US auto industry shot themselves in the foot

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Dev Posted: Tue, Dec 2 2008 5:09 PM

I'm sure your aware that GM is going bankrupt fast (its a matter of weeks now) so I've no need to show sources. Without massive bailouts (approx $13 billion, 4 of which is absolutely essential) they will go under. If they go under the other two (Chrysler and Ford) will start to look shaky too. As suppliers and others will have to fold disrupting the entire network of manufacturing.

I'm not an industry expert but I feel like its completely their fault. American cars have simply not been able to compete with European and Asian counterparts. They plowed ahead with massive fuel consumption rates despite the clear global uncertainties concerning oil and the environmental movement making consumers much more conscience in this regard.

Do you think that perhaps arrogance blinded them to what was coming or are they genuinely the victims of a series of unforeseen events they simply couldn't have planned for such as the financial crisis.

Perhaps the best solution is to let the free market let them go bust and let new ownership restructure the company (phoenix from the ashes kind of thing) or are they like the banks and its in everyones best interest to give them a hand.

Perhaps the latter would work in Europe as we are more open to left wing philosophies and would be the norm but the US is meant to be the free market leader.

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I think some of the problems is Americans love their cars and that includes Large SUV,s and Muscle cars which I admit I do to but at the same time we need cars that are energy efficent!I myself cant afford the new muscle cars or the Large trucks but our dependence on foreign sources of energy is destroying our economy and our planet and we all have to make a change! This is something that should have been done 30yrs ago and now we are going to have to put these ideas on the fast track and make it a reality.We need to be energy independent and there is no reason we cant do it were Americans! I dont think letting our uto industry go bust but If they get a bailout then they must be forced to retool for the future of alternative energy! If they could be forced to follow strong safety standards then part of a bail out should be mandated to create energy efficent cars!BY Law! But all in all we need OUR auto industry to survive! Its not only a source of pride, but its a necessity now not later!

 

 

 

 

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Dev:
Perhaps the latter would work in Europe as we are more open to left wing philosophies and would be the norm but the US is meant to be the free market leader.

The Allies were triumphant during World War II in a large part because of the manufacturing-output of the United States. If it were not for the huge amounts of ships, aircraft, and vehicles produced in the US the outcome of the war would have been different. While I am very much against the bailout that was granted to Wall St., I feel that the loan the auto industry is requesting is well-worth our support. If the Big 3 go under, along with their vast supply network, there will be hundreds of thousands of workers and pensioners that will be affected. In this case, the free-market leader needs to take care of it's own.

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3vi1 replied on Tue, Dec 2 2008 6:49 PM

Dev:

If they go under the other two (Chrysler and Ford) will start to look shaky too.

Just playing Devil's Advocate:  Wouldn't the other two benefit from GM's failure?  I mean, supply vs. demand?

Suppliers that make only GM parts would fold, but wouldn't those that supply multiple companies offset the loss in demand for some parts with growth in demand for others?  It seems that any supplier critically important to the other two should survive.

That said:  This sucks.  I can't help but think this is going to be the new trend due to America's fascination with Imaginary Property laws and litigation that are stifling innovation and incurring a huge overhead to investments in actual services and physical goods production.

What part of "Ph'nglui mglw'nafh Cthulhu R'lyeh wgah'nagl fhtagn" don't you understand?

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3vi1:
can't help but think this is going to be the new trend due to America's fascination with Imaginary Property laws and litigation that are stifling innovation and incurring a huge overhead to investments in actual services and physical goods production.

If the Big 3 go under there will be a lot less physical goods production. It is sad that most Americans don't even care if autos are produced here or not.

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 Without knowing specifics like sacrifeces by corporate boards and unnessary spending I find it hard to make any type of judgement. If these companies truly were trying to do whatever it took to stay in business and took the corporate perks and ridiculous salaries away I may lean towards the bail out. Also I agree that they need to prove that the money will even help. 1 of the things they have been saying is that it will bide them time till they can come up with cars the get better fuel economy. That statement pisses me off cause they should have done this 20-30 years ago. The technology was there they just didn't implement it. So if we give them the money is it really going to help them turn the tide or just prolong the inevitable another 5 years and then the US just lost a lrage amount of the tax payers dollars cause they went bankrupt anyway. So to sum it up I am still undecided!

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warlord replied on Tue, Dec 2 2008 8:23 PM

Remember when companys where just left to fail on there own. Seriously studabaker, tucker, carriage international , amc and the list goes on. Since when did the tax payer start having to pay for insider trading (lets call what happened on wall street what it is) and poor money management , not to mention on the big 3's part not listening to the market. That also leaves out the quality issues, fuel economy and total lack of innovattion.

Listen we are the same folks that at 1 time where the pionners of near everything and now we leave it to the germans and the chinesse to make the big advancements. Check into how many americans graduated with enginnering degrees last year and then look at the #'s from 1940 and i think you will be shocked at how few go to college for such degrees. We shouldn't allow companys to ham string us like this.At some point we as a people have to fall in love with the word NO and tell these folks enough is enough.It sounds a little funny to me that all these company's are going belly up here at the same time. If it looks like poo and it smells like poo....must be poo.

Take the money you would give them and make a loan from the treasurey instead of from the federual reserve .This way us taxpayer aren't paying these interest payments to the fed as the treasurey accures no interest. Then loan it and let em know there are paying it back with interest. Then apoint  oversight so that the taxpayer can keep up with them to ensure they pay us back. If you don't stop the free lunch these companys are gonna act like its a soup line and they will all have there hand out. Sorry rant off

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Dev replied on Tue, Dec 2 2008 8:58 PM

I've posted the same thing on another forum. I got and interesting reply, the guy basically said that the fundamental problem with the big 3 is its union contracts (UAW), the manufactures were effectively forced to pay higher wages and give benefits. In some cases having to pay workers not to work because they could not make them redundant. This meant that they had higher costs for every car made and could simply not sell as cheap which meant the companies began pushing higher profit SUVs and similar vehicles, naturally placing them in a bad position as the market changed.

