Citigroup Gets Keys to the Candy Store While the Big 3 Can't Get a Candy Bar

Here's a joke for you--Ford, GM and Chrysler all engage in plans to turn around their companies prior to the financial crisis. They all engage in new technology development, organizational changes and financial upgrades. Granted, they still have problems, but they were at least working on them. Meanwhile, Citigroup is one of the main perpetrators of the mess we're currently going through. They gave away bad mortgages, sold them to the highest bidder as assets and basically undercut the market to get a stock advantage. Then they hit the skids when the rest of the country did, in large part to the tactics they used in the past ten years.

The punchline? Citigroup gets a huge multi-billion dollar bailout in the form of cash that does not have to be repaid while the automakers, who employ hundreds of thousands of people, can't even get a loan.

I just don't get how the auto industry became the proverbial red-headed stepchild of our economy. This focus on the financial and service industry is going to leave us a poorer country in the short and long runs. We have to have a manufacturing base to compete in this world. The financial sector has to be fixed, but just handing over the keys to the candy store to those who robbed the candy store and poisoned the customers in the first place isn't a great plan.

And yet we're willing to let the automakers go bankrupt and not the financial sector that was in large part to blame for this mess. I guess the lesson is just to foul things up as much as possible and then you'll get help. If you actually try to help yourselves, you're screwed.

Wait, wait...don't tell me...this is the part where the working man gets screwed

Sources close to the UAW have said that Detroit's most powerful labor organization is ready to give some concessions to the automakers to help the automakers score some easy cash from Congress. The controversial jobs bank is at the key of these concessions.

So let me get this straight, the 3 CEOs fly to D.C. in private jets. They are paid millions of dollars and don't agree to not take a salary for a year. They beg and plead for money, but are unwilling to make real lasting changes. And it's the working stiff who is left to give up what little power he had? Wow, I'm so shocked.

The domestic auto industry is poised to move towards coupledom after decades of a tough menage-a-trois. It is almost inevitable that one of the Big 3 will not make it through this financial crisis. The largest domestic automaker is doing worse now than it has any time since the Great Depression. That alone will cause millions of families to suffer and a ripple effect across the nation where buying grows even more stagnant than before. And the solution to this...the only one to be offered up...has to be the working man? I'm all for playing ball and compromising, but I have yet to hear one single word about what the auto execs plan to give up in exchange for government help. But the working men and women are already handing over their hard-earned money, spent on split shifts, overtime and blood, sweat and tears. Can't the execs at least show them that they're willing to give in the spirit of cooperation as well?

Or is that just too much to ask?

Lt. Gov. Cherry Lays The Smack Down. Mitt Romney, You've Been Served

Yesterday, in a stunning slap in the face to the big Mitten, Mitt Romney, former GOP presidential hopeful who claims ties to this state, decided he didn't want to be friends with the automakers anymore. In his Op-Ed to the New York Times, Romney wrote:

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.

It must be easy to say to hell with the automakers, when you're rich. It doesn't take much to throw people under the bus, when those people don't include yourself. There were so many outraged people in Michigan yesterday that I think the entire state had to take a Xanax so it didn't collectively stand up, walk to wherever Mitt was, and slap him across the smarmy little face of his.

But to ease our woes, our Lieutenant Governor, John Cherry, decided to take his words to the same street Mitt was playing on and wrote his own letter to the NYT:

In Michigan today, unemployment reached a 16-year high as a direct result of the nation’s economic downturn. Mr. Romney’s suggestion that our economy would be best served by a Big Three bankruptcy is a breathtaking assertion of economic Darwinism made more shocking by his roots in Michigan, where hundreds of thousands of jobs rely on the auto industry.

The Center for Automotive Research reports that if one of the Big Three ceased operations in 2009, nearly 2.5 million jobs would be lost in the first year. Additionally, one year of bankruptcy would result in the loss of $125 billion in personal income, $17 billion in Social Security receipts and $20 billion in personal income taxes.

Nonetheless, bankruptcy advocates like Mr. Romney would pile these kinds of losses onto the shoulders of a nation already struggling under the weight of record mortgage foreclosures, a recessionary slowdown across economic sectors, a credit crunch and decreasing global demand for American products.

