Automotive Industry and the economy...

I read that the problem with Chrysler and Cerberus Capital Management is that they have the funds to save their business, but they just don’t want to use them, and would prefer Taxpayer funds.
http://en.wikipedia.org/wiki/Cerberus_Capital_Management

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Nautical Chrysler moment….

Way back in the early 1970’s I decided to get off land and buy a boat. Not knowing anything about the sea or navigation, I dove in with both feet. On a horrible stormy January day, I answered a newspaper advertisement where some guy wanted to trade an old Cabin cruiser for a car as partial payment. Being tired of my Monster New Yorker, my buddy and I drove out there and swapped it strait across for the Boat.
Immediately, we set off on our 50-Km nautical adventure. Within an hour out, we had low light and had to set out sights on the distant City lights for navigation, while experiencing heavy swells and pounding rain.
My recommendation after about 3 hours into this was to get closer to shore, just in case we had to beach the craft and hope for the best. My buddy’s suggestion was to go further out to sea, as the water looked calmer there. We went with my friend’s idea.
We arrived wet and cold late at night. First order of business was to get a bottle of Southern Comfort and to drink it aboard my new toy.
This 20 foot something Cabin Cruiser has a large “Chrysler” outboard engine for power. That engine never re-fired again after that one trip (one of my 9 lives), when I tried to get parts, they told me that Chrysler got out of the Marine business, and I be better off with a Johnson (which they sold me on the spot).

A company by the name of 'West Bend' made those engines until the late sixties when Chrysler bought them and added their name. Our 35 (on a 13 Whaler) threw a rod after only a few seasons. It would be difficult to imagine OMC ever feeling threatened by that marque.

I never had any luck with Chrysler, one of my other early cars, a 1960’s Valiant threw a rod when going over the Mountains. I just barely drove it to a local Dealer as the oil was spiting out and I had to use 50 weight oil and stuffed a bunch of fine wire mesh into the engine cover outlet to keep it in the motor.
I traded the mighty Plymouth for a Bus ticket back home. They let me take the 8 track out of the car. I think I got the better deal.

Toyota is suspending completion of its newest plant in Mississippi..... so it's not just GM or Chrysler, the economic situation is affecting all manufacturers. I believe Honda also recently announced U.S. and U.K. production cuts.

Besides, it's my understanding Chrysler has for years closed down their plants for two weeks around the holidays. So in essence they're only extending this normally scheduled "vacation time".

As far as GM..... no one but GM pushed themselves to the verge of bankruptcy. It certainly hasn't been congress or the American consumer who's led them to this point. Try poor business/asset management along with a huge advertising budget. (Think NASCAR and those "like a rock" commercials we've seen every 7 min. on television) Heap that on top of outrageous management salaries & perks, inflated wages & benefits for current labor, and covering those huge retirement benefits packages and it's no wonder they're whining for help.

Let them file chapter 11 and reorganize like any other business would. And as far a consumer confidence is concerned.... they weren't too worried when Japan, Germany and others were offering a better product. They just "pushed" the Hummer, Suburban, and Tahoe on those who didn't know any better thinking they're in vogue.

Plus it's ridiculous that the UAW isn't willing to make wage concessions until the year 2011. Yet the members will surely whine when they're standing in the unemployment line.

Like others have pointed out though.... the economy will eventually rebound and as usual, those businesses and people who put something aside for that "rainy day" will survive all this mess. But don't kid yourself.... we the taxpayer will bare the brunt no matter what happens, who the president is, or how congress responds.

To an outsider like myself, one could assume that GMC’s problems are based on their “legacy” expenses/commitments, which can never give the Company a competitive edge and have been a noose around their neck.

The story is that the competition, the Toyotas, Hondas, etc: are all for a government bailout of the Big 3, as this will ensure the current business practices for years to come. The thing is, no matter how much money they get today, the problem remains unresolved and will keep emerging at a later date. So, today’s bailout is only a postponement of the inevitable, unless the Government wants to just buy out the companies and get into the car business.
Through the “bankruptcy” option, the auto makers could come out “mean and lean” as they say, and be a competitive threat to the foreign manufacturers which are building cars in the American South and abroad at lower labour and production cost.
This is a political hot potato, as the Southern States see Detroit as the competition and would love to see them go away.
About ½ Million jobs in Southern Ontario are dependent on the Big 3, this would also be devastating North of the Border, as the local foreign manufacturers aren’t picking up the slack, and what happens in the States will determine the life expectancy of the Canadian Factories.

Personally, I think the Canadian autoworkers are history regardless of what happens, as the US will shut down the Canadian plants first in favour of the American ones, regardless of the dollar exchange advantage.

