Dire Times for the Auto Industry

[AtomicGT]

can I apply to be Bony's nephew for 2009?

 

[fjpikul]

Oh Bony, what are you getting me for Xmas? (no carbon fiber please)

 

[Cobrar]

Maybe old news, but, Cerberus claims it was 'Misled' in its' purchase of Chrysler.

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/26/AR2008112601127.html

Well, I guess we've reached the bottom. When there is no way out (but rolling up your damn sleeves and fixing the problem), call the legal department and see if we can get the deal recinded (+expenses). How ridiculous!

 

[S592R]

Gentlemen, far be it that I become the voice of reason but it is simply put in this manner. The trend of an industry running to the government and claiming that they are a vital national security issue is rather dangerous. If any of us here would like to see the true light of day it is best to be known that last year there where a bit over 2700 terrorist attacks on the United States (viable, credible, attacks on core infrastructure). Where you might ask since you did not hear about them on the nightly news? Well .... your reading this on that format ... INTERNET. The number above is third party verifiable if one so chooses. I don't care to take the hit to credibility ... its out there go look it up.

If the US is on a war footing then the government needs to act as such and do much of the issues that they did during WW2. Do I want that? Do you want that? NO! This issue of credit, cash flow and business management is best left third party with the banks, bankers, shareholders and employees.... not the congress.

Bad business decisions and management entitlements got the companies/industries (and I am talking more than just auto here) created an arena of expectation that is not sustainable. We all need to just accept that on a global scale and reestablish fundamental levels of commerce that are. It has come down to pure Darwinism. The strong, smart, wise, fortunate survive ... the weak do not. Professionally many of us here have had business problems that have needed to be addressed ... I do not see anyone booking a flight to DC and ask for funding for these lesser businesses that truly represent the width and breadth of the global economy. If Ford, GM, Chrysler or others fail then simply there was a reason for it. Please review British Leyland for a case history on what not to do. Learn from the past and move on. Teach business school students to develop and implement generational models of growth instead of quarter based ones that are taught now. We have a ten year operational model and a 25 year developmental one here and I am in an industry that did not exist 30 years ago! Auto industry has been around for about 100 years ... they have a track record to look at so they can play a wiser game of SWAG than we can.

IF the government really needs to get involved then it solely needs to be on the banking side of the equation. If it wants to stimulate job creation then activate public works projects and infuse money that way. But as I have stated before and will again for the last time. If you want better than $9 Trillion back in the US ... get rid of capital gains taxes or income taxes period and go strictly to consumption taxes solely.

As for the rest.... only time will tell who is right and who is wrong.

 

[kjslider]

^Great post. Just what "consumables" would you suggest taxing?

 

[S592R]

^Great post. Just what "consumables" would you suggest taxing?

everything but food and housing.

 

[kjslider]

Maybe we need an overhaul of our tax system but I'm certain that any new tax the government introduces will be an "additional" tax as opposed to a replacement tax.

 

[dbk]

I do not see anyone booking a flight to DC and ask for funding for these lesser businesses that truly represent the width and breadth of the global economy. If Ford, GM, Chrysler or others fail then simply there was a reason for it.

If Ford fails the reason for it was the government letting the banking and lending industry run hogwild and cause a total collapse of the economy. Plain and simple. I don't know how much further I can articulate that.

This is not a business model or management decision or wage structure thing anymore. When you run a business that requires a constant flow of cash in the tens of billions of dollars to fund ongoing operations, and reckless disregard throws the entire economic system into chaos, it's an ill-conceived idea to punish the punished and reward the perpetrators. These guys do $400 billion dollars in revenue a year building products that require constant massive capital expenditures and have to deal with hundreds of thousands of employees. And incessant layers of costly government regulation around the globe.

You can't look at this situation and say "The auto companies need to adapt," without assessing the effect of the Wall Street meltdown. We've essentially authorized $700 billion to socialize the losses of a bunch of guys who took on hundreds of billions of dollars in chopped up "assets" they didn't understand but figured "**** it, we'll pass them on and on and on until they're so far away we don't care", and now we're quibbling that loaning $25 billion to prevent several hundred thousand job losses in an already severe economic recession. I'm with you on principle, but the discounting that is being given to the effect of the Wall Street debacle is maddening.

It's just a funny and ****ed up situation. I guess it just depends on where you're from. People are pissed Rick Wagoner took a jet to Washington D.C, but nobody seems to give a shit the public is exposed to $249,000,000,000 in potential losses from Citigroup, or that Paulson authorized billions upon billions of handouts to his old banking industry buddies to "free up the credit markets", who subsequently, because of a complete and total lack of oversight, just hoard it and use it to buy smaller banks. What a joke.

I'm with you on the consumption tax but it will never happen.

 

[BlackICE]

DBK, two wrongs don't make a right. I agree with most of what you said. It just points out what a risky business auto are and something I personal wouldn't want to invest in. How many on this board would buy bonds floated to the big 3 even at 15% return? I rest my case! Nor would I have put money in to the banks, but that is that is essential what we are doing by using OUR TAX DOLLARS!

That said, our industrial base is very important to our country. Other governments may, or have subsidized or bailed out their auto industries. If ours fail and companies and Japan, Germany and Korea continue on with government assistance then we will buy 100% of our autos from foreign owned companies. Maybe this has to happen, as in the UK. Running such a huge trade deficit doesn't help. Will we nationalize the foreign run autos plants in times of war, much like Hugo Chavez or Putin has done with oil company's holdings of Chevron, Exxon and Shell?

No easy answers to things that have be screwed up for years.

 

[B O N Y]

Sadly, most folks, and that includes many on this thread are clueless. Have to agree with every word in DBK's post above.

