Automotive Industry and the economy...

Thanks for the insider’s look into the mechanics of the business.
But, time will tell if the strong 2 can’t prosper without a weak 3rd .

I believe that's too narrow a focus.

http://money.cnn.com/2008/12/15/news/companies/overseas_automakers/ - This is something I was discussing with some west coast corporate reps for Toyota last month. They were of the opinion that the loss of any or all of the big 3 would benefit their position. I inquired as to how solidly they were situated financially, since the sales numbers were not looking good... they would not answer. It's fairly certain our conversation went back up the food chain as that's how Toyota is organized.

Amazingly, not 3 weeks later, much of the substance of the conversations I had with corporate insiders - wherein my thoughts and ideas were pooh-poohed and tut-tutted - comes to bear and the very concerns I raised are referenced.

If animals hunt in packs, relying on each member in the pack to take down prey, and the pack is starving due to lack of prey... is a weakened pack with one less in a better position to capture prey?

If any of the "stronger" manufacturers was in a position to take up the proverbial slack from any one that failed, then there would be a good probability of survival and a return to prosperity. No single manufacturer is currently in such a position, nor are all the aggregate manufacturers. None can prosper on sale parts and service of legacy product.

Until last month, Audi was trumpeted as the company that was showing everyone how to do things - the only company with steady sales across most models and successful new products this year. Then November came, and sales were off more than 45%.

It's bleak. Automakers have failed before, and the industry has survived... but never before has there been the specter of an industry failure on this scale, nor such a crisis of confidence in so many aspects. I am unsure what the final cost (human cost and dollar cost) would be, but I'm sure it'd be higher than giving the companies a fighting chance.

To add to the fire-sale pile here in the UK we have Jaguar/LandRover/RangeRover in deep Doodoo.

J/LR was recently bought by the huge Indian concern TATA. Not sure if our readers know who TATA are. They had planned to make a small car for the 3rd world for less than $2000 bucks. They wanted the Tech know-how of lightweight Jags and 4X4 knowlege of L/R(still after 60 years, the best in the world).

TATA planned to build its minicar in a part of India where the farmers complained to the loss of land by the factory, so after a courtcase they picked the factory up and moved it 700 miles down the road. Delay? 8 months.

Ford Europe make the engines for J/LR (as an aside, Ford Europe is only second in the world as the most profitable car maker next to Porsche)

BMW owned L/R for a while, stole their tech and dumped them. Ford bought Jag and made misty-eyed screw-ups, along with Aston Martin and Volvo. Ford this week are trying to sell Volvo to the Chinese(Volvo Cars are owned by Ford, Volvo Penta are owned by Volvo/Mack/Renault Trucks, different).

All this bail-out has tenticles and fingers in everyones pie. You name it MTU, Cat, MAN, DD,Yanmar,Mitsu,Kawa,Volvo they all buy blocks and bits from each other.

Be Concerned

Its not just a Chevy pickup sale involved.

Its the pensions that the Auto Workers Unions negotiated in the 70's & 80's that is killing all of them. State and National pensions, which those of us who are no longer at sea, pay for through our taxes are propping-up this false dream of a retirement that the Big Three have to pay for. Too much going out, not enough comeing in. Now that is one hell of a vacuum.

If those negotiated UAW pensions are killing the automakers here, and people don't want to bail them out, how many of your tax dollars are going to go toward paying the unemployment, medicaid, medicare, welfare, and other government subsidies when the workers no longer have a job to go to and fall back on the social safety net promised them?

NYCAP, you're comparing apples and oranges unfairly. Salaried employees making over 200k are few and far between in these companies - the bulk of salaried employees make under 80k. For example in GM (in the most severe situation out of the domestics) you max at 77 unless you've got a graduate education to bump up to G8 pay, then you cap just below 100 - and those are the 2 levels most people who get to work there that long retire at. The 200k office drone is a UAW myth. The 200k UAW electrician is not, however... in fact, the UAW wage earners have more 6 figure employees than management does... and the retiree pensions are based on the best or last 5 years. Seniority and work rules make it so the guy close to retirement can lard up his time sheet with sleeping hours of overtime, then retire on a % of his overtime years supplementing Social Security. The salary workers don't get overtime, and their pension plans are 401ks in company stock, plus a lump sum pament at retirement. They aren't ongoing legacy costs. They darn well better earn enough to sock away for their own retirement - especially when they've been getting laid off in comparable numbers to the UAW workers. The class envy/petty jealousy arguments put forth by the UAW hold absolutely zero water when examined honestly.

