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Should we bail out Detroit?

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#21

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.

#22

I shudder to think of the possibility of GM making another car as “reliable” (NOT) as the '81 Chevy Citation and its clones in the X-car line.

#23

Iacocca came to Ford’s marketing department via the design group. However, there’s no requirement for a design background to be a “car guy”. The term in my mind simply describes someone who truely loves and appreciates great cars. Jay Leno is, indisputably, a “car guy” of the highest order.

There’s also no denying Iacocca’s marketing saavy.

It has long been my belief that those who found and build successful organizations have a “gut” understanding of the marketplace arrived at by their love of the product. They know what compells the customers to buy. Countless companies have failed after being taken over by heirs, investment groups, or those famous “experienced board of directors” that banks make small companies form when they grow to that stage where they need capital for growth. I think the reason is that they so often lose that connection, that love and understanding of the product that the company founder had. Even large companys lose that connection when taken over by accountants. Even the GMs and the Fords of the world.

Iacocca was a “car guy”. With a flair for promotion and a great business sense.

#24

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

#25

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.

#26

This is just one of the many indicators that foreign automakers are producing better products, and have been for decades. No bail out for the failures.

#27

Jay Leno is, indisputably, a “car guy” of the highest order.

I agree. I wonder what changes would be made in General Motors if Jay Leno became CEO after he retires as host of the “Tonight Show”. Jay Leno appreciates both the quality of a car and the design. He obviously knows more about cars than the CEOs of the Big 3 manufacturers.

#28

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.

#29

Agree; in the short term, after Detroit bites the dust, foreign firms will be importing more cars, raising alarms from unions, democrats and nationalists. However, it’s easy to force foreign firms to build in America. That’s what happened when Richard Nixon “got tough” with the foreign cars makers. The result is a thriving US based forign car industry, complete with design studios, research labs, etc. Many Toyota ads mention all the jobs that compny creates in the US. Your typical Camry or Corolla is 92 % US content, much higher than a Ford Crown Victoria.

#30

According to Bloomberg Radio, October retail sales in this country declined more than in any preceding time period during which these records have been kept. (No mention of when this record-keeping originated.)

Since new car sales represent 20% of the retail sales in this country, I am sure that the downturn in car sales is partly responsible for those depressing retail sales figures. If The Big Three declare bankruptcy, car dealerships as well as suppliers to the auto industry will be among those who wind up being shortchanged by the car companies. If that happens, I fear a real “snowball” effect in local economies that could really bring our nation to its knees financially.

#31

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.

#32

Or, it could be as reliable as my 1998 Buick Regal. It’s been good to me. That though doesn’t make me shudder. Why do you bring up 30 year-old history? It has little to do with cars sold today. Why not talk about the awful Asian cars of 30 years ago? I’d rather not, because they make a darn fine car today, too.

#33

What about unemployment for all the auto workers without jobs when the companies go under? What will happen to the pension fund that hold GM and Ford stock? Where will the money come from for the auto company pensioners if the pension funds are underfunded (bet on it, they are)?

We’ll pay for it. They gotcha either way. Count. On. It.

#34

"it’s easy to force foreign firms to build in America."
Once, that was true. At this point, the American car market is having lessening significance in the world. Don’t take that the wrong way. I am not suggesting the American market is insignificant. It’s very significant. But other parts of the world that have been heretofore less significant are becoming more significant.

By the way: Now I have to decide whom to listen to regarding domestic content. Here’s some interesting reading:

“The National Highway Traffic Safety Administration measures domestic-parts content ratings across the industry. Among the 58 models with ratings of 75 percent or higher, foreign-based automakers produce just eight. Conversely, Detroit automakers produce just 24 of the 140 models with domestic content ratings of 10 percent or less. (We group Mazda and Volvo under Ford, as Ford owns major stakes in both brands.)”

and

"Toyota Camry/Solara: 68% for '08, down from 78% for '07."
From Cars.com 7/1/08 A Closer Look at Domestic-Parts Content

A marketing professional explained it to me this way not too long ago: The domestic content of a Lexus is higher than the domestic content of a Camry because Toyota can afford to put more U.S. content in their premium cars, which sell at a much higher margin.

