Auto Industry Watch: You Can't Get Different Results Doing the Same Thing 38 comments
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I remember the first time I saw a venture firm discuss a bridge loan for a portfolio company that was struggling. I was 26 at the time and I had recently joined Euclid Partners and Bliss McCrum, one of the two founding partners, was arguing that the firm should not put more money into the company unless we extracted some commitments from management to change the way the company was being run. He said to the assembled partnership, all four of us, "you can't get different results doing the same thing."
He was right. We forced some cost cuts, some management changes, and we did the bridge. I honestly don't know if that bridge worked out or not, it was 21 years ago now, but I remember the conversation vividly, like it happened yesterday.
That lesson has never left me and whenever we do bridge financings, it comes right back to the front of my brain and the tip of my tongue.
So when I was reading today that the Bush administration is going to bridge the auto companies to the next administration and the next congress, I thought, "ok, but what committments are they going to extract from the companies and the union?"
In the front page story on the auto bailout in today's NY Times, I learned the following:
Mr. Corker said Republican senators were also insisting on steep cuts in wages and benefits that would bring the American automakers in line with United States-based employees of Toyota, Nissan and Honda. And he said that the Republicans wanted a firm deadline, sometime in 2009, for the automakers to carry out those cuts.
It was over that point that the talks deadlocked, with the union pushing for those cuts to take place after its current contract expires in 2011.
Alan Reuther, the chief lobbyist for the union, said labor leaders back in Detroit were astonished at what Mr. Corker was attempting to accomplish — a virtual rewriting of the U.A.W. contract, which typically takes the better part of a year to negotiate. “That’s one thing that our folks in Detroit were just amazed at,” Mr. Reuther said. “Does Senator Corker really think he can do a restructuring of the industry in six hours?”
If I am not mistaken, a bankruptcy filing would invalidate the contract with the union anyway, so I'm with Corker and the republicans on this one. General Motors (GM) is losing $4.4bn per month!! That's a boatload of money and everyone involved, including the unions, are going to have to make some sacrifices to get GM back in the black. And I personally don't think that parity with US-based employees of Asian auto companies is asking that much.
And most of all, I don't think the White House and Congress, whether it be the lame ducks in power now or the incoming crew, should be loaning taxpayer money to the auto industry without extracting exactly the kind of concessions that the republicans in congress are asking for.
It's one thing to be pro-union (I am at times) but it's another thing completely to be using taxpayer money to protect an unsustainable cost structure that is partially based on above market labor costs. I really don't know why it takes a year to negotiate a union contract, but if they want the auto industry to survive, the union leaders ought to be prepared to rip up their current contract and negotiate a new one over the weekend. That's how things are done when you are on the verge of going out of business and losing $4.4bn per month.
I'm all for a bridge and a bailout of some sort (I think doing it via DIP financing in a managed bankruptcy would be best), but most of all I hope everyone remembers that you can't get different results doing the same thing. And you can't invest new money until you rectify that situation. And it can't take a year to do it.
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This article has 38 comments:
WHAT DOES HE THINK THIS BAILOUT IS? Just free money to be poured down the drain while they waste another year screwing the auto makers? EXCUSE ME MR REUTHER! you need to fix it NOW. The country and GM and a ton of jobs are on the line ... AND YOU ARE GOING TO WASTE A YEAR SAYING NO TO VITAL CONCESSIONS!?!?
Screw it, if UAW would rather GM go bankrupt than make a few reasonable concessions, thats their call. we need to STOP calling this a GM bailout, this is clearly a UAW bailout.
If you want to save GM, let them do a chapter 11, restructure and rebuild. Every stakeholder has to take a haircut, the unions, mgment, debtors, retirees, dealerships, etc.
If you want to see GM become a suck-all sycophant plaything of politicians, sucking wind and losing market share and value - a socialist hellhole like the european state-owned colossi of yore - because the feds wont do a mercy-killing and get out from under the crushing weight of debt, pension obligations and UAW contracts ... support this bailout. The bailout will in time be seen as the disease and not the cure.
Meanwhile the govt will destroy more jobs with CO2 regulation and healthcare mandates.
Their wages are the same as the Japanese automakers, and health care must be paid because the GOP decided that national health care was not going to happen for Americans (Japan has national health care, like Canada, Germany, and so on).
As a result, wage earners and employers have to pay punishingly high health care expenses because the GOP is bought and paid for by the medical and pharmaceutical industries.
We lost the steel industry, the textile industry, the plastics industry, and now the car industry will be gone, sacrificed on the altar of the so-called 'free market' where foreign nations help their car companies, but we refuse to help our own.
