By on November 10, 2008

Dear President-elect Obama,

Upon taking office, you will immediately face some tough decisions about the future of the government’s role in “saving” Ford, GM and Chrysler. As you know, the Detroit-based automotive industry has already bent the ears of your political colleagues, particularly Speaker Pelosi and Senate Majority leader Reid. These Democratic leaders in Congress seek membership approval to provide taxpayer dollars to prevent these automakers from impending collapse. While we respect the efforts of Congressional leadership, and we share their desire to enhance and protect America’s industrial base and employment therein, we ask that you spare a moment to listen to the opinions of people who do not share their belief that massive federal funding will achieve these goals. First, our qualifications.

We have been involved with the American automobile industry for decades. We are factory workers, designers, engineers, managers, mechanics, dealers, part suppliers, enthusiasts, journalists, and consumers. Together, we represent the combined voices of the “front lines” of our industry. We are loyal to our country’s economic self-interest and seek but one outcome: an American auto industry that builds vehicles admired and desired by the American public.

Over the last three decades, for reasons too numerous to elaborate, the majority of Americans (especially passenger car buyers) have switched their loyalties to foreign-owned brands. You will hear various explanations for this failure from the men in charge of Detroit: unfair foreign trade, currency manipulation, fuel economy regulations, health care costs, union collective bargaining agreements, the current credit crisis and more. We urge you to discard these explanations and only look at sales trends for the past three decades. Again, for whatever reasons, American consumers mostly abandoned Detroit.

By the same token, American automakers abandoned their customers, by failing to invest its profits in flexible assembly techniques, new powertrains and platforms, and better design. By failing to spread their investments in a range of vehicles to meet consumer needs, or fully embrace the fuel efficient future that Congress has dictated. To rectify this situation, urgent action is required. But you, as president-elect, must face this crisis with a clear understanding of the limitations you face.

First, accept the fact that jobs will be lost no matter what you do. The American automobile industry has too many products, brands, bureaucrats and dealers relative to the size of its market share. Until it can recapture– or at least maintain– market share, it will continue to contract. As any process of recovery will be slow and arduous, Ford, GM and Chrysler will have to shed thousands more jobs. With or without federal aid, this “downsizing” should continue, and sometimes with less than gracious outcomes.

Second, admit that Chrysler has no future. Actually, it had no future when Daimler sold it to Cerberus. Worse, Cerberus never had any intentions to invest the capital necessary to make a go of it. It has no future products in the pipeline today, and hence is undeserving of rescue.  To best protect Chrysler’s past and present employees’ pensions and interests, Chrysler must be allowed to fail and be liquidated.  At least some jobs will be saved as the company’s best assets get sold to other automakers, and proceeds will be returned to the debtor’s estate for apportionment among its stakeholders.

Third, understand that GM and Ford needs bespoke funding solutions. Your administration would be well advised to create a menu of funding options, each with different levels of security interest and control assumed by the federal government. Ford and GM’s executive management and their Boards will have the option to choose among a variety of solutions to resurrect their companies’ fortunes.  If an initial solution does not work, any return to menu will incur significant costs and dilution.  A “one size” solution to the problems of both automakers is not wise and simply doesn’t work.

For example, the cash needs of GM vastly outweigh those of Ford. GM does need a massive financial restructuring, Ford doesn’t. Taking a few billion here and there at GM won’t restore profitability at the company, it just prolongs the agony. Any analyst will tell you that GM needs perhaps $25 to $50b as part of a proper restructuring that includes a major “cramdown” on all stakeholders (including the United Auto Workers’ health care association). This “last resort” menu option then gives the taxpayers a significant interest in the company in return for the cash, with a small piece left for the creditors. And as its largest stockholder of sorts, the Feds get to call most of the shots at GM.

At Ford, the company has done most of the work necessary to restructure itself to long-term profitability in the near future – when auto sales come back to trend if not sooner. The amount of government assistance needed to ride through the crisis is considerably less than what’s required at GM. As a result, Ford will take a different menu option. Less money taken with less risk to taxpayers means less government influence and equity dilution for existing stockholders.

Fourth, the current management team at GM must be replaced, even if GM selects the lowest funding level option off the menu we prescribe. While we do not believe that government should involve itself in the highest levels of American enterprise, if it does, it should do so whilst protecting the financial interests of the American taxpayer. Any funds to GM must come with a wholesale revamping of this company’s Board of Directors and its senior management team.

Fifth, do not fall into the political trap of demands made by the UAW as deserving of a bail-out of their VEBA plan, regardless of what happens to each of the Detroit Three. The UAW itself is a business, with its own motivations for profit (for its members) and metrics of success. Its fortunes must rise and fall with its respective employers and not be treated as an independent party at the political bargaining table for government funding. If you grant a payout to the UAW, you set a future course for enterprise in this country that has long term negative consequences by insuring employment stability. Russia abandoned that principle two decades ago, and for good reason.

