Prince Valiant
11-19-2008, 04:22 PM
***EDIT-to include new article below Mitt's that shows that Obama may be leaning to letting the BIG 3 go Bankrupt too***
I think Mitt's been getting my newsletter...but I haven't seen his name on the suscription rolls. I'll check into it.
Anyways, he paints what I think would be a pretty accurate picture of what would be potential benifits to the Big 3 declaring bankrupcy.
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.
First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.
That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.
Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.
The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”
You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.
The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.
Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.
Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.
It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.
But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.
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.
Here's the thing...this is stuff that WON'T happen either with a bailout, nor a purchase via either China nor India.
***NEW-Obama exploring pre-packaged bankruptcy for BIG 3***
Nov. 21 (Bloomberg) -- President-Elect Barack Obama's transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry's financial crisis, according to a person familiar with the matter.
A representative of Obama's team has already contacted at least one bankruptcy-law firm to say that Daniel Tarullo, a professor at Georgetown University's law school who heads Obama's economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.
U.S. lawmakers yesterday delayed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout. GM today said it would idle production at four plants an extra week and return some corporate jets to conserve cash. Automakers could use a judge-supervised bankruptcy to reduce debt and reject expensive contracts.
``It creates the environment to deal with GM's problems but limits government financial commitment,'' said bankruptcy lawyer Mark Bane of Ropes & Gray in New York.
Bankruptcy is just one option being examined. Obama told CBS News's ``60 Minutes'' on Nov. 16 that government aid to automakers might come in the form of a ``bridge loan,'' advanced if the industry could draw up plan to make itself ``sustainable.'' The president-elect earlier urged Congress to approve as much as $50 billion to save automakers, using the model of Chrysler's bailout in 1979.
Tarullo referred questions on a prepack to the transition team press office. Team spokeswoman Stephanie Cutter said, ``We have not put out anything specific for the auto industry except that something needs to be done immediately.''
No Cash
GM, the largest U.S. automaker, said it might run out of cash as early as the end of the year and that the risk was even greater by mid-2009. GM Chief Executive Officer Rick Wagoner said this week GM would have to liquidate if it filed for bankruptcy.
The automaker probably has weeks rather than months left before it runs out of money unless it gets federal aid, Jerome York, an adviser to billionaire Kirk Kerkorian and a former GM board member, told Bloomberg Television yesterday.
In a prepackaged bankruptcy, an automaker would go into court with financing in hand after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed. The process might take six to 12 months, compared with two to five years if the automakers followed an ordinary Chapter 11 proceeding and worked out agreements under a judge's supervision, Bane said.
Government Financing
Automakers would have to depend on government financing to restructure in bankruptcy court and probably couldn't attract private loans until they were ready to emerge from the process, Bane said.
Officials of the three automakers told members of Congress this week that they had studied a pre-arranged bankruptcy, championed by Republican lawmakers such as Senator Bob Corker of Tennessee, before dismissing the idea as unworkable.
``We have looked at all aspects, whether it's a prepackage, whether it's prenegotiated,'' Chrysler CEO Robert Nardelli told a Senate committee on Nov. 18. The options are all ``more negative'' than restructuring as a condition of receiving federal aid, he said.
Wagoner and Alan Mulally, CEO of Dearborn, Michigan-based Ford, also said under congressional questioning that their companies had studied and rejected the idea of reorganizing under court protection.
`Digging a Hole'
House Speaker Nancy Pelosi said today that bankruptcy for automakers would be ``digging a hole far too deep.''
``Rather than going to that next step, let's hope we can solve it before that,'' she said at a briefing in Washington.
In or out of court, automakers will have to submit a viable business plan to gain government funds, Peter Peterson, senior chairman of Blackstone Group LP, said in an interview.
``Unless they can show us the plan, we can't show them the money,'' Pelosi said yesterday.
GM, Ford and Chrysler must submit viability plans by Dec. 2, and Congress would meet the week of Dec. 8 to consider aid, Senate Majority Leader Harry Reid said yesterday. Congress must see accountability from automakers, Pelosi said.
The congressional deadlock was triggered by disagreement over how to pay for the $25 billion the Big Three automakers are seeking.
Democratic leaders have demanded that the recently approved $700 billion bank-rescue fund be tapped for the auto aid. Their plan stalled with opposition from Republicans and President George W. Bush`s administration.
Administration Position
The administration joined Levin, Missouri Republican Senator Christopher Bond and others pushing an alternative that would tap fuel-efficiency loans instead for a bailout.
``There are other alternatives'' to a bridge loan for automakers, Senate Financial Services Chairman Christopher Dodd, a Connecticut Democrat, told reporters yesterday. ``The prepackaged bankruptcy is not an idea without constituency here.''
