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General Motors Wake part two
john posted in politics & culture, rides, technologies on November 19th, 2008

In part one I laid out the situation with the pending Big 3 carmakers collapse, as I see it. I think its fair to say I am just representing a widespread consensus.

What’s to be done?

The choices:
	The ice floe: Let them die with the polar bears. Suppliers will crash and burn, and who knows how Michigan will survive.
photo by Reason	Show them the money: Nobody will buy their assets in this market. ( Solarworld offered to take Opel as a freebie today) Bankruptcy isn’t going to provide quick revenue to support the whole rickety framework, so the Feds would have to provide some kind of guaranteed market like Federal fleet sales and buyer rebates, and support for R&D, and try to get a rapid program in place to retool.

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The problem with letting them die, is that they may drown us too. A huge number of jobs and businesses depend on the Big 3 car businesses. Numbers are quoted as high as 10% of all jobs are indirectly affected by the car business. Cities will be besieged with falling taxes, failing business, collapsing housing. Unemployment will soar, and Federal costs will too as the safety net gets hit with a wave of the jobless.

The problem with bailing them out is that it may be throwing good money after bad. The basic problem with pumping money into failing behemoths is you are using a very expensive, blunt instrument to do surgery. It very well may not work, and political pressures could easily pollute the Congressional effort with giveaways. Bickering between the Democratic leadership in Congress and the lame-duck Bush administration is not helping. The folks in Richistan have long ago taken their money out of manufacturing, and indeed out of the country, so they don’t care.

The long view:
Either the prognosticators are right and the Big 3 are already zombies, or they aren’t and there is some hope for restructuring of one or two. In both cases it’s the suddenness of the collapse and the terrible timing that make it so awful. The Big 3 have been giving away market share for decades and the Republic is still standing, sort of. So if you could slow the demise, and at the same time strongly encourage lightweight, modern cars and trucks, with a frantic race to hypercar manufacturing, it might be possible to avoid the worst effects of the collapse, and use the direness of the situation to push through much-needed restructuring of labor and management.

The greatest obstacles to this approach are the blockheads in management, the blockheads in Congress, and the desperate UAW. Bankruptcy of some sort is so attractive because it means some judge, and not an elected representative, will be telling the UAW folks that 50% are laid off and the other 50% are getting wages cut in half. Presumably the same judge would seize control and clean house in the white-collar departments, sell off the fancy buildings, cancel the golden parachutes, and generally machete his way through the mess. It still might not work, because car sales are so slow that competing with the healthy carmakers is a daunting prospect. It would take a big discount to get a sensible buyer into a Ford Focus/Chevy Cobalt over a Toyota or even Hyundai, when everyone knows Ford and Chevy may go kaput, taking their dealers with them.

The ugly:
I think a lot of the pious declarations of free-market discipline are fueled by irrational anti-union sentiment. It is clear the UAW is dying, but union inefficiency does not mean jobs ought to be wasted. Sure a Democrat really can’t deliver the death sentence to a unionized industry, but they might well allow the lame-ducks to do it.

What if:
What if a benevolent industrial dictator from the WWII era were given the nationalized hulk of GM? Leaving Chrysler to die, and Ford to try it alone, he could forget profits while revamping the company from top to bottom. Of course this presumes there is something worth saving.

My guess:
Stretching out the process may be the best that can be done with the Big 3. Facing extinction, might, just might, startle them into serious change. Ford is most likely to survive. The most important long-term goals for the nation are restoring our manufacturing capability, and providing 21rst century green transportation as soon as possible. The Big 3 and the UAW can get on the train or be left behind. For the computer-biz kids from the coasts the idea of re-starting an industry from scratch may seem commonplace, but if that’s the way it goes, then surely those people in the Midwest are in for some cascading failures of small business, and some really tough times.

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CSPAN coverage of the CEOs futile testimony

Harsh, but accurate blog entry from WSJ

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Pictures of River Rouge, the famous 1100 acre factory built by Henry Ford.

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General Motors Wake part one
john posted in politics & culture, rides, technologies on November 18th, 2008

First lets dispense the cliche’s:
Whats good for GM is good….
GM, which will lose global number one sales….
Perfect storm….
Too big to fail…

The Problem:
GM, Ford and Chrysler are spending more money than they take in. The burn rate is fast enough to leave GM penniless in a few months. No one, except possibly the taxpayer, will lend them money, figuring it would be good money after bad. The stock market is devaluing GM to the point than a billionaire could simply buy all the stock (which is really buying the debt).

GM falling stock price chart There is not much value left there….

A good article at Seeking Alpha

	Two truly stupid models.
Pontiac Aztec		Ford Excursion

The Money Situation:
The market seems to think privately-owned Chrysler is a goner. Ford has a little more money than GM, but is essentially in the same boat, even if it could take over GM’s domestic market share. Vast numbers of vendor and related jobs depend on the Big 3, 2-3 million has been quoted. Its easy to guess that a sudden loss of that many jobs would tip us into a depression. Worldwide, manufacturing and transportation businesses are in deep trouble, from Boeing and Airbus, to the world-wide shipping industry, to China itself.

The Political Situation:
It’s hard to see how any President, let alone a Democrat who just carried the Midwest, can suck it up and let GM die. And then there is that Depression looming. Nobody wants to be Herbert Hoover.

The Design Problem:
American companies have once again ( see 1970’s) failed to plan for rising gas prices, and are caught with aging designs that weigh too much, push too much air, and consume too much. They have not diversified with small vehicles, in spite of having successful off-shore small-car companies. They have not invested in in-house powertrain research, like hybrids and batteries. Their bit of fuel-cell research is pie-in-the-sky stuff, with no path to manufacture. The one bright spot is the Chevy Volt, not yet ready for manufacture, and never intended to be sold in large quantities.

The Culture Problem:
In four decades while the Japanese and Germans were optimizing their labor-hours-per-car, time-to-market, and reliability, Detroit was selling SUVs and trucks as commuter cars, with haphazard work on future manufacturing. With a few loss-leader exceptions like the Dodge Viper and Ford GT40 and long-running Chevrolet Corvette, Detroit made cars carelessly for people who are careless about cars, neglecting both the Apple Computer (cars as digital appliances) end of the market and the performance end (import tuners). They did great with the size-is-status market.

The Labor Problem:
The labor problem is partly the healthcare and pensioner problem. The Big 3 hourly employees are still dependent on the mother company for healthcare ( there’s an unfunded plan to transfer to UAW) and so are the pensioners, whose healthcare and pensions are not fully funded either. Further, the future is not with the UAW, so it may end up fighting the greater communal good in favor of its own survival.

The Rewards Problem:
The short-sightedness of Detroit has long been publicly discussed. Foreign manufacturers seem to be planning design changes in sync with changing market conditions with success, though all will be hurt by the sudden downturn in world-wide sales. Rewarding dismal failure just ain’t American somehow.

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