The trouble with GMFORDCHRYSLER
Is pretty damned complicated.
The idea that “if it’s toio big it needs to fail” isn’t altogether wrong, but it does require some intense thought.
See, it’s not just the automaker and the employees of the automaker that get hammered. let’s take Ford as an example, because that’s one that I am intimately familiar with.
Ford doesn’t make cars anymore, at least not in whole. Ford sells cars. They assemble them, sure, but they assemble them from parts that come from Ford plants, from second tier suppliers in the US and abroad.
Those second tier suppliers might be the little machine shop down your block. Sure, they do piecework, but they keep themself alive by doing small jobs for Ford. Maybe they make a piece of the shaft of a fuel pump (sheesh, do I ever know about THAT job) maybe they machine a cylinder head cast in Mexico.
If Any of the Big Three died, it would have a ripple effect much, much larger than the idea that there would just be no more Fords on the road. And the simple fact of the matter is, it is impossible to even KNOW how far reaching those effects would be.
So the bailout is important, because it not only prevents the collapse of the manufacturing economy of the USA. Just like the bank bailout was important, because the banks failing didn’t affect the people who cause it, only the joe sixpacks who worked there.
No, the Bank bailout shouild sit firmly on the shoulders of Brak, (who sued citibank so they’d give loans to the unqualified) Franklin Raines, Acorn, Jamie Gorelick, Nancy Pelosi, Janet Reno, etc.
And the Autoworker bailout should sit on the shoulders of the union leaders who blackmailed the companies into greater and unnecesarily greater levels of benefits and wages, and the upper management who allow this crap to happen while feathering their own nests.
We cannot imagine what it is like to NOT have auto manufacturing, and we do not want to. If you lose auto manufacturing in America, we will never get it back. It’s not possible for an individual to make a car like one can make a shirt, or a shoe, or even a firearm. Auto manufacture involves a level of complexity that you cannot probably imagine. If we lose the ability to manufacture motor vehicles in the USA we almost instantly become a third world country, and that’s that.
26 comments Og | Uncategorized
I could care less about the auto makers EXCEPT that without them there is no venue for building military vehicles.
I think at this point the problem may well require a bailout given the way GM, Ford and Chrysler are draining their cash reserves. However, I think the better solution would have been for them to file bankruptcy to reorganize. It seems to have worked for Delphi.
Reorganizing under bankruptcy laws won’t work for a financial institution, because everyone who has an account with the institution will want to withdraw the funds from their account.
So, EMDFL, you’re ok if every other business that supports them closes?
The fact that mismanaged, over-bloated companies will go out of business doesn’t mean that their suppliers will. They will supply to a company that is more competitive and gages the market better than the others.
This same concept was touted about the steel states, and the disasters that would befall states like Pennsylvania.
Based on those fears, we infused the failing steel industry with cash and bailouts for decades. Eventually, folks realized it was a lost cause.
The people of Pennsylvania are better off now than they were before, with much better jobs and cleaner industries…and the suppliers who once fed the steel industry, now feed the new companies.
Well, um, it’s a lot more complex than that. A company that makes cylinder heads could have millions of dollars worth of machines that are specific to the manufacture of cylinder heads. if the purchaser of cylinder heads goes out of business, they go out of buesiness, because you cannot adapt that machinery to make, say, sewing machines. A large part of what i do is to try to make companies less dependant upon hard (in other words, single use) machinery. But fully 75% of the insdustry is like that. So if we lose Ford, GM, Chrysler, then 75% of the industry that supports them, fails.
The people of pittsburg are doing OK. But try to find an I beam made in the USA.
Scary stuff to think about… Good grief.
I’m not trying to say that I have the solution, or that I even completely understand the problem. But i do know that the problem with the auto industry- like the banking bailout- is a million times more complex than “let it fail, it will be better afterwards”. On the third hand, from the time I was 9, I was involved with the automotive industry, and am intimately involved with it still, so I have some qualification.
One thing a lot of people don’t know, is that Ford, GM, AND Chrysler expect a large portion of their retiree base to die within the next ten years. And when they do, the Big Three will be in a HUGE position of strength. They want to stretch things out until that happens.
