By on November 3, 2007

ford1.jpgIn the battle for the American automotive market, Detroit’s fighting for its life, rather than supremacy. The truth is that the so-called domestic automakers are under siege; their non-union competition forced them inside the castle walls a long time ago. And while Toyota, Honda and Nissan are busy unleashing new and improved vehicles to vie for U.S. customers’ patronage, Ford, GM and Chrysler are busy retrenching, regrouping and re-arming, dreaming of both past and future glory. And when they’re not doing that, they’re tearing each other to pieces.

The most recent and obvious evidence of Detroit’s internecine perfidy: Chrysler’s decision to cut 12k jobs, kill models and downsize production just five days after the United Auto Workers (UAW) ratified their new contract. Never mind that the move reveals the UAW’s complete betrayal of their own rank and file, who would have never ratified the Chrysler contract (if indeed they did) if they’d known of the wholesale slaughter to follow. The more important impact of this [necessary] bloodletting will be on Ford.

Now that Ford’s UAW members have witnessed the fallout from the Chrysler contract, they will never ratify an agreement without iron-clad job guarantees. And if you thought that deep-pocketed, privately-owned Chrysler needed a free hand to downsize production, pity poor Ford; the sickest, most vulnerable automaker in the biz. It’s mortgaged up to its eyeballs, losing market share by the minute and drowning in an ocean of red ink. You can see their cash burn from Cincinnati. FoMoCo can afford job guarantees like the average pistonhead can afford a Bugatti Veyron.

Could Chrysler have waited THREE WEEKS before swinging their mighty axe, so that Ford could have secured the same sort of no-strings-attached deal for their UAW members? Sure. And there’s only one reason Chrysler CEO Bob Nardelli didn’t stay his hand: to shiv his cross-town rivals. 

If you read the reactions to yesterday’s Ford – UAW deal carefully, you can see the damage the Three-Headed Dog’s automaker has inflicted on The Blue Oval Boyz. "Our goals for this contract were to win new product and investment, to enhance job security and protect seniority,” pronounced UAW Veep Bob King, director of the union's National Ford Department. Yes, well, would the UAW be stupid/brazen/corrupt enough to ask its Ford members to ratify a guarantee-less contract after the Chrysler massacre? Not if you take UAW boss Ron Gettelfinger at his word: "We encouraged Ford to invest in product and people."

In fact, Ford needs to follow GM and Chrysler and invest in getting RID of products and people. They have too many brands, models, employees and production capacity to survive. While Ford’s new union contract includes a huge payment into the UAW’s inconceivably large, eminently lootable VEBA health care superfund– securing the automaker a cost-reducing two-tier wage system– Chrysler has made sure that Ford can’t downsize in time to reap its benefits.

And what of GM? It must be said that GM’s sitting relatively pretty in all this. With the help of the UAW management, they got away with making empty job guarantees to their union workforce (we’ll give plant X the new car– you know, IF there’s a new car). They’re now free to slice production to match demand, and slice they have. Even better, they’re eating Chrysler and Ford’s lunch. 

Check out last month’s sale figures. Compared to October '06, GM sales rose by 3.4 percent. Did the market expand? No. Did Toyota, Honda or Nissan sales slip, indicating that The General’s much-hyped new or revised products harvested conquest sales from the transplants? Hell no. The salient stat is that Chrysler and Ford sales plummeted. While there’s no hard data on this, common sense suggests that American car buyers who tend towards domestics (a well-documented predilection) are switching their patronage to GM.

We’ve mentioned that old joke about the “buddies” chased by the bear who realize that they only have to outrace each other to survive. Well, there you go. GM’s in the lead and Chrysler’s tripped Ford. Which is all very well and good for The General and The Dog, but Ford still has a secret weapon (that nobody sees): bankruptcy. While GM and Chrysler have dropped some of their union-related baggage through clever negotiation (i.e. paying off the UAW VEBA-wise), Ford could lighten even more of their load through Chapter 11.

I don’t mean UAW pay or benefits; as [non-co-opted] union members maintain, that’s not the real issue. I mean dealers. All three so-called domestics are hamstrung by their bloated dealer network, which prevents them from consolidating models and killing brands. If Ford files, they can ditch their duff dealers, drop bad brands, beat-up (not remove) the UAW and emerge a far leaner and meaner carmaker than either Chrysler or GM. 

Of course, none of this gets rid of the "barbarians" pounding on Detroit's gates.

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58 Comments on “Detroit Deathwatch: Outrunning the Bear...”


  • avatar
    John

    Alternative caption for your photo:

    Photographs, show the laughs,
    taken in between the bad times.
    Happy sailors dancing on a sinking ship.

    -John Prine

  • avatar
    jurisb

    ford needs to strip because it has got too many models and brands? like what brands? ford- lincoln-mercury? mercury has 0 models! downsize that!!!
    lincoln- 1 japanese mazda 6 based derivative with fusion mascara- off- job, and 1 half- bred jag based near- luxury car. downsize that?
    toyota has – toyota, scion, lexus, hino, daihatsu. sounds like 5. why THEY DON~T downsize and euthenize model line?
    Simple- they make competetive models, that sell.
    why you judge from a consequences standpoint, maybe it`s worth pondering the.. CAUSE .
    while you don`t accept FAIR GAME rules, you will never ever regain anything in market .
    the unbelievable list of very easy FAIR GAME rules, that is a panacea for any car company:

    1. you engineer cars yourself, or in its direct affiliates.
    2. constant quality improvement compatible to the best competition.
    3. car`s don`t simulate diversity. they are the diversity. no 2 models with the same sheetmetal wear different names.
    4. changing generations of cars, not a single part from exterior is left unaltered.
    5. durability, whether engine, or leather surface, compatible to the best competition.
    6. no major engineering allowed from a foreign company. ( dodge- cummins- fine, lincoln- yamaha- bad).
    7. a car company is product oriented, not what surrounds it.

  • avatar
    jthorner

    Ford’s problem isn’t too many models, it is that it has two few models which are best in class. It isn’t that it has too many dealers, because those dealers really don’t cost Ford much to have around.

    The problem is mostly botched design/engineering jobs which don’t hit what the market wants and/or are let go too long.

    Taurus was killed by a botched redesign in 1996.

    Ranger is dead from lack of attention.

    The Panther platform has been kept on life support longer than some of it’s best customers without getting a competitive redesign in decades.

    Focus started strong, got killed by quality problems, went forever without a redesign, then got a half-baked one.

    Aerostar-Freestar minivan were always second class citizens in their category.

    F150 redesign put a strange over-high bed on the truck which makes it impossible to toss things in from the side.

    SuperDuty diesel sales are being hurt by endless legal fighting between Ford and it’s supplier Navistar. What kind of company goes to war with it’s engine supplier? I guess it is the same kind of company which not long ago went to war with it’s oldest tire supplier (Firestone).

    Then there is the whole issue of trashing the heritage by dumping the historic nameplates for Ford-starts-with-F, Mercury-starts-with-M kindergarten stuff.

    The years of living high off the hog on Explorer/Expedition profits have taken a deadly toll. Oddly enough, before the SUV craze Ford was a pretty well balanced company with highly competitive models across a wide range of segments. Once the easy money started flowing they ignored and/or botched everything else.