GM, like social security, has more than 2 union retirees per active worker. The "good negotiating" has negotiated the worker right into a grave of their own digging, while management of the day handed them the shovel.

Cutting every person responsible for the 100 or more down lower on the org chart, then labor kicks and screams that there is no leadership, well, because they kicked and screamed to get rid of the leadership. It's a double-edged sword... but really, those managers aren't making the 200k you think, they're making half that, and they're also the ones not getting pensions and putting in the extra hours (unpaid) to make up for the two other people who used to do the same job but are now laid off.

Nobody's got it easy in that industry, and there are no big fat cats like you're trying to make an example of anymore. The cats are now lean mean and hungry... because they're toothless and can't eat. Not necessarily the best reason, and not exactly the best plan for recovery.

So, since the companies restructuring and future viability is dependant to a large part in renegotiating or eliminating prior "legacy" commitments made with the Unions, is this the primary battlefront that will make or brake Detroit?
And if the Unions don’t want to go along, is Bankruptcy necessary to achieve the end result.

Sorry NY Ed

Seafarer is right, we all know that the Big Three moved manufacturing down south on Free-Trade rates, assemblely workers Up-North now sit on their fat asses making trucks and sedans nobody wants. Even Honda and Toyota are hurting(here in Europe too), its all down to Wall Street credit limits.

We all thought that easy credit for houses/boats/cars would last forever(my biggest loan was $900 for a RIB, I bought my house for cash). Its not being commie to have a safety-net for those who fall through the cracks but some of the suckers, about 300 million worldwide, who fell for all this Credit Card culture will reap what they have sown. Sounds a bit preachie I know but its true. Now our Leaders are all cutting interest rates(except Gremany) which screws all savers, thanks guys, I thought it was safer than gambling on the markets.

As a Shmuck earning less than $10 an hour, I do feel the bloody pain, we cannot rent the house or sell it but remember everything like that is long term, its just going to take a bit longer than I thought.

Grumpy

The current plan is not working hence the problem. GMC is Global and will always be a player, maybe just not in Detroit/Ontario.
BTW, I somehow remember you mentioning earlier that you drove a Korean car. I’m also part of the problem as I drive a foreign GT worth more than some people’s houses.

Gentlemen,

Thank you for the continuing education. Because there is much to be learned from this discussion, I've split the relevant posts into their own thread titled; Automotive Industry and the economy. It has been moved the General Yachting forum because it's something that will effect our industry as well.

Sorry I'm a little late in responding to some of the posts here, but what the hay..... better late than never. Right?

Sefarer.... quite the post there, but need I point out a few "buzzwords" you're contributing also?

How about declaring this:

If this isn't doomsday talk and scare tactic then nothing is.

As you pointed out, automakers have come and gone during the history of the automobile. The industry survived the depression, as well as WWII. It had to take drastic measures during our first oil crisis. Heck, Chrysler has gone to the "money trough" before. Plus we've seen the demise of the U.S. steel industry yet America manages to survive.

Something we certainly agree on. This whole economic situation is effecting everyone in one way or another on a global scale. Something any company or business/industrial sector should look at carefully when venturing overseas to do business. Granted in most cases it benefits the bottom line. But it also brings greater exposure to outside economic situations a business may not have prepared for.

BTW..... there ya go throwing in another "buzz" phrase in at the very end of your paragraph! "symbolic death of American auto manufacturing"

One company Filing ch.11 does not equate to the death of a entire manufacturing sector. Again.... sheer speculation and doomsday talk good at scaring the public into accepting something as "fact"! Hows that go? Say it enough and they will believe..... right?

