Members of the House Financial Services Committee continue to grill the CEOs of the Big Three auto manufacturers about their request for a second $25 billion loan.
So far, Richard Wagoner from General Motors Corp., Alan Mullally of Ford Motor Co., and Robert Nardelli of Chrysler have been pressed to discuss their plans for the funding, the expected outcome if the loan isn’t granted, and whether the automakers would allocate some funds to dealer floorplans, among other things.
To watch the hearing live, visit the committee’s web site, and click the webcast link in the lower right corner of the page.
Showing up in private jets worth millions of dollars to ask for the money was probably not the smartest move these guys could have made. It makes me a little skeptical to think where this bailout money is going when you learn the GM jet is worth $36 million and Ford has a fleet of 8 luxury private jets for executives. One would think that these would be some of the first perks that should go. They can justify all the other cuts they are making including closing plants and laying off thousands of workers but I bet that one round trip flight in that private jet could pay a whole year’s salary for someone.
The media has been approaching this story as if the big three are a monolith, and that all things are equal at each company. They aren’t – and congress’ actions should be determined by the real conditions of each company than by rather their antiquated perceptions of the auto industry as a whole. To hear some in congress talk, you’d think that Detroit was still cranking out Vegas and Volares and not Malibu Hybrids.
GM has a good pipeline and good international products which can be adapted to the U.S. market – and Ford is already taking steps to introduce its international products here, such as the small Fiesta, due next year. Both GM and Ford have the resources and the reach to rebuild and retool – if only they could get some help with cash now and have their labor and overhead issues resolved.
Bankruptcy would help resolve those issues – but it comes at a terrible price. If these companies go into bankruptcy both dealers and buyers will defect en-masse, as they were beginning to do when Chrysler needed a bailout in 1979 and as they did to the various independent makes during the 1930’s and 1950’s. When a car company looks like it might not be around next year, nobody is going to plunk down $30K for one of its cars. And there is plenty of historical precedent on that.
A mass conglomeration and nationalization isn’t such a hot idea either. It brings memories of the old British Leyland – which merged about 70% of the British Auto Industry into one massive company plagued by labor strife, vast overhead, competing brands, and internecine executive warfare. BL’s descendant, the Rover Group, never really recovered from the damage, and went staggering from one partner (Honda) to another (British Aerospace) to another (BMW) before finally collapsing in 2005.
Far better would be loan guarantees for GM and Ford or possibly structured bailouts that outline certain requirements while dictating, on federal terms, cuts in labor, benefits, corporate excesses like the jets, and executive pay. On the issue of cars themselves, GM should be forced to go in the same direction as Ford and offer more of its world products in America, such as the Opel Corsa and the Suzuki-derived Opel Agila. GM already began doing this with the Saturn Astra, but the car is still made in Europe and costs too much. Plants need to be converted here, as Ford is doing for the C-max and the Fiesta, to make these efficient, modern, stylish cars affordable to American buyers.
Now, GM and Ford may be weak at the moment, but they are in infinitely better positions than Chrysler.
Chrysler’s aging, off-the-mark lineup is not selling, the company has very little in the pipeline other than a small-car collaboration with Nissan/Renault that can’t come soon enough and the new Challenger, which is a niche product. The firm has been essentially rotten for years. Daimler’s decisions handicapped Chrysler in much the same way BMW’s decisions knee-capped Rover back in the 90’s. There isn’t much left to salvage for Chrysler and in a world of limited resources and too much production chasing too few sales, it might be best if the feds didn’t bail out Chrysler.
Somebody will pick up the pieces – perhaps Tata or a Chinese company, and Nissan-Renault has expressed an interest in reclaiming Jeep, which Renault owned in the 80’s as part of AMC. Chrysler does have some valuable assets and some good products – but it’s in such deep trouble that few foreign parties would be interested unless they could get fire-sale prices, and a bailout would likely only delay the inevitable collapse of Walter P. Chrysler’s long-lived firm.
I don’t think anyone wants to see all of Chrysler’s employees out on the street, but in some cases you have to make very hard choices. If you have only a certain amount of money to allocate, the stronger players have to be the ones you bolster.
Alex, great post. GM’s strong 2009 model year lineup is certainly getting lost in the discussion. Both Ford and GM have been working hard on their products, and to simply dismiss their efforts, as has been the case in recent days, is naive. That said, GM has no money. By mid-January 2009 (mark your calendar) they are broke. Even if the Traverse is a great new crossover, fuel-efficient SUV.
Over the past 18 months, credit unions have had an opportunity to step into the auto finance arena and provide a product to dealers at time when more traditional lenders pulled back. That contraction also gave credit unions the opportunity to build working relationships with dealers that could contribute to their sustainability.
Outside of subvention, dealers drive a large portion of ‘finance institution’ decisions for consumers. So beyond the question of whether customers will be lured by lower rates is whether or not dealers and credit unions have forged relationships that will continue forward even as other financiers return: will F&I people be able to make enough money that they continue to push business to the credit unions.