There are no human benefits to Mr. Romney’s you’re-on-your-own approach, only continued loss of jobs, homes and health care for millions of people.

A bankruptcy in the auto industry will cripple our economy and worsen the human toll of our current economic challenges.

Now is not the time for Mr. Romney or his supporters in Congress to advocate for experiments with intriguing financial techniques on some grand scale. It is time to work cooperatively on a solution that invests in security for American workers and in our technological strength.

I think you've just been collectively slapped, Mr. Romney. And by the way, your ties to Michigan have been revoked. Don't count on us for a nomination in 2012. (Not that you could count on me anyhow.) In fact, don't visit, don't write and don't come to our door at 3 a.m. looking for forgiveness. The fact is we're sick of your passive-aggressive ways, Mitt. Either you're a Michigander at heart who knows what a bankrupt Detroit 3 would mean, or you're not, and we're not going to stand for this abuse anymore.

Mitt...take your things and stay the hell away from us.

Bail Out The Workers, Not The CEOs

In not so startling news today, it was revealed that the CEOs of the Big 3 flew private jets to D.C. to testify before Congress. Honestly, they should have driven their company's cars there. I want to see Waggonner in a Malibu, Nardelli in a Charger and Mullally in a Fusion. At least I'm giving them full-sized cars here, folks.

This just goes back to what I've been saying all along--I know it's hard to look past the greed of the CEOs and others on top, but I hope that Congress does because just under the top layer, there are millions of families' lives at stake. This is more than a political pissing match--this is the survival of America's once-most-robust industry. This is the industry that got us through WWII by producing planes and tanks instead of cars and trucks. This is the industry that built cities and towns by bringing good quality manufacturing jobs to places unknown. Don't do it for the jerks at the table, do it for the retirees surviving on measly pensions. Do it for the line worker trying to support her family. Do it for the accounting administrative assistant who wants to go back to school. Do it for these folks.

The Auto industry has supported America and although it might be hard, it's time we support them through this crisis. I know they need to change--they know they need to change. Take the CEOs out as part of the deal. Require them to fork over their salaries and benefits. Whatever it takes, just do it. There is far too much at risk here. We need to stop the political pissing match and get back to basics--people need to be able to afford things to get jobs. People need a fresh start.

Wiping out the auto industry will do nothing to further our common goals.

The Bailout is "Working"

Here's a joke for you: two bald dudes walk into a Congressional hearing room and testify that a multi-billion dollar mess is working.

That's it. There's no clever punchline.

That's what Ben Bernanke and Henry "Hank" Paulson are doing today. They're sitting in front of members of Congress and lying through their teeth. Either that or they're delusional. I can't tell yet.

Meanwhile, the Big 3 and their entourage are in D.C. today for hearings on their measly $25 billion bailout request. People ask whether the auto bailout will work, and skepticism is more than healthy given the failings of our last bailout. I guess for this commentator, the differences are enough to give it a go. The CEOs are placing their mea culpa at the feet of a very angry and actionable Congress, though, so who knows what the outcome will be?

What I do know is this: there are American families hurting and they'd like to be next in line for this government cheese.

Point of Contention: Different Standards for an Automaker Bailout

In September when the stock market crashed and millions were left, jaws agape, to pick up the pieces of their broken investments, Wall Street flaunted its power. The big wigs went to Capitol Hill and demanded help. We branded them villains but, in the end, allowed the villains to continue. In fact, we were even told that the only people who could get us out of this mess were the very same people who got us into it in the first place.

Washington joined its constituents in crying foul, and the world watched as certain banks and brokerage firms fell victim to the inevitable downsizing. We felt less than sympathetic for the broken CEO who carried on so well for the past eight years, as right we should. But instead of doing something about it, we just flushed money into the system to try and take the pain away and watched as those who broke the system profited from its demise.

But now, even the Democrats are taking turns vilifying the auto industry for their missteps along the way and asking them, as part of any bailout, to get out. I'd like to think that the reason for this is that we've learned our lesson when it comes to who we trust, but I know better. The real reason for this change of heart is that instead of dealing with bankers and brokers, we're dealing with unions and line workers, and, frankly, the latter group doesn't hold as much power as they should.

It's amazing to me that we're spending so much time fighting over $25 billion to automakers when we essentially have given a blank check to bankers and brokers of all people to run amuck without any controls. Could it be a little class warfare that's playing into this?

