Top 10 Reasons To Say NO To Auto Bailout

1). It isn’t the job of Government to provide handouts to failing companies.

Chrysler, Ford and GM are asking for handouts because their business model failed. Now they want a taxpayer funded handout to keep them, temporarily, in business. How will the “Detroit 3” become competitive and stay in business? They have no idea – but they want the “Handout” now. Did any of the Detroit 3 Auto Execs come to Congress with The UAW President and say, “This is how we will transform the “Detroit 3” “, of course not. The don’t want “change”, they want the money! 

2) The “Detroit 3” are bankrupt today – they don’t have the necessary cash to continue operations for 90 days. Let them file for bankruptcy and reorganize like any other company.

The “Detroit 3” need to file for Bankruptcy protection and reorganize the Companies under Court supervision? Why won’t they do this? Because they want to keep things “business as usual” – that is why.

The “Detroit 3” must fundamentally change how they do business.

The “Detroit 3/UAW” have no plan and no intention of changing how they do business – Did they appear before Congress to say, “This is what we propose – here is how we can cut costs futher and compete – this is how we will restructure. We had it wrong before, but we think this will work”. No they have not – They are expecting a “political payoff” from the Democratic Party.

Listen to what they are saying – there is no “blame” and nothing to fix – they are the victims of the economy.              

http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

Just before his arrival in Washington, UAW President Ron Gettelfinger said, “workers will not make any more concessions and that getting the automakers back on their feet means figuring out a way to turn around the slumping economy”. http://www.kirotv.com/automotive/17989541/detail.html

Good, I agree, go home and wait for the economy to turn around. Stop asking for a “handout”. As noted below, the “Detroit 3” problems are systemic. The “New American Auto Industry” is still making profits, even in this economy.

3). Without change, the “Detroit 3” is simply not competitive.

The “Detroit 3/UAW” lose money on every car they make. The “Detroit 3/UAW” have had to scrap their “zero down” purchase program, their “pull ahead” lease programs (when the solution to not being able to afford your current lease is to add it into a new lease – and have the “leasor” take out a new mortgage and fund the auto transaction with “mortgage cash”). The “Detroit 3/UAW” have abandoned their lease programs in general without announcing any plan on how they will recoup the losses.

4). The “Detroit 3/UAW” is not the future of the American Auto Industry. 

The “Detroit 3” or the “Old Auto Industry” employ approximately 175,000 people. The “New Auto Industry” employs approximately 150,000 in the US.

Chrysler employs 49,000 http://www.autoobserver.com/2007/11/breaking-news-chrysler-end-of-the-line-for-some-employees-models-and-production.html

General Motors employs 74,000 http://findarticles.com/p/articles/mi_qn4158/is_20080213/ai_n21306396

Ford Employs approximately 54,000 http://www.ibtimes.com/articles/20080124/ford-loss-narrows-in-4q-offers-buyouts.htm

While the “Detroit 3/UAW” have lost 100,000s of workers, the “New Auto Industry” or “Transplants” are hiring and building more plants. In 2007 the “New Industry” announced plans to build 5 new plants in the United States. The “Detroit 3” and their suppliers have closed 70 plants in the US since 2005. http://www.msnbc.msn.com/id/24947044 

http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box 

How much have the “Detroit 3/UAW” lost in the last 40 years? Consider this June 2008 article, “Toyota’s stock market valuation of $168 billion is 12 times the size of Ford’s market cap….. In fact, an even more surprising statistic: Toyota is 8 times larger than Ford and General Motors combined.”      http://www.bloggingstocks.com/2008/06/27/the-next-toyota-is-ford/ 

Before the economic slowdown, Toyota’s market value was 220 Billion Dollars.

Toyota employs 370,000 people worldwide.  

Ford & GM have lost half of their market value since this article was published.   http://www.bloggingstocks.com/2008/06/27/the-next-toyota-is-ford/ 

Before the economic slowdown, Toyota’s market value was 220 Billion Dollars

Honda Motor Car Company has a larger market value than the combined “Detroit 3”.   http://www.bloomberg.com/news/marketsmag/honda.pdf  

5). Even if the purpose of Government is to provide “handouts” the “Detroit 3” is simply not worth the cost of the proposed bailout (A minimum of $50 Billion).

