Excellent case to save domestic automakers
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Excellent case to save domestic automakers
I found this over on Autoblog.com. It answers some questions that I had regarding competitiveness with the new contracts. It points out that the domestics have to get past 2010 first. I think GM was on track to do that until this year's double-whammy hit.
Take a read.
http://www.autoblog.com/2008/11/14/a...-john-mcelroy/
Take a read.
http://www.autoblog.com/2008/11/14/a...-john-mcelroy/
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...the Big Three can finally compete with the transplants from a labor cost standpoint. That means they can now make small cars in America without losing money on every one they make.
Another benefit of that new labor contract is that the Big Three are no longer pressured to keep building cars and trucks in the face of weak demand. Under the old labor contract it was cheaper to build cars and slap big incentives on them than it was to not build them in the first place. Now, they can build to actual demand, and they're running on much tighter inventory.
That means they'll be able to slash their incentives. Every $1,000 that General Motors cuts from incentives will drop roughly $4 billion to the bottom line. And GM has an average of $3,500 in incentives!
Another benefit of that new labor contract is that the Big Three are no longer pressured to keep building cars and trucks in the face of weak demand. Under the old labor contract it was cheaper to build cars and slap big incentives on them than it was to not build them in the first place. Now, they can build to actual demand, and they're running on much tighter inventory.
That means they'll be able to slash their incentives. Every $1,000 that General Motors cuts from incentives will drop roughly $4 billion to the bottom line. And GM has an average of $3,500 in incentives!
GM, Ford and Chrysler are far from stupid. Sometimes we just fail to see the real issues that affect their bottom line.
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I seriously doubt that they were ever on track to make it to 2010 (especially if you include the required VEBA payment), which is why I want to see Rick and Fritz testifying on Capital Hill as to the company's financial planning before any money is dispersed.
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OK, here we go again. How can a company that's failing to the point of needing "government loans" to avoid bankruptcy afford to do this?
http://blogs.moneycentral.msn.com/to...r-bailout.aspx
Chrysler is asking the government for a bailout. It's laying off employees and cutting salaries. It's a company in trouble.
Oh yeah, it's also paying $30 million in bonuses to dozens of top executives.
That's the end result of a poorly-timed plan to keep Chrysler together as it was being sold. The company didn't want top executives to leave during the transition, so it promised big money for people who stuck around. Now, Chrysler is asking the government for billions of dollars in aid while it writes million-dollar bonus checks out to A-list employees. How's that for awkward?
In Chrysler's defense, this bonus plan was created in April of 2007. The company had no idea that its industry was headed for collapse, or that the executives it was desperate to keep might have a hard time finding employment at a Jiffy Lube at this point.
The bonuses are going to be another sticking point in Chrysler's request for government aid. The industry is asking for $25 billion in low-cost government loans. Chrysler is a private company, and may be asked to hand over a lot of information about its finances and how it handles its money. That includes information on those controversial bonuses.
Bonuses are under fire at other carmakers. Ford has cut some merit raises and bonuses for next year. The company is quickly running out of money, and is slashing its spending.
Executives from Chrysler, Ford and GM are headed to Congress next week to make their case for $25 billion in aid. The bonus numbers will quickly become a central point of the conversation, and deservedly so.
As a private company, Chrysler can do whatever it wants when it comes to compensating its executives. But a private company asking for a government bailout cannot. Better brush up on those resumes, boys, because the good times are coming to an end.
I suspect that the cheerleaders for the loan/bailout/whateveryoucallit of the American auto industry are going to be awfully quiet in this thread.
http://blogs.moneycentral.msn.com/to...r-bailout.aspx
Chrysler is asking the government for a bailout. It's laying off employees and cutting salaries. It's a company in trouble.
Oh yeah, it's also paying $30 million in bonuses to dozens of top executives.
That's the end result of a poorly-timed plan to keep Chrysler together as it was being sold. The company didn't want top executives to leave during the transition, so it promised big money for people who stuck around. Now, Chrysler is asking the government for billions of dollars in aid while it writes million-dollar bonus checks out to A-list employees. How's that for awkward?
In Chrysler's defense, this bonus plan was created in April of 2007. The company had no idea that its industry was headed for collapse, or that the executives it was desperate to keep might have a hard time finding employment at a Jiffy Lube at this point.
The bonuses are going to be another sticking point in Chrysler's request for government aid. The industry is asking for $25 billion in low-cost government loans. Chrysler is a private company, and may be asked to hand over a lot of information about its finances and how it handles its money. That includes information on those controversial bonuses.
