General Motors and Chrysler are Bankrupt. Plain and simple.
“Bankrupt: any insolvent debtor; a person unable to satisfy any just claims made upon him or her.”
General Motors and Chrysler fit the defintion perfectly.
Absent the unbelieveable Political Theater of the day both Chrysler and GM would have been directed into Chapter 11 reorganization 6 months ago and both companies would be on their way to a rebirth by now. The worst would be over, better days ahead. What has the billions of dollars in taxpayer money bought us – a dealy in the inevitable.
GM and Chrysler are, despite any claims to the contrary, on their way to the bankruptcy court house now.
Whether it is by the politically created names of “surgical bankruptcy” http://www.detnews.com/apps/pbcs.dll/article?AID=/20090330/AUTO01/903300393/1148/rss25 or “prepackaged bankruptcy” http://www.bloomberg.com/apps/news?pid=20601087&sid=aRfqFMhlj5lk&refer=worldwide it is bankruptcy non the less. GM and Chrysler cannot pay their own operating expenses nor can they pay their parts suppliers. They are bankrupt and have been bankrupt since some time early last year. http://money.cnn.com/2009/03/19/news/companies/auto_parts_bailout/index.htm?postversion=2009031919
GM and Chrysler are continuing to receive bailout money to this day. GM will continue to receive “operating capital” for the next 60 days while Chrysler will receive it for thre next 30 days. For some reason the Obama Admministration refuses to dislcose the exact amount of money involved. Last November GM was burning through $24 Million US dollars a day in cash – The Main Stream Media has incorrectly reported that Washington said no more cash – What Washington actually said was this, “GM, you’ve got 60 days worth of additional cash- Chrysler you have 30 days cash. Why hasn’t anyone asked why Chrysler only received 30 days cash?
The terms “prepackaged” and “surgical” do not appear in the bankruptcy code – the terms are the creation of Politicians who simply do not want to admit that they were wrong, that Bankruptcy was the correct thing to do all along. Bankruptcy does not mean that GM or Chrysler will disappear. They will not. Contracts and business models will be “restructured” and the Companies will attempt to return to viability (profitability) once again.
Bankruptcy is not going to cause a negative impact on the economy. Bankrutcy does not create conditions which do not already exist. Bankruptcy is the end result – not the cause.
GM’s latest round of employee reductions from 62,400 hourly employees in North America to 54, 900 employees http://news.yahoo.com/s/ap/20090326/ap_on_bi_ge/gm_buyouts will continue, not because of a Bankruptcy but because of the financial condition of GM demands that GM have a smaller work force. GM was and is “not a viable” business concern because it is operating under a “business plan” that prevents it from making a profit. In the 4th Quarter of 2007 GM lost 39 Billion Dollars. The 4th Quarter of 2007, long before the economic down turn hit home. http://www.usatoday.com/money/autos/2009-03-05-gm-auditors-statement_N.htm GM’s current downsizing began in 2005. http://money.cnn.com/2005/11/21/news/fortune500/gm_cuts/.fortune/index.htm?postversion=2009031112 http://articles.latimes.com/2007/jan/06/business/fi-gm6 http://money.cnn.com/2008/11/11/news/companies/GM/index.htm
2005 was 4 years ago – and the problems didn’t start then.
GM’s current problems are not the focus of this post. (See Post From Nov 2008 https://mcauleysworld.wordpress.com/2008/11/11/why-we-shouldnt-bailout-the-detroit-3-370000-per-employee-bailout/)
What happens next is.
1st: Gettlefinger has to go.
The UAW has not been truthful to its members. Listen to them when they appear on TV. Unfair trade from abroad (don’t look now – half the US auto industry is copmposed of “transplants” Honda, Toyota, Hundai, etc – built in America, by American Workers – and those workers actually earn more than their UAW counter parts http://www.aftermarketnews.com/Item/28594/uaw_losing_pay_edge_foreign_automakers_%20bonuses_boost_wages_in_us_plants_as_detroit_car_companies_struggle.aspx) – https://mcauleysworld.wordpress.com/2008/11/17/stop-the-auto-industry-bailout-pay-offs-to-the-detroit-3-at-expense-of-taxpayers/ The transplants now directly employ 150,000 US workers – GM employes 54,000 with additional subtractions to come. http://www.msnbc.msn.com/id/24947044 )
The next most frequently heard excuses – it was NAFTA or the economy went bad. GM & Chrysler went bad long before the economy slowed – one year ago the UAW refused to acknowledge the worsening economy and went on strike – closing 29 GM plants – http://blog.mlive.com/autoblog/2008/03/american_axle_strike_hobbling.html , http://seekingalpha.com/article/67124-american-axle-strike-unions-continue-to-kill-u-s-manufacturing . In 2007 the UAW shut down GM with a strike. http://money.cnn.com/2007/09/25/news/companies/gm_uaw/index.htm The UAW leadership has created a delusional membership.