Sure GM, Ford and Chrysler need to shape up. And I think that the leaders of those companies need to hit the road as well. But the insistence that is running crazy-like through D.C. today against the automakers is in stark contrast to the "doing what we have to do to save the banks" attitude that Washington took last month. It's as if D.C. has gone off its meds and is looking at the world much more cynically now, and instead of quesitoning the people they should be questioning, they are holding the latest victim accountable.

The fact is that a large part of the reason the automakers are in a bind is because people are not buying cars. People cannot buy cars because they can't get credit. Sure an auto bailout has its problems, but there are solutions to those problems. Meanwhile, it's the banks who got a free ride last month who caused this credit crunch on the everyday American in the first place. There are other factors that need to be addressed, but nothing will happen if the auto industry fails while we're bickering about this.

So when D.C. has gone postal on the Big 3, the big Banks have walked out the back door to the Oceans 11 music, smiling the whole way. And the automakers are being left to wither in the wind, with millions of workers' lives hanging in the balance.

Seems that the government socialism is only applicable to those who already have the means to help themselves.

Auto Aid 2008--Monday Morning Roundup

You know my thoughts on auto aid, but here's a roundup of this morning's news relating to all things American Automaker.

Six myths about the Detroit 3 from The Detroit Free Press.
Obama knows that an auto industry collapse would be devastating.
W thinks that auto aid should not come from the $700 billion bailout package.
Could the foreign automakers really step in if Detroit falls?
Have the Democrats coddled the auto makers too much?

I'm sure there will be more to come as the day rolls on.

Will An Auto Bailout Work?

I must preface this by saying that I'm not an economist. I'm not an analyst. I haven't followed trends carefully or reviewed the books. But I can tell you that a $25 billion loan to the car companies will not help them in the end because it isn't their indebtedness that's killing them--it's the fact that people cannot and are not buying cars.

So while the car companies beg for help, and while I hear their call and agree something needs to be done, I am skeptical about whether such a bailout, as planned, will work.

Some of this is their own fault

There are a lot of people who blame the auto industry for its own problems. They blame workers and unions for causing a lot of those problems. I'm not that type of person. Frankly, I'd rather buy a car from a company that uses well-paid and well-trained workers because they're less likely to mess my car up on the assembly line, amongst other things.

There are two major things that have been killing the American car manufacturer. The first is a top-heavy structure that was built in the days when cars were made out of metal and not plastic. The perks that once came with having a successful company in the 1950s are still being given away like candy to executives today. Sure the stability is not as great, but who wouldn't want a job where they can perform little and gain a lot? Instead of holding executives responsible for the mess they've created, the people at the top have had a hell of a journey making the American consumer hate themselves for being the American worker. You hear about health care costs all the time--especially retiree health care costs. But has anyone ever stopped to wonder why these weren't such a big deal until now? The answer isn't that there are more retirees (though there are), but rather the accounting rules that were put into place in the late 1980s and early 1990s--namely SFAS 106--which requires companies to account for not only the current cost of health care on their books, but the future costs. Almost overnight the weight of retiree health care went from bearable to excruciating. And instead of looking for other ways in which to cut costs, the executives went on a stealth campaign to blame the average line worker for bargaining for better wages, hours and benefits. Meanwhile the top dogs get private jets, unheard of salaries and all kinds of perks that cost the companies billions of dollars and the little guy living in a three bedroom house in Hazel Park is the one to take the blame.

This top down mentality has made it stifling to be creative. When the name of the game is "status quo" there is no sense of urgency to make things more efficient on a regular and ongoing basis. Instead, they make tweaks here and there to promote themselves as individuals and let the system go on, broken as it may be. This isn't unique to the automakers, but it has plagued them more than most because of the next thing...

The American auto company has become stagnant in innovation. The most creative minds in the world are hired by these companies to produce the same things as last year. Sedans get the same gas milleage they got decades ago. Sure we've had some new things like anti-lock breaks and airbags and such, but those are inventions that would have come along without much thought after awhile. They take design, but not true innovation.