Bonuses are under fire at other carmakers. Ford has cut some merit raises and bonuses for next year. The company is quickly running out of money, and is slashing its spending.
Executives from Chrysler, Ford and GM are headed to Congress next week to make their case for $25 billion in aid. The bonus numbers will quickly become a central point of the conversation, and deservedly so.
As a private company, Chrysler can do whatever it wants when it comes to compensating its executives. But a private company asking for a government bailout cannot. Better brush up on those resumes, boys, because the good times are coming to an end.
I suspect that the cheerleaders for the loan/bailout/whateveryoucallit of the American auto industry are going to be awfully quiet in this thread.
Last edited by onebadponcho; Nov 15, 2008 at 01:24 PM.
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OK, here we go again. How can a company that's failing to the point of needing "government loans" to avoid bankruptcy afford to do this?
http://blogs.moneycentral.msn.com/to...r-bailout.aspx
http://blogs.moneycentral.msn.com/to...r-bailout.aspx
It's a very bad PR move/extremely bad timing to be sure but I doubt Chrysler had any real choice.
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EDIT: I did NOT mean to rhyme "jumped" and "dumped"...
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McElroy: The big 3 will come roaring back.
http://www.autoblog.com/2008/11/14/a...-john-mcelroy/
How The Big Three Will Come Roaring Back
Way back in 1979 when Chrysler needed government help, there was a political cartoon that perfectly captured the situation. If featured an old Plymouth Fury with giant tail fins teetering halfway over a cliff, with a tow truck parked nearby. A bystander wearing a shirt labeled U.S. Taxpayer was staring at the car on the cliff. The tow truck driver was nonchalantly picking his teeth and telling the taxpayer, "I can tow it out, or push it over the cliff, but either way it's going to cost you."
And so here we are again, only this time it's not just Chrysler. Now GM and Ford need to get towed back onto solid ground, too. And while there are plenty of people saying, "Let them die," the reality is that it'll be cheaper to bail them out.
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
While it's frustrating to see that Chrysler needs help again, it's important to remember what happened after the government bailout of 30 years ago. Not only did Chrysler come roaring back and pay off the loans seven years early, Uncle Sam made a $350 million profit on the whole deal. Investors who stuck with the company made a fortune, too. Chrysler stock shot from $3 a share to over $30, a 1,000% return in just a few years time.
Most people seem to miss the fact that they are on the verge of a massive turnaround.
If the Big Three get a government bailout this time, I see history repeating itself. Most people seem to miss the fact that they are on the verge of a massive turnaround. I'm not trying to be a rah-rah cheerleader here. I'm persuaded simply by the facts.
Last year's UAW contract was truly historic in that it will completely remove the health care cost burden off the Big Three. Though they have to give the union the money to assume this burden, they're paying 40% less than it would otherwise cost them. After 2010 they stop paying billions in health care every year and start dropping that money to the bottom line.
Moreover, there will no longer be any pensions for new hires. They'll get 401k's instead. Again, massive cost savings going forward.
On top of that the UAW workforce takes big pay cuts, and new hires come in at a wage rate that is roughly the same that Toyota, Honda, Nissan, et al, are paying their American workers. In other words, the Big Three can finally compete with the transplants from a labor cost standpoint. That means they can now make small cars in America without losing money on every one they make.
The Big Three can finally compete with the transplants from a labor cost standpoint.
Another benefit of that new labor contract is that the Big Three are no longer pressured to keep building cars and trucks in the face of weak demand. Under the old labor contract it was cheaper to build cars and slap big incentives on them than it was to not build them in the first place. Now, they can build to actual demand, and they're running on much tighter inventory.
That means they'll be able to slash their incentives. Every $1,000 that General Motors cuts from incentives will drop roughly $4 billion to the bottom line. And GM has an average of $3,500 in incentives!
Plus, the Big Three are taking out a huge amount of overcapacity, roughly two million units. To fulfill demand in the future their plants will have to run at full capacity, and that's when car companies literally become cash machines.
What this means is that when the economy finally starts to recover and the car market begins to grow again, GM, Ford and Chrysler will be in an extremely competitive position, one they haven't been in for more than 40 years.