To address my comment regarding extended vacation..... Sorry, but my belief is when Chrysler announced it was shutting down for a month, the press as well as others wanted the "American public" to think this was something totally out of the ordinary. (a shutdown during the holidays) As I pointed out earlier.... only the additional two weeks are out of the ordinary.

Plus we both know many large and small businesses schedule shut downs during the holidays. It provides a chance to control inventory, re-tool if necessary, allow for production tuning, and is a prime time for worker vacations as opposed to having to work around multiple vacation schedules and employee absences during the holiday season. So yes, in essence it's a extended "vacation" period! The workers will receive compensation from the manufacturers, union, or via unemployment benefits if they apply.

Here's another point we seem to agree over.... I personally think the UAW is not working in the best intrest of it's members. Granted it has done many good things for the workers as well as working conditions. But lets face it, they're about to negotiate the worker right out of their jobs unless they concede to major cuts and now! Not two years down the road. Nor should they try to "renegotiate" the labor terms of the $17.4 billion "bailout" approved yesterday. I believe this is their intention when our new president and congress take office.One other thing.... Anyone employed in the auto industry had best be prepared for cutbacks even with the bailout!

Let me clarify something here also.... I say "bailout" because this "government loan" offers no real guarantees of repayment or any monetary incentive to the taxpayer! Lets face it GM or Chrysler can not get loans from other typical or traditional sources. Hence they ask the government and people to prop them up while they "get it together" which they should have prepared for and done long ago.

Seafarer.... I pointed out in another post what Ford has done at their Brazil factory. This is a great example of solving some of the issues pointed out by you. Odd you didn't mention it though.

Now the real question is why so many (UAW as well as others who will benefit from the bailout) oppose plants like this here in the U.S.?

I'm not sure I understand your point here.... yes, owned by outside sources. No different than when GM or Ford bought up foreign manufacturers awhile back. As others have pointed out.... Jag., Aston Martin, Saab, Mazda... etc. all have been partially or wholly owned by GM or Ford at some point.

The point is the manufacturers you mentioned above still produce product here in the U.S. and we benefit from it. Not to mention the ones you pointed out that are solely U.S. owned and based. Manufacturing here in the U.S. is still a large part of our economic structure. If I'm correct, small businesses manufacturers account for a large portion also.

Here's where we disagree.... first, no one is painting Rick Wagoner as a "robber baron"! (another "buzz phrase" by you?) What I do think, is he's allowed his company to get to this point. This has been in the making for quite awhile. Ford and others started back in 2000-2001 trying to restructure their business model. So should we feel sorry for those who waited around and did little to change?

Bottom line is this.... if any small to medium sized business was ran like that they would fire the CEO, possibly the COO as well as possibly be forced into bankruptcy. That would be fact!

Now regarding any hypothetical executive benefits package..... ie. ISO or NQSO's. I think I have a reasonable understanding here. While some of your figures are possible you completely fail to mention time-lines generally associated with stock options and how they work.

Stock options offered for compensation differ from those on the open market! For those interested here's a few links to help explain things better.

http://en.wikipedia.org/wiki/Incentive_stock_options

http://www.schwab.com/public/schwab...lio_planning/the_basics_of_stock_options.html

http://www.fairmark.com/execcomp/iso.htm

Like any stock or option on the open market there is risk. Where the difference comes with a ISO is in the pricing, execution, and time-lines involved.

Granted Mr. Wagoner stands to loose, (especially if he's terminated) but he also stands to make great gains depending on when he exercises an option and how long he holds the stock before sale. Remember too he also doesn't have to participate either. Especially if he knows things are in the dumper.

Like any investment it all carries risk! I'm not sure your "picture" regarding the taxes is so accurate either.

I guess all this is for not since the "big three" have been handed the cash. Only time will tell if this really was necessary or just another money grab!

Yeah, they doubled production capacity at public expense and made record after tax profits.

