Auto Makers Need to Focus on Shared Sacrifice and Viability

GM and Chrysler submitted their “viability plans” yesterday to the Treasury Department (as they asked for more than $20 billion more in aid). The Detroit Free Press provides links to the full GM plan, and to the highlights of the Chrysler plan. Both suggest a lot of shared sacrifice:

GM’s Plan calls for considerable sacrifice from all stakeholders
-Bondholders and other debtors
-Hourly and salaried employees, executives and retirees
-Dealers and suppliers
-Shareholders

…and the plans clearly describe significant cost-cutting measures. Yet let’s face it, ”breaking even” isn’t even an option for several years, according to both reports. This is about minimizing the inevitable losses, rather than maximizing any gains. From a CNN-Money story:

“The most important issue is not what the automakers are going to do to cut costs, but rather what the government is going to do to stimulate car sales,” stated Jeremy Anwyl, CEO of car sales tracker Edmunds.com. “No automaker is viable under the current market conditions, and so far the spending package appears to spread money too thin to actually make much of a difference in any one area.”

Some economists argued that the problems detailed in the plans show that GM and Chrysler are already failed companies.

“When consumers refuse to buy your product, that’s the economy telling you you’re bankrupt,” said Rich Yamarone, director of research at Argus Research. ”

But Yamarone said it may make sense to give them the money they need, even if it’s good money after bad, because the battered U.S. economy can’t weather the halt of operations at GM and Chrysler right now.

I really hope the automakers aren’t counting on government policy alone to stimulate their auto sales; those ideas for how to produce things that people want to buy really have to come from the industry itself–or else there’s really no way to consider the industry truly viable. And I hope it indeed is good money going after bad, not bad money going after bad… Let’s hope the federal government is good for all this borrowed money; they’re borrowing it to lend to the automakers, after all. Did we mention “shared sacrifice” and “viability”?

Comments

[JL:]

SHARED SACRIFICES??? Since when? Salaried lost their COLA many years ago. Hourly didn't. Salaried has had wage freezes several times. Hourly didn't. Salaried begin paying for their benefits years ago. Not hourly. Then the salaried people lost benefits and then paid even more to get them back. My son pays over a $100 a month for himself. JUST recently hourly begin paying about $20 a month for benefits. Big deal. Now the salaried workforce takes paycuts from 3% to 10%. How much of a paycut is hourly taking?. The job bank went from 95% of their pay indefinitely to 72% of their pay for 42 weeks. It should be eliminated entirely. Other then downsizing I see no "shared sacrifices".

Feb 18 07:09 AM

[elcopone:]

Nice article. Consice and to the point. I completely agree. The consumer and taxpayer have already spoken with their wallets. Cutting costs and restructuring is not a viability plan. As always, it comes down to product. A great products will solve all problems. So when they submit a weak plan that in no way descibes how they will become competitive through products, I have to question why the government should give them anything.

Wagoner has failed. Any viability plan that has Wagoner on the GM staff has already failed. This guy should right a book titled "How to keep your job despite having terrible performance."

Additionally, why should Chrysler be eligable for money in the first place? Their parent company has cash that it refuses to inject into the business. If Cerebus doesn't want to invest in their own company, why should the US taxpayer??? And they are not even an American company.

This whole thing is a perfect illustration of why our whole system of government needs to be blown up and rebuilt without lobbists and lawyers.

Feb 18 08:21 AM