And that's why those who say giving them a bailout is just throwing good money after bad are dead wrong. The Big Three are not only on the verge of a roaring comeback, I predict that in the next decade they'll go on to hit record profits
How The Big Three Will Come Roaring Back
Way back in 1979 when Chrysler needed government help, there was a political cartoon that perfectly captured the situation. If featured an old Plymouth Fury with giant tail fins teetering halfway over a cliff, with a tow truck parked nearby. A bystander wearing a shirt labeled U.S. Taxpayer was staring at the car on the cliff. The tow truck driver was nonchalantly picking his teeth and telling the taxpayer, "I can tow it out, or push it over the cliff, but either way it's going to cost you."
And so here we are again, only this time it's not just Chrysler. Now GM and Ford need to get towed back onto solid ground, too. And while there are plenty of people saying, "Let them die," the reality is that it'll be cheaper to bail them out.
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
While it's frustrating to see that Chrysler needs help again, it's important to remember what happened after the government bailout of 30 years ago. Not only did Chrysler come roaring back and pay off the loans seven years early, Uncle Sam made a $350 million profit on the whole deal. Investors who stuck with the company made a fortune, too. Chrysler stock shot from $3 a share to over $30, a 1,000% return in just a few years time.
Most people seem to miss the fact that they are on the verge of a massive turnaround.
If the Big Three get a government bailout this time, I see history repeating itself. Most people seem to miss the fact that they are on the verge of a massive turnaround. I'm not trying to be a rah-rah cheerleader here. I'm persuaded simply by the facts.
Last year's UAW contract was truly historic in that it will completely remove the health care cost burden off the Big Three. Though they have to give the union the money to assume this burden, they're paying 40% less than it would otherwise cost them. After 2010 they stop paying billions in health care every year and start dropping that money to the bottom line.
Moreover, there will no longer be any pensions for new hires. They'll get 401k's instead. Again, massive cost savings going forward.
On top of that the UAW workforce takes big pay cuts, and new hires come in at a wage rate that is roughly the same that Toyota, Honda, Nissan, et al, are paying their American workers. In other words, the Big Three can finally compete with the transplants from a labor cost standpoint. That means they can now make small cars in America without losing money on every one they make.
The Big Three can finally compete with the transplants from a labor cost standpoint.
Another benefit of that new labor contract is that the Big Three are no longer pressured to keep building cars and trucks in the face of weak demand. Under the old labor contract it was cheaper to build cars and slap big incentives on them than it was to not build them in the first place. Now, they can build to actual demand, and they're running on much tighter inventory.
That means they'll be able to slash their incentives. Every $1,000 that General Motors cuts from incentives will drop roughly $4 billion to the bottom line. And GM has an average of $3,500 in incentives!
Plus, the Big Three are taking out a huge amount of overcapacity, roughly two million units. To fulfill demand in the future their plants will have to run at full capacity, and that's when car companies literally become cash machines.
What this means is that when the economy finally starts to recover and the car market begins to grow again, GM, Ford and Chrysler will be in an extremely competitive position, one they haven't been in for more than 40 years.
And that's why those who say giving them a bailout is just throwing good money after bad are dead wrong. The Big Three are not only on the verge of a roaring comeback, I predict that in the next decade they'll go on to hit record profits
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http://www.autoblog.com/2008/11/14/a...-john-mcelroy/
How The Big Three Will Come Roaring Back
Way back in 1979 when Chrysler needed government help, there was a political cartoon that perfectly captured the situation. If featured an old Plymouth Fury with giant tail fins teetering halfway over a cliff, with a tow truck parked nearby. A bystander wearing a shirt labeled U.S. Taxpayer was staring at the car on the cliff. The tow truck driver was nonchalantly picking his teeth and telling the taxpayer, "I can tow it out, or push it over the cliff, but either way it's going to cost you."
And so here we are again, only this time it's not just Chrysler. Now GM and Ford need to get towed back onto solid ground, too. And while there are plenty of people saying, "Let them die," the reality is that it'll be cheaper to bail them out.
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
While it's frustrating to see that Chrysler needs help again, it's important to remember what happened after the government bailout of 30 years ago. Not only did Chrysler come roaring back and pay off the loans seven years early, Uncle Sam made a $350 million profit on the whole deal. Investors who stuck with the company made a fortune, too. Chrysler stock shot from $3 a share to over $30, a 1,000% return in just a few years time.
Most people seem to miss the fact that they are on the verge of a massive turnaround.
If the Big Three get a government bailout this time, I see history repeating itself. Most people seem to miss the fact that they are on the verge of a massive turnaround. I'm not trying to be a rah-rah cheerleader here. I'm persuaded simply by the facts.
