Until ethics return to upper management we are stuck in a loop.

I have always believed that to those who have been given much, much is expected. The top level management of the big corporations have been given much in the way of salaries and benefits. One of the expectations, in my opinion, is to be concerned with the welfare of the employees. This involves the best effort to develop and market a salable, quality product, and not just look at the short term profits for the next quarter. The union leaders must also be held to the same standard. These leaders must be held to what is best for job security in the long run and not just the wage boosts for the next year.

In his first year as CEO of Chrysler corporation, Lee Iacocca had a salary of $1. He took on the job of CEO as a challenge. Now, I'm not in favor of paying the CEO of major corporations only $1 per year, but I would hope that these CEOs would take the positions for the challenges and the reward of meeting the challenges as opposed to strictly the salary.

What is wrong with making them take $1 salary? CEOs get stock options, whose values are directly tied to how the company preforms. Make them run the companies better, more ethically, efficently, etc to earn their pay.

I do not believe they should be bailed out. I agree with rexy44's satement, if for different reasons. Let them go bankrupt, they will restructure or be bought and remade better, and we will all save money. They are an important piece of US manufacturing and they will not collapse and disapear.

Go Adam Smith indeed

Performance based compensation plans are great in theory, but in practice they have a weaknesss. These plans became popular some years back for CEOs. Many would take control of the company and "gut" much of the support infrastructure; the quality engineers, the methods engineers, etc.....everything that wasn't "direct labor". The savings would go directly to the bottom line, inflating profits.

Over time, as daily problems went unresolved due to the skeletonized infrastructure, the productivity and product would begin to suffer. The effects were felt in the marketplace and on the books and the companies would begin to falter. However this takes three to five years and by then the CEOs would have collected huge bonuses due to the profitability increase and moved on to another company to do it over again.

There are books written about the problems with performanced based compensation for CEOs.

Unfortunately, you are probably right. Too many CEOs seem to want the easy money, but don't want the challenge of being competitive in the marketplace. My son went to work in the hardware department of Sears while he was finishing a seminary degree. He said that a contractor would come in and want a particular air compressor and he would make the sale with a good commission but not have to really do any work. My son thought the most fun was at Christmas when a woman would come in and want to buy something for herr husband for Christmas. He would quiz her about her husband's interests and what tools she thought he owned. He would then steer her to something they both felt was appropriate. This sale didn't have the commission that an expensive air compressor had, but my son enjoyed the challenge of working to make the sale. I would like to see CEOs that would like the challenge of revitalizing a corporation. Lee Iacocco certainly didn't need the salary, but he wanted the challenge (or maybe he wanted to just get even with Henry Ford II) of making Chrysler a viable company.

Well, it's also a good idea to help the customer out anyways. If someone doesn't really know what to get, it's a good idea to understand what they like to gauge what to shop for. You wouldn't buy a wrench and socket set for someone who likes to lift weights.

Your son also helped the business be a bit more successful. A pleased custom not only returns again and again, but if he/she is truely happy with the service he/she tells all his friends and neighbor.

A customer that feels inadequately assisted also tells all his friends and neighbors. And does not return.

There's a retailing truth in the Xmas classic "Miracle on 34th Street".

like the old saying:
"A satisfied customer tells 2 of their friends. An angry customer tells 10 of their friends."

While it might go against our nature and our instincts to bail out the auto industry, we have to look at the totality of the situation. GM, Ford, and Chrysler are not just a few factories bearing the names of those profligate, poorly managed corporations. In addition to that structure, they employ tens of thousands of rank and file employees, all of whom have to pay rent or a mortgage, purchase food, and provide for dependents.

In addition to the employees of "The Big Three", there are also their suppliers, all of whom also employ tens of thousands of employees who also have to provide for their basic needs, as well as the needs of their dependents. If the car companies have to declare bankruptcy, their suppliers will either not be paid or might receive a paltry sum--like .30 on the dollar--many months or years in the future. The result is that many of the suppliers would likely go out of business.

There are also dealerships, who also employ countless people. Just by walking into a shopping mall or a restaurant nowadays, most of us can see how drastically the retail environment has already been impacted by the current financial turmoil. A statistic that I think is very relevant is that new car sales represent at least 20%* of the retail sales figures in this country. Thus, the closure of scores of dealerships will devastate retail sales figures even more than we have already observed.

Thus, a failure of the US auto industry would devastate the industrial sector, the retail sector, and countless other parts of the economy that depend on the spending of auto workers, employees of suppliers, and employees of dealerships.