The fact that GM ruled the auto industry 50 years ago is completely immaterial to today’s market place. GM and the GM worker of today bare no resemblance to their Grandfathers of the 40’s – The GM and the GM worker that helped win WWII are only a foot note in history – one of the most distingiunshed footnotes of this Country’s history – but the modern GM and its workers should be embarassed to make this self serving comparison. Can you imagine any GM employee in that post World War II era claiming they couldn’t compete with anyone for any reason …..
2nd – GM needs to continuing downsizing. Depsite the massive cuts todate, GM needs to be a company half its current size. GM has known this for years. The UAW leadership has known this also. Poltically it is something the UAW leadership has choosen not to acknowledge – failing to do so has weakened GM and the labor market where it’s membership must compete.
3rd – GM needs to downsize its dealership network and supplier chain accordingly. http://blogs.motortrend.com/6295283/editorial/rightsizing-gm-the-number-that-counts/index.html http://seekingalpha.com/article/112598-the-arduous-sometimes-impossible-task-of-closing-down-car-dealerships , http://www.autoremarketing.com/ar/news/story.html?id=9062 , http:www.autonews.com/article/20080922/ANA06/809220374/1178 , http://www.cbsnews.com/stories/2006/02/10/ap/business/mainD8FMI6AG2.shtml
4th – GM’s new product line must hit the mark. The greatest fear for GM should be that the Government will now mandate the production of autos that the American Public does not want to buy. The impact of the “Green Agenda” on the US Auto Industry is a topic for a different post – https://mcauleysworld.wordpress.com/2008/11/07/obama-granholm-pelosi-waxman-dingell-the-death-of-american-automobile-manufacturing/
As to Chrysler and the 30 days it has to complete restructuring and to find a partner. Beware of Audi. The Main Stream Media and Political Shysters like Michigan Governor Granholm have over hyped Audi’s potential as a savior. Granholm believed the Obama Administration would pour $100’s of billions into her state – incorrectly. Chrysler needs to continue it’s desperate hunt for a partner. Don’t put all of your eggs in the Audi basket ….
Fiat-Chrysler Link Is Nice Idea, but Futile Without Money : Fiat S.p.A.’s acquisition of 35 percent of Chrysler has all the good-sounding trappings of an auto-industry alliance that, under normal circumstances, would indicate another industry tie-up that might bear fruit. The terms of the alliance, as presented, bring from Fiat no capital that could be used to shore up Chrysler’s foundering day-to-day operational outlook. While an arrangement that might — comparatively quickly — lead to new models for gaps in Chrysler’s product range and increased utilization for some of its manufacturing plants is a solid strategic step, it’s not a tactical solution to the overriding predicament: Chrysler needs cash and needs it now. http://www.autoobserver.com/2009/01/commentary-fiat-chrysler-link-is-nice-idea-but-futile-without-money.html
Chrysler’s Italian Job on the American People :
Is there any doubt that when government starts to tinker with industry all sorts of nutty things come to pass? How about the proposed “global strategic alliance” between Chrysler and Fiat? Apparently, there is only one way to make Chrysler competitive with foreign car makers in the U.S.. And that is to have U.S. taxpayers put up $7 billion to essentially fund another foreign car maker’s takeover of Chrysler. This swindle isn’t just pazzo–it is plain wrong. Hopefully, it will be killed before it ever makes it to Congress. The alliance is contingent on $3 billion in additional U.S. government loans to Chrysler. “The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future.” http://blogs.wsj.com/deals/2009/01/21/mean-street-chryslers-italian-job-on-the-american-people/?mod=msn_money_ticker
The last thing America needs is for Fiat to suck the remaining life out of Chrysler, along with wheelbarrows of taxpayer cash, and take both back to Italy.
A straught out bankruptcy reorganization maybe a much better option. The sale of Chrsyler’s parts, Jeep, Dodge and Chrysler would leave three smaller, nimbler and more easily managed businesses. Given additional cost reductions, three such companies could be in a position to succeed in the years to come.
As to the UAW Members – quick blaming the transplants for your woes. Your fellow American citizens are competing head up. If automakers in Detroit at at a disadvantage why don’t you look to the leadership in your state. The Federal taxs laws apply uniformly to all companies, regardless of which state they are loacted in. Why don’t you research how Michigan’s Property Tax, Business Income Tax, Use Taxes, Sales Taxes, Gasoline Taxes and various City Taxes impact the price of your product. Quit blaming Washington – The problem is and has been much closer to home.
US labor costs are $800 higher per car then their Japanesse counterparts – yet US autos sell for an average of $2,500 less then the comparable Foreign competitor. “So the loss of U.S. market share must be due to consumers’ perception that U.S. vehicles have much lower quality than Japanese ones. Even the lower prices for U.S. vehicles are not enough to convince U.S. consumers to switch from Japanese to U.S. models.” http://www.bloggingstocks.com/2008/12/10/do-uaw-workers-make-73-an-hour-does-it-matter/
There is the problem. A problem Government bailouts can’t help.