Fam62c

Do the Automakers Deserve a Bail Out?

[HOW CAN ANYONE GO TO THE VETERAN'S PARADE DRIVING A TOYOTA A HONDA A VW OR KIA?

SHAME ON YOU! ]

Turi;

My Dad is a WWII vet who fought the Japs in the Pacific. He drove American cars all his life and was loyal to Detroit. In his 80's, out of the blue he bought an American made Toyota Camry and he says it's the best car he's ever owned. He's had a lot of problems with American cars over the years. Some of the cars were good but some were just terrible. The last straw was a Chevy S-10 (a 2003 I believe) that had a defective transmission at less that 20,000 miles along with some other defects. I'm as American as the next guy but Detroit needs to work extra hard to get people to trust that their new cars are on par with some of the foreign makers. It's not the fault of consumers that Detroit made a lot of subpar vehicles over the years and drove their own customers away. I actually think that bankruptcy might be good for the Big-3 because maybe after they are reorganized people will believe that things are different and give them another chance.

Do the Automakers Deserve a Bail Out?

I don't want to see the US auto industry (all 3 of them anyway) gone because once it's gone it can never really come back; it's almost impossible to start up an auto company from scratch. I don't think a "bailout" or even a loan is the best way to go. If they can't make it, I think that they need to reorganize in Chapter 11 with some type of government backing for dip financing IF the creditors approve the reorganization plan. Detroit is like an alcoholic, it needs to reach rock bottom before it can start over. If we prop up any of these companies with government money outside of bankruptcy they will simply become dependent on support. Chapter 11 has a way of making everybody get serious because they realize that total failure is now possible. In chapter 11 even the sacred cows get slaughtered. If the taxpayers are going to get involved every stakeholder must give all they can possibly give and Chapter 11 is the only way I know of to make this happen. Plants must be closed, people must be laid off, models, brands and dealers must be dropped, assets must be sold off or collateralized, leases must be rejected or renegotiated, labor contracts must be made competitive in the current environment and liabilites must be shed; in short the companies must be totally re-designed. A government loan guarantee isn't going to make these things happen. Where's the sense of urgency? What is a company like GM doing right now on it's own? Is it stopping payment to creditors to conserve cash? Has it announced plans to shutter one or more of it's many divisions? Is it putting assets up for sale? Are they demanding concessions from their unions? Is the management team taking steep pay reductions to set an example? If they think they can just get a loan guarantee from the government they will drag their feet and not act as if their survival is at risk. I know they don't like to use the "B" word but when you are telling everybody that you might not have enough cash to see the new year it's really the same thing. It's time to start planning for a pre-packaged Chapter 11 filing. They will make it through bankruptcy just like the major airlines did because their creditors have too much at stake to let them fail. Remember the old saying; if you owe the bank a million dollars you have a problem, if you owe the bank billions of dollars the bank has a problem.

I'm worried about taxpayer money being used to pick winners and losers among private industry. How do we decide who to help and who not to help? Where was the bailout for, say, Circuit City? The banks were one thing because the government has authority in that area but where do we stop when we decide to help private industry? What if everybody comes forward with their hand out?

By the way, what about Chrysler? They are owned by a private equity company, why should the taxpayers loan them money. Shouldn't the private equity company raise money to help Chrysler since it's their investment? Isn't re-capitalization what they do? They just bought Chrysler I think that it's their problem. Chrysler certainly shouldn't get any government help until their parent company has given every last penny to the effort.

Demand More for Your Auto Bailout Dollar; Oil Patch Should Bounce Back Long Term

Here's my concern with natural gas: I have a gas furnace, stove, dryer and waterheater. If you listen to the media and Boone Pickens you would think that the USA is awash in natural gas, you would think that we have so much of it that we don't know what to do with it. If this is the case NG should be really cheap but my NG gas bill increases every year. They are banking on all this NG that they believe is in the ground and below the sea but nobody really knows for sure. I'm all for locating and recovering all the NG that we have, go ahead and "drill, drill, drill" but let's not kid ourselves and think that it's cheap. As we use more of it the price will skyrocket and the cost to recover these resources will be steep. Don't get me wrong though, I would rather pay more for US NG and oil than buy from the camel-sodomizers as long as we are also going all out with wind, solar, thermal, wave, cleaner coal, nuke and whatever else we can come up with that can be produced "in house" by the USA. Energy independence will mean higher energy prices for years with the promise of reasonably priced domestic enegy in the future; that's a short term sacrifice I'm willing to make.

