More Car Company Thoughts

by Mike Holman

Some big events this week when both Chrysler and GM were denied any long term bailout money unless they come up with better restructuring plans.  The US and Canadian governments have not given up on them however since both companies were given short term cash to continue operations.  I thought it was pretty interesting that the governments didn’t just rubberstamp the recent deals that GM and Chrysler came up with to improve their operations.

I agree with Obama that the threat of bankruptcy is necessary to get a proper restructuring deal.  The problem with the government just giving these companies more money is that when any tough negotiations have to take place, such as between the CAW and GM – the government ends up being the third party in the negotiations and the union and car company are more inclined to bargain just hard enough to get the bailout money.  This was evidenced by the recent sweetheart deal reached with GM and the CAW.

Bankruptcy will be a tough road but when an industry is so far over capacity and has different parties (companies, unions, pensions) then it might be the best way to get the fairest deal for everyone.  It’s kind of like locking 12 people in a room for a day and a half and demanding that they come up with an agreement on something.  That happened to me several years ago on jury duty and I can tell you that although nobody was happy with the final outcome – an agreement was reached.  Ok, it wasn’t really a day and a half – we were allowed out for dinner at a very expensive restaurant (courtesy of the taxpayer) and for sleeping overnight at a hotel.

Homer: Well, Marge, it was horrible. Everyone was against me in that
jury room. But I stood by the courage of my convictions and I
prevailed. And that’s why we had chinese food for lunch.

Should Wagoner have been fired?

I originally thought that the Wagoner – the head of GM was rightfully fired as CEO because the company had gone pretty far downhill under his lead.  However, after a brief discussion with Jim from Bargaineering.com on Twitter – I realized that maybe replacing him wouldn’t be that easy since he does know the company.  I also read that under his leadership the company went from 177,000 employees to 92,000 today which is an impressive feat.  Now, I think that he should have been kept on – it appears to me that he had the company on the right track but given the conditions of the last couple of years (high gas prices, recession) the goalposts kept moving on him which made it impossible to get the company to the right size quick enough to prevent it’s current situation.  Don’t forget that the pressures to downsize that exist today were not present in their current form before a couple of years ago.  Given that GM needs fixing asap – I’m not sure that he wasn’t the best person.

What’s up with Lewenza?

I wrote about Ken Lewenza – head of the CAW a while ago after he got a pretty sweet deal with GM.  This guy does a lot of negotiation through the media and I’m really starting to think that he sounds a bit like the Iraqi Information Minister who reached some fame during the Iraqi invasion.  It doesn’t seem to matter how bad things get for the car companies he still says things like

The message from the Saturday meetings was “almost unanimous that the pattern agreement struck at General Motors must be the objective of the union,” Mr. Lewenza said in a phone interview Saturday.

when talking about ongoing negotiations with Chrysler.

After the government said that GM must come up with a better deal with the union, Lewenza said the union will not reopen talks with GM.   Ok, Ken – good luck with that.

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{ 8 comments… read them below or add one }

1 The Financial Blogger

I wonder if consumer are still confident in Chrysler and GM. I am currently looking to buy a new car and I can’t see how they would convince me to buy one of them…

Thinking that I will keep this car several years, who will be able to provide me with car parts if they fall apart by the end of 2009?

2 Four Pillars

FB – I’m not sure why there wouldn’t be parts for those cars. Just because a company goes into bankruptcy doesn’t mean they won’t still be making the cars.

Of course if your model gets axed then that might be a problem.

3 Mark

In regards to why Wagoner was asked to leave GM, maybe its the other way around… Yes he has done some good with the company during the time he was there but considering where they were at now & the “unwillingness” for the union to talk sensibly, he may have decided that he had had enough & wanted out… I know that if I would have been in his shoes, it would have been something to think about…

as far as Lewenza is concerned, he’s getting his 15 minutes of “fame”… He and the union workers will need to wake-up & smell the coffee… If noone buys your cars because of costs, I don’t care how good your union is, your business is bankrupt… Now tell me how your union will help you when that happens…

I totally flipped when I heard him say that they weren’t open to new discussions… This guy is more of a farce than a union rep and I don’t know what kind of stuff he’s smoking but it’s keeping him in a LALA land that is really out of this world!!

4 Steve in Montreal

I’m so tired of this union character. I think I’ll buy shares in Canadian Tire. When GM and Chrysler go bye-bye, the only place to have the vehicles repaired will be at the Cdn Tire shop (small amount at local mechanics).

5 Millionaireby45

I feel sorry for the employees who are loosing there jobs but the union has to wake up and smell the coffee. I heard a guy on TV the other day state: “GM makes cars that people want to buy. They are the safest,most reliable, and most fuel efficient vehicles out there. We have the most productive plants and the vehicles are very affordable right now.” I am not sure how a company could be this great and still loose 82 billion dollars over 4 years.

6 rocketc

4P, I think you have some good thoughts on this issue, but you are missing the big point:

The US Constitution was violated when public tax dollars were given to a private company. It was further violated when the President of the US basically fired a CEO of a private company.

This is a very slippery slope.

7 Four Pillars

Rocket – I didn’t miss anything – the US constitution isn’t a big concern of mine. 🙂

This type of bailout is not without a lot of precedent (ie Chrysler & Iaccoca) – where exactly in the constitution does it say that the government can’t help out a company?

8 rocketc

I understand that the US Constitution is not a big concern of yours – frankly it has not been a big concern of the US Congress or president ever since FDR . . . I don’t want to post a bunch of links, but google “constitutionality bailout” or “constitution TARP” and you will find all the info you need on why under US law, the government is not to help out a company.

The Chrysler bailout was a $1.5 billion loan that was repaid – a far cry from handing multiple billions to an almost random group of banks and companies.

It is strange to me that you and many people don’t understand how giving trillions of public dollars to private companies is a great way to fill a government with corruption. It is not limited to Democrats, but you only need to look at the Obama cabinet to find people who are enriching themselves and gathering power to themselves through TARP and bailouts. Rahm Emmanuel, Robert Rubin, Lawrence Summers have all made multiple millions of dollars in the banking industry very recently. Chris Dodd and Mr. Obama himself recieved 6 figure donations (investments?) from AIG and other banks – even though the latter was only a senator for 18 months.

Furthermore, our government only seems to give money to failing businesses. Why are they propping up businesses that have a proven track record of incompetence? If you are throwing public money around why not make it easier for well-run, efficient companies to thrive and grow?

This administration is seeking greater power over our financial system and big business than ever before. Big business, especially businesses who can’t turn a profit, are now using the tools of the government for their own gain. The US Constitution was put in place, in part to protect the citizens from an over-reaching government. There is an old saying that is true today – “absolute power corrupts absolutely”. We might want to coin another saying “the government that invests in bankruptcy goes bankrupt”.

If a business is run poorly and can’t turn a profit – then it should go out of business. If the USA goes bankrupt, you in Canada will certainly feel it.

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