NYCAP123..... do you keep up with world news? Try some!

http://www.google.com/hostednews/ap/article/ALeqM5gfS4B6GJ5XuqCLwWqflQ5gH2TFEAD953PR582

You can't be serious about "buying" that dollar a year salary either! For Gods sake.... If I were CEO of a failing company I'd offer to take a dollar too just to keep my job and the many perks that won't end!

Ask Rick Wagoner if he's giving up his stock option plan or dropping his health care benefits, or how about something as simple as use of a corporate car.

Ford has been preparing for this for several years.... but they've gotten behind the eight ball so to speak also. However, go read about their newest plant in South America. Do you think that type of factory would be successful here in the States?

And what's this about Daewoo's and Yugo's? Heck, Alabama has several plants including Mercedes, Hyundai and Honda. No layoffs there yet! Kia Motors is building a big plant in west Georgia yet GM has closed two plants located in Georgia.

Maybe you can explain the economic complexities of and why Ford and Chrysler will fail if GM files bankruptcy.

As far as the Hummer.... who said it was terrible? A specialty vehicle intended for military and commercial use? Yes! Meant to be marketed to the public to help slumping domestic sales? NO! But yet some "average Joe" went out and bought one knowing it gets 8mi. to the gallon of gas. And GM??? What do they throw money into? Hey, lets design a slightly smaller version.... we'll call it a H3. That's the kind of management that's gotten GM into trouble!

As far as supplying our military.... Oshkosh Corporation supplies quite a bit. Plus there are other truck manufacturers here in the states also like Mack or Freightliner. Not to mention Caterpillar.... is that "three" good enough?

Besides, what part of this economic disaster isn't already cascading down hill? Plus, As far as I know the "bears" of the stock market are making money with a few well timed and placed "put" options.... yes?

Chicken little said the sky was falling too if I recall from my childhood, yet it's still up there!? Hmmm....

Hey NYCAP,

Need to ask a favor... please wrap quote tags around text you are quoting. Simply highlight the text you want to quote, then click the yellow "Quote Icon" in the list of options above the message body. For reference, it is located 4th from the right and looks like a comic book quote.

I have done this for your post above (and a few others) to make it legible for others to read.

Thanks!

They have till end of March 09 to show progressive restructuring to the Government prior to more money being released towards recovery.
One of the main features or demands is that their payroll gets in line with the other domestic (foreign) manufacturers such as: Nissan, Toyota, Honda.
That being a $20-$25 per hour rate cut.
Looks to me as a full frontal assault on the Unions (UAW & CAW).
Wagner is definitely going to earn his $1 salary now, as I don’t remember union members being the easygoing agreeable type.
I heard that they are already calling them the D2 (Detroit 2), as they aren’t that BIG anymore, and Chrysler will probably be cherry picked (Jeep) and sold piecemeal.

Carl,

You must have a different window to mine. I only have a two buttons on the lower right of the message body. One is Post Quick Reply and the other is Quote.

If I highlight some words in a post and click Quote I get the whole message copied across like I did with this one. I then chop out the words I don't want to re use by editing what I see in the Reply to Message Screen.

I also get the whole message copied across by just clicking on the Quote Icon without highlighting any text.

I am not using I.E. in any flavour, do you think this might be the difference?

This thread has a distressingly high level of buzzwords and ignorance being thrown about.

Foreign automakers are suffering drastic declines in sales along with the domestic "big three."

Last week Toyota announced it will not move forward with construction of a plant to build the Prius in the US due to slow sales, the fact that they have been taking over a $3k loss per unit (known as product dumping, which they had previously denied) since inception, and the credit crisis.

This week, Toyota posted its first annual operating loss in 71 years - the losses of the 2nd half of the year are greater than the profits from the first half of the year. So much for being the model company, or the foreign automakers "knowing better."

The UAW has contract-stipulated shutdowns, two weeks at the end of the year and two weeks around July 4th. This is not an "extended vacation" - Chrysler is dying under the weight of inventory that includes unsold 2007 model year product. The fixed costs won't change, but the wage cost is reduced, they aren't laying out for parts/supplies, and they aren't going to be sitting on inventory which also has a holding cost. If a UAW employee earns $900/wk income and collects $400/wk short term unemployment during the shutdown, Chrysler only needs to pay that worker $500. Those all add up to savings when the product isn't selling anyhow. The only gimmick to this is the timing - the day before inauguration day. It puts a lot of pressure on both the outgoing and incoming administrations because neither wants their legacy to be tied to the symbolic death of American auto manufacturing.