My dream is seeing the mideast with a bunch of worthless oil that nobody wants because technology has made it obsolete. Without all that oil money the mideast is just a bunch of desert tribes on camels living in tents and killing each other. Without oil they have nothing; there is no Sadam Hussein, Osama-Bin-Laden, Azerminidjad (whatever) Saudi Royal Family, etc. American sons, daughters, mothers and fathers wouldn't have to be killed or horribly injured in wars over energy. If we don't do something I belive that sooner or later WWIII will be fought directly or indirectly over oil.

It's such a shame; with all that oil wealth in the mideast they could have built the best housing for their people, the best schools for their children and created vibrant, modern, sophisticated societies. If they had put the money to good use I wouldn't feel so bad about buying their oil but to see all that wealth and still all that suffering, poverty, violence, hatred, intolerance and misery makes me sick.

America is going through a rough patch but I believe that when we are focused as a nation and have the will to do something we are unstoppable; energy independence is possible if we want it bad enough. We should be the ones to take the lead and show the rest of the world how it's done. Imagine the benefit to our economy if we could be energy independent and have stable energy prices over the long term; we would have an advantage that nobody else in the world has. We are one of the few nations with the available resources, technology, industrial capacity and real estate to pull it off and we are stupid if we don't. If we had started a massive push to do this after the 1970's energy shocks we would already be mostly there today.

In the long run I think that cheap oil has hurt us more than it has helped us. If oil had stayed (or had been taxed) at high levels after the '70's the market would have forced the Big-3 to adapt and they could have done it before the Japs had a chance to get a massive head start........we would still be the world's dominant auto maker; our society as a whole and our competitive position in the world would be much stronger. The future can be very bright indeed for the USA if we get up off our a$$es and make the committment to truly be free from wild energy price swings. It won't be easy and it won't happen overnight but we can do it.

Auto Industry: In for a Penny, In for a Pound

Repper: Good post, and I don't doubt that US quality has come way up but who's fault is it that people don't know that? My point is that the Japs make the same nameplate year after year and constantly improve it creating not only brand loyalty but MODEL loyalty. Everybody knows what an Accord, Camry, Civic and Corolla are because they have been built for 20-30 years. There are Honda and Toyota buyers who have bought the same model for 25 years because the first one they bought in the early 1980's was light years beyond American small cars of that era. I've owned VW Rabbitt/Golfs for 21 years, I've had five of them. The first two (a 1982 Rabbitt and a '84 GTI) had 120+ thousand miles on them when I bought them and were still running well when I was done with them (the Rabbit got killed in an accident and I gave the GTI to my Niece who drove it all through college and then sold it!). Most 1982 small Big-3 cars never lived to see 100K miles. I liked the model and the brand and stuck with it like many Honda and Toyota customers. American makers simply didn't build good or desireable small cars back then (Lee Iacocca was marketing K-cars against really good, sporty Jap cars) and lost millions of customers.


The US seems to make a new small car model for a few years and then it gets dropped for another new model, also, they cannibilize their own business by making the same cars under different brands. You are correct, their is a prejudice against American small cars and I don't believe the Big-3 are trying hard enough to build new, loyal customers. I can't even think of the name of any American small car models so the Big-3 must be doing something wrong with branding and marketing. I know what an F-150, Ram, Escalade, Expedition, etc. are even though I'm not a truck buyer so why am I not familiar with their cars? The answer is that they promote what they want you to buy not necessarily what you want to buy. I guess I looked at a Pontiac Vibe once and thought is was somewhat comparable to a Golf/GTI but even the Vibe is a joint venture with Toyota. I'm not in the market for a new car but give me the name of an American made compact hatchback comparable to my GTI and I'll go test drive it for the heck of it and see what I think, and I better not see any cheap American fake chrome in the interior :)

I hope that the Volt beats everyone else to the market and I hope the car gets good reviews. I still believe that, as recently as a couple years ago when gas was cheap and the economy was good, the Big-3 really only put minimal effort into small cars. It's been that way forever in Detroit because small cars have small profit margins and Detroit's costs just don't allow for profitable small cars.