Credit is still frozen. Jobs are on the line or already being cut.

Seems like desperate times.

I agree with consumption tax, it will happen when there are no lawyers or cpa's in the house and senate, not one day before...

 

[dbk]

I agree BlackIce. You just have to pick your battles, and I think choosing the trading of paper over the building of machines is unwise long term, especially when group A fundamentally ****ed group B when it counted.

 

[kjslider]

Our industrial base has little to do with the Big 3. They stopped buying US made machine tools/technology long, long ago.

Using the "saving our industrial base" as an excuse for propping up the Detroit 3 is weak sauce.

 

[BlackICE]

I agree BlackIce. You just have to pick your battles, and I think choosing the trading of paper over the building of machines is unwise long term, especially when group A fundamentally ****ed group B when it counted.

Group A fundamentally ****ed much more than just group B. Ask me about my BAC or WB stock holdings! The banking industries basically built a house of cards with they collateralized debt obligations, CDO and credit default swaps CDS, that created loose and cheap credit fueling the economy big time. Some, if not most of the growth, we have seen since the dot com crash is fictitious and now the world is coming back to reality in a painful way!

As the infamous Rev. Wright has said "The chickens are coming home to roost."

 

[Neilda]

Currently the UK government is dropping interest rates (currently 3%, probably going to be 2% before the year is out). Sales tax (VAT) has just been dropped by 2.5%. It is hoped that reducing the tax burden will encourage more more spending.

A moratorium on taxation on house purchase (4%) would also be welcome.

As noted already, buying local is a good way to go....

Did you read that Woolworths has gone bust in the UK? A huge high street name.

 

[dbk]

Our industrial base has little to do with the Big 3. They stopped buying US made machine tools/technology long, long ago.

The Big Three still build 9 million cars a year here. That's manufacturing capacity I'm skeptical would be replaced by our Asian masters (who by their own admission are going to cut capacity here because it costs too much), and even if it was, they still own us and can cash us in whenever they feel like it. The Big Three also still prop up an insane amount of small-medium-large suppliers. The supplier the owner of my building owns employs around 500 skilled tradesmen that do jobs nobody will ever retrain for if they go away. That business has been around 50 years and you're not entering it without spending a few hundred million. Beyond producing Tier 1 automotive components for Ford, Chrysler, GM, they already produce armor plate fabrications for the U.S military. You can switch from making sheetmetal for trucks to armor real quick.

I'm more concerned about leveling the jobs of those without the luxury of a college degree or a desk job.

 

[BlackICE]

Did you read that Woolworths has gone bust in the UK? A huge high street name.

Any relation to the Woolworths that went bust in the US more than a decade ago? My uncle used to work for the US Woolworths store.

 

[BlackICE]

I'm more concerned about leveling the jobs of those without the luxury of a college degree or a desk job.

Don't many of the UAW workers compensation packages exceed those with a college degree? Isn't that part of the problem?

 

[dbk]

Don't many of the UAW workers compensation packages exceed those with a college degree? Isn't that part of the problem?

Not anymore. All those jobs that used to get chomped by the union (i.e, janitorial work, cleaners, security etc) are no longer union jobs. Work rules have been relaxed significantly. The jobs that used to have minimums of $28 have been cut to $14. Old guys have been bought out as quick as they can to get in new hires on the new wage agreements. The VEBA takes effect in 2010 and the companies will shift $100 billion in health care obligations to the union, saving GM about $3 billion a year, and Ford and Chrysler $2 billion a year.

I'm as anti-union as the next guy (trust me, I've heard more than one person brag about getting paid to watch porn for 8 hours), but they are very close to being busted and will undoubtedly be returning to the table shortly.

I don't know about you, but I don't get out of bed for $14 an hour.

 

[BlackICE]

Not anymore. All those jobs that used to get chomped by the union (i.e, janitorial work, cleaners, security etc) are no longer union jobs. Work rules have been relaxed significantly. The jobs that used to have minimums of $28 have been cut to $14. Old guys have been bought out as quick as they can to get in new hires on the new wage agreements. The VEBA takes effect in 2010 and the companies will shift $100 billion in health care obligations to the union, saving GM about $3 billion a year, and Ford and Chrysler $2 billion a year.

I don't know about you, but I don't get out of bed for $14 an hour.

I am not talking about new hires. I am talking about the workers that have been there for more than a decade some of on the lines and others are in the jobs bank. Don't many of them still make more than a college grad for sitting on thier bu**s at a jobs bank? Doesn't GM, Ford and Chrysler and have to still pay any high seniority workers top buck even after they close a plant? Maybe some of not all of this is addressed in the 2010 contract, but how about now and until 2010?

 

[dbk]

I am not talking about new hires. I am talking about the workers that have been there for more than a decade some of on the lines and others are in the jobs bank. Don't many of them still make more than a college grad for sitting on thier bu**s at a jobs bank? Doesn't GM, Ford and Chrysler and have to still pay any high seniority workers top buck even after they close a plant? Maybe some of not all of this is addressed in the 2010 contract, but how about now and until 2010?

Yeah, but the jobs bank is almost all but done. They've already cut about 75% of it. In the context of 400,000 employees, you're talking under <1% percent of the workforce and falling. So that's already largely been addressed, and I think they will crumble completely under the pressure of it as a symbolic thing.

As for what the old guys get paid, the majority of their compensation was in the form of benefits, not pay, so when that gets shifted in 2010, their base hourly wage will barely be higher than international firms, and the corporate averages will be nearly identical. David Cole from the Center for Automotive Research (funded by Detroit and Toyota) put the price tag of an international worker at around $45 in 2010 and a unionized-domestic worker at $40-45.

Hopefully that illustrates why just getting out of 2009 is the critical point.