    Ford’s wounds are largely self-inflicted by the white-collar side of the company. If they weren’t being backstopped by Mazda and Volvo engineers there would be almost nothing to work with.

    Getting rid of UAW contracts and a bunch of dealers wouldn’t do a thing to fix the real problems.

  • avatar
    SherbornSean

    Robert,
    This is good analysis, and I like the ‘outrunning the bear’ analogy. You can’t really blame Chrysler for their timing — they are in competition with Ford after all.

    I do believe that the notion of too many dealerships requires adjustment. I believe the successful domestic automaker will be the one that changes the nature of dealerships such that they are centers for the expression of consumer passion for cars and trucks.

    When consumers start to see auto dealers as places where they can express that passion – by customizing their vehicles, maintaining/repairing them at an honest price,even just swapping stories, then automaking in America will again be on the rise.

    I don’t believe GM, Ford or Chrysler can have enough places like this; I just think they do a lousy job leveraging them currently. Something Nardelli brings to the table is that Home Depot figured out how to double the number of stores an area could sustain by adding services (tool rentals, installation sales, how-to demos, etc.). I would love to see that expertise brought to bear at the local 5-star.

  • avatar

    This morning, I took my V6 Mustang out for a spin. It is a car whose many flaws (uncomfortable seats, sketchy plastic interior, useless side mirrors, grabby clutch, clunky gearbox, atrocious seatbelt mechanism, terrible visibility, endless tail-wagging on bumpy roads, embarassing fuel consumption, junky door slams, ticky-tack indicator switch, poor sound system, inoperable rear defog, sweaky power windows, etc.) I tolerate for some reason unbeknownst to me. You’re not gonna out run anything, let alone the bear that is Honda and Toyota, in a V6 Mustang.

  • avatar
    jrlombard

    A bankruptcy that rids Ford of all of its dealer commitments could spark the paradigm shift to a new automotive distribution model that I’ve mentioned on TTAC before (couldn’t find the original post).

    The main component that gets in the way of this new distribution model are the franchise agreements with the dealer base. If those go away (and I can’t say that they would with certainty), then Ford would be free to do what no other domestic manufacturer could do, which is control the customer experience from advertising through post-sales warranty and follow-up.

    This would be a huge advantage over their domestic rivals, and might help them compete better with the imports as well. Ford wouldn’t have to worry about an unscrupulous dealership personnel, or service departments that charge them and/or the customer for work that was never performed.

    Plus, it could rid them of some or all of the union legacy burden and allow them to choose the best process/vendor in sourcing, not keeping certain models in certain plants because of a contractual agreement.

    It will be interesting to see what Mulally and Ford bring to the table in the next round of union negotiations. Do they have the stomach to use the “B” word? Time will tell.

  • avatar

    John:  Humidity built the snowman Sunshine brought him down jthorner: Getting rid of UAW contracts and a bunch of dealers wouldn’t do a thing to fix the real problems. How did Michaelangelo create David? He removed the bits of the marble that weren't David. Ford needs to reduce labor costs, lose production capacity, kill dead brands (Land Rover, Jaguar, Mercury), ditch extraneous brands (yes: Volvo, Mazda), trim dealers (which prevents it from doing the above) and models (must Focus). THEN they can– and must– reinvent themselves.

  • avatar
    Bill Wade

    Robert, I believe you haven’t considered the total ramifications of Cerberus’s action.

    Of course they did this to cause harm to Ford. I haven’t seen the terms of the new contract but I suspect it will hamstring Ford more so than would have otherwise happened.

    I believe your read on how this impacts GM doesn’t consider how rapidly Cerberus can react to changing market/financial conditions versus GM. Also I believe Cerberus could care less about dealer complaints and will take whatever action they deem appropriate. If nothing else just the act of suddenly axing cars without months of focus groups, committees and endless “what if” meetings speak volumes.

    Ford and Chrysler may be losing domestic market share to GM but I’ll gamble Cerberus will do what it takes to make their remaining share profitable while GM continues to go down the rat hole. Their actions while the Ford/UAW negotiations were still going on speaks volumes.

  • avatar

    Bill Wade:

    Ford and Chrysler may be losing domestic market share to GM but I’ll gamble Cerberus will do what it takes to make their remaining share profitable while GM continues to go down the rat hole.

    Agreed. GM’s corporate culture can’t compete with Cerberus’ disciplined approach. One way or another (strip and flip is hip), the tables will turn on GM.

    It ain’t over ’til the ursine eats.

  • avatar
    ucanthandlethetruth

    certified flame free

    Robert,

    Why can’t you accept the possiblity that these deals actually have helped the viability of all three domestic auto manufacturers? With a more level cost basis they’ll all be able to devote more resources to designing and building better, more competitive vehicles. Sure GM is ahead, but all three will gain from the UAW finally, if reluctantly seeing the light(is that a train?). I think it’s time to rename your deathwatch and suicide watches. How about Lazarus watch?

  • avatar
    ucanthandlethetruth

    jrlombard

    The main component that gets in the way of this new distribution model are the franchise agreements with the dealer base. If those go away (and I can’t say that they would with certainty), then Ford would be free to do what no other domestic manufacturer could do, which is control the customer experience from advertising through post-sales warranty and follow-up.

    Auto manufacturers should do what they do best; design and build vehicles. No auto manufacturer has been successful at the retail side of the business. And they have tried. For example from about 1998 – 2001 Ford bought dealers in a few cities. In Rochester, NY for example they bought most of the ford stores in town (except the one minority owned point) closed some, and ran the rest as the “Ford Auto Collection”. In about three years they lost half of their market share and millions of dollars before selling the stores they didn’t close back to private entrepreneur dealers.

    Car dealers of all brands usually live or are very active in the areas in which they do business. They support local little leagues, scouting, etc. They belong to the same churches their customers do, send the kids to the same schools their customers kids attend, and are part of the fabric of the community. And they have their heart and soul, along with a significant financial stake, in the dealership. All of this results in more sales.

    The argument in this blog that “too many dealers” are dragging down the big three is fundamentally flawed. It costs the manufacturer so very little to support a dealer. The dealer makes a multi million dollar investment in building, furniture & fixtures, buys vehicles from the manufacturer at the price the manufacturer asks, pays interest to stock them, buys hundreds of thousands of dollars parts and special tools to repair them, pays for sales and technician training. The manufacturer’s wholesale organization mostly communicates with dealers via email and phone. The dealer orders vehicles via a computer system (that he pays for). All for an average of maybe 3% profit.

    A manufacturers dealer base can help it do better tahn it would otherwise. Or worse. Ask Hyundai what happened on their way to a million sales. Some on this blog tout their products as up there with Toyota and Honda, and certainly better than the big 3. So why are Hyundai sales are down this year? If they are honest they’ll tell you that that they don’t have too many dealerships, but rather too many poorly run dealerships.

    In almost every case, when a dealer closes, the manufacturer they represented loses sales. How is this good for the manufacturer? As sales shift, market forces will close stores. And the big three are in the midst of model consolidation already. They can get to the right mix without shedding dealers through bankruptcy. And those left will be even stronger.