A bankruptcy is the ``only way'' for GM to end union costs that make it uncompetitive, Republican Senator James DeMint of South Carolina said in an interview on Bloomberg Radio.
United Auto Workers President Ron Gettelfinger told Bloomberg Television today that he's ``at the bargaining table'' to help find ways to cut costs at U.S. carmakers, signaling that the union may be flexible in making concessions to push through an aid package for the auto industry.
`Logical Step'
``I look at the Republicans that say it shouldn't be saved and should be in Chapter 11, and I agree with that,'' said James Harris, President of Seneca Financial Group Inc., a restructuring advisory firm in New York. ``I look at the Democrats that say these businesses are very important to the economy, and I agree with that, so the logical step is a prepack,'' with some government financing, he said.
Treasury Secretary Henry Paulson said the $700 billion of the Troubled Asset Relief Program shouldn't be used to rescue automakers. ``There are other ways,'' he said at a Nov. 18 House hearing. Treasury Department spokeswoman Brookly McLaughlin declined to comment on the prepack proposal.
The collapse of GM would cost the government as much as $200 billion should the biggest U.S. automaker be forced to liquidate, Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, estimates.
A GM failure would mean ``more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,'' Behravesh said Nov. 15.
The domino effect could be ``scary,'' said bankruptcy lawyer Martin Bienenstock of Dewey & LeBoeuf who teaches corporate reorganization at Harvard Law School and the University of Michigan Law School.
Bankruptcy would trigger failures of auto parts suppliers and dealerships, he said. Securitized auto loans and their insurers would fail, creating ripples through the credit markets, he said.
``The difficulty is assuring the American people that the bailout money won't simply defer the company's failure for six to 12 months,'' Bienenstock said.
Though my quible to the pre-packaging is that they (Obama's team) might still give some too favorable a deal as a political concession to a large part of their power-base. But still WAY better than what Pelosi's seeking.
I think Mitt's been getting my newsletter...but I haven't seen his name on the suscription rolls. I'll check into it.
Anyways, he paints what I think would be a pretty accurate picture of what would be potential benifits to the Big 3 declaring bankrupcy.
IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.
Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.
I love cars, American cars. I was born in Detroit, the son of an auto chief executive. In 1954, my dad, George Romney, was tapped to run American Motors when its president suddenly died. The company itself was on life support — banks were threatening to deal it a death blow. The stock collapsed. I watched Dad work to turn the company around — and years later at business school, they were still talking about it. From the lessons of that turnaround, and from my own experiences, I have several prescriptions for Detroit’s automakers.
First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.
That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.
Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.
The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”
You don’t have to look far for industries with unions that went down that road. Companies in the 21st century cannot perpetuate the destructive labor relations of the 20th. This will mean a new direction for the U.A.W., profit sharing or stock grants to all employees and a change in Big Three management culture.
The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.
Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years. Starving research and development is like eating the seed corn.
Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.
It is not wrong to ask for government help, but the automakers should come up with a win-win proposition. I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others. I believe Washington should raise energy research spending to $20 billion a year, from the $4 billion that is spent today. The research could be done at universities, at research labs and even through public-private collaboration. The federal government should also rectify the imbedded tax penalties that favor foreign carmakers.
But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.
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.
Here's the thing...this is stuff that WON'T happen either with a bailout, nor a purchase via either China nor India.
***NEW-Obama exploring pre-packaged bankruptcy for BIG 3***
Nov. 21 (Bloomberg) -- President-Elect Barack Obama's transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry's financial crisis, according to a person familiar with the matter.
A representative of Obama's team has already contacted at least one bankruptcy-law firm to say that Daniel Tarullo, a professor at Georgetown University's law school who heads Obama's economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.
U.S. lawmakers yesterday delayed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout. GM today said it would idle production at four plants an extra week and return some corporate jets to conserve cash. Automakers could use a judge-supervised bankruptcy to reduce debt and reject expensive contracts.
``It creates the environment to deal with GM's problems but limits government financial commitment,'' said bankruptcy lawyer Mark Bane of Ropes & Gray in New York.
Bankruptcy is just one option being examined. Obama told CBS News's ``60 Minutes'' on Nov. 16 that government aid to automakers might come in the form of a ``bridge loan,'' advanced if the industry could draw up plan to make itself ``sustainable.'' The president-elect earlier urged Congress to approve as much as $50 billion to save automakers, using the model of Chrysler's bailout in 1979.
Tarullo referred questions on a prepack to the transition team press office. Team spokeswoman Stephanie Cutter said, ``We have not put out anything specific for the auto industry except that something needs to be done immediately.''
