Payday Loans

By 2g1c2 girls 1 cup

Well, it looks like the D3 will get their bail…er, loan after all.  As of this writing, reports out of Washington say that GM and Chrysler may get up to $15 billion in short-term loans to carry them over until approximately March.  The lame duck Congress and administration are punting this issue to their successors next year.

Congress has been throwing around many ideas to “help” make the D3 more efficient and more profitable, all under the guise of protecting the taxpayers’ money.  Among the ideas:

  • a shotgun wedding of GM and Chrysler
  • limits on the companies’ lobbying – specifically against states’ efforts to regulate greenhouse gas emissions (Democrats want this)
  • appointment of a “car czar” to oversee the restructuring of the industry, including the power to rewrite contracts with lenders, suppliers, dealers and unions
  • force bankruptcy if certain conditions and deadlines are not met
  • cut the union wages and eliminate the so-called “jobs bank” (Republicans)
  • compel bondholders to accept a debt for equity swap
  • forcing the ouster of 1 or more of the CEOs of the D3 and limitations of executive pay and/or bonuses

Depending on the exact final wording of the bill, this could be a disaster for the D3.  Many cliches come to mind, specifically that the “medicine might be worse than the disease.”

I have addressed the GM-Chrysler merger in a previous article, so you can read my thoughts there.

The separate greenhouse emissions regulations by state is beyond ridiculous.  Briefly, you have a group of companies that might not make the payroll this month, and DC wants to saddle them (as well as their competitors) with a ragtag set of regulations that will drive up the complexity of their products many times.  This will further undermine their ability to recover from their current situation.  For those that don’t understand this issue, California and 15 other states have already passed regulations that limit greenhouse gas (carbon dioxide) emissions from tailpipes.  Present federal law prohibits states from setting fuel economy standards.  There is one set of standards and the feds have that right exclusively.  So what’s the problem – fuel economy standards aren’t the same as emissions, right?  Wrong.  Gasoline (as well as Diesel fuel) is a hydrocarbon, meaning that it is made up of hydrogen and carbon.  When a hydrocarbon fuel burns completely, the oxygen in the air combines with the hydrogen to form water (H2O) and with the carbon to form carbon dioxide (CO2).  If the burning is not complete, then some of the carbon atoms only combine with one oxygen atom rather than two, to form carbon monoxide (CO), a highly poisonous gas.  Phrased differently, carbon dioxide is formed from burning gasoline or Diesel.  It’s the chemistry that determines that, so the 16 (and counting) states saying that they are only trying to clean up their air is just a smokescreen (pun intended) for going around federal law to set fuel economy standards.  Why is this bad?  Because all of the automakers spend many millions of dollars every year to navigate the extremely complex fuel economy rules.  Believe me, it is way more complex than anybody who has never worked in government could ever imagine.  Now multiply that by perhaps 50.

I want to know the criteria for the selection of the car czar.  Since many in Congress admitted in the hearings that they know nothing about running a car company, what makes them think they know how to pick somebody to oversee the auto industry?  What are the qualifications?  I think they would want somebody with non-automotive manufacturing experience, perhaps a turn-around specialist.  I’ve heard the name Jack Welch thrown around.  Jack would likely be a good choice, but DC doesn’t work that way.  Likely, it will be a politician owed a favor or perhaps a politician out of favor, considering how DC views Detroit.  Detroit is the USA’s Siberia, after all.  But can Sarah Palin see Detroit from her house?  Personally, I’d like to nominate John Engler, former Michigan governor, for the post.  Engler is the President & CEO of the National Association of Manufacturers, so he knows all about the issues facing the manufacturers in this country.  He is also a politician, so he knows how get things done in the political world.  He has all of the skills and experience that will be needed in this job, assuming it will exist in the final version of the loan legislation.

If the feds force bankruptcy, they better understand that Chapter 11 (reorganization with court supervision) really means Chapter 7 (liquidation) in this case.  Consumer research has already shown that D3 sales have been hurt by the mere talk of bankruptcy.  Bankruptcy generally works to help a company restructure in a safe environment.  Cars are different.  Besides your home, you will likely never make a bigger purchase than a car.  People keep cars for at least 2 years, sometime much longer.  Be honest – would you make that kind of financial commitment to a company that you’re not sure will be around to honor the warranty?  Make no mistake about this – bankruptcy in this case means the companies go out of business.  What would be better is for Congress to allow all of the bankruptcy rules and protections to apply without a formal declaration and filing of bankruptcy.

The UAW last year negotiated lower wages for all new employees (½ of the prevailing rate), and agreed to buyouts of many existing, higher wage employees.  They also agreed to help take many of the obligations for benefits off the D3 books, and last week agreed to a longer time frame to fund those obligations, saving the D3 precious cash.  Experts agree that when those changes are fully implemented, D3 wages & benefits will be roughly the same as the transplants.  The UAW has also agreed to suspend the jobs bank immediately.  The UAW has come to the table and has given much more than most people realize.  The only part left is in the area of work rules.  The UAW contract contains many different job classifications that are simply out of date.  Supervisors need to have the flexibility to assign workers wherever they are needed, but they don’t presently have that ability.  So while the cost of the workers is now competitive, the D3 are forced to have too many workers.  This should be addressed and fixed.

I have also addressed the situation of the CEOs of the D3 previously, and you can read my thoughts on that as well.  I think that limitations on pay and bonuses are perfectly fair, if the taxpayers’ money goes to help these companies.

The D3 need the taxpayers’ help, and they are going to have to live with whatever restrictions Congress dreams up if they want to survive.  Congress needs to be careful and understand what they’re doing, because they are hardly the example of fiscal expertise.  The D3 might be guilty of mismanagement, but DC certainly is.

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  1. […] Bankruptcy generally works to help a company restructure in a safe environment. Cars are different. Besides your home, you will likely never make a bigger purchase than a car . People keep cars for at least 2 years, sometime much longer. …[Continue Reading] […]

    Pingback by The Buzz » Blog Archive » The Slandy Report » the Blind(Er) Leading the Blind — 9 December 2008 @ 8:18 pm

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