Now here's a contentious proposal: Let GM go Bankrupt

[aehurst]

Quote: Originally Posted by ArcticStones I think you’re right. There are, however, several dark clouds on the horizon. A few thoughts: Should the recessions deepen, then people simply won’t be spending money on new cars. If so, there ain’t nuthin’ Congress or anyone else can do to save that industry.

I fear this is exactly where we are headed. I'm trying to view the bailout as an infrastructure project.... building an auto industry that is competitive coming out of recession/depression. Only that justifies the expenditure. Bailing them out to protect jobs just pushes the job losses a year down the road, if that far.

[cwtnospam]

Quote: Originally Posted by ArcticStones One thought on management: I don’t think the main problem is the current CEOs, so getting rid of them will have negligible effect. What we’re talking about is an entire, anti-innovative culture. The current CEOs, who now understand the gravity of the situation, may well be the right ones to turn things around.

I saw something a few days ago that basically said that if the CEO's were capable of turning things around, they'd have used the second trip (at least!) to Washington as an opportunity to showcase what they are doing to create innovative products and marketing. They'd have had blogs about their trips, and made multiple stops along the way to generate interest in their cars.

[NovaScotian]

It's a rock/hard place situation. If they get the bailout, they'll have to lay off thousands of workers to survive. If they go bankrupt, they'll have to terminate thousands of workers immediately to restructure. Lose/lose in my estimation. What the government should be doing (IMHO) is assuring their health care and priming their unemployment insurance.

[NovaScotian]

This image comes as close as any I've seen to expressing my view of the bailout.

[ArcticStones]

.
Now here is a good example of the innovation that American car manufacturers couldn’t be bothered with.

If a 13-year-old Chinese automobile manufacturer can pull this off, no one can tell me that Detroit lacks the engineering know-how. It is a question of will and priority.

Yes indeed, a bit earlier in this thread NovaScotian posted inside information that raised my eyebrows -- about how the Big Three have resisted innovation for years. Now I fear it is too late.


-- ArcticStones


PS: In September the canny American investor Warren Buffet paid $ 230 million for a 10% share of BYD, the Chinese car producer. I don’t think that Mr Buffet is rushing to invest in Chrysler, Ford or General Motors.

[NovaScotian]

Quote: Originally Posted by ArcticStones . Yes indeed, a bit earlier in this thread NovaScotian posted inside information that raised my eyebrows -- about how the Big Three have resisted innovation for years. Now I fear it is too late. -- ArcticStones

They have found it more profitable in the short term to spend millions on lobbying for relaxation of regulations and fighting Californian initiatives than to actually innovate. Part of Apple's success has been that they create needs and then fill them. Detroit never caught on to that; to the notion that by creating innovative, efficient, ecologically friendly cars that were hyper-reliable they could excite new demands in their market. Instead they catered to yesterday's.

[cwtnospam]

Quote: Originally Posted by NovaScotian Detroit never caught on to that; to the notion that by creating innovative, efficient, ecologically friendly cars that were hyper-reliable they could excite new demands in their market.

That's because they were too focussed on protecting income streams like after-market mufflers, spark plugs, brake systems, radiators, fan belts, air filters, oil filters, etc.

[NovaScotian]

Quote: Originally Posted by cwtnospam That's because they were too focussed on protecting income streams like after-market mufflers, spark plugs, brake systems, radiators, fan belts, air filters, oil filters, etc.

That's just a symptom of a widespread Industrial Disease. The problem is that decisions are always made on the basis of a financial analysis that embeds short term predictions and extrapolations of past performance; the MBA approach. There is no vision of the big picture; of where the company as a whole should be headed.

In the NYTimes yesterday, Thomas L Friedman said (in part):

Quote: Over the years, Detroit bosses kept repeating: “We have to make the cars people want.” That’s why they’re in trouble. Their job is to make the cars people don’t know they want but will buy like crazy when they see them. I would have been happy with my Sony Walkman had Apple not invented the iPod. Now I can’t live without my iPod. I didn’t know I wanted it, but Apple did. Same with my Toyota hybrid. The auto consultant John Casesa once noted that Detroit’s management has gone from visionaries to operators to caretakers. I would say that they have now gone from caretakers to undertakers. If they are ready to bring in some visionaries and totally restructure — inside or outside of bankruptcy — so they can make money selling cars that people will want to buy, then I say help them. I’d hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.

[aehurst]

Hard to find any sympathy for the big 3. But, I have a slightly different view. They simply chose not to compete with the small, fuel efficient imports. It's not so much that they couldn't, they just didn't.... essentially, a bad/short sighted management decision to go after profits and ignore market share. They realized their error too late to recover given the credit freeze and economic downturn.