A $25 Billion “bailout” has already been approved for the “Auto Industry” by Congress. Congress claims the money was authorized so the “Detroit 3” could “re-tool” and build more “fuel efficient” and “environmentally friendly” cars. Now we find out that the money was not really intended for the “Detroit 3” but for companies in engaged in “alternative energy research” that may or may not be applicable to “auto industry” related uses. The proponents of the original $25 Billion “bailout” are holding up the disbursement of funds in the House Energy Committee.  http://www.freep.com/apps/pbcs.dll/article?AID=/20080925/BUSINESS01/809250341  http://money.cnn.com/2008/11/15/news/companies/automakers_bailout_congress.ap/index.htm

To read about the Democrats double dealing on this issue see – https://mcauleysworld.wordpress.com/2008/11/07/obama-granholm-pelosi-waxman-dingell-the-death-of-american-automobile-manufacturing/

The White House has suggested that the “Detroit 3/UAW” tap into the $25 Billion that has already been authorized – Democrats – led by Speaker Nancy Pelosi and Representative Henry Waxman oppose that suggestion. http://www.latimes.com/news/nationworld/nation/la-na-energy7-2008nov07,0,7068890.story?track=rss         http://money.cnn.com/2008/11/15/news/companies/automakers_bailout_congress.ap/index.htm

The “Detroit 3” isn’t worth the first $25 Billion. Literally and factually, the “Detroit 3” isn’t worth $25 Billion, the combined value of the 3 companies is less than $10 Billion.

The current “market value” of the “Detroit 3”,

Ford Motor Company     $4.7 Billion

General Motors              $2.7 Billion

Chrysler LLC                  $1.8 Billion 

Total                              $9.2 Billion

http://www.detnews.com/apps/pbcs.dll/article?AID=/20081010/AUTO01/810100386&imw=Y

Quoting a Detroit News report, “GM lost half of its value — or $2.7 billion — and Ford has lost 60 percent, or $7 billion.”                                                  http://www.detnews.com/apps/pbcs.dll/article?AID=/20081010/AUTO01/810100386&imw=Y 

A $25 Billion “bailout” has already been passed and they want $25 Billon more for a total of $50 Billion when the subject companies have a total market value of $9.2 Billion dollars. They are kidding, right?  $50 Billion of new money into companies with failed business plans and a market worth of $9.2 Billion. Isn’t that the definition of “good money after bad”.

How about this as an alternative to the “handout” – Buy the “Detroit 3” for $10 Billion, file for bankruptcy protection/reorganization, get rid of the CEO’s, UAW, supplier contracts, reorganize the business model and then ……. GIVE THE “DETROIT 3” to TOYOTA WITH $10 Billion Dollars cash and let Toyota run the new business –  it would save $30 Billion in taxpayer money over the current proposals and you would quadruple your chances of getting a viable company at the end of the process. The icying on the cake – The “New Detroit 3” would have “green friendly” autos …

6). Private investors think the “Detroit 3” are a bad bet? Why is the investment community wrong? The Government should limit itself to “Governmental duties”

The Government can do things private investors cannot. The Government can lower taxes, decrease regulation, provide tax abatements, all things to make a marketplace “business friendly” – but the Government is not talking about doing any of these. The Government is considering giving a “handout” to  Companies that the International investment community has given up on. If Government wants to help, let them do all of the Governmental activities listed above …… but Government should stay out of the handout business.