  • avatar
    ihatetrees

    @ jrlombard:
    The main component that gets in the way of this new distribution model are the franchise agreements with the dealer base. If those go away (and I can’t say that they would with certainty), then Ford would be free to do what no other domestic manufacturer could do, which is control the customer experience from advertising through post-sales warranty and follow-up.

    Well stated. Imagine: A post-bankruptcy Ford with a NATIONAL ad campaign selling well optioned Exploders for $18K. (Included is a six month warranty from Cerberus Warranty LLC – feel free to buy more, they’ll talk $$$).

    And for states with unfriendly AG’s or laws that restrict such deals? No such cars – period.

  • avatar
    ihatetrees

    @ucanthandlethetruth:

    The argument in this blog that “too many dealers” are dragging down the big three is fundamentally flawed. It costs the manufacturer so very little to support a dealer.

    If all dealers were such an asset to consumers and manufacturers, why do they support state laws that prohibit manufacturers from using effective quality control measures against them? Or manufacturer internet pricing / marketing???
    Answer: Dealers have a nice local monopoly (even if , on the domestic side, it’s slowly dying).

    It just takes a few cancerous dealers to ruin a brand.

    That said, I wonder how the (now apparent) Cerberus Model of dealer-downsizing (slow, brutal starvation of models and quantity) will work.

  • avatar

    ucanthandlethetruth :

    Why can’t you accept the possiblity that these deals actually have helped the viability of all three domestic auto manufacturers?

    I can accept that possibility. And I’ve done so previously.

    This article is not about whether or not the UAW contracts are good for The Big 2.8. It’s about how these domestic automakers are playing a game of last man standing, while the transplants are busy running a marathon.

    Detroit’s biggest problem is branding. But that’s a editorial for another day.

  • avatar
    glenn126

    Wow. I thought Ford was screwed before, look at them now….

    My boss’s boss owns a ton of Ford stock, also Federal-Mogul. Fed-Mog went through bankruptcy, so he took a major hit. Now this.

    He needs to start collecting stamps, or silver, or something.

    Very valid statement about outrunning the bears – “I don’t need to outrun the bears, only need to outrun you two b*stards!!!! ”

    Trouble is, there are other bears in the woods. Tripping you “friends” so one bear doesn’t get you isn’t going to prevent the next bear from eating you. Tripping both “friends” will only mean that the next time a bear is chasing you, you WILL have to outrun the bear….

    I like how the Japanese look at competition much better. Notice how they actually don’t massacre each other – there are multiple Japanese car makers still extant.

  • avatar
    Steven Lang

    Here are a few new car dealer practices that ‘hurt’ the community.

    1) Dumping the worst of their trade-in’s at public auctions and using all different forms of chicanery to screw the public.

    (Just an FYI, most dealers are dumb enough to use their actual names while doing this.)

    2) Deploying deceptive, combative and all sorts of insincere tactics during the car buying process that are designed to sucker and rip-off as many people as possible.

    3) Pushing customers to pay for a multitude of bogus add-on’s (documentation fees, financing fees, etc.) in order to buy a given vehicle. There have been plenty of instances where all the dealers and/or the distributor will employ this practice.

    4) Promoting advertising practices that are often the embodiment of bait and switch tactics. Where else but in a new car dealership do you have 1 vehicle available at a given price (less fees, fees and fees) and several dozen that are simply not.

    5) Funding politicians for the sole purpose of creating as many barriers and costs for the consumer as possible. Everything from AS/IS deals for used cars (if it breaks down when it leaves the lot… too bad), to keeping consumers away from dealer auctions (it takes a special person to be able to signal the auctioneer), to 25+% interest rates plus fees, plus whatever dollar amount possible in the hopes that if the vehicle ever has to be repo’d they can always garnish the consumer’s wages afterwards.

    I’m aware that many dealers are honest, ethical and downright decent. However the laws we have today are largely designed to protect those who are not. I strongly believe the vast majority of folks would be far better off buying a vehicle off of Ebay, or even Craigslist so long as they do their homework, than they would by visiting most new or used car dealerships.

    You are free to disagree with me. But I believe most folks are more interested in seeing the feedback of hundreds of satisfied customers vs. the practices that are part of the status quo in the brick and mortar dealerships.

  • avatar
    ucanthandlethetruth

    ihatetrees

    I didn’t say ALL dealers were an asset. There are certainly bad dealers just like there are bad blog contributors. But a manufacturers dealer body is a very valuable asset to them, both in terms of capital investment & local sales impact.

    And as for quality control measures, the stats show that for most brands over 90% of consumers say they are either completely or very satisfied with their sale and service experience. And a miriad of state and federal laws protect consumers fmro car dealers. Too bad teh same isn;t true of other industries like furniture, appliance, and injury lawyers.

    And if there are too many domestic dealers, doesn’t that give consumers more opportunity to vote with their feet and choose to go where they get what’s important to them? Perceived superior product quality, low price, big selection, familiar place, modern showroom, friendly laid back atmosphere. Etc. Any of these things might be more important to one person than another, and this relative importance combined with the consumers perception of how well the dealer met their expectations of each of them add up to each consumers view of a superior retail experience. A dealer that succeeds in satisfying the most people will flourish, and those that don’t may die, especially today.

  • avatar
    SLLTTAC

    To all the reasons offered for US manufacturers’ ill health, add southern states, which have massively subsidized foreign manufacturers with tax abatements and cash grants in order to provide jobs for their citizens. Tennessee, Kentucky, Alabama, and South Carolina, among others, deserve some credit for the success of Japansese, Korean, and German manufacturers and blame for the decline of GM, Ford, and Chrysler. Of course, Michigan, Illinois, and other northern states have given American manufacturers tax credits and cash subsidies.

  • avatar
    jrlombard

    ucanthandlethetruth :
    Auto manufacturers should do what they do best; design and build vehicles. No auto manufacturer has been successful at the retail side of the business. And they have tried. For example from about 1998 – 2001 Ford bought dealers in a few cities. In Rochester, NY for example they bought most of the ford stores in town (except the one minority owned point) closed some, and ran the rest as the “Ford Auto Collection”. In about three years they lost half of their market share and millions of dollars before selling the stores they didn’t close back to private entrepreneur dealers.

    Two points. First, I would be curious to know what Ford’s reasoning was behind this decision. Was it truly to “try their hand” at retail, or was it to get rid of some dead wood in the dealer network, albeit the hard way.

    Second, the theory that I present is based on a new paradigm at Ford. I understand that there would have to be a major shift in the culture and environment. I submit that there are plenty of examples in business where this approach works. Apple has Apple stores, Bose has its own stores, even Harley-Davidson owns a few retail locations.

    Car dealers of all brands usually live or are very active in the areas in which they do business. They support local little leagues, scouting, etc. They belong to the same churches their customers do, send the kids to the same schools their customers kids attend, and are part of the fabric of the community. And they have their heart and soul, along with a significant financial stake, in the dealership. All of this results in more sales.

    No disagreement. The difference in the new model is that the very same people that you refer to are employed by Ford rather than a dealership.

    The argument in this blog that “too many dealers” are dragging down the big three is fundamentally flawed. It costs the manufacturer so very little to support a dealer… All for an average of maybe 3% profit.