US lover
where's your bread butter
On Dec 13 03:11 PM screw UAW wrote:
> Rule that UAW unlawful and the problem is fix. no more bail out needed.
Secondly, the automotive industry must lower its labour related costs to produce vehicles. The primary reduction here has to address entitlement programs. The current hourly costs are inflated by a factor of two to three times that of the hourly wages because of those entitlement costs. This is like having two or three extra non working employees sitting on the side lines. This is going to be painful, but if the companies are going to survive, it has to be done. If no acceptable compromise can be worked out here, than there is no choice but for the companies to go into bankruptcy since they can't survive with that kind of an albatross hanging around their neck. I hope something can be worked out, but if not, then that is the reality of the situation.
I also add that you need to integrate a solution for the automotive industry with the need for this country to remove its dependence on foreign oil. In a way, the failure of the automotive companies is a God send with this respect because by giving them a bridging loan, this country can apply an overreaching United States goal on the operation of their business. Some times, Country goals need to supersede the generation of short term profits.
I suggest that all new vehicles should be powered by natural gas within some limited time frame. The country should be building natural gas automotive fuelling facilities. At some point, the country should mandate that all foreign imports must run on natural gas. Natural gas is not the final solution, but it would be a good bridging solution towards a final solution.
Removing our dependence on foreign oil would keep a major portion of the wealth of America in America. Stop sending our wealth overseas. Start thinking about what is good for this country as opposed to totally concentrating on maximizing short term profitability at the expense of this countries future. We can't afford to go in all different directions anymore. We need to coordinate our efforts to maximize profits with overarching national goals.
I wonder how much of what I have I would have been able to afford if It had had been made by some spoiled rotten American union laborer that expects to live five times better than I do. Some of you think the "foreign" automakers would seize the opportunity to jack up their prices and screw everybody? No. They would COMPETE - something the UAW had better learn how to do. If all American labor had the autoworkers' entitlement mentality, a lot of people would have to save up for their next electric razor.
Why are the autoworkers' unions so obtuse and obstinate? They make more than coal miners! Coal miners have a union, but their jobs can be extremely dangerous. Why should these Detroit clowns make more than coal miners, who deserve every penny they can get for what they do?
Doing the same thing and expecting different results is insanity. That is exactly what is happening, but it is not the car-making business that will be the same, it is the union (bailout) negotiation that is the same. We are afraid the alternative to a contract (bailout agreement with this bluffing union) will be too expensive. So we fold again and the union takes the pot, even though they do not have the best hand. Later on, we loose the whole thing again for a larger price. Insanity.
It is time to call the union bluff, and let GM or Chrysler go bankrupt. Then if the union workers want their jobs back, they can make a new contract everyone, including the bankruptcy judge thinks will work.
That will be excruciatingly painful. Just like getting off a drug habit. But you’ve got to do it if you want the monkey off your back. We Americans need to recognize this is our problem, and it is going to hurt to get it fixed.
Have you noticed that the Airlines Business are offering "buy out" packages to their employees? Why don't you go and HOUND them for a while? (Seeing as their "long time" employees make the same amount as the "long time" Auto builders.)
It sure seems to me like that Seeking Alpha is very biased to the Auto Business and wants to just "kick people when they are "down".
Coker is an ass.
Closing a company down with a strike or threatening to do such is extortion, not negotiation. Unions finished the noble part of their history when they caused the federal government to enact minimum wage and OSHA worker safety laws. Everything since then is pure unadulterated extortion.
Al Qaida has not come close to causing the damage inflicted by our unions. Our industry has fled to foreign shores to escape our unions.
The final abomination is the unions attempt to get rid of the secret ballot through the "Employee Free Choice Act". If they can bully 51% into signing the union card in public .... then the union does not have to endure the humiliation of losing in a secret ballot. Unions have been getting as much as 80% of union cards signed only to lose by a landslide in the secret ballots. Now these slimeballs want to get rid of the secret ballot all together because they can't win in a fair fight. Would the unions propose public ballots in public elections? I didn't think so.
Unions are un-American. Period. I prefer Al Qaida to the UAW because at least its obvious to everyone that they are the enemy. The unions are the enemy within. Mostly enabled and controlled by organized crime. The unions somehow blocked "Right to work laws", allowing unions to create closed shops requiring every new employee to become a paying union member. This creates the conditions wherein the inmates run the assylum. The fate of our steelmills and automakers and other industries are only explainable in terms of union extortion which made our industry un-competitive.
