The Big 3 auto-execs are in Washington this week pining for money to save their organizations at the same time the head of the largest union, the UAW, has publicly said that their union have made enough concessions. So, what should happen sports fans?
Without taking enough time to gather any external opinions since there is only one real free-market option, the answer is that the GM, Ford and private-equity-backed Chrysler should not be given any type of bailout money. It will be throwing good money after bad and will do nothing to save the industry - it’ll merely nationalize it and cause those involved to suffer even longer.
Earlier I railed for a bailout of the financial markets so why not support government intervention into the car markets? Because, the bailout was originally designed to allow banks to feel secure enough to lend to one another and provide credit to small/large businesses so they can continue day-to-day business. The unintended consequences of the approval of the bailout is the now growing line of companies, states and cities on Congress’s doorstep for more funny money.
The verdict is still out for the bank bailout, but I suspect things would have been worse had that government money not arrived to sooth the pythons who created this mess in the first place. I do hope to see a turnover of leadership for most of the banks by the end of 2010 (not sooner as to create a crisis of leadership) but these guys need to go.
Back to our car bailout action, the US auto industry pays its employees more, takes longer to create cars and generally produces inferior cars to its Japanese and European rivals. It doesn’t take an MBA to deduce that this is a business that will and should fail. The fact all three have been propped up with cheap debt for this long will be a case study for most finance classes in years to come.
I love cars. I love well designed; elegant; efficient; and damn fast cars. With a notable exception of some of the muscle cars coming out like the Mustang and Camaro, Detroit automakers produce terrible looking, cheap cars that don’t hold a candle to their foreign competitors. The last innovate US car company was Chrysler and the Germans turned that light off with mismanagement.
The saddest part is that this situation need not exist. Holden, the Australian sub of for General Motors, makes awesome cars. Good design, little to no plastic on the insides, and some models are super fast.
GM, Ford and private-equity-backed Chrysler do not need a bailout. They need tough love and a little time near bankruptcy and three turn-around artists with near God Rights [IT term for full control of the system] to walk the halls and start firing management who get in the way of innovation. I would guess 50-60% of senior and mid-management could be pink-slipped with virtually no impact on company performance.
Their strategy - well - that’s harder but they’ll probably need to embrace the edges and leave the sinking middle ground to the foreign cars and go with a narrower line up - Ford - all trucks, and muscle cars; GM reduce their offerings; Chrysler - innovative small cars and vans, etc. There’s some study here on strengths, competitors, etc but the exercise could be easily done.
Workers - Michigan and other rust belt states have plenty of un-employed workers so this negotiation should be pretty straight forward. Union contracts need to disappear and more reasonable market based compensation needs to occur. It’s basic economics that your average union rep refuses to provide to his/ her workers. Profit sharing, bonuses for everyone, stock-options need to be the rule of the day with management becoming equal partners with workers. Seem unrealistic - no job due to bankruptcy; refined working conditions and a chance to take advantage of the upside.
No bailout. No way. Desperate business times call for innovative thinking; not a bailout from the feds. The bailout just provides another year of pain for everyone and another year of foreign car companies gaining even more ground on the home team.
Will this formula happen? With a labor friendly congress and President? I’ll start holding my breath … right … now.