We wish you all the best for your future and that of our country.

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24 Comments on “Editorial: General Motors Death Watch 212: An Open Letter to President-Elect Barack Obama...”

  • avatar

    From your paragraph on Ford, you suggest that sales will ‘come back to trend.’ I would propose that US sales levels of the previous 4-5 years are probably above what can be reasonably supported for the foreseeable future. I don’t think that it makes sense to assume that either Europe or the US will see massive growth in new car sales anytime soon, given where we are economically. What’s the game plan if sales stay at levels such as they are now?


  • avatar

    Pipedream. Not going to happen. Political needs are going to outweigh the taxpayer. Look for buckets of money with no strings attached. Ford is the one enterprise that can survive but if GM gets a lifeboat then Ford is at a decidedly large disadvantage.

  • avatar

    Next to last paragraph … proscribe means to banish or outlaw.

    …you meant prescribe.

    Outstanding letter.

  • avatar

    TaurusGT500 :

    Text amended.

  • avatar

    Ford has billions of dollars of cash, but it is borrowed money. GM stock hit $3.20 a share this morning, and one large financial company says it will go to zero. GM market cap is $1.8 billion, essentially nothing. They are insolvent.

    Why in the hell do we taxpayers want to give billions (call it loans if one wishes, it will never be paid back)to this company that is already insolvent? To save jobs? Really, just how many jobs will be “saved” and for how long?

    I am one who believe if a $100 billion check was given to GM, in less than two years they would be insolvent again. If any employee or retiree of GM, Ford could not see this coming a few years ago and made plans accordingly to protect themselves, then why should I bail them out?

    I ask this, who bails out the U.S. when this country goes insolvent and bankrupt? Folks, we are headed that way fast.
    The only employment sector that grew in size (of any consequence) was government workers, what are the millions of non military government workers doing?

    Better to try to save the mother ship, our country, than one industry. If the mother ship goes down, one will not be concerned about GM, it won’t matter.

  • avatar

    Dear Barry,

    Sure, our flirtation with Hillary was a bit snubby toward you, but I knew you’d take care of us. Solidarity baby!

    Your new bff,
    Ronny G.

  • avatar

    Also in the last paragraph, you probably meant principle, not principal…

  • avatar

    Good article. I disagree about the VEBA, though. I agree that the Big 2.8 need current and future flexibility with regard to labor costs, but the VEBA is essentially a PAST liability that the companies did not fully fund due to their dishonesty and incompetence. Therefore, I’d prefer the VEBA to be fully funded to meet pension obligations through the end of 2008, with any future pensions to be re-negotiated as part of any future bailout or bankruptcy.

  • avatar

    Considering the most likely scenario for GM at this point is Chapter 11, Ford would be placed at a severe competitive disadvantage. If GM can renegotiate its UAW contracts under reorganization, Ford will have little choice but to file so it can do the same.

  • avatar

    I’m not sure about this if GM does it Ford has to do it logic.

    Why can Ford compete with Toyota w/o C11 but can’t with a C11 GM? It’s laughable to think Ford is more scared of GM during a major reorg than Toyota or Honda.

    Ford either needs to do a C11 to get competitive or it doesn’t, and GM has got nothing to do with it.

  • avatar

    This would seem to be the perfect time for the UAW to purchase GM and gaurantee the jobs of their members. It is time for them to invest in their own future instead of relying on the public. I think we all know why they won’t do this.

  • avatar

    The historical precedent for a Chapter 11 stampede exists in the airline industry. Recall all the domestic airlines that filed post-9/11: United, US Air (2.0), Northwest, Delta….

  • avatar
    Martin Schwoerer

    Very impressive editorial, with constructive advice.

    These days there are too many angry-man-in-pyjamas pieces around, telling Obama to let all Detroit go under, motivated by a hate of unions and an ideological libertarianism, but this is something totally different. Thanks.

  • avatar
    John Horner

    Well said Mr. Elias!

  • avatar
    the duke


    I think there is a difference between the airline industry and the US auto industry. The airlines all filed C11 at close to the same time, but they were still the only show in town (Toyota had no flights from chicago to atlanta).

    With the US auto industry, many already refuse to buy American cars, and if you add in the negative image of bankruptcy (a crappy cobalt is bad enough, imagine one in which the warranty disappears with the maker!), even more may choose a Honda or Toyota. Which is the main point, the airline industry had no Honda or Toyota for customers to flock too. And didn’t have to compete with them after restructuring.

    Don’t get me wrong – I’m not opposed to a GM bankrupty and think is the only way GM could be properly restructured. But its by no means a guaranteed success.