Don’t forget that the Government has plans to increase “capital gains” and other business taxes. Now does this make any sense – talking about billions in bailouts and billions in new business taxes at the same time … Only in Washington DC does it make sense to pursue two policies, that are directly opposed to each other, at the same time …  

The “Detroit 3/UAW” are asking for the “handout” because they can’t get a loan in the marketplace –

The International investment community doesn’t want to buy their company stock or provide loans.

http://money.cnn.com/2008/10/21/news/companies/ford_kerkorian/index.htmeref=rss_topstories   http://news.yahoo.com/s/afp/20081110/bs_afp/stocksusautocompanygm          http://www.msnbc.msn.com/id/15971257/                             http://www.bloomberg.com/apps/news?pid=20601087&sid=aQQoGkwS_Ptk&refer=home  http://blog.pennlive.com/leftcoast/2008/11/chrysler_death_watch_week_thre.html  http://www.forbes.com/afxnewslimited/feeds/afx/2006/01/10/afx2442119.html  http://www.autoobserver.com/2007/11/breaking-news-chrysler-end-of-the-line-for-some-employees-models-and-production.html                                                             http://www.forbes.com/afxnewslimited/feeds/afx/2006/01/10/afx2442119.html

7). The “Detroit 3/UAW” problems are not new, they are long term and systemic. While the economy has moved into recession, the “Detroit 3/UAW” problems were present for the last 40 years.

http://resources.bnet.com/topic/chrysler+llc+and+stock.html                          http://www.autoobserver.com/2007/11/breaking-news-chrysler-end-of-the-line-for-some-employees-models-and-production.html          http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box           http://www.forbes.com/afxnewslimited/feeds/afx/2006/01/10/afx2442119.html

8). The “New Auto Industry” is winning the “competition” for auto buyers – isn’t that what the “American System” is all about? The purpose of the handout is what? To reward failure while punishing success?

“Toyota Motor Corporation, Japan’s #1 carmaker, has a driving ambition to become greener. The company makes a hybrid-powered (gas and electric) sedan — the Prius — that is being snapped up in US and European markets” … http://www.answers.com/topic/toyota-motor-corporation-adr 

“Junior engineer Takeo Fukui helped put Honda Motor Co. on the U.S. map with a Civic subcompact that met clean-air standards without a $1,000 tailpipe filter known as a catalytic converter. He was 28. Today, as Honda’s chief executive officer, Fukui, 61, is racing to repeat his triumph, engineers are building a diesel engine for 2009 that Honda says will meet both new U.S. limits and more stringent California rules on soot and nitrous oxide emissions and still use 30 percent less fuel than gasoline models.” http://www.bloomberg.com/apps/news?pid=10000101&sid=aGUDxfTgbHY4&refer=japan

Honda spent $3,193 per vehicle worldwide for research, development and capital expenses in 2005. That’s $256 more than the $2,937 at Toyota and almost double the $1,611 at GM, says John Murphy, a Merrill Lynch & Co. auto analyst in New York.                                http://www.bloomberg.com/apps/news?pid=10000101&sid=aGUDxfTgbHY4&refer=japan

http://www.bloomberg.com/news/marketsmag/honda.pdf

The UAW is losing its edge in pay compared with non-unionized U.S. assembly plant workers for foreign companies, even as Detroit automakers aim for deeper benefit cuts to trim their losses.    http://www.aftermarketnews.com/Item/28594/uaw_losing_pay_edge_foreign_automakers_%20bonuses_boost_wages_in_us_plants_as_detroit_car_companies_struggle.aspx

Toyota Motor Corp. gave workers at its largest U.S. plant bonuses of $6,000 to $8,000              http://www.aftermarketnews.com/Item/28594/uaw_losing_pay_edge_foreign_automakers_%20bonuses_boost_wages_in_us_plants_as_detroit_car_companies_struggle.aspx

Honda Motor Co. and Nissan Motor Co. are not far behind Toyota and UAW pay levels. Comparable wages have long been one way foreign companies fight off UAW organizing efforts. http://www.aftermarketnews.com/Item/28594/uaw_losing_pay_edge_foreign_automakers_%20bonuses_boost_wages_in_us_plants_as_detroit_car_companies_struggle.aspx

Contrary to the Political Spin on TV, the “New Auto Industry” or “Transplants” pay retirement and medical benefits to their employees.