Last year's UAW contract was truly historic in that it will completely remove the health care cost burden off the Big Three. Though they have to give the union the money to assume this burden, they're paying 40% less than it would otherwise cost them. After 2010 they stop paying billions in health care every year and start dropping that money to the bottom line.
Moreover, there will no longer be any pensions for new hires. They'll get 401k's instead. Again, massive cost savings going forward.
On top of that the UAW workforce takes big pay cuts, and new hires come in at a wage rate that is roughly the same that Toyota, Honda, Nissan, et al, are paying their American workers. In other words, the Big Three can finally compete with the transplants from a labor cost standpoint. That means they can now make small cars in America without losing money on every one they make.
The Big Three can finally compete with the transplants from a labor cost standpoint.
Another benefit of that new labor contract is that the Big Three are no longer pressured to keep building cars and trucks in the face of weak demand. Under the old labor contract it was cheaper to build cars and slap big incentives on them than it was to not build them in the first place. Now, they can build to actual demand, and they're running on much tighter inventory.
That means they'll be able to slash their incentives. Every $1,000 that General Motors cuts from incentives will drop roughly $4 billion to the bottom line. And GM has an average of $3,500 in incentives!
Plus, the Big Three are taking out a huge amount of overcapacity, roughly two million units. To fulfill demand in the future their plants will have to run at full capacity, and that's when car companies literally become cash machines.
What this means is that when the economy finally starts to recover and the car market begins to grow again, GM, Ford and Chrysler will be in an extremely competitive position, one they haven't been in for more than 40 years.
And that's why those who say giving them a bailout is just throwing good money after bad are dead wrong. The Big Three are not only on the verge of a roaring comeback, I predict that in the next decade they'll go on to hit record profits
How The Big Three Will Come Roaring Back
Way back in 1979 when Chrysler needed government help, there was a political cartoon that perfectly captured the situation. If featured an old Plymouth Fury with giant tail fins teetering halfway over a cliff, with a tow truck parked nearby. A bystander wearing a shirt labeled U.S. Taxpayer was staring at the car on the cliff. The tow truck driver was nonchalantly picking his teeth and telling the taxpayer, "I can tow it out, or push it over the cliff, but either way it's going to cost you."
And so here we are again, only this time it's not just Chrysler. Now GM and Ford need to get towed back onto solid ground, too. And while there are plenty of people saying, "Let them die," the reality is that it'll be cheaper to bail them out.
John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
While it's frustrating to see that Chrysler needs help again, it's important to remember what happened after the government bailout of 30 years ago. Not only did Chrysler come roaring back and pay off the loans seven years early, Uncle Sam made a $350 million profit on the whole deal. Investors who stuck with the company made a fortune, too. Chrysler stock shot from $3 a share to over $30, a 1,000% return in just a few years time.
Most people seem to miss the fact that they are on the verge of a massive turnaround.
If the Big Three get a government bailout this time, I see history repeating itself. Most people seem to miss the fact that they are on the verge of a massive turnaround. I'm not trying to be a rah-rah cheerleader here. I'm persuaded simply by the facts.
Last year's UAW contract was truly historic in that it will completely remove the health care cost burden off the Big Three. Though they have to give the union the money to assume this burden, they're paying 40% less than it would otherwise cost them. After 2010 they stop paying billions in health care every year and start dropping that money to the bottom line.
Moreover, there will no longer be any pensions for new hires. They'll get 401k's instead. Again, massive cost savings going forward.
On top of that the UAW workforce takes big pay cuts, and new hires come in at a wage rate that is roughly the same that Toyota, Honda, Nissan, et al, are paying their American workers. In other words, the Big Three can finally compete with the transplants from a labor cost standpoint. That means they can now make small cars in America without losing money on every one they make.
The Big Three can finally compete with the transplants from a labor cost standpoint.
Another benefit of that new labor contract is that the Big Three are no longer pressured to keep building cars and trucks in the face of weak demand. Under the old labor contract it was cheaper to build cars and slap big incentives on them than it was to not build them in the first place. Now, they can build to actual demand, and they're running on much tighter inventory.
That means they'll be able to slash their incentives. Every $1,000 that General Motors cuts from incentives will drop roughly $4 billion to the bottom line. And GM has an average of $3,500 in incentives!
Plus, the Big Three are taking out a huge amount of overcapacity, roughly two million units. To fulfill demand in the future their plants will have to run at full capacity, and that's when car companies literally become cash machines.
What this means is that when the economy finally starts to recover and the car market begins to grow again, GM, Ford and Chrysler will be in an extremely competitive position, one they haven't been in for more than 40 years.