    In the early fifties, my grandfather was a Studebaker man. Come 1955, many rumors were swarming that Stude would go bankrupt (and almost did at that point) so, fearing warranty issues, he switched to Chevy and never went back. Many others did the same and it just added fuel to what killed Studebaker automobile production. Like GM today, Studebaker had the highest Union paying job contracts in the industry in the 50s and 60s, and it made them uncompetitive.

  • avatar

    Look at GM currently do nothing. They just build the same old cars and expect them to sell all by themselves.

    Why not take a market survey asking if a certain car was a certain way(or price) if the one being surveyed would then actually buy it?

    What prevents people from buying certain models when otherwise they would(if only).

    We’re all acutely aware of previous decades worth of experiences.

    If Porsche’s profit margin is typically $80,000 – $100,000 per vehicle; what is GM’s margin on a Corvette?

    If Chrysler can sell a PT Cruiser for $8998; what did it cost them to build it? Three or four thousand? Has Chrysler ever considered exporting these vehicles?

    Considering GM’s near future, they should take huge risks and really spice up their existing product line.

    But they won’t because they want to play the woe is me card, and get that government money. They will go under just to show them things were really that bad.

    Unreal how GM ruled the world in the 1950’s and 1960’s, then totally dropped the ball in the 1970’s when they had to deal with fuel prices, emissions, safety requirements, and foreign competition. They never did recover.

    If they cared enough and desired it enough; they would be number one.

  • avatar

    G.M. amd Delphi are so broke they continue to build and/or retool their plants in Russia $300 million, Mexico, China but not in the U.S.A.. Why?

    Before the Government gives them one rotten penny which will be used overseas. The Government needs to put a LEIN on their Global Operations as well as the U.S. Operations.

  • avatar

    the duke :
    November 10th, 2008 at 10:28 pm


    I think there is a difference between the airline industry and the US auto industry. The airlines all filed C11 at close to the same time, but they were still the only show in town (Toyota had no flights from chicago to atlanta).

    With the election of Obama, hopefully it will be a while before we see AirIndia or Aeroflot selling tickets between US cities.

    The biggest difference is, the airline industry offered consumers DOMESTIC options to the ‘traditional’ brands, ie, Southwest, jetBlue, AirTran et al. vs United, USAir and the like.

    If there were a true domestic alternative to the Big 2.8 (Saturn doesn’t count) we wouldn’t even be having this conversation.

  • avatar

    I think the nation and Detroit would be better served by using a fraction of the proposed bailout money to provide low interest loans and incentives for alternative energy companies in Michigan to expand and improve their products. Some companies are already scrambling to meet demand. Add in some loans for small business and education grants as well. Michigan MUST be re-invented somehow!

    Detroit’s auto industry is dead, bail-out or not. There are close to 5 million living in S.E. Michigan whose lives WILL be DRAMATICALLY effected, (not to mention many small towns elsewhere built around auto manufacturing)! Remember Katrina? Believe me, there will be a mass exodus as we leave behind our worthless homes in search of work. The fortunate have already done so at a loss. The situation will touch many that think they are safeguarded and it can’t be ignored… But why throw good money after bad?!

    Chrysler for sure should die. Cerberus’ investors have no right to my money. There is no good answer for GM. Face the facts, file bankruptcy, sell off Hummer and whatever else in a yard sale, halve remaining production and move it home from the the cheap labor countries asap in the absence of unions to quell SOME job bleeding. Focus on a few cars and work truks. Get rid of Wagoner. That may merit a little cash. Ford will regroup well with Mulally in charge.

    Is there a way we can lock up Gettelfinger while we’re at it?

  • avatar

    How can you really sell Hummer, anyway? Aren’t Hummers just GMC trucks + bling? Aren’t they made in Chevy/GMC plants?

    I suppose you could sell the brand to Arnold Schwarzenegger, who, believe it or not, is a brilliant businessman. He could restart production of 100 biodiesel H1s a year for himself and his pals.

    Who else would want it?


  • avatar

    Has anyone sent this to

  • avatar

    This is from Jim Donnely’s coolumn in the March 2008 Hemmings Classic Car magazine (page. 37).

    . . . . In 1956, General Motors stood alone, majestically, atop the Fortune 500 List of America’s most robust corporations. In Alfred P. Slaon’s final year as GM charman, the company posted close to $1.2 billion in post-tax profits on revenues exceeding $12.4 billion.

    A billion dollars was a nearly unfathomable amount of money back then. The Navy’s second nuclear-powered aircraft carrier, the Saratoga, slid down the ways at the Brooklyn Navy Yard in may of 1956; a billion 1956 dollars would have paid for five such ships.”

    Oh how the mighty have fallen.

  • avatar

    A good article. Bush now supports a bailout, it will happen.

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