The "rate cut" of $20-25/hour is a union ploy to foment resentment. The take-home difference between the non-union foreign auto workers in the US and the UAW workers is $10-12/hour, yet the cost of labor to the company is ~$30/hour different. Roughly $44 is spent per man hour by Toyota, Honda, Mercedes, BMW, VW, and Nissan while the average man hour costs the domestics roughly $74. That's a $30/hour scalping going to the union itself. The union needs to curb its own voracious appetite, and that's the major sticking point. The UAW wants to take it out on the worker while maintaining its own cut as a static $ figure rather than scaling itself down. The average UAW take-home is in the mid-40s per hour once vested and the average non-UAW autoworker takes home in the $30's per hour. 25% cut but still a fair sight better than most people working in this country.

The legacy costs have been getting pared down slightly over the last few years, but still, a Japanese automaker making compact cars here can put roughly $8800 worth of content into a vehicle and still make $200 per unit at $10k sticker. The domestics can put about maximum $7300 worth of content into the same car and break even. Then people wonder why domestic compacts can't compete, why they feel like the sh!tboxes that compacts typically are?

If any one of the "Big 3" goes under, all will go under. That's not opinion, it's fact. None of the automakers own their own parts suppliers anymore. GM doesn't own Delphi, Ford doesn't own Visteon. Companies liek Delphi, Visteon, Bosch, Johnson Controls, TRW, American Axle, and countless others supply all manufacturers. They require volume to make a profit - since they've negotiated all their margin away during the downhill slide of the automakers in the last few/several/many years (depending). Can your business model sustain a 33.3% decrease in sales? Consider that. If the suppliers fail, then the other automakers have no parts suppliers. How can they build cars if they don't have parts to assemble? Toyota, Nissan, BMW, and Honda also rely on many of the same suppliers here. They will also be unable to produce vehicles at their domestic plants. That's the cold reality of the situation.

Cerberus stepped into Chrysler because they essentially got paid to take DaimlerChrysler's entire debt load while Mercedes-Benz USA came out with a mostly clean balance sheet. To say that they're in a great situation because of some other kind of superiority - design, engineering, sales, etc. - is wrong on multiple counts, not least of which being that they are not in a rosy economic situation themselves.

As for the example of trucks manufactured here, Mack is a wholly owned subsidiary of Renault V.I. and has been for nearly 10 years. Freightliner (and Sterling, formerly Ford Heavy Truck) are owned by Daimler Trucks North America, LLC - yup, a subsidiary of Daimler AG. They also own Detroit Diesel and most likely built the Thomas school bus your kids rode to school on.

A better example would have been PACCAR, which is an American company and owns such brands as Peterbilt and Kenworth.

Oshkosh is a good example, especially with its Pierce fire apparatus division. American Lafrance, for a while a Daimler company, is also American-owned (a private investment company).

John Deere, Caterpillar, and Case-New Holland are major American manufacturers. Boeing and General Dynamics' Gulfstream seem to build a lot of aircraft, as do others like Cessna for instance.

United Technologies builds everything from Otis Elevators to Carrier air conditioners to Sikorsky helicopters in the US. Pretty sure their Pratt & Whitney aircraft engines are built here, as are GE's.

Lastly, to address the blatant lack of understanding about how options are used as compensation:
Either the executives or the company paid taxes on those at the value assigned to them when awarded. If Rick Wagoner got $3 million worth of options - 1,000 options with a strike price of $30 - there was tax paid on $3,000,000 worth of transfer. Because those are options, not shares, the stock price would have to be above $30 for them to have any value (aka be "in the money"). Since GM is currently trading at $4.25 after hours, those options are worthless ("out of the money"). Taxes were paid at a value of $3,000,000 on now worthless options. Even if the taxes were paid at an investment rate of 15%, that's $450,00 in taxes paid.

If Wagoner paid $450,000 in taxes on something with a value of $0, then his compensation was -$450,000 for that portion of his compensation package.

How enthused would you be to pay half a million dollars for the privilege of doing your job?

Think about that.

So what was his actual pay, if his cash salary was $2Million and the rest was in restricted stock that has lost 84% of its value in the last year and worthless options? Best case scenario he got all stock he is unable to sell; if he paid 15% of his non-cash earnings in taxes, approximately $2,775,000 on $18.5Million in value and that 18.5 is now worth 16% of its value at the time when he collected it, or $2,960,000, then his actual "income" from that compensation package is $185,000.

Not exactly a princely sum. But the UAW and groups like ThinkProgress and their ilk, along with those who subscribe to that brand of stupidity, paint Rick Wagoner as a robber baron. The $1 salary is a symbolic gesture, and one easily done because it's not a huge material adversity from where his actual compensation works out to be anyway.


It would be a refreshing change to see a discussion of this topic that was based in truth, facts, and reality rather than a rehashing of misconceptions, vitriol, and empty buzzwords.

Hi,

Seafarer- Your contribution to this thread above is a very well written post from someone who has obviously done their homework and who also has a good understanding of the situation past and present.