May 9, 2007 – Toyota announces record $14 billion profit                                                   Annual profits have risen 19.8% to a record $1.64 trillion yen ($14 billion). Revenues, which rose 13.8%, reached 23.94 trillion yen ($204 billion) for the year ending March 31 with 8.52 million vehicles rolling off the showroom floor. Its major rivals are doing it tough. General Motors, which lost its  position as top-dog for the first time ever, lost $2 billion, while Chrysler Group lost $680 million with Ford suffering a massive $12.6 billion blow-out.

May 8, 2008 – “For this year we have posted our highest ever results in both revenue and profits”, said Katsuaki Watanabe, Toyota Motor Corporation President. http://www.toyota.com/about/our_business/investor_relations/financial_data/2008/20080508_release.pdf

April 25, 2008 – Mazda, Mitsubishi and Honda post record 2007 profit – [Mazda is a Ford subsidiary]For the fiscal year ending March 31, Honda said strong sales and cost reduction efforts boosted profits to $5.77 billion – a 1.3% increase on last year’s result.
http://www.motorauthority.com/mazda-and-honda-post-record-profits-for-2007.html

April 2006, “Japanese automaker Nissan is one of the most profitable automakers in the world, selling over 3.4 million autos worldwide in 2006 and generating over US $91 billion of revenue.” http://www.wikinvest.com/stock/Nissan_Motor_(NSANY

April 26, 2007 – Nissan’s profit plunged 54 percent in the January-March quarter, contributing to its first drop in annual profit in seven years. Nissan still made a profit .  http://cbs13.com/business/Nissan.auto.maker.2.282629.html

01/25/08 – KIA & Hundai post $768 Million profit for operations in 2007. http://www.caradvice.com.au/9788/hyundai-posts-2007-profit/

04/25/08 – KIA & Hundai report 28% increase in net profit for 1st quarter 2008. http://www.ibtimes.com/articles/20080424/hyundai-motor-profit-up-on-sales-cost-cuts-and-currency.htm 

October 23, 2008 – KIA/Hundai post a $187 Million Dollar profit in the 3rd quarter. http://www.livemint.com/2008/10/23114325/Hyundai-Q3-profit-beats-foreca.html   

Is the economy impacting the “New American Auto Industry”? Yes it is, sales and profits are down – but the “New Industry” is still making profits, even in this economy.  

This is the first time in nine years that Toyota has experienced a decline in profit. http://www.motorauthority.com/toyota-announces-39-profit-drop-for-last-quarter.html

With this level of sales, the company is estimating a net profit of ¥1.25 trillion ($11.43 billion) and an operating profit of ¥1.6 trillion ($14.6 billion) for the year ending March 2009.  http://www.motorauthority.com/toyota-announces-39-profit-drop-for-last-quarter.html The 2009 “net profit” is projected to be down from the record 14 Billion Dollars in 2008.

Honda Motor Company warned of lower-than-expected annual profits as a deepening financial crisis has hammered demand for cars and sent the yen soaring, while U.S. rivals sought government aid to fund a proposed merger to survive a shrinking market. Honda is considered one of the best-placed among global automakers to weather collapsing car demand and shrinking margins thanks to its manufacturing flexibility and vehicle line-up that is geared toward fuel-efficient models. Honda cut its annual operating profit forecast by 13 percent. …. the yen suddenly jumped to multi-year highs against almost all major currencies, eroding the value of earnings made overseas.         http://www.newsdaily.com/stories/tre49r1qk-us-autos/ 

Honda is still forcasting a $4.5 Billion dollar profit.

Nissan – Reports profits down 39% in the second quarter – profits projected to be down 69% to $1.6 Billion dollars at year end in March 2009.                           http://www.automotivedigest.com/view_art.asp?articlesID=25450

9) Why do they refer to the “Detroit 3” as American Auto Companies? They are no more American than any other “International Company”. Chrysler is not even a “Public Company”. So why do the “Detroit 3” deserve special treatment at the expense of the other half of the US Auto Industry?

Chrysler was just recently a “German” company, remember Daimler-Chrysler. Now Chrysler is a privately owned company. Why are we even talking about a “bailout” for a “private company”.

