Friday, November 21, 2008


Who are the Big Three really? Are they really Big? Are they GM, Chrysler and Ford? Or are they Toyota, Nissan and Honda? Or are they BMW, Mercedes and Volkswagen? Is it really the Big Nine? We can’t say the domestic Big Three because Honda, Toyota, Nissan and Mercedes all have plants in this country. So, are they really domestic?

Ok, let’s assume for the moment that we are talking about GM, Chrysler and Ford. Further, let’s assume that they are the domestic Big Three. I am going to collectively refer to them as DBT (domestic Big Three).

At this time, the DBT are begging Congress for a bailout. The three CEOs flew into DC on their private jets. No, they didn’t “jetpool” to save gas but they each drove their own jet! That did not make a good impression on the Congressional do-gooders; who, of course, are above reproach and totally above board on everything they do! Just ask Ted Stephens (R-Alaska) about that.

Congress has deferred making a decision on giving them the money they request. Should the DBT get the money or not get the money?

The DBT says yes. They say they have cut costs, rationalized makes and models, trimmed dealer networks, developed more small cars than ever before and worked on alternative energy powered cars. They have a plan to offload to the union’s retiree pensions and health care benefits. Further, they say that if they don’t get the money they will have to file for bankruptcy and that this would further ruin the economy and put us into a depression (as opposed to the recession that we are now in). I am not sure I would buy a car from a company that is in bankruptcy, would you? What about warranties and parts availability?

But, if they get the money, would they make good use of it? Is the current management capable of making good use of it? Have they done so in the past? Maybe not!

Let’s look at the current situation. Take GM for example. If they really wanted to compete with the non DBT industry, here is what I do would for starters:
• Car lines would be Chevy and Cadillac only; goodbye to Pontiac and Buick;
• Truck line would be GMC; Chevy would not make trucks;
• SUV line would be Chevy; GMC and Cadillac would not make SUVs;
• Minivan line would be Chevy only;
• Cut the “suit” staff by at least 50%

As for Ford,
• Who really buys a Mercury? Get rid of it.
• Lincoln does not need an SUV.
• Ford should make cars and trucks and minivans.
• Maybe Ford should even get out of the minivan business; no one buys the models they have for sale.
• Lincoln should only make cars.
• Cut the “suit” staff by at least 50%

Chrysler has made some progress on this front. They only have Dodge and Chrysler and Jeep. However:
• Chrysler does not need a minivan or a SUV
• Jeep has too many models and overlaps with Dodge
• Cut the “suit” staff by at least 50%

They all need to continue the process of offloading their pension and healthcare benefits to the Unions per the current agreement. It is critical to get their costs down to the those of the non DBT. Unions were good for this country at one time (maybe 50 years ago) but all they do now is make us less competitive. Do you know that under current labor contracts union members get paid even if there is no work for them? What a deal! Wouldn’t all of us like something like this?

A good thing about the bankruptcy path is that the DBT could get out of leases, contracts, facilities and labor agreements that are not cost effective. Don’t overlook the benefits of this way out of the mess! BUT, if the benefits of bankruptcy are not combined with the steps listed above and others, the real problem is not solved. The only good news here is that the government would not have forked over 25 million bucks!

In summary: to give the money or not to give the money? That is the question.

I would lean toward bankruptcy if I had confidence that the DBT would really cut costs and streamline as described above. This path however would be disastrous for our economy in the short run but better in the long run. But, I don’t have that confidence; I think they would just perpetuate the same car lines and models that they have and the same cost duplicative processes.

Therefore I would give the money for a bailout only if there were strings attached.

Such strings would be making them take the actions listed above and other similar cost cutting moves. Management changes are needed as well. I think the government needs to have representatives on the Boards of Directors of the companies and have input on decisions.

Neither of the alternatives are good ones. This situation has been forced upon us by the inaction of the DBT in the past as they have ignored their real problems and been pompous about any outside input. Of course, the unions have contributed as well (the thought of people getting paid for not working drives me insane)!

So, in summary, give the money but attach a lot of conditions and oversight as well as ongoing government input until the so called bailout loans are repaid. As Ronald Reagan said: “trust but verify”.