And that's why those who say giving them a bailout is just throwing good money after bad are dead wrong. The Big Three are not only on the verge of a roaring comeback, I predict that in the next decade they'll go on to hit record profits
Wait just a minute -- this guy knows the automotive business -- so he CAN'T be right!!!!
(there I go again with my sarcasm...)
Thanks for posting this, Charlie --
I'm sure some of our fellow members will have SOMETHING to say about this.
The bottom line is that the big three have made MASSIVE changes -
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Okay, make that triple whammy of high gasoline prices, 30% drop in sales, and lack of credit. GM may have needed to borrow some money, but if they could have shown that they were profitable, and had an excellent chance of paying back a loan to make the VEBA payments, I don't see why they could not have gotten a private loan or loans to tide them over.
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Okay, make that triple whammy of high gasoline prices, 30% drop in sales, and lack of credit. GM may have needed to borrow some money, but if they could have shown that they were profitable, and had an excellent chance of paying back a loan to make the VEBA payments, I don't see why they could not have gotten a private loan or loans to tide them over.
Originally Posted by Dragoneye
I agree with the last part...but I want to ask; why don't you think they were on track to make it to 2010 before gas prices jumped, and the economy dumped?
Here's the thing - GM, during "good times" (yearly NA sales of 17M units, with about half of those being somewhat-pricey trucks and SUVs), couldn't make money. It certainly couldn't make enough money to show a healthy profit and start paying down that $60B gap between assets and liabilities. Credit default insurance for GM bonds indicated a large chance of default (bankruptcy) even prior to this year's events, and the company's credit rating took a dump two years ago.
The groundwork for the present mess was laid out long ago.
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I hate to agree with you Eric, but you are right. You can't blame the current problems on just the things that have happened in the last year. You have to look back several years and see what happened and why did it happen?
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I don't want to oversimplify this, but... even when times were better, when did GM make a profit?
Here's the thing - GM, during "good times" (yearly NA sales of 17M units, with about half of those being somewhat-pricey trucks and SUVs), couldn't make money. It certainly couldn't make enough money to show a healthy profit and start paying down that $60B gap between assets and liabilities. Credit default insurance for GM bonds indicated a large chance of default (bankruptcy) even prior to this year's events, and the company's credit rating took a dump two years ago.
The groundwork for the present mess was laid out long ago.
Here's the thing - GM, during "good times" (yearly NA sales of 17M units, with about half of those being somewhat-pricey trucks and SUVs), couldn't make money. It certainly couldn't make enough money to show a healthy profit and start paying down that $60B gap between assets and liabilities. Credit default insurance for GM bonds indicated a large chance of default (bankruptcy) even prior to this year's events, and the company's credit rating took a dump two years ago.
The groundwork for the present mess was laid out long ago.
Right. Costs for the Big 2 1/2 were too high. I think that's mostly fixed now, and any additional needed fixes should come as part of the bailout (might require a few more concessions from the UAW, though it's hard to see the Democrats pushing for that, but maybe to get popular support?).
It took too long to get the UAW contracts that make the domestics competitive again, but it did finally come.
So I think I have a decent understanding of why GM hasn't been making money, and I think there that problem has been mostly fixed. That's why I think a loan, with the right conditions, could be a safe bet that keeps GM around (and hopefully Ford and Chrysler too).
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I don't want to oversimplify this, but... even when times were better, when did GM make a profit?
Here's the thing - GM, during "good times" (yearly NA sales of 17M units, with about half of those being somewhat-pricey trucks and SUVs), couldn't make money. It certainly couldn't make enough money to show a healthy profit and start paying down that $60B gap between assets and liabilities. Credit default insurance for GM bonds indicated a large chance of default (bankruptcy) even prior to this year's events, and the company's credit rating took a dump two years ago.
The groundwork for the present mess was laid out long ago.
Here's the thing - GM, during "good times" (yearly NA sales of 17M units, with about half of those being somewhat-pricey trucks and SUVs), couldn't make money. It certainly couldn't make enough money to show a healthy profit and start paying down that $60B gap between assets and liabilities. Credit default insurance for GM bonds indicated a large chance of default (bankruptcy) even prior to this year's events, and the company's credit rating took a dump two years ago.
The groundwork for the present mess was laid out long ago.
I'd liken it to airline carriers saving themselves $40,000 per year by placing one olive less on their customers' lunch plate. It's all about containing costs and GM hasn't been able to do that very well in the past due to factors 'beyond their immediate control'.
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