Chrysler is currently owned by Cerebus Capital Management. Cerebus is named after the mythical three headed dog that guards the gates of hell.                                    http://www.hoovers.com/cerberus-capital-management/–ID__112328–/free-co-factsheet.xhtml?cm_ven=PAID&cm_cat=INK&cm_pla=CO1&cm_ite=cerberus-capital-management

Cerebus is a private capital investment firm that owns shares in companies all over the world. Cerebus was formed in 1992. It has its own bank, a Japanese Bank, not an “American” bank, named Aozora.

Cerebus’ Chairman is none other than former Vice-President Dan Quayle. http://www.vicepresidentdanquayle.com/biography.html

Former Treasury Secretary John W Snow joined Cerebus in 2006. http://en.wikipedia.org/wiki/Cerberus_Capital_Management

The taxpayers being asked to “bailout” Cerebus can’t even own a piece of the Company. “It is not a public company and you cannot buy or sell its stock. (It was a public company until last year when Daimler sold most of Chrysler to Cerebus.) An LLC is a corporate structure that limits the liability of its owners, similarly to a corporation.” http://smallbusiness.yahoo.com/r-answers-a-20080114050334AA9ZyJk-k-stock+trade

Cerebus was described this way, “Cerberus Capital Management is the very real private equity firm — one of the bidders in play for the Chrysler Group — that guards the privacy of its dealings almost as jealously. USA Today takes a look at the firm and reveals a company with a “fierce reputation” and “a combative, take-no-prisoners style.”The list of companies that are either owned by Cerebus or which the company has majority stakes include: Alamo and National rental car, Fila, Blue Bird yellow buses, Rafaella clothing, GMAC, Aegis Mortgage, auto suppliers CTA Acoustics and GDX Automotive, Remington Arms, Bell Canada, Tower Automotive, banks, mortgage companies, and property managers.” When it bought Chrylser, Cerberus instantly doubled its annual revenue, but revenue isn’t the prime concern for private equity firms — return on investment is. The issue is that no one knows how Cerberus would go about increasing return from Chrysler.”   Did anyone ever consider they had a “public handout” in mind?                                                         http://www.autoblog.com/2007/04/16/rare-info-on-chrylser-bidder-cerberus-reveals-a-fierce-reputati/                                                                                       http://www.washingtonpost.com/wp-dyn/content/article/2007/08/14/AR2007081401913.html     http://www.bcwf.bc.ca/documents/s=393/bcw1176303661611/                                  http://www.forbes.com/business/feeds/afx/2007/05/17/afx3731793.html                      http://en.wikipedia.org/wiki/Cerberus_Capital_Management                                http://iht.com/articles/ap/2007/03/29/business/NA-FIN-COM-US-Tower-Automotive-Bankruptcy.php                                                                                                             http://www.cerberuscapital.com/

Why is Congress even considering a “bailout” to a privately held company with 100’s of Billions of dollars and dozens of companies under its control. Cerebus is, after all, a “capital management firm”. Let them raise the capital on their own – If one of the worlds largest capital management firms can’t find investors for Chrysler – what are the Politicians thinking?  A political payback at taxpayer expense?

As for Genral Motors and Ford, their stock is owned by Mutual Funds, Hedge Funds, American Banks,  Foreign Banks and individuals all over the world. Ford & GM have holdings all over the world. They are members of the global business community.  Many investors have “shed” or “sold” their stock in Ford & GM. GM and Ford make profits on their “overseas” business operations.                                                                                                                                                   

http://www.msnbc.msn.com/id/15971257/                                   http://www.bloomberg.com/apps/news?pid=20601087&sid=aQQoGkwS_Ptk&refer=home         http://www.thestreet.com/stocks/automakers/10268781.html                                 http://www.sullcrom.com/offices/detail.aspx?office=3                                   http://www.ml.com/index.asp?id=7695_7696_8149_8688_8558_6274                           http://articles.latimes.com/2006/aug/17/business/fi-gmstake17                              http://money.cnn.com/2008/10/21/news/companies/ford_kerkorian/index.htmeref=rss_topstories             http://www.detnews.com/apps/pbcs.dll/article?AID=/20081010/AUTO01/810100386&imw=Y