    Ah yes, cost. While the physical, tangible cost of a dealership to the manufacturer may be low, one has to consider something else when figuring cost: damage to the brand. Too many dealers means that customers DO vote with their feet, cross-shopping several dealerships when purchasing. This forces dealers to drop their prices in order to make the sale. When the sales price is lower, the perception of the product is lower. You can advertise something all day at $24,999, but if the average transaction price is closer to $19,999, then that is what that vehicle is worth.

    More franchise dealerships = lower average sale prices = lower profit margins.

    In almost every case, when a dealer closes, the manufacturer they represented loses sales. How is this good for the manufacturer? As sales shift, market forces will close stores. And the big three are in the midst of model consolidation already. They can get to the right mix without shedding dealers through bankruptcy. And those left will be even stronger.

    This is more of a testament to product quality and brand perception than it is to the manufacturer/dealer relationship. After all, if Ford had the reputation of Honda, people would drive to the next town (or two, or three) in order to buy their next car. Build quality cars that people want to buy, and my bet is that sales wouldn’t drop when dealerships close. People would just seek out the dealership closest to them and go there.

    For example, in the Napa Valley in California (not too far from where I live) there are three Ford dealerships to cover a population of just over 100,000 people. My point is that if they closed the dealership in Calistoga or St. Helena, and you just had to have a Ford, chances are that you wouldn’t hesitate to drive 26 miles to the dealership in Napa to buy one.

  • avatar
    starlightmica

    The bear analogy is a great one, chasing the hapless buddies into a dark forest loaded with other unseen pitfalls such as currency fluctuations, the weakness in the housing market, and global oil demand/supply.

    In the meantime: lookit, no strike! UAW and Ford have come to a preliminary agreement.

    http://online.wsj.com/article/SB119408167828081519.html?mod=hpp_us_whats_news

    Few details are available; 2 factories that were meant to be shuttered will be kept open for an additional 4 years. Ford’s contribution to the VEBA will be lower than GM and C.

    RF: Did I just see a popover video for the Chrysler Sebring on this site? Kick ‘em while they’re down, AND take their money. Whatever it takes to keep this site alive, I say.

  • avatar
    jthorner

    “Ford would be free to do what no other domestic manufacturer could do, which is control the customer experience from advertising through post-sales warranty and follow-up.”

    Considering how horribly Ford does the customer experience thing when they are in control, such as in warranty controversies, I have little hope for top down control of dealerships being a silver bullet. What do any of the executives at Ford know about managing retail businesses? Read Sloan’s book if you want a deeper understanding of the reasons why independent dealer networks were chosen as the distribution channel instead of company owned stores. Experiments with direct sales have been tried many times in many places, but they generally flop.

    Yes there are a lot of rotten dealerships in the US, many of them with big Toyota signs hanging at the front lot and many under other names.

    How about this, Ford could simply publish some of the data they have about various dealerships and let the public decide. Start with customer complaint rates. You could look on ford.com, put in your zip code, and see a ranking of the dealers within 60 miles sorted by customer complaint rate.

    As far as the sculpting analogy goes, I don’t buy it. Building a company is a lot more like most construction projects where you start with pieces and build up a whole. Engineers called this an additive process. Stone sculpture is one of the few subtractive processes generally known. Subtractive processes tend to be very inefficient users of resources and are a process of last resort.

  • avatar
    mel23

    What would happen to the value of Ford stock if they enter bankruptcy? Would the Ford family, with their controlling interest of stock, agree to that?

  • avatar
    Pch101

    I’ll have to disagree that Chrysler timed its approval to hurt Ford or anybody else. The deal was controversial, and I’d venture to guess that Chrysler was simply eager to close it as a preventative measure before something could happen to prevent it from closing. Since the company was apparently happy with the terms, it decided to close it and move on.

    I’d say that Chrysler got what it wanted: a relative short four-year contract (well timed to match the future sale of the automaker or at least one of its brands to somebody else) and some lower wages. No long term promises, which is perfect for an operator who probably plans on cashing in on this deal in about five years from now.

    I agree with much of TTAC’s coverage, but I think that the general anti-union stance tends to obscure things a bit and leads to an overly Americentric view of the situation. In my estimation, Chrysler has minimal expectations in the US market, and is mostly concerned with the possibility of building markets outside the US.

    The US market is mature and fiercely competitive, and Chrysler’s brands are generally damaged and its product lineup sorely mismatched with public tastes. Cerberus ain’t dumb, and probably believes that Chrysler’s US market share can most likely only decline or perhaps plateau. Without a risky and costly R&D renaissance, the best thing that Cerberus can do in the US is to cut the bleeders, lower its cost structure and perhaps come up with a hit or two that can help to generate some profits. (Having hits will be brand builders and create cash flow, so they would be worth pursuing.) The latest union deal creates a two-tier wage structure and transfer the health care management to the union, which reduces the cost, makes these issues less of a distraction and paves the way for future cuts in future agreements. For a company with modest expectations for US business, that’s not a bad result.

    All this means that Ford is the least of Chrysler’s worries, in my opinion. Cerberus is racing to create a more global company (of the Big 2.8, Chrysler is the most stuck in the US market) that will be attractive enough to buy within a 5+ year timeframe, which means it needs a reasonable cost structure, some brand equity and loads of potential for the next owner, while not bleeding Cerberus’ investors of too much in the interim. The cuts in the lineup that I predicted here have already been announced, and I’ll expect that more offshoring efforts and JV agreements will be next.

  • avatar
    rtz

    GM has a lot of nice new product. They also have a lot of nice items lined up and in the works. Ford and Chrysler have nothing now or in the works. Just more of the same from each of them. GM has really stepped up lately.

    When I see an `07/`08 GM model on the road; it’s worlds beyond that standard fare `06 and older stuff.

    We’ll have to see what type of game Alan Mulally brings from his Boeing days. Supposedly they’d let them go just as quick as they hired them(workers) back in the 747 days and even into the `80′s. Was it that way in the 1990′s?

  • avatar
    Phil Ressler

    It’s tough to sell American managers on cooperation. Our business culture is essentially internecine to the core and therefore vulnerable to the challenges of a global economy where companies outside the US are often operating under an idea of shared self-interest or with the visible hand of government support. Sure, at the end of the day our Michigan automakers must compete and win on products, services and policies, but during the immediate period of their reconstruction, that train’s too slow to wait for.

    All three of these companies are laboring against a headwind of doubt about American ability to design, build, market and field competitive automobiles. Unlike the mid-20th century, when our domestic automobile business was one of the major attractors of talent, our best-educated and smartest people aren’t generally looking to automaking as the engine for meeting their personal goals. And for those that might, living in Michigan further discourages getting involved. This is no slight to the people who do work in all levels of the automotive sector. But you do have to see that the many hundreds of thousands of engineers who chose software or chip design over mechanical engineering, electrical engineers who headed west, and the cadre of MBAs who chose Silicon Valley or Route 128 for tech or NYC and San Francisco for finance, were also turning their backs on Detroit, Pittsburgh, Gary, St. Louis, Cleveland, Akron and the like. If making automobiles were still the route to self-actualization, wealth and a lugubrious life, other sectors would be starved for its technical and business talent.