The only way for them to get out of this tight spot (high union wages) as horrible as it sound is whats called a Chapter 11 bankruptcy. Naturally this may raise some questions, the same guy answered them.

How come Toyotas US plants don't have to pay the same union wages?

These plants aren't in Detroit and the laws are different. Provided enough workers agree everyone must become a union member meaning when they strike they all strike.

How come they just didn't get rid of the strikers and hire a new crowd?

Again they couldn't, legally their hands were tied.

How come they didn't just pack up and leave Detroit if they are so tied down?

Again they can't, not without breaking laws!

Could they not just break the contracts?
Fines would be higher than the bailouts making it pointless.

How can they get rid of these union contracts?

Chapter 11 bankruptcy is the only legal avenue.

If they get the bailout will they be okay?
I don't know. I would like to think so but giving all that money at a time when Americas wallet is thin the taxpayers would like to have a bit more certainty in such a decision. Like mentioned above to give it and to find out in a few years they go bankrupt anyway would be very damaging.

Sources
http://www.detnews.com/2005/autosinsider/0510/17/A01-351179.htm
http://www.reuther.wayne.edu/node/3417
http://en.wikipedia.org/wiki/Bankruptcy#United_States
http://www.washingtonpost.com/wp-dyn/articles/A64599-2005Apr18.html
http://online.wsj.com/article/SB122628060458212379.html

I really hope they do find a good work around.

 

3vi1:

Just playing Devil's Advocate:  Wouldn't the other two benefit from GM's failure?  I mean, supply vs. demand?

Thats what I thought but was reading a front page piece today that mentioned otherwise, by the guy running Ford!

"Ford’s chief executive, Alan R. Mullaly, said the prospect of a failure of G.M. would cascade through the entire domestic auto industry and put millions of jobs at risk."

http://www.nytimes.com/2008/12/03/business/03auto.html?hp=&adxnnl=1&adxnnlx=1228269657-EVmA2tu3DoxQ1Mu8FlRDBw

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Dev:

I've posted the same thing on another forum. I got and interesting reply, the guy basically said that the fundamental problem with the big 3 is its union contracts (UAW), the manufactures were effectively forced to pay higher wages and give benefits. In some cases having to pay workers not to work because they could not make them redundant. This meant that they had higher costs for every car made and could simply not sell as cheap which meant the companies began pushing higher profit SUVs and similar vehicles, naturally placing them in a bad position as the market changed.

The only way for them to get out of this tight spot (high union wages) as horrible as it sound is whats called a Chapter 11 bankruptcy. Naturally this may raise some questions, the same guy answered them.

How come Toyotas US plants don't have to pay the same union wages?

These plants aren't in Detroit and the laws are different. Provided enough workers agree everyone must become a union member meaning when they strike they all strike.

How come they just didn't get rid of the strikers and hire a new crowd?

Again they couldn't, legally their hands were tied.

How come they didn't just pack up and leave Detroit if they are so tied down?

Again they can't, not without breaking laws!

Could they not just break the contracts?
Fines would be higher than the bailouts making it pointless.

How can they get rid of these union contracts?

Chapter 11 bankruptcy is the only legal avenue.

If they get the bailout will they be okay?
I don't know. I would like to think so but giving all that money at a time when Americas wallet is thin the taxpayers would like to have a bit more certainty in such a decision. Like mentioned above to give it and to find out in a few years they go bankrupt anyway would be very damaging.

Sources
http://www.detnews.com/2005/autosinsider/0510/17/A01-351179.htm
http://www.reuther.wayne.edu/node/3417
http://en.wikipedia.org/wiki/Bankruptcy#United_States
http://www.washingtonpost.com/wp-dyn/articles/A64599-2005Apr18.html
http://online.wsj.com/article/SB122628060458212379.html

I really hope they do find a good work around.

 

3vi1:

Just playing Devil's Advocate:  Wouldn't the other two benefit from GM's failure?  I mean, supply vs. demand?

Thats what I thought but was reading a front page piece today that mentioned otherwise, by the guy running Ford!

"Ford’s chief executive, Alan R. Mullaly, said the prospect of a failure of G.M. would cascade through the entire domestic auto industry and put millions of jobs at risk."

http://www.nytimes.com/2008/12/03/business/03auto.html?hp=&adxnnl=1&adxnnlx=1228269657-EVmA2tu3DoxQ1Mu8FlRDBw

My father retired from Ford and is a member of the UAW. Some of that is only partialy true. The contracts were signed at a time when the auto makers profits were at an all time high, thus  giving the wages they gave plus the singing bonuses they gave didn't even make them bat an eye. They were giving signing bonuses of 2 or 3 thousand per employee, plus if an employee decided they wanted to go to school Ford had to pay for it. It was just silly what they got, but at the time Ford could afford it, so it matterd not. Unions can be negotiated with; so when it came crunch time and the contracts were up they could have and did easily get better deals for the companies. The problem is some of the old timers like my dad are grandfathered and all the employees hired before the new contracts are as well. The new guys don't get nearly what my dad gets in terms of benefits or retirement funds, but the old timers cost them a fortune.

 

Edit... I stand corrected, I guess the unions won't negotioate this one after all.

 

 

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