No Cash
GM, the largest U.S. automaker, said it might run out of cash as early as the end of the year and that the risk was even greater by mid-2009. GM Chief Executive Officer Rick Wagoner said this week GM would have to liquidate if it filed for bankruptcy.
The automaker probably has weeks rather than months left before it runs out of money unless it gets federal aid, Jerome York, an adviser to billionaire Kirk Kerkorian and a former GM board member, told Bloomberg Television yesterday.
In a prepackaged bankruptcy, an automaker would go into court with financing in hand after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed. The process might take six to 12 months, compared with two to five years if the automakers followed an ordinary Chapter 11 proceeding and worked out agreements under a judge's supervision, Bane said.
Government Financing
Automakers would have to depend on government financing to restructure in bankruptcy court and probably couldn't attract private loans until they were ready to emerge from the process, Bane said.
Officials of the three automakers told members of Congress this week that they had studied a pre-arranged bankruptcy, championed by Republican lawmakers such as Senator Bob Corker of Tennessee, before dismissing the idea as unworkable.
``We have looked at all aspects, whether it's a prepackage, whether it's prenegotiated,'' Chrysler CEO Robert Nardelli told a Senate committee on Nov. 18. The options are all ``more negative'' than restructuring as a condition of receiving federal aid, he said.
Wagoner and Alan Mulally, CEO of Dearborn, Michigan-based Ford, also said under congressional questioning that their companies had studied and rejected the idea of reorganizing under court protection.
`Digging a Hole'
House Speaker Nancy Pelosi said today that bankruptcy for automakers would be ``digging a hole far too deep.''
``Rather than going to that next step, let's hope we can solve it before that,'' she said at a briefing in Washington.
In or out of court, automakers will have to submit a viable business plan to gain government funds, Peter Peterson, senior chairman of Blackstone Group LP, said in an interview.
``Unless they can show us the plan, we can't show them the money,'' Pelosi said yesterday.
GM, Ford and Chrysler must submit viability plans by Dec. 2, and Congress would meet the week of Dec. 8 to consider aid, Senate Majority Leader Harry Reid said yesterday. Congress must see accountability from automakers, Pelosi said.
The congressional deadlock was triggered by disagreement over how to pay for the $25 billion the Big Three automakers are seeking.
Democratic leaders have demanded that the recently approved $700 billion bank-rescue fund be tapped for the auto aid. Their plan stalled with opposition from Republicans and President George W. Bush`s administration.
Administration Position
The administration joined Levin, Missouri Republican Senator Christopher Bond and others pushing an alternative that would tap fuel-efficiency loans instead for a bailout.
``There are other alternatives'' to a bridge loan for automakers, Senate Financial Services Chairman Christopher Dodd, a Connecticut Democrat, told reporters yesterday. ``The prepackaged bankruptcy is not an idea without constituency here.''
A bankruptcy is the ``only way'' for GM to end union costs that make it uncompetitive, Republican Senator James DeMint of South Carolina said in an interview on Bloomberg Radio.
United Auto Workers President Ron Gettelfinger told Bloomberg Television today that he's ``at the bargaining table'' to help find ways to cut costs at U.S. carmakers, signaling that the union may be flexible in making concessions to push through an aid package for the auto industry.
`Logical Step'
``I look at the Republicans that say it shouldn't be saved and should be in Chapter 11, and I agree with that,'' said James Harris, President of Seneca Financial Group Inc., a restructuring advisory firm in New York. ``I look at the Democrats that say these businesses are very important to the economy, and I agree with that, so the logical step is a prepack,'' with some government financing, he said.
Treasury Secretary Henry Paulson said the $700 billion of the Troubled Asset Relief Program shouldn't be used to rescue automakers. ``There are other ways,'' he said at a Nov. 18 House hearing. Treasury Department spokeswoman Brookly McLaughlin declined to comment on the prepack proposal.
The collapse of GM would cost the government as much as $200 billion should the biggest U.S. automaker be forced to liquidate, Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, estimates.
A GM failure would mean ``more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,'' Behravesh said Nov. 15.
The domino effect could be ``scary,'' said bankruptcy lawyer Martin Bienenstock of Dewey & LeBoeuf who teaches corporate reorganization at Harvard Law School and the University of Michigan Law School.
Bankruptcy would trigger failures of auto parts suppliers and dealerships, he said. Securitized auto loans and their insurers would fail, creating ripples through the credit markets, he said.
``The difficulty is assuring the American people that the bailout money won't simply defer the company's failure for six to 12 months,'' Bienenstock said.
Though my quible to the pre-packaging is that they (Obama's team) might still give some too favorable a deal as a political concession to a large part of their power-base. But still WAY better than what Pelosi's seeking.