And, while none of us like taxes, the reality is that taxation is the fuel that provides government services for all of us. A further collapse of the retail sector will result in even fewer sales taxes being collected. Unemployed people do not pay income taxes, and this will further weaken the ability of government to provide everything from defense to education, to...virtually every service that we have come to depend on.

According to virtually all of the "experts" whose opinions I read and listen to, the economy is not likely to see substantial improvement until sometime in 2010. At the rate that the car companies are burning up their cash reserves just to keep the lights on, they cannot last until 2010, and in fact, it appears that GM is not likely to survive more than a few months without declaring bankruptcy.

We, as a nation, cannot afford to let the US car industry fail. The cost of bailing them out will be huge, but the ultimate cost of not aiding them is even larger. Loans (NOT grants or gifts!), coupled with government regulation of excesses such as executive compensation packages and "golden parachutes", are necessary in order to preserve this vital part of our economy. The economic survival of our nation literally depends on this action.


*Updated to correct my earlier (too low) figure on the percentage of retail sales represented by new car sales.

VDC, while I understand your perspective and respect the intelligence of the argument, I still contend that the secondary and tertiary effects of the shrinking total market will be the same whether the product is produced by GM, Ford, Toyota, or Honda. I maintain that it's in our best economic interest to let that market share be taken by the more efficient of the competitors, whoever that ends up being.

It's entirely possible that artificially supporting the less efficient competitors will result in having the market sliced into more shares but end up having overall less efficient providers in the market. In short, the entire market would be more productive without the less efficient producers.

I'd argue that the economic survival of our nation depends on more efficiency in the manufacturing segment and that can only happen by allowing the market to correct itself without artificial support of the less efficient producers.

mountainbike--I also understand your position and I respect (as usual) the intelligence of your argument. But, what would tens of thousands of unemployed (and largely unskilled) workers in the rust belt do for employment if their jobs in the auto factories and in the factories of their suppliers were eliminated?

My contention is that since the car's purchaser would still have to purchase a car, he/she would purchase it from one of the other producers, who would have to increase capacity to fill the additional market share. That would men new facilities, more shifts, work for those laid off.

The surviving producer would I'll grant you be likely to hire fewer workers, since the survivor is more efficient, however the option has our tax dollars being used almost as a modified welfare system, ensuring some modicum of income for the employees of the inefficient producer. In reality, that support would have to continue to grow because the market for the product has shrunk.

Overall, there will be a shrinkage of the market size. A specific number of jobs total will be necessary to supply that market. The question in my mind is should that market be supplied by as efficient an aggregate of producers as the natural Adam Smithian theory would dictate, or should be artificially support the inefficient producers?

I have compassion for those that would become unemployed. I've been unemployed and I know the trauma firsthand. But in the long term I think we're better off allowing the market to correct itself without tax-funded intervention. I also tend to be somewhat of a constitutionalist and have to point out that that isn't the function of our system of government or our tax system.

I have great respect for you and for your argument, but on this one I'll stay my ground.

I agree with Mountainbike. Read the Constitution: It says that the job of the government is to build my highways, deliver my mail, defend my shores, and stay out of my business. That's it. The job of government (notwithstanding the sorry state we are in today) is NOT to pay welfare benefits, shore up faltering industries, or control the marketplace.

If we bailout Detroit, all we will be doing is kicking the can down the road. In a few months the Big 3 will be back with their hands out again, and if we don't help them again , "Think of all the thousands who will be hurt," ad infinitum. What are they going to do when the government coffers are empty, those still working are taxed to the extent that it no longer pays to work, nobody can buy an automobile because their income has been eaten up with taxes to pay for the bailout, and the UAW workers are still on the street?

This is a Double-mint moment - both management and labor are wrong!

The US auto companies, and the unions, have ridden their "gravy train" off of a cliff. As the foreign companies came in and set up more efficient (lower labor cost and higher quality) factories, the people in Michigan could not be convinced they needed to make changes to the auto industry. We heard nothing but pleas to "Buy American" to suppport the companies as they made poor product decisions and the unions as individuals made high wages for very little "value added" to the product.

The union contracts provided the guy with no education, who put on bumpers (at a pre-designated snail's pace) to make more money than most teachers or other professionals. No wonder their kids couldn't be convinced that they needed a good education to get a good job - kids in Michigan grew up thinking they could get a high paying job that required no education.

I live in mid-Michigan, and we have thousands of people who spent up to 15 years in a GM program called the "jobs bank" where they collected 90% of their pay (plus benefits) for sitting in an abandoned storefront, smoking cigarettes and playing cards. They had the option to attend classes (paid for by GM) and learn new skills and a look for new jobs. Some did that, but a large number just sat around. So the pleas to "Buy American" were a plea for you and me to subsidize thousands of people who sat on their butts for 15 years, adding to the cost of every car off the line!

