respect. Ford and GM's ceo pay and actions of the past week have now ensured no company could pry me away from Toyota!

2008 Nov 24 09:01 AM

[ex GM emp:]

You ain't gettin' any either?


On Nov 24 09:01 AM Midas1 wrote:

> The CEO's (2) of Ford and GM make a combined $40 million. Thirty-seven
> (yes 37) executives at Toyota make a COMBINED $35 million. Toyota
> will always have my business. They treat their customers well and
> they don't pay multimillion dollar bonuses to a few. When Ford and
> GM went graveling for money, neither could present a plan. These
> overpriced incompetents ran the companies into the ground and now
> expect the taxpayer to keep them going. The UAW stinks as bad as
> the management. In the Japanese culture, benefitting a few at the
> expense of many is a shame factor. For all the years Ford and GM
> told their customers to pound sand when the blasted transmissions
> went out of their cars at 800 miles and the customer was conveniently
> blamed, I have no respect or sympathy for their present predicament.
> Toyota and Honda are simply superb companies that back their product.
> Both are forward-thinking and both treat their employees with respect.
> Ford and GM's ceo pay and actions of the past week have now ensured
> no company could pry me away from Toyota!

2008 Nov 24 09:17 AM

[ex GM emp:]

You ain't gettin' any either?


On Nov 24 09:01 AM Midas1 wrote:

> The CEO's (2) of Ford and GM make a combined $40 million. Thirty-seven
> (yes 37) executives at Toyota make a COMBINED $35 million. Toyota
> will always have my business. They treat their customers well and
> they don't pay multimillion dollar bonuses to a few. When Ford and
> GM went graveling for money, neither could present a plan. These
> overpriced incompetents ran the companies into the ground and now
> expect the taxpayer to keep them going. The UAW stinks as bad as
> the management. In the Japanese culture, benefitting a few at the
> expense of many is a shame factor. For all the years Ford and GM
> told their customers to pound sand when the blasted transmissions
> went out of their cars at 800 miles and the customer was conveniently
> blamed, I have no respect or sympathy for their present predicament.
> Toyota and Honda are simply superb companies that back their product.
> Both are forward-thinking and both treat their employees with respect.
> Ford and GM's ceo pay and actions of the past week have now ensured
> no company could pry me away from Toyota!

2008 Nov 24 09:18 AM

[qObserver:]

So you will go and buy a vehicle based on the compensation of the CEO's? Give me a brake!

You seem to forget that in the 70's most of the Japan products were a pile of crap, after just a few years they were a rust bucket, I know I owned a couple.

Quality is preservative; the difference today between the best and worst is statistically insignificant. Every manufacturer makes a quality product, if they didn’t nobody would but them.

Lets not forget, GM SELLS THE MOST CARS AROUND THE WORLD, so this is not an insignificant company.

The issue at hand is not the cars, the compensation, the quality; it’s a credit issue that is affecting every company around the world. No available credit = no car sales, period.

Anybody, including yourself, that seems to think it’s a good to allow a significant national asset like the American auto industry to fail for issues that are out of their control is simply showing their lack of intelligence (wanted to say stupidity, but wanted to be nice). You should get better educated, learn the facts, and understand the sever consequences that will come if this is allowed to happen.

By the way, it’s a loan, not a handout!

2008 Nov 24 09:40 AM

[User 305537:]

Ok so I agree that UAW benefits are to fat and the CEOs make to much. Those are fixable. But to lose as many jobs that are at stake all the support industries. Law makers were trying to look good and tough. I wounder how many good American jobs went down the tubes while they tried to look Tough. Even if you drive a Toyota it is a good bet that some of your income is dependent on the Big 3 staying in business. Time to get off the pot and get to work America!

2008 Nov 24 09:59 AM

[Mister Jimmy:]

"Midas1", You state that "Toyota and Honda are simply superb companies that back their product"? Do this: Google "Toyota engine sludge" and read about the class action lawsuit that it finally took to get Toyota's attention about a chronic design flaw with their engines. Toyota and the dealers BLAMED THE CUSTOMER for not changing the oil at required intervals. A court decision determined otherwise. Similar issues have transpired with their truck engine crank shafts and car transmissions.

You've been drinking the Japanese Kool-Aid too long, junior, and it's effected you ability to gather facts and think rationally.

2008 Nov 24 10:22 AM

[Midas1:]

Oh, yes let's infuse blood into a dead horse. The stupidity belongs to GM and Ford who couldn't get their crap together after the oil embargo to make a decent car. No company could have been so stupid as to think there would not be another crisis. I WILL NOT SUPPORT PADDING THE POCKETS OF IDIOTS!! GM and Ford's quality has never been that great. Yet, they want a "Cadillac" price for vehicles they never back. You can enjoy replacing transmissions. I have better things to do than to back these companies that continue to operate with a mentality and intellect that couldn't spell cat if one spotted them the "c" and the "a". Government involvement is socialism. The fact is Ford and GM cannot compete with thinking companies. They were too busy gobbling profits from wasteful fuel inefficient SUVs which you probably drive.