    This is set-up to say that the auto business needs more of what newer sectors concluded they need: partners and concerted action within partnerships. This is not collusion. It’s “co-opetition,” an idea popularized 20 years ago by Ray Noorda at Novell when he realized he needed Microsoft and IBM as much as he needed to take business from them.

    We’ve seen a bloom of co-opetition in automaking, notably GM, BMW and Chrysler teaming up on the Two-Mode Hybrid project, and GM & Ford co-developing a 6 speed automatic transmission. GM’s pioneering use of steel and aluminum hydroforming spread to Ford and Chrysler. The Detroit 3 can take this further, licensing their best technologies to each other for rapid, widespread adoption.

    Why do this? Because the Detroit 3 must understand that while they feverishly design and engineer new vehicles, their immediate challenge is to knock down perceptions that Americans don’t build competitive cars. Without resorting to hokey patriotism or empty marketing gestures, they can work informally together to make the battle for the American automotive market a fair fight and tougher for their foes.

    This battle is not going to be won through fratricide. GM cannot win the full 50% of the market now held by Detroit by destroying Ford and Chrysler. Chrysler cannot possibly expand fast enough to become the largest American player unless they are the last standing and being smallest but last makes you now largest, facing a 360 degree horizon of grizzlies. The path for resurgence of the Michigan auto industry lies in the three who are left retaking ground lost to foreign competitors. They must all be committed to regaining market share, with efforts focused on rolling back the importers’ recent gains.

    Would it be accidental if GM, Ford and Chrysler debuted an 8 or 10yr./100,000mi. warranty? Add 4 years free scheduled maintenance for Cadillacs, Buicks, Corvette, Lincolns and anything Chrysler considers a “luxury” model. Ford licenses Two-Mode. GM and Chrysler license Ford’s parallel hybrid powertrain and get it into some models of their own. All three get a shot at Volt’s platform. Meanwhile, each of the three can put their own spin on packaging American technology and build quality. Today, the newest Fords and GMs have sharply upgraded interiors, but they’re distinctly different in their aesthetic. With more sharing of engineering, these companies can put more effort and emphasis into design innovations that show up on concept cars but seldom seem to make it into production. Imagine if the upcoming Ford Fairlane actually had the design theme of the show car. Or if Ford fielded the interior of the Forty-Nine in a production car. The three companies could return to a former strength, which was producing dramatic, emotionally engaging cars, but now with their newfound world-class willingness and ability for precision assembly and elevated attention to craft. With auto financing consolidating, how about ownership innovations shared among these three?

    The new shared engineering components are often computer-managed, so the behavior and feel of Ford’s 6-speed automatics can be tuned differently from GM’s, and vice-versa. Within the two companies, transmission behavior can be tuned to the sub-brand expectations. Firm shifts in performance Pontiacs and Chevrolets; smoother transitions for Buicks and Cadillacs, with sport options accordingly. GM and Ford have usually had different suspension philosophies, which can continue. But how about Ford and Chrysler licensing GM’s excellent magneto-rheological shocks, which are again highly tunable components via programming.

    Similarly, the companies need a shared approach with the UAW and vice-versa. And both need a common approach to the Federal and State governments, as well as the governments realizing that they have a shared stake in the robustness of the Detroit 3. We have too many parties among all these players obscuring shared interest and leaving competitive advantage on the table.

    Will they still win some of each other’s customers? Sure. But their main goal for the next 5 – 10 year has to be winning back aggregate market share for the domestic trio. Automotive engineering talent is now so well dispersed around the globe that it will be difficult for any company to exclusively introduce compelling innovation. Toyota’s advantage right now isn’t so much engineering as capital. Detroit’s disadvantage isn’t lack of engineering so much as capital and a bean-counting management layer that stifles its engineers. On the other hand we see in the Germans what happens when engineers aren’t stifled at least a little…

    The reliability set may put up with appliances, but at least half the market wants something more. Visual drama, emotional engagement and lasting satisfaction with the interior and exterior aesthetic you have to live with as owner are areas of innovation where Detroit can leap to the lead if they have the courage to try. This is not a recommendation for retro. Bill Mitchell’s expressive cars were all about looking forward. If his design acumen had been continued and matched by engineering and build quality, GM might not have cut the emotional tie its customers had to its brands.

    GM says the new Malibu showcases its ability to build to vanishing gap tolerances. OK, open your doors to Ford and Chrysler for demos on how it’s done. This aspect of carmaking is commodity. Spreading competence will help get people back into the Michigan companies’ showrooms and break down the dated perception held by some that Detroit can’t do things right. Quality stats show that Detroit’s newest drivetrains and mecho-electronic systems work and work well. Detroit’s cars no longer suffer rust. Plastics in the newest cars are fine. OK, they’re climbing back into the ring with the essential inventory of footwork and punching. That just puts them in the game. They need more.

    What others can’t duplicate is the American design heritage. Just as carmakers the world over can hire Italian auto designers, only Italy produces distinctive and dramatic Italian cars. The original Scion xB, Nissan’s Z, and Mazda’s current aesthetic could only come from Japan. Cadillac’s Art & Science and Chrysler’s 300 could only emerge from an American sensibility, which was elemental to their comeback progress so far. Corvette could come from nowhere else. Cadillac is showing with the new CTS that it has an evolution direction in mind. We don’t know if Chrysler sees a continuing design vector for the 300. Detroit fares poorly when it tries to build Hondas. These companies need to set their own relationships with customers as best practices that define a new standard, today, with what they have. They should share via licensing and joint projects their best underlying technologies, techniques and controls. Then, since the basic underpinnings of FWD and RWD cars are now fairly generic the world over, drive for emotional advantage in customer engagement. Let them use their distinct and discrete heritages to inspire magnetic customer interest to modern, technically adept, quality-competitive charismatic cars.

    To succeed at this and do so quickly, the Michigan companies must revive their once-brilliant understanding of brand and how it moves markets and guides a business. Marketing, the real kind that permeates holistic thinking of vision, products, content, message, customer experience and winning a relationship rather than just a transaction, is going to have to be bolstered by adroit and insightful recruiting from outside. Yesterday wouldn’t be too soon to get started. There too, they should share what works.

    Phil

  • avatar
    jthorner

    “What would happen to the value of Ford stock if they enter bankruptcy? Would the Ford family, with their controlling interest of stock, agree to that?”

    As a general rule stockholders typically get nothing in a bankruptcy, sometimes they might get pennies on the dollar. I doubt that Ford’s controlling shareholders from the family would agree to going that way if they have any other choice.

    It is almost always the case that companies go into Chapter 11 bankruptcy reorganization when they literally have no other choice. Debts so far exceed the ability to pay that the choice is either to file Chapter 11 or to have the creditors file for a Chapter 7 liquidation of the business.

  • avatar
    yankinwaoz

    You could look on ford.com, put in your zip code, and see a ranking of the dealers within 60 miles sorted by customer complaint rate.

    Oh no. That can’t happen. It would be very illegal for Ford to damage the reputation of a franchise by publicly ranking them. Ford would be on the hook for a lot of damage money from the dealer at the bottom of the list.

    Opening a car franchise is a bit like a Catholic marriage… no divorce allowed. You made your vows to each other and now you have to stick to them.