You can buy shares of Toyota – http://moneycentral.msn.com/detail/stock_quote?Symbol=TM&pkw=PI&vendor=Paid+Inclusion&OCID=iSEMPI

You can buy shares of Honda – http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=HMC

You can buy shares of Nissan – http://www.wikinvest.com/stock/Nissan_Motor_(NSANY) 

You can buy shares of Hundai – http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=876813

The “Detroit 3” are part of the International Business marketplace, but so is the other half of the US auto industry – you’ve got to be able to compete globally and locally – enough with the excuses already.                                                                            http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box

10) There are cultural issues involved with the “Detroit 3/UAW” that money can’t fix.

Like wayward children, it is never “their fault”, someone else is always to blame.

“The UAW says that troubles in the car industry are not its fault. According to the union, it was not a series of bad decisions by management either.” http://www.bloggingstocks.com/2008/11/16/uaw-says-detroit-collapse-is-not-its-fault/

But wait, what did the UAW say when a reporter pointed out that the “New Auto Industry” did not have a “cost advantage” because they paid their workers lower salaries, that in fact, Toyota workers in the US were paid more than their “Detroit 3” counterparts. UAW Region 8 Director Gary Casteel said “if Toyota workers were paid more than union workers last year, the blame lies with Detroit’s auto executives. The companies have lost market share because of past mistakes, which have translated into fewer bonuses for workers, said Casteel, who is on the union’s executive board.” http://www.aftermarketnews.com/Item/28594/uaw_losing_pay_edge_foreign_automakers_%20bonuses_boost_wages_in_us_plants_as_detroit_car_companies_struggle.aspx

When asked about the need for Union concessions, UAW President Ron Gettelfinger replied, “”The focus has to be on the economy as a whole as opposed to a UAW contract.”  http://money.cnn.com/2008/11/15/news/companies/automakers_bailout_congress.ap/index.htm

Apparently, Gettelfinger had not gotten his copy of the  bailout “talking points” because, as he was making this statement, Speaker Pelosi was saying, “A restructured, competitive American automobile industry will continue to play a crucial role in our national economy and in the global marketplace,” http://money.cnn.com/2008/11/15/news/companies/automakers_bailout_congress.ap/index.htm

How do they restructure if it doesn’t start with the UAW. Sounds like the same old plan to me ………

Gettelfinger went on to state, “workers will not make any more concessions and that getting the automakers back on their feet means figuring out a way to turn around the slumping economy.”   http://www.kirotv.com/automotive/17989541/detail.html

Someone needs to tell Mr. UAW that the “The New American Auto Industry” is making profits, paying wages, benefits and bonuses while building new plants – today – in this economy.

The UAW and the “Detroit 3” can’t even solve their problem with absenteeism – http://www.autoblog.com/2007/11/12/do-your-job-at-gm-win-cash-for-a-car

When the “Detroit 3/UAW” need to close an auto plant, do you think they base the decision on which plant has the best quality rating or which plant has the best productivity rating? That isn’t how the “Detroit 3/UAW” do things. http://www.nytimes.com/2008/06/06/business/06auto.html?_r=1 

Need I say more?

4 Responses

  1. […] Top 10 Reasons To Say NO To Auto Bailout « Mcauleysworld’s Weblog No they have not – They are expecting a “political payoff” from the Democratic Party – http://online.wsj.com/article/SB122608860916209213.html?mod=article-outset-box. Just before his arrival in Washington, UAW President Ron Gettelfinger … […]

  2. Regarding the Reason 1 – what about the $700B for the financial services?

  3. Read the posts –

    That was a bad idea too –

    Two bad ideas don’t lead to a good outcome.

    The $700 Billion to Financial Services Industry – or TARP (Troubled Asset Relief Program) – hasn’t worked – that is why they have suspended buying the “Troubled Assets”. Read that Post too …..

    $50 Billion more to the Detroit 3 is just throwing money down a different rat hole.

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