It is my understanding that Ford currently supports 600,00 people, NOT on staff or working for them any longer. They are retired or ect. If that is correct I am amazed at the overhead they are clearing.
Also, If one of the three went down, using (very) simplified economics, wouldn’t they turn and try to sell Cylinder heads to the other two, driving cost down as there is now more supply? Wouldn’t this help cost since the supplies are cheaper?
Beyond that, I really think we are setting a very very dangerous precedent by bailing everyone out. It would seem to me one of them goes down the unions would see that they are the driving force of killing companies.
When unions started they were a great deal. I have a few friends in some of the local unions, and I have been a part of the table on the other side. I do know this, It is my opinion that the union system has out-lived it’s usefulness. The particular case I was involved with, the union was requiring a base of $65,000 for the laborers! Entry level grunt jobs. Hell at that point I would have quit my side and gone to the union for that kind of money. It wound up causing the project $300,000 over budget before the first beam was erected. Ultimately, once the electrical, steel and pipe-fitters unions were finished, the project was over-budget and tabled.
On a side note, the contractor had put the job out for bids and could have completed on budget if the unions had not run up the labor pricing.
Maybe the “too big to fail” comment meant that we shouldn’t allow a company to get to the size that it affect more than X% of GDP. And, yes, I might go for trade restrictions that helped us keep our native industries alive.
I think it’s a Bad Thing when a country relies too heavily on any other country for food, fuel, or war materiel. We’re then at their mercy.
And I know that trade restrictions that keep those things up would eventually result in some loss of standard of living. But so would a total collapse.
The point is, the company in question is tooled up to make Ford cylinder heads (it’s an offshoot division called Visteon). They could not use that machinery to make Chevy cylinder heads. it’s a lot more complex than it seems.
The good thing about filing Chapter 11 (as Delphi did) is the mandating of pay and benefit cuts across the board. “If I were in charge” ™ any bailout or bancruptcy protection would be predicated on the firing of the top management, or at least cutting thier pay to say, no more than 10X what the workers make. AND cutting the pay and benefits of the worker bees about in half, more in line with the rest of the country. Why should MY tax dollars go to pay the wages and salaries of those guys at their present rates? Contracts should be renegotiated, work rules revised, etc, etc.
Letting them go into bancruptcy protection doesn’t necessarily mean that they go out of business, just get right-sized a little more quickly than they otherwise WILL eventually.
And That, Jim, is a good thing.
I think there may be a flaw in the thinking here…
I see what looks to me like an assumption that, if GM fails, automobiles will no longer be made in Detroit — or even the United States.
I don’ theen’ so.
I would submit to you that, were GM to be allowed to fail, the very same brands — Chevy, Buick, Cadillac, Saturn, Hummer, GMC, whatever — would still exist, albeit under new ownership. And — more importantly — new management.
There would be displacement, what the Milton Friedman types call creative destruction, as the resources GM is currently misusing are re-allocated in the marketplace.
Fewer workers would be employed doing the same work.
The unions would probably go away.
The retirement bennies would probably be taken over by Uncle Sam (Boo!).
And cars would be made in the US — only with an efficiency and quality level more-closely approximating what Toyota, Honda, et al manage to crank out.
Or something like that.
M
I’ve personally watched GM burn through millions for no particular reason over the past 20+ years.
Chapter 11 and Rick Wagoner step down, forever.
Mark, let me be the first to point out that you do not understand the complexity of the process in the least. And I’m not saying this as an insult, I’m trying to make a point. The level of complexity involved in manufacturing a motor vehicle is staggering, and if GM closes, there will be no more GM cars, period.
The point is, though, Og, if GM “fails,” it will probably NOT close. It will be bought and its parts put to better use. It’s happened in other industries. Aerospace comes to mind. A supersonic airplane is orders of magnitude more complex than an automobile. If the logistics of manufacture are more complex in cars, maybe that’s an indication that they’re Doin’ it Rong.
And, I submit, GM management is trying to do something the like — and for some time — with moves such as spinning off Delphi, shedding Hummer, even the startup of Saturn, in an attempt to dodge a probably more-traumatic round of “creative destruction.”
It’s also quite possible, of course, that GM (or Ford or Chrysler) cars aren’t worthy of survival. After all, if they were, they would be winning in marketplace competition. Not that customer demand for an excellent product ensures the product’s survival, but the opposite — that weak demand for a weak product must surely signal its demise — must be close to a natural law.