  • avatar
    jurisb

    Phil- `Cadillac`s art & science could only emerge from american sensibility`. actually it emerged from a russian designer Kip Vasenko. the same like the engineering work of boeing 747 dreamfreighter. (747 cargo version for shipping 787 fuselages).200 russian engineers did 100% of the engineering in Russia. Why boeing could not do it at home? good question, isn`t it?
    not building things yourself, just outsourcing, starves you of the expertize, and if you don`t have expertize, you can`t be competetive. CARVE THIS IN YOUR MINDS

  • avatar
    Phil Ressler

    `Cadillac`s art & science could only emerge from american sensibility`. actually it emerged from a russian designer Kip Vasenko.

    When I say “American” I refer to American as an idea that attracts global talent. Often, contemporary immigrants see the traits of American design (and engineering) better than the current crop of native Americans who have lost confidence in our conceptual heritage. Russians, by the way, as products of a continental culture, often see things a similar way. This also accounts for some of the Chinese market’s affinity for American products. Plus, Vasenko’s idea had to make it through the vetting of American management. A great idea survived that process.

    Zora Arkus Duntov was, for instance, Hungarian. But his vision for the Corvette made it a uniquely American car. Guys like Kip? Keep ‘em coming! He was as American as many of us native born, the day he got here.

    Phil

  • avatar
    KBW

    the Chinese market’s affinity for American products.

    That has more to do with the Chinese market’s disdain for Japanese products than anything else. The anti-Japanese sentiment is amazingly strong in China due to historical reasons and government propaganda. You will find much of the same sentiment throughout Asia. The indigenous brands make junk that’s incredibly bad. This really narrows the market and allows GM, Ford and VW to exploit a much less competitive market. Hell, the Audi I rode around in in Shanghai didn’t even have airbags and that thing was made in the late 90s. In China’s traffic, it felt like I was going to die at any second.

  • avatar
    Thomas Minzenmay

    Long term survival first of all means long term profitability. If GM’s rising numbers alone will do the trick remains to be seen (I doubt it).

    Chrysler’s new masters could help them to reach that goal. This doesn’t necessarily mean that Chrysler will build better products though. However, if they get to the point of reliable profitability they’d be in a more comfortable position to tackle that issue.

    Ford right now really is in dire straits. After Jaguar/Land Rover, Volvo is set to be the next division Ford is selling off. They must need the money bad. There’s no choice but to downsize drastically wherever they lose money.

  • avatar
    KatiePuckrik

    I agree with this article in so much, that Detroit better accept that one of them WILL be going down, the question is which one and I’m glad that Chrysler has started playing dirty and Ford was on the receiving end (Stop being sadistic, Katie!).

    One of them will go down and it looks like Ford (Yay!). I have to give GM credit (even if they still are at “Junk” status!), they are starting to look contenders, but I still don’t trust their management. They have continually made screw ups (Rick Wagoner cost GM $2bn with the FIATsco. If you or I cost our company even 1% of that amount, we would be unemployed!) and screw ups (lack of foresight on hybrids) so there’s still time to mess up their advantage. The UAW buckling was the saving grace they needed.

    Chrysler still has a chance because Cerberus did not buy Chrysler to lose money. Equity companies are vicious when it comes to making money and they will slit anyone’s throat to make it. Hence, employing Mr Nardelli.

    As Ford, that’s a different matter. As far as I’m conerned, Jaguar still has life and can be saved with the right management. My opinion of Jaguar has been redefined since driving the X-type. Jaguar KNOW how to make cars and make them well. Their brand is damaged and needs repairing. Ford could do so much with Jaguar if they played it right. But instead, what did they do? Place it between Volvo (maker of luxry sedans) and Aston Martin (maker of super sports cars) and told not to encroach on either’s cache! Didn’t leave them with much, did it? Land Rover seems like a dead duck. Only makes cars in a segement which is dying. Volvo is in good shape but has one critical flaw.

    A common argument on TTAC is that a brand must stand for something. Now Volvo’s brand was synonimous with safety. You wanted a safe car? You look to Volvo. Unfortunately, with their pursuit of making luxury cars and working as a part time engineering department for Ford, Renault came along and took that title. Renault do make terrible cars and have poor quality and reliability, but they are safe. Very safe. Volvo need to get that title back and quick smart!

    Ford won’t relinquish Mazda under any circumstances. They are their main engineering department and help them with platforms. Ford can’t afford to lose them. Which is a shame because I think Mazda could flourish if they broke free from them.

    Ford still have a lot of work to do and very little time to do it in. Mullaly better start earning that $23million sharpish! He could also save another couple of million and sack Mark Fields and get a proper second in command?

    Mr Glenn126, I have to disgaree with you. the Japanese have the same approach to competition as Westerners do, trouble is foreigners bought stakes in the Japanese companies which were failing are made them competitive again. If it weren’t for Ford and Renault, then Mazda and Nissan, respectively, would have been consigned to the history books a long time ago.

    But it’s not all doom and gloom. I remember a story from Japan where a noodle maker was going to go bust and a foreign equity company was going to buy them up, until the noodle maker’s main rival (another Japanese company) bought them up and said they could have some breathing space to regroup and then they’d cut them loose again. Who said socialism couldn’t exist in the cut throat world of commerce……?

  • avatar
    jurisb

    the timeline.
    1. a company builds a competetive product.
    2. a company `s product has been too long in the market, the cheapest way of fixing that is found- mascara job.
    3. technology too obsolete, a company quickly buys shares into a foreign company to get access to more modern platforms.
    3. outsourcing proliferates, more and more parts are taken from a foreign company.assembly line moves out of the country of origin to push down expenditures.
    4. a complete foreign car gets a mild reskin from the original manufacturer. exterior substantially left unaltered. a badge slapping hysteria starts.
    5. a100% import gets a domesticated name of the former car manufacturer, that doesn`t engineer, only assembles cars.
    6. bankruptcy vawe. the foreign company stops selling their cars under a domestic generic name, but sells the same amount of cars putting their own original emblem.
    7. the given domestic company stops existing.

    Where are you Detroit at? I guess you are at point 4. wishing you 10.2 trillion good lucks! :)))))))))))

  • avatar
    umterp85

    Samir Syed: “This morning, I took my V6 Mustang out for a spin. It is a car whose many flaws (uncomfortable seats, sketchy plastic interior, useless side mirrors, grabby clutch, clunky gearbox, atrocious seatbelt mechanism, terrible visibility, endless tail-wagging on bumpy roads, embarassing fuel consumption, junky door slams, ticky-tack indicator switch, poor sound system, inoperable rear defog, sweaky power windows, etc.) I tolerate for some reason unbeknownst to me. You’re not gonna out run anything, let alone the bear that is Honda and Toyota, in a V6 Mustang”

    Samir…I own a V6 Mustang as well—hopefully your is a manual like mine….6.5 seconds to 60 will outrun most Honda’s & Toyota’s.

    Sorry to hear you are having so many issues—JD Power and Consumer Reports both recommend the Mustang quality wise—my 2005 has been flawless with the exception of an emergency brake adjustment.