Another thing to remember is that most buyers start out with a cheap, small and probably used car when they are young and poor. If they like that car they may stick with that brand for a long time, and conversely, if the car is crappy they may never buy a car from that company again. Remember, a 1982 VW Rabbitt purchased in 1987 with 145,000 miles made me a VW customer for 21 years. I don't think that an equivalent Ford Escort or Chevy Chevette from the same era would have made me a Ford or GM customer. The Japs (and VW) understood this and it allowed them to eventually make larger cars and trucks for these buyers as they got older and eventually introduce Lexus and Acura for the buyers as they got older and had more money. Detroit made a huge mistake by dismissing the lower end of the market, when the Jap cars first came Detroit figured the customers who bought them would "upgrade" to American cars when they had more money and if they didn't have more money Detroit didn't want them as customers. Detroit let the Japs in by ignoring the part of the market they weren't interested in and basically gave away a giant piece of market share, the customer erosion continues to this day. The Japs don't have to rely on "cheap" small cars anymore, they get more money for their cars (new and used) than the Big-3 does. The Big-3 will have to try a lot harder than they have in the past if they want to win customers back; they will need to really make a major marketing push in support of one or two small car models if they want custowers to get interested. It's not the customers fault for not buying American, it's Detroit's fault for not paying attention to small car customers for the last 30 years. Detroit isn't entitled to American customer's hard earned money, they have to earn that business.

Auto Industry: In for a Penny, In for a Pound

The previous post was interesting. GM actually had an electric car, and unlike many others, I accept why it never went into large scale production. The market for the car would have been very small given the limited range and size of the vehicle. This small market would have resulted in low production and a very high retail price for the car that very few would have been willing to pay. The part that I didn't understand was when GM essentially stopped R&D on the project instead of leaving the leased fleet of EV-1's out there and slowly improving them. They had a base of willing car enthusiasts who were willing to lease the cars and actually pay to operate a GM test fleet; GM could have supplied them with improved versions of the car as the project developed. They had an edge in a future technology and walked away before it evolved into the right product at the right time. GM must have known that there would come a time when oil would become very expensive. GM had the closest thing out there to an actual, marketable electric car. If they had had the foresight to continue on with that type of vehicle development they might have gone a step further and had the first hybrid/electric cars on the market and become known for something new. Instead, Honda marketed the first hybrid (Insight) and Toyota was the first company to make a hybrid that really caught on in large numbers. The fact is, it could have been GM who came out with this technology first and got all the sales to the "early adopters" as well as the recognition as an innovator. GM still has a chance, if they would stop talking about the Volt and get the car to market they would have the first plug-in and could claim the title of being first with the highest mileage hybrid car out there. If GM could get the car out there I bet the Democrats would be willing to pass some sort of tax reabte or other incentive for plug-in hybrids (maybe even specifically for American built plug-ins) that would allow GM to make some money on the cars and get people to buy them. I'm afraid that the Japanese will beat the Volt to market with a plug-in and the Japanese car will be the one to get all the sales. Like it or not, The Big-3 are going to have to find a way to build high quality, attractive, innovative small and medium sized cars that people want. They are also going to have to do whatever it takes to adjust their cost structures to be competitive with foreign products or they will not survive in anything but a booming economy with very cheap gas. It will be hard to compete with Accord, Civic, Camry and Corolla, these nameplates have been out there for 20+ years and the models have been constantly improved. They have a reputation for quality and they are the cars that buyers gravitate to. The closest the Big-3 ever got recently to a car with this kind of following was the Taurus but they let it slip away by not keeping the car updated and competitive. I think a company like GM needs to concentrate their energy on fewer brands and fewer models; get a few things right and get rid of the rest.

Auto Industry: In for a Penny, In for a Pound

I don't think the Japanese want any part of the US Big-3, in fact, no foreign maker may want any part of these companies unless they can get it with no attached liabilities. I do agree with the article in that a pre-packaged bankruptcy assisted by government backing may be the only way for GM to shed enough of it's liabilities, leases and contracts to quickly reorganize and start off with a somewhat clean slate. A company like GM will need to close plants, lay off employees, reject leases and modify contracts quickly to survive and this is the situation that Chapter 11 is designed for. A reorganization under Chapter 11 will get everyone (management, unions, vendors, state and local governments, lease holders bondholders, etc.) on board. Simply handing them more money with their current cash burn rates won't accomplish anything other than wasting tax dollars. The Big-3 have proven time and time again that with their current cost structures they can only be profitable selling large vehicles during good economic times with cheap fuel prices. I believe that America has the capability of designing and building good small cars that people would buy but they can't do it profitably with their current costs so they don't apply many resources to these projects. I also agree with the previous poster regarding Toyota's entry into the large pick-up market. Toyota picked a bad time to do it and it hurt them but they are good at adapting and switching production capacity from lesser selling models to better selling models quickly. You can say what you want about the Japanese but their auto companies have much better leadership at the top than US auto makers. The Japs know how to design and build cars and they know how to run an auto company. Many of their advantages were the direct result of listening to American quality, production, efficiency and customer service experts in the '50's, 60's and '70's. These American experts found that the Japanese were very interested in what they had to say when the Big-3 wouldn't give them the time of day. The "home team" hasn't been very smart for a long time.

Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

This is the same problem the major airlines have and, frankly, at this point it doesn't matter how the BIg-3 got where they are or who's fault it is; all that matters now is what to do going forward. I think they (GM at least) aren't going to make it with a temporary loan; they need to do a total restructuring quickly that allows them to modify leases, agreements and contracts and transfer their pension obligations to the PBGC like the major airlines did. A pre-planned bankruptcy filing is probably the only way for GM to quickly do what needs to be done. At the rate GM burns through cash they will just burn through any financing that the government provides. Chapter 11 is the only way to stop the bleeding and make fast, permanent structural changes to GM. A band-aid isn't going to help here, GM needs major surgery or the patient will either die or live on in a vegatative state made possible by tax payer provided life support.

Demand More for Your Auto Bailout Dollar; Oil Patch Should Bounce Back Long Term

I think he's on the right track but is reaching beyond what is economically possible at this time. If we invest in the Big-3 we have to insure that they change their ways to provide some positive benefit to the US in the form of reduced use of foreign energy. At the same time you can't force a company to build vehicles that there is little or no demand for, the company will go broke. We have to find a way to make people want alternative energy vehicles and be willing to pay enough for them that they can be built by US companies at a profit. If we don't do this why would anyone build them? A previous poster was exactly correct in pointing out that the giant trucks, SUV's and V8's were something that the public wanted when gas was cheap. The fact is that no auto company can make a profit selling vehicles that ALL get 40+ mpg. Affordable technology does not exist yet to make practical vehicles for all uses that get this mileage. Not every can drive a Prius, some people actually need larger vehicles. I'm all for NG, and Hybrids and I think that the plug-in hybrid concept has a lot of merit and will eventually be a game changer. All electric is tougher because of the limited range, size and performance for these vehicles with existing technology but they may have their place as "city cars" that will work well as a second car for certain people.

As much as I hate to say it I think that we went wrong as a society by not taxing gasoline more heavily after the 1970's energy crisis to encourage conservation and fuel efficient designs with new technology. The fact is that when gas is cheap people will waste it and alternative power sources will never take hold. We have allowed our economy to have massive exposure to oil price spikes and have given OPEC a lot of power over us. As painful as it would be over the short term I would suport a gas tax program to keep gas above say $3.50/gallon combined with a massive, government backed effort (partially funded by the gas tax) to promote alternative energy sources. If we let gas prices fall again we will go back to our wasteful ways and alternative energy development will stall out for lack of investment. The result will be a future fuel price spike that we will be unprepared for and maybe next time oil goes to $250/bbl and creates the next great depression. It sounds counterintuitive but cheap gas is bad for the US economy in the long run because we can't insure that it will remain cheap, in fact, we know that it won't. If we could take a highly variable cost and make it more of a fixed and known cost it would smooth out our economy. We didn't learn anything from the 1970's so I hope we learn this time, history will repeat itself. We have seen the tremors, if we don't prepare for the inevitable earthquake we deserve what we get when it happens.

The US Auto Crisis

The US auto industry has never really been interested in small cars because they tend to be low profit margin vehicles for them. When fuel prices go up they make a half-hearted attempt to develop decent small cars but they are spring-loaded to return to big vehicles as soon as fuel comes down. I also don't believe that they are committed to future alternative technologies. They may talk about it and make a couple concept cars like the Volt (which I bet will never go into production) but they aren't real believers. To my knowledge even their hybrid drive systems were developed by others and are used under license. They realize that their cost structures will never allow them to be profitable unless they are selling a high percentage of high margin large trucks and cars. The US industry has been lucky that gas has been as amazingly cheap as it has been for as long as it has.

The Japs have, for the most part, stuck with what they are good at and sold large volumes of high quality small cars and trucks. They know that's what the rest of the world buys and they know that there is a large segment of the US market that buys these cars as well. They also know that fuel prices will always go up again eventually. I think that Toyota has learned a valuable lesson here by starting to get into the large pickup truck market that they had avoided in the past. They strayed from what had worked in the past and they got burned as gas prices went up. They are now converting a lot of the truck production capacity back to cars.

If you want to read a great book that talks about how things got this way read "The Reckoning" by David Halberstam. It was written in 1986 but it traces the roots of US and Japanese auto industries and compares the two. It's just as valid a book today as it was in 1986 and it's truly a great story filled with interesting characters. It essentially points out a fundamental difference in that the US auto industry got taken over by finance and accounting people after WW II (the Whiz Kids) while the Japanese auto industry management was more attuned to design, engineering, production and customer service interests.