Back in the college days, I worked summers on an assembly line building school buses. Hard work, bad conditions, and was paid a whopping $1.65 an hour with no benefits and no union. Meantime in Detroit, they were pulling down $20 an hour (and that was 40+ years ago). The UAW folk have been way overpaid for decades and an adjustment back into the real world is past due.

Apparently, a deal was nearly done in the Senate last week to restructure the big 3. It collapsed at the last minute when the White House signaled to the UAW that money would be available even if the negotiations fell through. Incentive for the UAW to accept adjustments was removed and the UAW wisely just backed out at the last minute. This left a lot of PO'd Senators who promptly voted down the bail out.

As long as the UAW is unwilling to accept "comparable" or "competitive" wages/benefits to bring costs in line with the foreign manufacturers, Congress will not act. Nor will the big 3 survive in the long run.

Note: UAW has made major concessions, but they are still not competitive.

[ArcticStones]

Quote: Originally Posted by NovaScotian ...decisions are always made on the basis of a financial analysis that embeds short term predictions and extrapolations of past performance; the MBA approach. There is no vision of the big picture; of where the company as a whole should be headed.

This sounds like the Poker player, whose focus is usually limited to the first jackpot.

As far as the market goes, in the long run the skilled Chess player beats the Poker player -- hands down.

[cwtnospam]

Quote: Originally Posted by aehurst The UAW folk have been way overpaid for decades and an adjustment back into the real world is past due. Apparently, a deal was nearly done in the Senate last week to restructure the big 3. It collapsed at the last minute when the White House signaled to the UAW that money would be available even if the negotiations fell through. Incentive for the UAW to accept adjustments was removed and the UAW wisely just backed out at the last minute. This left a lot of PO'd Senators who promptly voted down the bail out. As long as the UAW is unwilling to accept "comparable" or "competitive" wages/benefits to bring costs in line with the foreign manufacturers, Congress will not act. Nor will the big 3 survive in the long run. Note: UAW has made major concessions, but they are still not competitive.

This is exactly the attitude that has been bringing and is going to bring the US down: the idea that labor is even remotely part of the problem.

1) Labor is approximately 10% of the cost of a car, and labor can't make the cars more efficient or more reliable. That's management's job.

2) Nobody is talking about GM, Ford or Chrysler cars being more expensive than Toyota, Honda, or Nissan cars, yet those cars sell. Costs are not the issue. Value is the issue.

3) People aren't buying Big 3 cars because they're inefficient, don't lead the market in any category except girth, and they have well earned reputations for being costly to maintain.

[aehurst]

Quote: Originally Posted by cwtnospam This is exactly the attitude that has been bringing and is going to bring the US down: the idea that labor is even remotely part of the problem. 1) Labor is approximately 10% of the cost of a car, and labor can't make the cars more efficient or more reliable. That's management's job. 2) Nobody is talking about GM, Ford or Chrysler cars being more expensive than Toyota, Honda, or Nissan cars, yet those cars sell. Costs are not the issue. Value is the issue. 3) People aren't buying Big 3 cars because they're inefficient, don't lead the market in any category except girth, and they have well earned reputations for being costly to maintain.

1) CWT, we're all for "fair" pay and a living wage, but if you're saying a union cannot price labor out of the market you are just kidding yourself. The UAW has done it. Costs are equal on the other 90 percent of the vehicle. Again, GM is the second largest producer of vehicles in the world, and the largest producer of trucks. They do sell.... more than Honda, more than Nissan, BMW, VW, and on and on with the single exception of Toyota passenger cars.

2) The market sets the price, not what it costs to build the vehicle. If one cannot build and sell vehicles at a competitive/market price because of excessive costs, then they go out of business. Which is, of course, exactly where the big 3 US automakers find themselves.

3) US cars are fuel efficient, though I would agree the US makers have focused on the larger SUV segment which is inefficient because of the weight. No significant mileage difference in my current Toyota V-6 and the last GM V-6 I owned. The US just doesn't make many very small, very high mileage vehicles.... see original post.... an error on their part.

Agree the US makers have a reputation for higher maintenance costs. The experts say this is more myth than reality. In my view the reputation is well earned, though somewhat irrelevant. Would you rather own a Toyota over a Ferrari because the maintenance cost of the Toyota is less?

[cwtnospam]

Quote: Originally Posted by aehurst 1) CWT, we're all for "fair" pay and a living wage, but if you're saying a union cannot price labor out of the market you are just kidding yourself.

Of course it's possible that the union could price itself out of the market, but it hasn't happened, and it's not the root of the problem. Declining sales are the problem, and those declines are unrelated to price, therefore unrelated to costs.

Quote: Originally Posted by aehurst 2) The market sets the price, not what it costs to build the vehicle. If one cannot build and sell vehicles at a competitive/market price because of excessive costs, then they go out of business. Which is, of course, exactly where the big 3 US automakers find themselves.

Not at all true. They can't sell cars because they don't have any that the market values.