You know something? You sure are opinionated...tell you what..
let's do it YOUR way...OK?
Let GM go BK...then all of us who lose our retirements and medical..
well guess who picks up the tab...the FED...(then YOU pay for our benefits.)..yeah you heard me right Y.O.U. and the rest of the taxpayers. Is that what YOU want?
YOU see...we worked diligently for years...are you saying that us retirees deserve nothing? GREAT...then when it is time for YOU to retire...don't depend on the company that promised you a retirement, don't depend on anyone...but yourself, not medicare, not Social Security...do it ALL on your OWN.
May I suggest that you THINK before you TALK.
Sincerely and Respectfully,
FC
But I wonder why nobody is bringing up the fact that Congress did NOT require Wall St. to lower their wages across the board. Sure, it asked top executives to stop taking in $100m bonuses, so they took $10m.
Sure, $75/hour for an auto worker is outrages. But I don't understand why a $300/hour Wall St. worker is not just as outrages.
WE MAKE $28/HR TOYOTA AND HONDA MAKE$26 PLUS BONUSES OF $6000 TO $8000 A YEAR...DO YOU THING THAT $2 AN HOUR DIFFERENCE WOULD HAVE SAVED THE BIG THREE...OR WAS THE BLAME GAME THAT SEN. CROOK-ER WAS PLAYNG!
BE CAREFUL OF WHAT YOU WISH FOR ,YOU MIGHT GET IT!
"Non Union Workers" since they are only about $2 - $3 different.
Just WHY are they so "Anti Union" ? It looks to me as if they are only trying to start trouble....sure they have every right to their opinion, BUT they REALLY need to learn what they are talking about...before they get up on their "soapboxes" and and preach to the masses.
Something tells me that there is "more than meets the eye" in their approach...It kind of makes you wonder just WHO they really are and WHY they are placing blame on the workers. They don't talk facts..only HATEFUL opinions...they have probably never done an honest days work in their ENTIRE life.
What salaries do THEY make? What pension do THEY have? What benefits do THEY get. I'll bet that it MUCH more than those they are blaming for the mess. Could it be that it is much easier to "point fingers" than to accept the actual "blame" for our outcome?
Most of the time...it is those who ridicule..are those that have the most to hide.
But here's the facts....Even with the bailout, how does GM become profitable?
GM is losing $4.4B per month. So they have to either generate more revenue or cut costs/become more efficient...On the revenue side they can do the following:
1) Raise prices to increase revenue...since we're in a recession/depression this is not viable. Also, GM did not have pricing power (able to charge more for cars than Toyota) before the credit meltdown. GM used to make $$ on financing (non-operating activities) and that has blown up as well. Given their losses it's also hard to see how they can afford a big ad/marketing campaign to persuade consumers to pay more for their products.
2) Volume...sell cars at current prices to new/more customers...again, given the global nature of this recession it's nearly impossible to sell more units at current prices. Even if credit loosened up for consumers there is no guarantee that folks would opt to by GM over Honda/Toyota etc.
On expense control...
1) Cut labor costs- UAW backers talk about how they have a contract till 2011...well what good is this if GM goes bankrupt? If you don't have a premium product then you have to be a efficient producer and you can't do this with labor costs higher than domestic competitors that have higher market share.
2) Use cheaper inputs...prices for raw materials is falling so this should help but this is benefitting their competitors as well.
3) Efficiency/Service- provide a better customer experience. On the production side they've made a lot of progress and the easy stuff has most likely been done. While this would help it would not produe 4.4B in revenue. The dealer network is also a barrier to better/more effiecent service.
The 15B or 30B bailout does nothing to help the revenue side of the business and without clear changes on the cost side there is little change there...So how does GM survive even with the bridge loan?
Costs will have to be cut even with a full bailout and the sooner the UAW accepts this the better off they'll be.
The most important that American taxpayers money MUST be used only for the good of ALL American people not just for Detroit parasites.
As for bailouts, instead of supporting losing businesses, American taxpayers money must be used for enhance and promote successful businesses benefiting the future for all.
Regardless of "bridge" money or not, the Detroit is dead. It is time to save America since the great economic & political crisis is just started.
Why? There is no reason why American worker must be paid 4-5 times more than his/her Asian counterpart doing the same job. It is just that simple!
Billions for the Big 3, who make products that a significant number of Americans don't want to purchase ... ?
What if you don't own a home? What if you don't have a new car? Tell us again, just exactly why should we bail out the folks who do ...
