Editorial: Bailout Watch 234: The Truth Will Set Them Free

Ken Elias
by Ken Elias

TTAC could have saved Congress a ton of time and billions of dollars if the politicos had just read these pages over the last few years. We’ve diagnosed the patients, begged them to seek help, outlined some cures, and prayed that our worst fears would never be realized. And yet, here we are – in the midst of the biggest industrial meltdown of all times for the US auto industry. So again, we’ll just try to neatly summarize the actions that Congress needs to take now. It’s not pretty, probably isn’t politically correct, and will piss off a whole bunch of people. We’re hoping to influence you – our audience – to spread the word to ensure that Congress makes the right moves. After all, this is a democracy. The press – which includes TTAC – can make a difference in getting to the truth, and that’s what Congress needs to know today.

The U.S. needs its own, viable automobile industry. Ignore the fact that there are foreign companies assembling vehicles in the South (mostly). Assembly is just one link in the entire chain of automotive production. The first chain starts with design and engineering, and that comes from both the automaker and its supply chain. More than ever, that’s really a high-tech skill, with more software, “smart parts” and intellectual property than ever before.

That skill set needs to stay here with Americans, not outsourced to foreigners. There will be a new future in personal transportation. One that depends on new powertrains, energy sources and design. And the U.S. cannot afford to fall behind. It would be the same as watching foreign-made movies without our Hollywood.

Having said that, it’s not “Big Three” or bust. There shouldn’t be a mindset that says Congress needs to make an “all or none” decision. Each company needs to be measured on its own merits, in the same way that Bear Stearns was “rescued” while Lehman was fed to the wolves. And our analysis recommends a different “bail out” formula for each– not a “one-size-fits-all” solution.

For starters, if Cerberus Capital doesn’t care to provide Chrysler with the capital it needs, the automaker should just disappear. Cerberus is a private equity group with extremely deep pockets. When it purchased Chrysler from Daimler, owner Steven Feinberg claimed his company was in it for the long term. It was a blatant lie. But Mr. Feinberg should live or die by his word. If Cerberus wants to save the company, it should be on its own nickel, not ours. Chrysler has no business sidling-up to the public trough. None.

But worse, Chrysler’s resurrection plan contains nothing more than a bunch of promises, none of which can be realized. There are no “future” products of merit– just redesigns of a bunch of lousy vehicles in its already weak product portfolio. its new Phoenix engine family can’t make bad design and cheap interiors sell better. Why would anyone think that Chrysler’s immediate future is going to be any different that its immediate past? This company was gutted by Daimler and Cerberus, leaving it with no ability to engineer future products without alliances or partnerships. But again, it should be up to Cerberus to make the call, not the taxpayers.

GM gave Congress another “muddle through” plan, an attempt to preserve as much of the kingdom as possible. It’s ridiculous to believe that getting rid of HUMMER, Saab, and Saturn will allow its executive team to better focus on the remaining brands and products. GM never spent a shred of effort on Saturn or Saab for the past 15 years. And Pontiac as a “niche” brand? Talk about a distraction.

But the hubris of GM to even suggest that the Volt and hydrogen fuel cell technology will work at any time in the near future stretches the limits of credulity to breaking point. How dare they suggest that “Flex Fuel” vehicles will make a difference in sales, especially if the ethanol subsidies go away (as Prez-elect Obama has stated)? No one cared before, and they won’t in the future. Making more hybrid vehicles– 15 models by 2012-– when the current GM hybrids barely sell today, makes no sense. GM’s plan is a sham.

GM’s comeback depends entirely on its ability to preserve its market share AND recapitalize the balance sheet through a massive debt exchange. And the UAW has to make some key concessions too, especially on the VEBA and JOBS Bank. GM’s Congressional submission is a “bet on the come” that this will all happen. GM wants the so-called “Oversight Board” to do the dirty work of forcing the cram-downs. That’s not their job– but it puts the onus on the Government, not management, to make the hard decisions. If GM CEO Rick Wagoner and the Board of Directors had a set, they’d be telling these parties exactly what they need to do– or else.

Congress should tell GM to go away and come back with a real plan. A plan that outlines exactly what happens to HUMMER, Saab, and Saturn and when. It’s not enough to say “strategic review,” kill Pontiac and be done with it.

As for the financial side, GM should not come back to Congress unless and until it has signed agreements from its lenders and the UAW. Real, live contract terms. A pro forma balance sheet that independent business brains can analyze to see if it make sense. Only then Congress can and should determine whether GM is worthy of financial assistance.