The management also made bad choices, going for the biggest profit with no planning for the fact that gas prices were only going to go up; fuel efficiency and alternate fuel cars were way to go. Prior to a few months ago, did anyone see an add for any US car other than a large SUV or huge truck?

For the US car companies to go down would be VERY painful for Michigan and the country, but those industries will not go away. Despite the sales slow down right now, people WILL buy cars. People will be employed to build cars and car parts, and it will be profitable for those cars to be built in the US. However, those cars will be built by workers whose wages are more in line with the value added to the product, and by management that keeps their eye on the future as well as the bottom line more than the keeping their eye on their own salaries and bonuses.

If a person is dying of a failed heart, even replacing it will not fix the problem for long. It is the same with the car industry. You can pour money in for year after year and it still will not survive.
I say put Michael Moore in Washington in charge of changing the industry. He has all the answers and the brains and dedication to make it happen. He lives and breathes the car industry.
Let at least two -GM and Chrysler - go bankrupt. Ford could probably survive then.
The day after they go bankrupt NATIONALIZE all their assets, put new younger management in who have mostly not worked in the car industry, are not accountants and are used to managing change. Re-employ all the workers and set them to new tasks.
Like Roosvelt, it needs a National Plan. Make buses, train cars, light railway sets, alternative fuel cars, SMALL cars, electric cars, deisel cars, hydrogen cars.
Break it into 10 or so pieces in competition, GM was far too big. The industry must be DESIGN led not accountant led. Restrict salaries for top management to $5 million, thats what Toyota pay. Make them eat with the staff.
The government to hold the shares till conditions reach the point they become saleable.
That's an INVESTMENT not a dead loss.

I understand that without the bailout loan this industry won't be able to support itself, but that may be the hard road we have to travel. Truth is, it hurts either way, with a bailout or without.

Your argument for the bailout is that it'll hurt less by loaning tax dollars to the Big 3. However, these seem like risky loans to me. Although I agree, portions of the industry (including some of its suppliers - not all) will be gravely affected without a "stimulant" and our lives will be more difficult (economically speaking) during this transition. Yet, I'd rather take on the economic difficulty just to see the efficient producers replace the ineffiecient producers, and to allow American workers to spread out into new turn-of-the-century green jobs (come on Obama!). In my opinion, it's time for the Big 3 and their unions to die out, along with their short-sited gotta-have-it-all attitude.

Of course, this approach also punishes many innocent people, and that's a high price to pay. But the other approach means supporting a misguided, inefficient, over-unionized industry with no guaranteed loan payback or industry change. I won't support that. But I will give my food, and clothing, and volunteer time to those in need, helping them make it through this tough time. I'll support this industry from the bottom, not from the top. It's a bit like tough love, letting them fall down, so that we can pick them up.

So just let the market correct itself; let good Americans have the opportunity to show up and help those in need. Don't through more money at failing businesses. Those in need will survive on our generosity, and in time, we'll all be the better for having pulled together through it all.

Chris

What could have worked better was if we had stopped the Federal Reserve every time they jerked the interest rate up and down for the last fifteen years. That story is way too long. It isn't even the fault of car makers that the auto situation is so bad. They did what I recommended when they got rid of that old Oldsmobile. They didn't really change it to Saturn. We, as a people, do not want to drive the golf carts that would save so much fuel. The cars that are offered today are strange looking. The PT Cruiser gets the front so wrong. The new Camaro looks dreadful. The Charger is the biggest joke. Only the Mustang is perfect to look at. The Challenger may have a chance. Who thinks that Lucerne is a good name for a car? We made up a name for a car, The Dodge Elmo. It's better than that BMW 750il. It looks like the 75 Oil. We can do better by pulling letters and numbers out of a hat. The only honest car was the Daihatsu Charade. Most of the excitement is gone; it has been replaced with air bags and antilock brakes. Maybe we should mandate style and get an AMX instead of Pacers all over the landscape. I know that I am asking for the impossible, but we used to have cars that would get 42 MPG on the freeway with headlights that cost $3.50 that didn't turn yellow. Nobody wants todays cars.

"The only honest car was the Daihatsu Charade."

;-))

We made up a name for a car, The Dodge Elmo. It's better than that BMW 750il. It looks like the 75 Oil. We can do better by pulling letters and numbers out of a hat.