Our grandchildren will still be paying for the so-called bailouts, that reward failure and make irrelevant any reference to our system as being capitalistic. From the bankers who chose to look the other way as loan applicants misrepresented their incomes, to the executives of the Big 3 companies who would propose to us that 2 plus 2 equals 22, to the UAW workers who for some reason actually belive they are entitled to their jobs even though they build vehicles that are clearly not selling; we should let the house of cards fall. The economic repercussions would be harsh and broadly felt. Retailers would sell less. Services would be restricted. Business across a wide spectrum would succumb.
The difference would be, that in a year or three, what rose from the ashes of the failed system would be stronger and better. The people who are responsible for that bad business would be gone, for the most part, and we would still have capitalism. Our country's and the world's economies are fundamentally different that what exisited in the 1930's. We would emerge more quickly, and stronger than ever (just like we did in 1940's). For a short year-to-three, all of society would pay a steep price, and the ordeal would be over. At this time we are 'rounding the bend on a trillion dollars of 'bailout' which has bought us absolutely nothing. In a few months, everyone will agree that we are exactly where we started. Generations will be stuck paying the bill for galactic failure.
Everywhere we hear the alarmists proclaim, "We can't sit back and simply do nothing." I agree. We should be giving our precious billions to the banks that DIDN'T fail. We should be giving billions to Honda, Toyota, Nissan, and the like. Instead of rewarding bad business, we should encourage business models which are staying ahead of their respective games. They would thrive and grow. Jobs would expand. Taxes would be paid. Products and services would improve for all of us.
Otherwise we will continue throwing good money after the bad, and before long the majority of Americans will not be able to buy cars, or need the banks.
And while the big three are teetering on the brink of failure, the other eighty-seven percent of us can only watch in disbelief and disgust as the UAW refuses to budge because "their contract " isn't up.
2006 was the best year ever for auto sales since cars have been being sold.
In 2006 GM lost $10 billion.
I don't understand the convoluted reasoning that the other 87% of us should feel morally obligated to prop up the standard of living for the 13% of the workforce that thinks it's entitled to live better than most of us do. And because many of us feel this way, many of you post comments either denigrating our intelligence or telling us we've " never done a hard days' work in our life."
The people I believe you think you're addressing only represent a very small portion of the people you are addressing on this board.
Most of us are probably just like you. I doubt if most of us are the white-collar high rollers you might think you're talking to.
But maybe you could try remembering that everyone who reads what you write here is also a potential customer and insulting us and calling us names may not be wise. Your future is precarious enough.
Corporations keep outsourcing everything for cheaper (slave) labor, and in a few years there probably won't be any American industries left. Those still able to own a car will be driving a Japanese one. I'm not knocking foreign auto makers by the way, just making a point. It should be no secret to anyone that the elite want to reduce the population by a large percentage (leaving more of everything for them, the privileged few) and one way to do that is to take people's job/income away. The government (i.e. corporations and banks) won't be happy until they have all the money and resources and half the population dies of starvation and homeless from not being able to afford to eat/live. The next Great Depression appears to be on it's way. Are YOU ready?
But the UAW's not about to do that, of course. They're too busy playing this inane game of chicken. So when there are no presents under your tree come Christmas morning, don't blame the Senators. You can call your union bosses and ask them how their Christmas is going instead.
Let the hazing begin.
On Dec 13 03:51 PM dw57 wrote:
> so many don't know what they are asking for. including this writer.
> the UAW is not the biggest problem, you are, if you took a rebate
> from any of these companies or any of the others, you took more from
> them than the UAW did. and the gripe about the workers wages is how
> we got where we are today. todays crises only exists because workers
> wages have been in reverse for years now. and up until last year
> consumers (AKA workers) made up for that deficit with credit. well
> that is gone now, and we will be slipping backwards until we fit
> what wages will support (which is maybe 85% of what it was 7 years
> ago). so we will see negative GDP for about a year, if not longer.
> and if the B3 go, the depression will start. and we can already see
> parts of that. lots of media companies are collapsing today because
> a 15 billion a year customer is cutting back. the next bunch to go
> will be the sports (pro and college) teams that will have to cut
> back also. the NASCAR and other motor sports shortly there after
> (seems the domestics are the biggest supporter here in the US) .
> after that of course a lot of farmers will be in trouble (no new
> parts or old part even for their trucks). and for those who think
> this is just an American car company issue, consider this. the Europeans
> are all doing it also. Along with the Asian countries. And even Canada
> is in the act, they will support our car companies. in spite of of
> us. i wonder if domestics next decisions is to move North of the
> border (or maybe south).