The big pill: whether Congress can trust Rick Wagoner and the current BoD with public money. To which the obvious answer is no. GM needs new executive leadership; the current plan proves beyond a shadow of doubt that this is the case. As it stands now, GM’s leadership still doesn’t understand that the company needs a thorough overhaul. The plan presented doesn’t even get GM where the company should have been a few years ago. It’s more of the same: promises without guidelines, goalposts or accountability.

Unlike the other two Detroit companies, Ford has executed on its plan. While Ford has stabilized its market share, and we have seen its future in America when we look to Ford Europe, the $9b question remains: will U.S. consumers will buy into smaller Ford vehicles at higher price points?

Congress should extend a lifeline to Ford. The company has demonstrated executive leadership competency to make necessary reforms, a comprehensive product plan and achievable fuel efficiency gains with existing technologies. As we’ve said before, there are no guarantees that this plan will work. But that’s a business and timing risk, not a bunch of empty promises.

In summary, Chrysler needs to look to its owners for money. GM needs a real plan and Ford needs careful oversight and a firm time limit. But above all, Congress needs to realize the difference between intervention and enabling.

Ken Elias
Ken Elias

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  • Holydonut Holydonut on Dec 04, 2008

    jkross22: Well, from what I gather this site has been are around long enough to span times when all major OEMs and Tier 1 suppliers were hiring. Politics are more fickle - it seems much more time is required to enter positions of political influence... so I'm not sure what could have been accomplished in that arena since this site's inception. TTAC could have encouraged interested individuals who wanted to try to make a difference to actually get into the industry. Or, if the interest were to exist - there is enough intelligence on this site to act as an outside consultant. We see many "thanks to you know who you are" people leaking news here. And I'm sure there are plenty more people already in the industry who visit the site passively. There could be an attempt to pass resumes along or to advertise external hiring positions. The auto industry would have received a great benefit to having the progressive thinking that people could have brought to the table. If you had these types of people in the companies, then maybe some things could have turned out for the better. Unfortunately, it seems that there is complacency in claiming to be a bunch of Cassandras. Rather than having contacts that they developed over time, you have a relentless claim that the auto industry and political arena never listens to the advice or to the message that their companies are in trouble. I'm sure some believe that the automakers in Michigan were already so screwed in 2004 that it wasn't worth anyone's time to work at trying to fix it. So if that were the case, then it's a bit silly to claim "... could have saved Congress a ton of time and billions of dollars if..." The Big 3 knew they had that outlet, and the Government has been more than happy to act as generous philanthropers with taxpayer money.

  • Kvonmoses Kvonmoses on Dec 08, 2008

    Interesting to note that an e-mail to my Senator yesterday gained a response by his staff asking for more information about fuel composition, Hybrid vehicle potential and the like. I sent them a math model in ExCel that demonstrates that a 4800 pound vehicle should get 50+MPG as a Hybrid... My interest was in helping them to make an informed decision. The interest was in getting information that was NOT from a source with, ' a dog in the fight'. It just, incidentally, demonstrates that the car companies should have even MORE pressure to develop competitive vehicles applied to them. The Senator already opposes any bailout, so this, I hope, will fuel his opposition. The vacuum created by the car companies 'collapse' would be filled nearly overnight. The true criminals in all of this is the Board of Directors that rubber stamp operations without the slightest clue or care of their decisions. This could be said of the Banking industry or any other group clamoring for a bailout.

  • Redapple2 Flyer: Caveat. Subaru. Near 9 inches ground clearance and near Land Rover AWD system, They can do some impressive things off road. (I m not talking Moab trails).
  • Corey Lewis The short truck is terrible. The tire blocks all rear visibility while making the tiny bed very tricky to access. And the wheels on it look like they're from 2002. Other than that, I really like the idea of the Grenadier and it seems like a good effort. I wouldn't buy one because of the tractor recirculating ball steering, which makes it terrible in everyday use.
  • Bjohnson10 Coast to Coast by the Jesus and Mary Chain. It's only about someone on a cross-country motorcycle trip while high on heroin.
  • Funky D A few from my road trip playlist: Eddie Rabbitt - Drivin' My Life AwayAmerica - Ventura Highway---Herb Alpert - Route 101Jerry Reed - East Bown and DownEddie Money - Shakin'Lindey Buckingham - Holiday RoadWar - Low RiderTears for Fears - Everybody Wants to Rule the World (Not a driving song per se, but if you've seen the video, you'll get it)Wang Chung - Wait (Gotta see the end credits of "To Live and Die in LA", for this one)
  • Ronin Or can sedans be saved from themselves? Modern sedans have very low entry and seating, and unnecessarily downward sloping rear roofs. This may have been a sleek design center 25 years ago, but it's nice to have an alternative to SUVs for the olds (ie, anyone over 30).