Not to mention their Axis connections that are still the subject of lawsuits and probably a lot of smokescreening at the moment or we would hear a lot more about how patriotic those folks are, or were.

http://articles.latimes.com/1998/nov/30/business/fi-49158

Not exactly a buzzword, but I'll bite. Delphi is working in bankruptcy reorganization. Visteon is teetering on the edge. Dana is operating in Bankruptcy. Johnson Controls is teetering on the edge.

http://www.autonews.com/article/20081204/ANA02/812049966/1128

There's a difference between being a Chicken Little and pointing out the truth.

Automakers have come and gone, but never has there been the real and imminent probability of more than half the domestic industry collapsing in one shot. The steel industry didn't go out overnight, it took several years... and if you go out around Pittsburgh and the surrounding areas, nearly 30 years later there is still economic hardship bordering on depression in many of the small towns due to the demise of USS. I doubt the folks there would be so callous and dismissive of the effects of that industry's collapse.

I don't see how that's a buzzword, that's a description of what it is. It's a symbolic death - do you have a better description?

There's no speculation to it. The speculation is that the other automakers MAY be able to survive IF a lot of ifs are satisfied. The supplier industry is as crippled as the automakers themselves. American Axle has posted over a billion dollars in losses this year - they produce driveline parts for GM and Chrysler. When they were on strike earlier this year, the layoffs that resulted extended to their suppliers - plastics and bearing manufacturers who have not been able to recover and will have losses for the year. If GM or Chrysler shuts down, American Axle won't be able to stay in business, and then who produces the parts for the automaker that didn't go out?

It's a domino effect, and it's real. It's fact, not speculation. If it sounds like doomsday, that's only because it literally is that dire.

The press release from Chrysler reads as follows:

That's carefully worded to create maximum impact, to be sure. The press didn't do any digging to find out if it was an extended shutdown or if it was a new practice; Chryslerberus bet on the press being lazy and not fact checking. They bet right... there is no complicity or collusion with the press in this regard, as you seemingly insinuate. The press feast on the trials and tribulations and missteps of the automakers. That's why there are "carpocalypse" and "death watch" and so forth columns all over the place, that's why the feeding frenzy over use of corporate jets. However, if Chrysler's products were selling, if credit was available to buyers, if if if, all the "ifs" that need to be satisfied to survive, can you honestly say that Chrysler would be giving an extended "vacation?" It may be PTO for labor, but it's no picnic for the company.

I think the UAW under Gettelfinger has a far better grasp of just how adverse conditions are for the companies than it ever has before. That said, there is 75 years of tough talk and thuggish behavior ingrained in the labor unions of this country, all backed by the blessing of government. Laws are set up so that a union can force its way into a business without even having a vote by the workers - all the union has to do is claim in court that management blocked a vote, and the law forces management to prove a negative (that it didn't block a vote). Even if the workers don't vote for the union, it's the judge's prerogative whether or not to unioninze the workforce. If a workforce votes the union out, the union can get an injunction to keep itself in. It's a cancer at this point, paying lip service to the good of the worker but focusing on sustaining itself. Not that there is absolutely nowhere and no time at which a union still provides a benefit to the company and the worker, I just can't happen to think of any examples and I've been thinking for several days, since I was asked this question elsewhere.

I didn't see your post regarding Ford do Brasil. If you mean automated assembly with flexible production, GM has been moving in this direction, with plants like Ellesmere in the UK and Lansing Grand River. GM has also operated a flexible and automated plant in Brasil, for longer than Ford actually, and it has been very successful.

However, when GM went to re-engineer the Lordstown assembly plant suing that technology, the UAW threatened a company-wide strike.

http://tinyurl.com/83eqrz - an article from Assembly Magazine that can give you some more insight.

The point there being that those companies were vulnerable during good economic times, and were acquired by foreign entities, just as you correctly point out that companies like Saab and Volvo, Rolls Royce and Range Rover, Jaguar and even Chrysler have all been from time to time. Those trucks are still assembled here, but the decision-making and the profits or losses are all overseas.
As you point out, there is a lot of small business manufacturing, though that is mostly component manufacturing - suppliers who rely on the large assembly plants to buy their products. That brings us full circle, abck to what happens when the large assembly plants shut down, or even just one of the 2 or 3 big companies that buys from the small company stops buying.


cont'd...