I'm not sure if many of you had a chance to watch the "Big Three" and the UAW ringleader get drilled by Congress yesterday. It was great TV and watching these guys try to justify why they need $25 Billion from the government was very interesting. There is no question that Chrysler, GM, and Ford are in rough shape and could be on the brink of bankruptcy. Several questions are out there. Who is at fault? Where will this money go? Will the money solve the problem. Here are some of my thoughts on these issues.
Who is at fault?
Some people believe it all has to do with the slow economy, but don't be fooled. The big three automakers in this country have been having issues for years. There are so many people and groups to blame that you can't just pin this on one.
I personally believes it starts with the union (UAW). This group has negotiated ridiculous pay and benefits that make it nearly impossible for the "Big Three" automakers to compete. Do you really think that it's coincidence that it's the big three American auto makers who are in trouble and not other companies like Toyota, Nissan or Honda who also have plants in the US? I think not. Take a look at this chart which shows the differential in wages and benefits by the American Big Three compared to the Japanese
big three.It's amazing to see that the average worker in the UAW earn 3 times the amount of a private sector worker. Who the hell needs college when you can join the UAW? With the average worker getting paid $130,000 a year in salary and benefits, I'm starting to to think going into radio wasn't the right decision.
I'm not saying the work that these Americans are doing is not difficult or important, but under no circumstances should these people be making these kinds of wages when the company as a whole is losing money hand over fist.
A proud union worker will tell you that their salary isn't $75.00 and hour and they're right. What they won't tell you is how they negotiated a Gold Plated health care plan that covers everything under sun, and workers/retirees only have to pay a monthly premium of $10 per individual and $21 for a family. These health benefits add an additional $1200 per vehicle made in the United States, compared to Toyota's $215 that their health care costs per vehicle.
I think it's pretty safe to say that a good amount of that $25 billion lifeline would go towards overpaying unionized workers and paying gold plated health care plans for retirees. Doesn't sound like a good idea to me.
As much as I despise the UAW, I have no sympathy for the management within these companies. The CEOs of the big three make more money than they deserve and watching the FORD CEO say yesterday that he's okay with the $9 million a year compensation he's pulling makes me want to puke.
Let's put wages to side for a second and take a look at their products. It is pathetic how far behind they are in development of of fuel efficient and cleaner running vehicles. There is absolutely no excuse for this. I highly recommend you watch the film "Who Killed the Electric Car". Below is the trailer for this extraordinary documentary about the what happened to the development of the battery operated vehicle technology.
It sickens me to think how many hundreds of millions of dollars General Motors spent on production of these fully electric vehicles, only to scrap he project and destroy every car they ever made. They would have been so far ahead of the game, and one would have to think they would be dominating the booming fuel efficient vehicle market. Instead, the government stroked a check earlier this year to the big three for $25 billion which is supposed to go toward development of this technology that pretty much had in place decades ago.
Will this money solve the problem?
One thing is for certain. Under no circumstances can we afford to have these three American automakers fail. It would be a disaster with 100's of thousands of jobs being lost not just within these companies, but the 100's of ancillary companies that work in conjunction with Chrysler, GM and Ford. This would hurt the American economy much more than people think.
Even though I believe they need to be saved, I'm just not sure that giving them this bailout package is the solution. So what happens if they go bankrupt and file chapter 11? First off, just because they go bankrupt doesn't mean they stop operation. Chapter 11 would give these companies a chance to reorganize themselves and free them from horrible contracts that don't allow them to compete in today's market. The UAW have made concessions, but they are not enough. The only way to get them to that point may be to wipe the slate clean, and the way to do that is through Chapter 11. There certainly is a risk that these companies would fall into Chapter 7 if things don't turn around soon there after. At that point I would have much less of a problem giving them more capital, knowing that they've restructured properly.
1 comment:
I am totally torn by the events going on with the Big 3. As you know, my business depends upon Chrysler (or Dodge Trucks) surviving all of this. On one hand, I need Chrysler to get the capital infusion they are seeking. Otherwise, the risk is very high that they will have to choose bankruptcy which means they will likely not have the money to pay me, which means they will not be able to get my product for their truck (which they happen to make money on and are continuing to be able to sell--I argue that this customer base (heavy duty trucks) has been dealing with the economic issues longer than your typical automotive customer given the commercial nature of the uses of these vehicles and the fact that housing starts have been going the other way for a while. I also believe that credit for these customers has been harder to come by for a while so the credit crunch is nothing new to these customers...but I digress). If they can't sell trucks their cash flow will grind to a halt and my concern is that suppliers in turn will go out of business. But the flip side, as a taxpayer, I struggle with the notion of another bailout. I am unconfortable enough with the likes of the investment banks getting help as I'm not sure how this is supposed to translate to helping the economy. Whatever assisstance the Big 3 gets needs to be in the form of ensuring that the American consumers will continue to buy their products -- that's the only sustainable solution I can see. I agree that the UAW must make some concessions, as must the Big 3, as must the dealers who are independent businesses, as must the supply base. In fact, right now, I can argue that the supply base is already making concessions by helping the Big 3 by accomodating payment term changed, allowing extensions for other payments that are owed, and for footing the bill for R&D work that they are depending upon for future products. My point is, everyone has to help.
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