On Nov 24 09:40 AM qObserver wrote:

> So you will go and buy a vehicle based on the compensation of the
> CEO's? Give me a brake!
>
> You seem to forget that in the 70's most of the Japan products were
> a pile of crap, after just a few years they were a rust bucket, I
> know I owned a couple.
>
> Quality is preservative; the difference today between the best and
> worst is statistically insignificant. Every manufacturer makes a
> quality product, if they didn’t nobody would but them.
>
> Lets not forget, GM SELLS THE MOST CARS AROUND THE WORLD, so this
> is not an insignificant company.
>
> The issue at hand is not the cars, the compensation, the quality;
> it’s a credit issue that is affecting every company around the world.
> No available credit = no car sales, period.
>
> Anybody, including yourself, that seems to think it’s a good to allow
> a significant national asset like the American auto industry to fail
> for issues that are out of their control is simply showing their
> lack of intelligence (wanted to say stupidity, but wanted to be nice).
> You should get better educated, learn the facts, and understand the
> sever consequences that will come if this is allowed to happen.
>
>
> By the way, it’s a loan, not a handout!

2008 Nov 24 10:23 AM

[Midas1:]

Affcted, not effected.


On Nov 24 10:22 AM Mister Jimmy wrote:

> "Midas1", You state that "Toyota and Honda are simply superb companies
> that back their product"? Do this: Google "Toyota engine sludge"
> and read about the class action lawsuit that it finally took to get
> Toyota's attention about a chronic design flaw with their engines.
> Toyota and the dealers BLAMED THE CUSTOMER for not changing the oil
> at required intervals. A court decision determined otherwise. Similar
> issues have transpired with their truck engine crank shafts and car
> transmissions.
>
> You've been drinking the Japanese Kool-Aid too long, junior, and
> it's effected you ability to gather facts and think rationally.

2008 Nov 24 10:24 AM

[RJMoran:]

You mentioned the 'Big 3 German Auto Makers'. It's here that I'd like to point out that even within a system with HIGH wage protection/healthcare/... and STRONG union power, the Germans can continue to make, decade after decade THE best cars in the world. I love the American hubris of 'the big three automakers'! Kind of like 'The World Series'! No one seems to be bailing out Audi, VW, Mercedes, BMW! If these idiots can't make good cars, use long-term planning, etc, they should be consigned to the 'dust bin of history' as they say. No one is bailing out the American Toyota, Honda, etc plants!
Sad and embarrassing really! THAT and throwing good money after bad to guys in private jets, LOL/Good Lord! RJM

2008 Nov 24 10:56 AM

[TB3:]

Another example of your "experts" knowledge based on maybe a couple of hours watching CNN. Since you obviously haven't done your homework, let me enlighten you. Ford's Mulally has the company going full speed converting several successful smaller European cars so that they meet all the different governmental regulations here vs abroad. And it's not just the vehicles either. He also has to convert the assembly plants that will put them together. Did Ford drag their feet in the past? Absolutely. But not since Mr Mulally took over. He for one, is not the problem, but the solution.

2008 Nov 24 11:04 AM

[Poor me:]

Lokk, like it or not, they will almost certainly get their bail out. All the yelling, and finger pointing is for show, as is GM, and Ford selling some of their jets, wow, what a sacrifice. They will get it, congress will look tuff, and nothing will change, well, except the amount we will be paying back in our tax's. Now that gas is cheaper, it is more importanat than ever to retool the big three for car getting better fuel economy, or hybrid type cars, and most important of all is drilling for oil here in America, and building more refinaries while the price of oil is low. But, as our great government has alway's done, they will wait until the price of oil returns to $150 a barrel, and then think about it again, after its to late. OPEC will cut supply, and fource the price up again, so why not do all this while we are not suffering as much. Don't forget now that gas is cheaper, keep the drilling issue, and refinary issue alive, and loud.

2008 Nov 24 11:33 AM

[Midas1:]

Obviously, you're one of Ford's employees who think the taxpayers should foot the bill for your retirement. Not. If Ford makes such good products, they should have no problem competing in a free enterprise system WITHOUT government handouts off the backs of the taxpayers WHO DO NOT COLLECT more than 90% of their salary in a pension. It's time for the UAW to get a clue. The UAW has killed the auto industry. Don't expect the population to bail you out. I do not want to support whiny people griping about a $10 copay to see a doctor when the rest of us have had copays for years in the range of $30-50. Face it, the Big 3 are obsolete.