    Question—if you are so upset with your stang—why not trade it in—or at least upgrade some of the areas you hate via the monster selection in aftermarket. Upgraded stereos (guess you didn’t get the stock Shaker 500) and stabilizer bars are easy fixes my friend; mossmustang.com is an easy place to start.

  • avatar
    umterp85

    Katie P—Could not agree with you more on Ford sacking Mark Fields. Useless talking head (or should I say mullitt head) who has had very little of substance to add to the conversation of how Ford should move forward.

    Having this guy still in the mix is the one major disappointment I have had with Mulally.

  • avatar
    jthorner

    ” … Ford sacking Mark Fields … ”

    But, but he has a Harvard MBA!

    Nardelli’s MBA is from University of Louisville while Wagoneer is also a Harvard MBA product. Mulally’s MBA is from MIT.

    In this market my money would have to be on the scrappy Louisville guy, not the Boston Brahmins.

  • avatar

    Question—if you are so upset with your stang—why not trade it in

    Hey umterp.

    I meant outrun in the figurative sense, not the literal sense. The V6 mustang, the clear volume leader among Mustangs and basically the only native design Ford has for a passenger car aside from the Panther Crown Vic (i.e., not a descendent of Volvo or Mazda) is not enough to lead a turn around against the plethora of Hondas and Toyotas for sale on American Soil – not even the new Mustang.

    As for why I keep the car? What else – emotional attachment. That’s right, crusty guys like us who have written at TTAC have emotions. Don’t take my word for it, though. Ask Sajeev – he has 3 Mustangs!

  • avatar
    umterp85

    Samir—I got the figurative sense of your comment—-just thought I would throw in the factoid around 0-60 times to dispel the notion the power of this version of V6 Mustang—it does have surpising get up and go compared to its predesesors….especially with a manual. Like you (and Sanjeev) I think Ford can (and will) do better on the interior appointments in the next gen stang due in model year ’09 or ’10. In the meantime—I do stand behind my statement that if you truly do not like some part of the car—EBAY and other outlets can remedy that pretty cheaply…its amazing the mods I have been able to do at such a low cost. Life is too short to have your emotions torn !

  • avatar
    KatiePuckrik

    Speaking of employing useless people, I may have spotted another few thousand dollars which Ford could save.

    I was watching an episode of Ford’s Bold Moves (There was nothing to watch on TV and it was either this or stare blankly at a wall. Ford Bold Moves won….just) and there was a lady named Sonia Shrank whose job title was (and I’m not making this up) “Manager of Ford’s brand DNA”!

    How many other people do Ford employ with pointless (almost meaningless) job titles?! Seriously, Ford have only themselves to blame. No-one else.

    P.S. The Ford Euro Focus sucks. I mean sucks like a Dyson vacuum cleaner. Can someone tell me what they see in it….?

  • avatar
    SherbornSean

    Katie,
    Drive the American version of the Focus, and you’ll understand the esteem for the Euro version.

  • avatar
    davey49

    I agree with the idea of paring down products.
    There’s really no use for Mercury and the Lincolns can be sold at Ford dealers.
    Can some of the L-M dealers be converted to Mazda?
    They need some more outlets in my area, right now the closest one is 40 miles away.
    Samir- Is that Mustang a 2005+ version?

  • avatar
    glenn126

    Hi Katie,

    Yeah, I know the Japanese really can compete and do – fiercely.

    But they have a knack (as you mentioned) for also looking out for one another in a way which is not seen in virtually any other culture.

    For example, when Hino was weak, the MITI (arm of the government which ‘assists’ private enterprise in many ways) surely had something to do with Toyota buying them up. Likewise, when Prince auto was weak, MITI certainly had something to do with Nissan buying them up. Hino still is in business overtly, making heavy trucks (no more Renault based rear engine cars since the 1960′s) and Prince is still in business within Nissan covertly, in the form of many car-lines such as the Skyline

    My favorite example, however, is when Daimler Chrysler execs in Germany decided to pull the rug out from under Mitsubishi Motors – forgetting the principles of one weak sister may be the saving grace later when well (and having seen same with weakness at M-B saved by Chrysler, then when the opposite – they didn’t learn the lesson and sold of Chrysler, too).

    Mitsubishi Heavy Industries (“dad”) and Mitsubishi Bank (“mom”) came to Mitsu Motor’s rescue.

  • avatar
    Dynamic88

    OK, if we’re all playing armchair CEO, for all 3 American automakers, this is my take.

    1. Call Deming. Dr. Deming himself is dead, but his company still exists. He taught Detroit some things in the early ’80s, and Detroit listened, and improved. The D3 have used some of Deming’s philosophy, but they havn’t been nearly as serious about it as the Japanese. So, get Deming back, and listen, and stick with it this time.

    2. Stop thinking of business as a battle. The barbarians are not at the gate. They aren’t barbarians. They are not attacking. They are building really good cars that offer exceptional value for money, and often they are selling them at a premium above Detroit’s offerings.

  • avatar
    KatiePuckrik

    Mr Dynamic88,

    Your ideas are great and the are what Detroit need to do, but there is one more fundamental principle which Detroit need to address first.

    It’s their corporate culture.

    You see, they tried implementing Dr Deming’s ideas before and they just lost interest/too costly/couldn’t be bothered (delete as applicable).

    Detroit put a premium on arcane knowledge and management and a distain on engineering and the customers. That’s why Detroit’s trucks’ customers are always treated to a good product and competitive prices, because Detroit KNOW they daren’t annoy the customers who buy the products with high profit margins. Cars, however, yield much smaller margins and, therefore, can be treated a little less respectful (cynical, I know, but who’s going to disagree?).

    Detroit need to totally overhaul their corporate culture and remind themselves what they are making, why they are making them and who they shouldn’t annoy (hint: they give you money and you give them a vehicle).

    Honda is run by a former “car guy” and Toyota’s top management may be a bunch of suits, but they are forced to live and breathe cars (Fujio Cho, the guy who orchestrated Toyota as we know them now, was a lawyer, but became a car nut by the end of his tenure). Every CEO who takes over at these companies don’t run the companies as a personal kingdom, by are told to manage the companies in line with their vision. With Detroit, it’s “make money now and deal with the fall out later”.

    Quality and reliability needs to be paramount and not seen as a nuisance. For instance, when Detroit (mainly Ford and GM), implemented the “stop the line, there’s a fault” idea, management told the line workers not to stop the line so often because they had a Key Performance Indicator as to how many times they stopped the line. So they were running a quality system, not for quality, but to show how good they were…..on paper. Yet another management fudge.

    It’s not hard, because my “favourite” CEO Mr Carlos “Hybrids? Not viable” Ghosn shook Nissan up and gave them a vision, a way forward and new lease of life. Nissan now make cars to make money AND satisify the customer. Not one or the other.

    Until they shake this archaic way of thinking off, Detroit are destined to keep making the same mistakes over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over and over (you get the idea) again.

  • avatar
    GS650G

    Whoever declares bankruptcy first wins the game, this has not changed despite VEBA or any other contract. Ford has enough overseas operations to make it happen, Chrysler does not. Home Depot Bob won’t be smiling if that happens.

  • avatar
    geeber

    Pch101 is right. I seriously doubt that Chrysler’s new management did this to hurt Ford or anyone else.

