Payday Loans

Well, the Detroit 3 have turned in their homework on time.  That used to count for something, but I’m not sure it does any longer.  Congress, specifically the Republicans, seems to have decided that they should make an example of of the D3.  They are obviously a bunch of mismanaged dinosaurs run by a group of idiots.  If you subscribe to this line of “reasoning”, ask yourself this, “How likely is it that all 3 of these extremely large publicly held (except for Chrysler only recently) companies, would all make the same mistakes and never be able to make good, sound business decisions for the last 30+ years?”  I’m no mathematician, but the odds against that seem very long.  I addressed some of the reasons for this situation last week, but they include 1. our nation’s lack of coherent trade, energy and health care policy, 2. uncompetitive union contracts and 3. yes, management mistakes.  Any one or even two of these would have put the D3 in a bad, but not deadly, position.  All 3, combined with the current credit crisis, has pushed an industry that was turning away from the abyss over the cliff.  The latter 2 of the 3 reasons above were addressed before this crisis hit (Ford turned a profit in the 1st quarter this year, in fact).  All of the D3 negotiated “breakthrough” contracts with the UAW in 2007, making a big difference to their bottom lines, mostly by moving the burden of health care to the UAW itself.  Ford and Chrysler also brought in new management from the outside.  Alan Mulally of Ford, in particular, has made all of the right moves since he came on board 2 years ago.  He and Bob Nardelli of Chrysler are exactly what the so-called experts have been saying in the media for the last few weeks.  They’ve said, “Go outside your inbred company and hire some proven managers that are not beholden to the old ways of doing things.  Maybe you could learn a thing or 2 from the Japanese companies as well”  Alan Mulally left a 30+ year career at Boeing to take over as CEO of Ford 2 years ago.  He is credited for turning Boeing around from his position in charge of the commercial aircraft division – the largest part of Boeing.  He understands manufacturing and unions in a large corporation.  Bob Nardelli spent almost 30 years at General Electric and was 1 of 3 “finalists” to succeed Jack Welch when Jack retired in 2000.  He left GE and became CEO of Home Depot.  Under his watch, Home Depot doubled sales and profits in 5 years.  By the way, both Ford and Chrysler also have recruited highly visible and successful executives from the darling of the media, Toyota.  Jim Farley is presently VP of Marketing at Ford, while Jim Press is co-president of Chrysler.

I’ve been told by some (see comments on the previous article), including a certain lawyer that I know, that if a company is losing money, and it is unable to cut its costs to make money – it should just go out of business.  That’s what happens to other businesses, right?  The lawyer pointed to their law firm, which had to close its doors recently.  This example is both right and wrong.  It’s right for the obvious reasons.  Capitalism works.  Free markets work.  The strong survive.  Economic Darwinism weeds out the weak, so the strong remain, etc, etc.  The example is also wrong because the US auto market is far from pure capitalism.  In what other industry are the companies told what they can sell, what features they will offer, where they can sell and whom they will hire?  None that I know of.  State and federal laws govern their relationships with dealers and the unions, so they have limited ability to change this situation without negotiating and paying a LOT of money.

Toyota and the other foreign makers live within these same regulations, so why aren’t they asking for a loan to save them?  Partly because they ARE foreign.  Their home markets have high fuel prices and are crowded – conditions which make the sale of small cars easy and profitable.  The US is just the opposite: cheap gas and wide open spaces.  Think it’s a coincidence that our home market automakers make the large vehicles?  Also, the home markets of the foreign automakers actively support them by supporting R&D and in other ways.

The UAW is blamed for a big part of Detroit’s problems, but is that really true?  For a long time, the UAW has burdened the D3 with high wages, high benefits, restrictive work rules and strikes to get what they want.  Federal law prohibits the companies from “busting” the union, so the D3 have to deal with them.  They can’t simply fire workers who strike or, in some cases, don’t even show up for work.  Recently, however, the UAW has agreed to lower wages and benefits so that when they take full effect, the UAW costs will be only slightly higher than the “transplants.”  The main source of labor disadvantage, however, is the work rules.  While the cost of a UAW employee now approaches those of the transplants, the remaining issue is that the work rules force the D3 to have too many employees.  This is the last source of disadvantage that must be addressed.  The UAW, to its credit, announced today that it will reopen negotiations with the D3.  The jobs bank and the work rules should be the 1st items on the agenda.

Will the D3 get their loans?  Should they?  As I sit in my kitchen typing this, CNN is saying that there doesn’t appear to be enough votes in Congress.  They also say that 61% of the public don’t support the loans.  The lack of information in both the public and in Congress is astounding.  I worry for our future as an industrial power.  The ramifications are truly frightening.

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