On Nov 24 11:04 AM TB3 wrote:

> Another example of your "experts" knowledge based on maybe a couple
> of hours watching CNN. Since you obviously haven't done your homework,
> let me enlighten you. Ford's Mulally has the company going full speed
> converting several successful smaller European cars so that they
> meet all the different governmental regulations here vs abroad. And
> it's not just the vehicles either. He also has to convert the assembly
> plants that will put them together. Did Ford drag their feet in the
> past? Absolutely. But not since Mr Mulally took over. He for one,
> is not the problem, but the solution.

2008 Nov 24 11:42 AM

[rh13:]

German cars are great? I'm glad you think that. Will you buy my Volkswagen Passat? I need to get rid of it. Too many multithousand dollar service visits. That engine sludge thing is mean.

2008 Nov 24 11:46 AM

[2222:]

WOW Midas, you should just leave the US now and save us all the venom. How about getting some current facts and stop grinding a very old ax. As Qobserver points out the quality is nearly the same with the Malibu BEATING (since you like caps) Accord and Camry in JD Powers quality survey. GM makes more models that get over 30 mpg than any other manufacturer. Look at the October Consumer Reports and GM placed 3 of the top 7 Hybrids based on Return on Investment. Wagoner and Mullaly have cut all the fluff out and cut all the benefits to get competitive. Both have very competitive products – have you bothered to look at them objectively or is that too intelligent? Meanwhile all Toyota's recent growth has come from SUVs and Pick-ups (opening factories just when fuel hit $4) - mind you the Sequoia gets the same fuel economy as the Hummer! Yet we oh so smart Americans give them a free ride for that debacle. Look at the quality problems with the Tundra. My friend just got a $10,000 check from Toyota because the bumper rusted off. Not to mention that 50% of Toyotas are still imported from Japan. You should stop listening to the media and get some current facts.

How about we stop giving the foreign makers a free pass and start supporting our home teams before it’s too late. Those of you that scorn the US manufacturers need to realize that they are your friends and neighbors and the ones I know work hard and are proud of what their companies are doing to get back on track.

Step right up, I am offering one way tickets to the country you would prefer to live in....

2008 Nov 24 01:32 PM

[tmy226:]

GM makes more cars that do 30mpg than others you say. This is probably true, I have no idea what they are. Thats the problem, I don't know about. I ask another person name a fuel efficient American car. He could not name one!! Heres the problem, GM does not seem to care about making money off fuel efficient cars. I have not seen ONE commercial from GM advertising a fuel effiecient (F.E.), Its always thes the Silverrado. Profit margin not big enough for FE.?

another complaint is CEO making 40+ millions a year. You might say so what? Well if you are asking for 25 billion, you have no right to pay yourself that much right?

The UAW. Bloodusckers they are. They get 73/hour average. Not to fond of BIG 3 getting 25 billion so these bloodsuckers can continue living. why should an 25/hour guy in Mississipi pay taxes to support some old fart on pension getting more than 70/hour watching TV?

GM better than toyota? Thats not the subject here. Toyota is not asking for 25 billion.







On Nov 24 01:32 PM user 2222 wrote:

> WOW Midas, you should just leave the US now and save us all the venom.
> How about getting some current facts and stop grinding a very old
> ax. As Qobserver points out the quality is nearly the same with the
> Malibu BEATING (since you like caps) Accord and Camry in JD Powers
> quality survey. GM makes more models that get over 30 mpg than any
> other manufacturer. Look at the October Consumer Reports and GM placed
> 3 of the top 7 Hybrids based on Return on Investment. Wagoner and
> Mullaly have cut all the fluff out and cut all the benefits to get
> competitive. Both have very competitive products – have you bothered
> to look at them objectively or is that too intelligent? Meanwhile
> all Toyota's recent growth has come from SUVs and Pick-ups (opening
> factories just when fuel hit $4) - mind you the Sequoia gets the
> same fuel economy as the Hummer! Yet we oh so smart Americans give
> them a free ride for that debacle. Look at the quality problems with
> the Tundra. My friend just got a $10,000 check from Toyota because
> the bumper rusted off. Not to mention that 50% of Toyotas are still
> imported from Japan. You should stop listening to the media and get
> some current facts.
>
> How about we stop giving the foreign makers a free pass and start
> supporting our home teams before it’s too late. Those of you that
> scorn the US manufacturers need to realize that they are your friends
> and neighbors and the ones I know work hard and are proud of what
> their companies are doing to get back on track.
>
> Step right up, I am offering one way tickets to the country you would
> prefer to live in....

2008 Nov 24 03:46 PM

[Paul Killinger:]

Horrors! The Congress actually requested a BUSINESS PLAN (they could use one themselves, but that's for another day) before they handed over a $75 or $100 BILLION blank check to Detroit.

Here's an idea, Detroiters. If your unions are such a good thing, why not buy out the automakers with an ESOP? You've got the cash to do it.

It's the one idea to save the Detroit 3 that's NEVER discussed. I wonder why ???

2008 Nov 25 05:33 PM