Quote: Originally Posted by aehurst 3) US cars are fuel efficient, though I would agree the US makers have focused on the larger SUV segment which is inefficient because of the weight. No significant mileage difference in my current Toyota V-6 and the last GM V-6 I owned. The US just doesn't make many very small, very high mileage vehicles.... see original post.... an error on their part.

You're looking at V-6s! That's not where the market is, no matter how much you'd like it to be. Fuel efficiency begins at 40 mpg. Remember the Carter administration:

Quote: b. Auto efficiency standards (administrative): In order to continue the progress made to date on automobile fuel efficiency, the Secretary of Transportation will begin the analysis necessary to exercise his authority to raise mileage standards above 27.5 mpg after 1985.

That's higher than today's Big 3 fleet average by a lot, and it's not a high standard. There is no way to claim that they are efficient.

Quote: Originally Posted by aehurst Agree the US makers have a reputation for higher maintenance costs. The experts say this is more myth than reality. In my view the reputation is well earned, though somewhat irrelevant. Would you rather own a Toyota over a Ferrari because the maintenance cost of the Toyota is less?

Yes, absolutely. The Ferrari is a waste of money. It's only for rich teenagers and men with issues about their masculinity.

You're buying into a Republican fantasy where management is free to make stupid decisions and then blame the rank and file.

[NovaScotian]

aehurst's point (if I may) is that if "They can't sell cars because they don't have any that the market values", then the price is too high. They can't sell cars at a price they're worth in the marketplace value system because that leads to bankruptcy, the slippery slide they're on now.

Again, you're conflating efficiency with fuel consumption. They aren't the same.

I think AEH is maintaining not that the rank and file are guilty but that the UAW is.

[cwtnospam]

But, as an example, if the price is too high at $1, then that's because management isn't putting value into the design and construction. Obviously, we'd all buy GM vehicles for $1. We won't at their current asking prices, while we will at similar prices for similar cars made by other manufacturers. That again points to a major malfunction with management.

I said that efficiency begins with high fuel efficiency. The Big 3 can't even get out of the starting blocks.

The UAW represents the rank and file.

[aehurst]

Quote: Originally Posted by NovaScotian aehurst's point (if I may) is that if "They can't sell cars because they don't have any that the market values", then the price is too high. They can't sell cars at a price they're worth in the marketplace value system because that leads to bankruptcy, the slippery slide they're on now. Again, you're conflating efficiency with fuel consumption. They aren't the same. I think AEH is maintaining not that the rank and file are guilty but that the UAW is.

Close. The UAW only contributed to the problems. But, clearly, they are going to have to accept some more adjustments if the big three are going to be competitive and survive in a global market. (Big "if" there.)

My point with the Ferrari was that "efficiency" is only one of many factors that cause the buyer to purchase one vehicle over another. Most often it is not the deciding factor, illogical as that may be. Likewise, value is also only a part. When only a red sports car will do, then the red sports car it is cause nothing else matters. People are funny that way.... if they weren't, we'd all own white Kia's (or whatever the most efficient vehicle is).

[cwtnospam]

Quote: Originally Posted by aehurst When only a red sports car will do, then the red sports car it is cause nothing else matters.

Even in that context, this mess is clearly the fault of management. Labor has no say at all in what models are produced, or in what quantity, and labor has not only no say, but no knowledge at all about what directions research and development are taking. The UAW simply never even had an opportunity to contribute to the problems!

[NovaScotian]

Plus, as a Honda Pilot owner, I can testify that in the value equation for the selection of a vehicle, certainly reliability is very high on my list (my wife and I like drives to more remote places in Nova Scotia and New England; places where cell phone coverage isn't always great), what I can afford plays a part, but the choice of a medium-sized 4WD SUV sprang from a frequent summer use: I own a boat and want to be able to tow it up a slippery ramp, and my wife and I like car travel (who'd fly any more who didn’t have to) and carry a fair amount of luggage and purchases around (under an internal tonneau cover). Value has many facets.

[cwtnospam]

Quote: Originally Posted by NovaScotian Value has many facets.

Yes, but you chose the Honda Pilot over a GM/Ford/Chrysler, and they have vehicles priced below the price of a Pilot. It seems obvious that the Pilot presented better value to you than what the Big 3 offered. Once again, it wasn't cost, but value that mattered. Intangible values? Maybe, but they're important, and they depend on management's decisions and nothing else. (Or at least nothing that Labor has any say about.)

[NovaScotian]

Quote: Originally Posted by cwtnospam Even in that context, this mess is clearly the fault of management. Labor has no say at all in what models are produced, or in what quantity, and labor has not only no say, but no knowledge at all about what directions research and development are taking. The UAW simply never even had an opportunity to contribute to the problems!

I can only say that we differ; apparently irredeemably, not because I deny management's part in this fiasco, but because I see UAW's too.