Absent, of course, government meddling in matters.
M
Be patient, post coming.
I understand your knowledge of the industry, and am trying to understand with my wee little bit, which may not be a flea on the hair on the tail of the dog of knowledge that you have, but my questions are more to try to understand than to do a point/counterpoint, or argue the other side. So please bear with me while I try to wrap my mind around the concepts.
When LTV, Inland, and Bethlehem went under, first ISG came along and took over the physical plants, reorganizing and reshuffling the corporate structures and jettisoning the pensions off onto the Feds, then Mittal came along and said, “Look, what a yummy plum, even with the USW still in place” and bought out ISG.
But there, the steel making capacity was needed, so someone came along and snapped it up, like Mark Alger is suggesting for the auto makers. It’s like Wells Fargo’s takeover of bankrupt Wachovia. For being a worthless bank, they almost got sued by Citibank for the swipe. If Wachovia was so forlorn, why the Citibank vs. Wells Fargo dogfight over the rancid foreclosure scraps?
My wonder is if the Big Three have any value in the market, or if there is a glut of auto making ability (i.e. they’re f’ed like Big Steel was in the late 70’s), so if we bail them out, they’re still as worthless as before, and more money down the rabbit hole. That’s what the Soviets did with outdated industries, and it helped break their economy. It all reminds me of Thatcher’s battle with the British Miners in the 80’s. Shutting some mines ruined entire cities, but the mines were going at a loss (remember, Parliament owned all the mines, and they were making too much coal for the market), which means having the gubmint funding the miners’ paychecks to mine coal that wasn’t needed was wackadoodle, unless you were one of those miners, or a subcontractor for said mines.
Maybe there’s too much for me to try to understand. It just looks damned you do/damned you don’t, like it was for Hoover.
I hadn’t thought about the aging retiree base, but it does make sense. I mean, the benefits they got were over the top generous, and have really hampered the bottom line of the big 3 since then.
Now if only the fine people of Michigan would figure out how harmful to their economy their state government has been. I know. I have awfully high hopes for a state that sets fire to parts of Detroit every year, but I can dream, can’t I?
That’s not what I said , OG. The problem is exactly what you pointed out – when that business goes away all the surrounding business go away.
IIRC at this point in time there is exactly one factory in the country that is still capable of fabricating turret casting for tanks. Same for a lot of other military stuff. If what ‘s left of the manufacturing base in Detroit is sold off to China, game over. NO country has ever long survived without a manufacturing base.
And a large part of the problem there(and the same goes for other sectors of the economy) is the game of musical management chairs/board of directors that exists.
Toyota or Honda will not buy up GM. In addition, the Japanese transplant like to use other Japanese transplants for their component suppliers.
Sorry, emdfl, I was just poking the bear. Should have put the /sarcasm tag on it. Not trying to piss you off, just being a smartass.
If you haven’t done so already, take a look at the blog The Truth About Cars. They have been posting Death Watches on Detroit for a long time and provide some provocative commentary. Some accuse them editorially of being anti-Detroit, but the truth often hurts. Regardless of where you stand,its a mess of epic proportions.
Snarl, heh, heh, heh. Well, I do tend to come off as one myself regularly.
What pisses me off more then anything is that I remember when the Volkswagon first came into this country. My Dad was driving things like the Hillman Minx and the Morris Minor back then. All those idiots up there running those companies said “No threat.”
And for the next 40 years they brought their butt-kissers up into management and did everything wrong that they could. And I’m not about to give the unions a “by” on this either.
I remember when damn near the best job you could get was that of a machinist apprentice. (Side note – I still can run damn near any machine tool except the CNC stuff. Never did it for money, but did do a lot of prototype machining several places I worked.) But once at the point where nobody wants to get their hands dirty, you are strictly living on your capital and not your interest.
This has all the ears marks of becoming an old fart’s rant. I’ll stop now.
EMDFL, I LIKE old fart rants. And I can train you to run CNC stuff, it’s not so hard, actually.
Not sayin’ didn’t have a chance too, more like I HATE computers too much to WANT to learn, heh.
(First language I had to learn was machine language)