I'm still trying to figure out what goes in the "710" cap on the engine... ;-)

I am in favor of loans that would be used to update the product line. I would not put too many strings on them. Possibly that the borrower must update existing plants rather than build new ones where they don't have any now. That is, if a plant in Delaware is shut down, it must be modernized before a new one in Nevada can be built.

Remember that they owned the truck and large car market. The only way that the Asian car makers would get into the market was to sell small, low profit cars. GM, Ford, and Chrysler gave us what we wanted. How long ago was it that everyone had to have a bigger SUV? Not very. Yes, they do have problems. Now the growth is in smaller cars and trucks. The traditional US manufacturers are trying to do a better job there; GM and Ford are succeeding in providing smaller, competitive cars. I'd rather loan them money to keep a lot of good people employed than see Michigan go under. Maybe Illinois, Indiana, and Ohio, too.

I'm a free-market guy, but there are times when laisse faire is too harsh a cure. This is one of those times.

If this is going to be a rational discussion, please stop using the term “bailout.” Since when is a loan a bailout? Is your mortgage a bailout? When you bought your car, did you ask for a car loan or did you ask for a bailout? Is your child’s student loan a bailout?

Since I’m about to lay it all out, first I’ll answer “Yes” to the financial aid package, which really needs to be closer to $50 billion over the next 6 months. The money does not need to go directly into the pockets of automakers. It needs to be made available to dealers, for floor plan purchases they cannot otherwise make, and to customers, who otherwise cannot get car loans. $50 billion directly to the automakers would likely buy only 45 days cash flow. The money needs to go to stabilizing guarantees of loans to consumers and dealers, whether they’re buying and selling Ford, GM, Chrysler, Toyota, Honda, or whatever.

From Bloomberg News, October US automotive sales were down 32 percent to 838,156 from 1.23 million, for the lowest monthly total since January 1991, according to Autodata.

Several negatives converged in the U.S. automotive market all at once, with that ugly spike in gas prices being one of them. And the spike in gas prices had, as we now easily see, less to do with automobiles than with a credit-over-fueled worldwide industrial boom. Now the boom is over. Demand is down. Hurricane season is ending and refineries are back online. There’s a glut of gas again. The whipping boy can go home…. The BIG AMERICAN CAR has taken yet another beating and kept on rolling. It wasn’t his fault after all. :)

Anyway, other negative forces included a US dollar hitting record lows against other currencies, making raw materials prohibitively expensive and profit margins on small, low-margin cars essentially nil.

Also, the glut of free money last year pushed US auto sales to a record 17 million cars. This year, sales are expected to be near 10 million car sales for the year, which I think is about a 25-year low.

Customers who want to buy cars are having trouble getting financing. Other customers bought their car last year and don’t need one this year. Others are too afraid to buy right now. Car dealers, which are not owned by the manufacturers, are having trouble in many parts of the country getting floor plan financing to buy cars from manufacturers to resell. Capital One announced a few weeks ago it was pulling out of the floor plan financing business in New York and New Jersey. Hey, that’s 10 percent of the car market. What’s in your wallet?

American buyers bought big cars because they wanted big cars. If Honda was the only mass market manufacturer to stay out of the SUV business, it doesn't make them right. Honda's US market share has just now, finally, after 40 years, gotten out of the single digits thanks to what Greenspan called a We're in a "once-in-a-century credit tsunami".* I don't think I would necessarily call that a winning strategy. I'm not slighting Honda, really, really not. I'm just saying don't read too much into their US performance based on this environment.

GM, Ford, and Chrysler have much higher exposure to the U.S. market than any foreign manufacturer. US car sales account for a much higher percentage of GM, Ford, and Chrysler sales than they do for Honda, Toyota, VW, Daimler, BMW, and other foreign carmakers. Therefore, when U.S. sales decline, they feel it more.

Outside the U.S., where consumers really want small, fuel efficient cars, American car makers have long sold small, fuel efficient cars by the millions. They’ve even tried bringing those cars home. Forget about it. Not wanted.

On the other hand, most foreign market small cars do not meet U.S. or California emissions standards as-built and cannot be sold here without significant additional unit cost for emission control systems and certification. Additionally, U.S. market car new car warranties are typically 2 or more times longer than warranties in most other markets.

The upshot is that carmakers with less U.S. market exposure are faring the best right now. That will be true until the turnaround begins. Pundits think that will happen in the U.S. first. At that time, U.S. profits will mean that the carmakers with the greatest U.S. exposure will fare the best. And then perhaps everything will level out again.

*Sorry - originally I misquoted as "the financial storm of the millennium."