The American automaker has found itself in trouble because it has given into the theory that people will continue to buy cars bigger and bulkier than before no matter what it costs to fuel them up. And for awhile, they profitted from that mentality. But instead of preparing for the future and creating new power technologies, the auto companies basked in the glory of record-setting SUV and truck sales and let bygones be bygones while letting their chances of coming out ahead go by.

Many people thought that by 2008 we'd have flying cars and transportation that we so new and innovative we wouldn't recognize it. To be blunt, if someone that died in 1977 woke up today they wouldn't be that shocked to see the cars out there. There's nothing inherently new about the cars and the American automakers are losing an entire generation of consumers by failing to innovate. This is true of all automakers in general, as I haven't seen anything from any foreign auto maker that really shakes me to the core either, but it's even truer of our domestic companies.

Some of this is our fault

Though the auto companies have a lot of blame in their own demise, it's also true that we have an equally deadly part in this endgame. Instead of demanding fuel-efficient cars, we have demanded bigger ones. Instead of demanding innovation, we've settled for bells and whistles. All of this has led to stagnation.

Meanwhile, we've never stopped buying foreign cars or made a statement that we'll only buy American cars. Frankly, the money is going to be the only thing to stop them, but all we've done is turn Ford and GM into competitors against Toyota et al with no real results. Toyota has one innovative car, the Prius, but no real lasting difference. Yet we continue to show preference to the status quo no matter what nation our car's manufacturer came from.

More than that, we've let them ship jobs overseas, which, in the end, has caused a great strain on our economy and on the auto makers bottom lines. What used to truly drive the auto industry, was that there were workers in every plant who were loyal to the brand and who could afford to get a new car every few years. With those jobs gone overseas, presumably never to come back, those workers have taken on service jobs elsewhere and are unable to purchase a new car at all. In the end, though the automakers might have made a few bucks, they've lost sales and loyalty--one you can get back, but one you might never see again.

Why a bailout won't work

So you ask why a bailout won't work? Here's why--because the problems faced by the domestic automaker are bigger than any bailout Washington can provide. The $25 billion is a drop in the bucket and will only serve to allow the automakers to continue on their self-destructive paths a little longer. They'll make payroll for awhile and their stocks will go up, but no shake ups will happen. You won't see Rick Waggonner's head roll for this debacle, because no one wants to challenge the status quo. There will be no greater innovation. But most importantly, they won't win any market share back--and for companies this big, the only thing that can save them is future sales. And future sales have left the building.

Perhaps what the automakers truly need is for one of them to fail. I hate to say it because it'd be devastating to this area, but it's true. The only thing to truly shake them up is to see a fellow bretheren fall to the wayside. I'd like to think this crisis will make them live up to their promise, but once the bailout is over they will continue to sink.

I'm not dogging the American auto industry. I think it has the potential to be the best and most innovative industry in the world. It built states like Michigan and cities like Detroit. It has the ability to make technology that will change our lives forever. But unless something truly new happens, a bailout will be nothing more than an excuse to take the easy way out.

More importantly though, in terms of bailouts, we have seen how they just don't work. Executives continue to screw the rest of us and our tax dollars are going to save institutions who probably should be forced to file bankrupcy like the rest of us. Instead of protecting our assets, it has made them more vulnerable. And an auto bailout that is structured on these faulty premises cannot last. More than that, we have a lame duck president who is willing to place bets on the failure of one of our most important industries. The recipie is ripe for disaster.

So what do I suggest?

Three things:

• A bailout that is premised on promises from the automakers to reduce executive compensation while increasing American manufacturing. This includes parts and labor--no more shipping transmissions to Mexico and putting them in a car in Flat Rock and calling the car American.
  
• A requirement that the automakers, in order to get the bail out funds, agree to keep a certain percentage of their workforce in the country and that for every percentage point lower than the set goal they will pay back a certain portion of the bailout within 6 months.
  
• An enforceable promise that the government will only help the automakers if they invest in alternative fuel sources by a set date--that the combustible engine will be a relic or at least only used in large commercial vehicles within twenty years. The deadline will stimulate the creativity that I know is there and will require more jobs. In turn, the automakers will achieve higher sales because everyone and their brother is looking for a more fuel efficient car.
  

The American car company can only go so far as the American public is willing to let them go. But I think, in this case, America isn't ready to get rid of the mantle of being the automotive capital of the world just yet. And for those of us in Detroit, that's a damn good thing.