    As Freud said to someone who attempted to find hidden symbolism in every dream, “Sometimes a cigar is just a cigar.”

    The company has a definite strategy regarding Chrysler. What is shocking is that Cereberus is moving at warp speed by Detroit standards. Instead of tweaking the grille, adding rebates or dumping train loads of vehicles on Avis, Hertz and Alamo, it is tackling the problem (not enough demand for its vehicles, because too many of them are unattractive and uncompetitive) directly and quickly.

  • avatar
    Bill Wade

    geeber:
    November 5th, 2007 at 10:53 am

    Pch101 is right. I seriously doubt that Chrysler’s new management did this to hurt Ford or anyone else.
    Don’t bet on it. You might look into the investment capitol business.

    These guys are ruthless and only care about the bottom line. If they think they could pick up any market share or sales at Ford’s expense they would do it in a second.

  • avatar

    Geeber: The company has a definite strategy regarding Chrysler. What is shocking is that Cereberus is moving at warp speed by Detroit standards.

    Detroit may think its warp speed, but its Cerberus’ modus operandi. As mentioned in previous TTAC comments, Cerberus is looking for ROI. The only way to get to that sweet nectar is to cut away the dead flesh.

    If Ford happens to be in the way while Cerberus slashes, let ‘em bleed, right?

    ROI is paramount, don’t get in their way. I hope Ford’s got a way out of this.

  • avatar
    RLJ676

    While looking at the preliminary details Ford doesn’t seem to be impacted by this the way it would seem. The job gaurantees where going to be on the table in exchange for less cash in the VEBA up front and a two-tier wage structure better suited to Ford’s needs. Overall the deal is the same it would have been.

    The UAW will be more skeptical in reading it before ratifying however to ensure those jobs ARE gauranteed.

  • avatar
    Lumbergh21

    jrlombard:

    Your assuming that they can operate a dealership better than a local dealership owner. With the added levels of management, I seriously doubt that. I agree with the poster who said Ford’s (and I think it can be said of Chrysler and GM as well) problem is the design and manufacture of cars that just aren’t that competitive.

    I also disagree with Mr. Farago’s assertion that Ford needs to cut the number of brands, particularly since it sounds like he thinks they should cut every brand aside from Ford. For instance I think that the products sold as Mazda and Volvo are still easily distinguished as seperate from Ford products. The problem with a variety of name plates is when you have rampant badge engineering (Mercury), rather than a variety of products aimed at a particular market. Another solution would be to develop a distinct line of cars for Mercury that would compete in a different niche market seperate from Ford itself (like Mazda certainly does, “Zoom-Zoom”).

  • avatar
    Lumbergh21

    jthorner :
    November 3rd, 2007 at 11:14 pm

    “What would happen to the value of Ford stock if they enter bankruptcy? Would the Ford family, with their controlling interest of stock, agree to that?”

    As a general rule stockholders typically get nothing in a bankruptcy, sometimes they might get pennies on the dollar. I doubt that Ford’s controlling shareholders from the family would agree to going that way if they have any other choice.

    That depends on the company and the bankruptcy. Pacific Gas and Electric (PG&E) filed for bankruptcy in 2002, I believe. Their stock completed a nosedive begun months before to $6.88 a share. Now it is trading around $40 a share. At that time, a brother-in-law of mine who works for PG&E, increased the amount of witholding taken out for the company’s ESOP so he could buy as many shares as possible while the stock was dirt cheap. He has made off like a bandit with the company’s resurgence under reworked supply and pricing agreements. The case where stockholders get nothing is the Chapter 7 bankruptcy when the company is dissolved and secured creditors are paid first, followed by unsecured creditors (bond holders), and finally stock holders, who typically get nothing because there is nothing left at this point (otherwise the comapny wouldn’t be filing for bankruptcy).

  • avatar
    Pch101

    If they think they could pick up any market share or sales at Ford’s expense they would do it in a second.

    They have enough problems maintaining their own market share, let alone picking up someone else’s.

    At this point, Chrysler isn’t competing so much with Ford as it is with the likes of Tata. The future of Chrysler Group (read: what is going to have made this deal worthwhile for Cerberus) is not centered in the United States. Fighting with Ford for market share goes back to the proverbial battle for deck chairs on the Titanic.

  • avatar
    Lumbergh21

    I don’t think its so much that Cerebrus made a calculated move to try and harm Ford. I think they planned on doing this all along and couldn’t care less if waiting a few weeks would help Ford or not waiting would hurt them.

  • avatar
    Gardiner Westbound

    A common argument on TTAC is that a brand must stand for something. Now Volvo’s brand was synonymous with safety. KatiePuckrik

    Long before the Volvo brand was synonymous with safety it was known for reliability, durability, and longevity. FoMoCo value engineering put the kibosh on that!

    Volvo 240 Advertisement

  • avatar
    Geotpf

    Bankruptcy isn’t the cure all that people say it is.

    Who the heck is going to put down twenty or thirty grand to buy a car from a bankrupt automaker? The answer is nobody, because they will be afraid of thier warranties becoming worthless and the future availability of spare parts.

    A bankruptcy of one of the Detroit Three means that company’s sales immediately drop at least 30% or so (more). If they are dumping dealers in the process, probably by even more. Considering the ones that are most likely to go bankrupt (IE, not GM) already have sales figures with percentages resembling that (for example, Ford branded car sales were down 36.1% in October-which was an improvement from the 45.1% sales drop in the same category the month prior), so add 30% plus 30% plus 20% for the dealer dumping and you soon have almost no sales.

    So, that’s not going to happen.

  • avatar
    jthorner

    “That depends on the company and the bankruptcy. Pacific Gas and Electric (PG&E) filed for bankruptcy in 2002, I believe. Their stock completed a nosedive begun months before to $6.88 a share. Now it is trading around $40 a share.”

    Such situations do occur, but are rare. PG&E’s situation was caused by a regulatory nightmare during which wholesale electricity costs were unregulated while the retail sales price was regulated. There was no way the company could be allowed to simply fail because it is the power supplier for much of California. The state government changed the rules of the game and assured PG&E’s survival. I’m still paying the crazy high rates here that go along with that whole sad story.

    In most Chapter 11 cases the pre-filing common stockholder gets little or nothing.

  • avatar
    Kman

    Okay, wasn’t sure where to post this.

    I wish to submit the following editorial as the next in the series “GM Death Watch”.

    [BEGIN]
    =============
    Today’s headline: GM loses $39B in 3Q
    =============
    [END]

    Sorry, it doesn’t meet the 800-word requirement, but there isn’t much else to say beyond that one sentence.

  • avatar
    Martin Albright

    I think Geoptf has a point, though I would qualify it a bit. Bankruptcy may be the long term salvation of a company, but it’s not an immediate cure-all, for the reasons he stated (I, for one, would be reluctant to buy a vehicle from a bankrupt company unless the warranty was held by a 3rd party that was not in bankrupcty.)

    What may be more true is that after chapter 11, the bankrupt company would have to spend a few years in the wilderness, slowly and painstakingly rebuilding both their product line and their reputation – think of how International Harvester disappeared for a few years, then came back as Navistar.

    The critical question, then, for the potentially bankrupt automaker is this: Do they have a few years in which to recover?


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