#35

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”.

#36

Agree that it’s hard to make money on small cars built entirely in the US. GM, Ford, and Chrysler all lose money on their small domestics, but they have to meet the CAFE standards. Ford’s new small car, the Fiesta, will be built in the US, but will have many cheap foreign sourced components. Chrysler was not even going to try; they will get their small cars from Asia. GM may expand their Daewoo line and upgrade the quality in order to make the Aveo competitive with the Honda Fit nad Toyota Yaris.

In an age of globalization, manufacturing will find the least cost plant in the world that can deliver quality products.

#37

No. Do not bail out Detroit. If Detroit cannot produce a product that consumers can buy and make a profit doing it, they deserve to go under. A bailout picks our pockets and gives it to companies that failed and allows them to continue to fail. Not only that, but the money will come with strings attached. The government will not just hand over the money without conditions. That will allow the idiots in Congress some measure of control of the American auto industry. Bad as it is now, it will only get worse and we will paying for it. NO! Te answer is let them go under. My guess is that someone will get their fat butts out of the conference room chairs and start running the company. Maybe it will survive; maybe it won’t, but subsidizing it with our tax money will only let the pain linger. Eventually the auto industry will have to solve its own problems. With the government’s help, they will die a slow, lingering, costly and painful death.

The fear of utter failure is a better motivator that a handout.

#38

It’s not just the plant that needs to be considered. If you can make a car inexpensively in one area, but the cost of shipping it to the US could outweigh the cost of building in the US using some foreign components.

#39

No.

Bankruptcy will help GM, not hurt it. The one thing it will hurt is the unions and their democrat friends.

If we are serious about having organic (US owned vs. foreign owned) car manufactures - why not offer some prize money for an “X prize” for a non-gas/diesel driven car design?

I’d much rather loan Tesla motors some low-cost money to help get the price of electric vehicles down, or another small start-up using something like VW’s new CNG engines than offer it to GM.

And… something I always see green fanatics forget about:

What about reuse - AKA - repair vs. replace? Instead of always thinking NEW, how about just replacing the engine / transmission when one goes bad instead of scrapping the entire car? That’s much greener overall and it saves a lot money.

I think any requirements should include the ability to easily swap the drive train between models for at least 10 years.

Bryan - '90/05 1.8T VW Corrado.

#40

We’ve had this thread before about the transportation cost vs manufacturing cost. A car is a high value item, and the shipping costs by SEA are very small compared with the total cost; in fact shipping a California made car to New York costs more than shipping a Korean made car to Los Angeles. In Korean plants, labor and adminitrative wages are about 1/4 of those in the US. In Asia, only in Japan are wages and benefits close to those in the US, and making a Toyota requires careful accounting as to where to make it. Camrys sold in Canada are made in Japan, for instance, while those sold in the US are made in Georgetown, Kentucky. As curencies fluctuate, manufacturers can shift production around the globe, subject to locl government edicts.Import duties on foreign cars into Canada or the US are only about 5% at this time.

Toyota realizes that making cars in the US will promote goodwill with goverment, and Prius hybrids will be made in Texas soon in the truck plnt which is running at very low levels. Likewise, the new Saturn Astra will be made in the US, although the design is pure German.

So, when Obama puts the screws to foreign manufacturers to make more cars in the US, that will happen, but Americans will pay a little more for that privilege.

The British lamb industry tried to increase consumption by telling Brits to consume “100 mile food”, food produced within 100 miles. The New Zealand lamb industry did a detailed study and proved that New Zealand lamb produced 1/3 the amount of greenhouse gasses per pound overall, including transportation to reach British tables. The transportation, again was a minor cost item.

The only areas where transportation costs play a major role is ion low value, bulkty items that can be produced by automatuion. A good example are resin extruded lawn chairs.