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Thread: Auto Industry

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    Default Auto Industry

    This is a great post from a guy who works in the auto industry in Detroit and has excellent insight into what is going on and how the companies got where they are. He posts a lot on the USC board and he really breaks it down here industry wise and politically.


    My follow up to last week's auto industry post.....

    --------------------------------------------------------------------------------
    .....it appears Democrats are set to give the auto industry the extra $25 billion in another month or two by capitalizing on their election year gains. Obviously the UAW is behind their effort which, as usual, won't lead to sound business sense for any of the Big 3 auto makers. Unknown to most of you who aren't apart of this industry, the seeds of this collapse were planted in 1998, when the Big 3 were maiking large profits by killing it on volume.

    For those of you who do not work in the manufacturing world, companies that kill it on volume are making money based on uncommon demand for their products. In the case of the Big 3, this primarily centered around SUV, truck and luxary vehicle sales (In some cases SUV's). They were improving their quality, but they mistakenly took this to mean they were also improving their manufacturing quality (manufacturing efficiency)....they were wrong. But the gravy train was running and they didn't bother to notice.

    Around 1998 the UAW, while in contract negotiations with Ford and GM, decided to capitalize on this. They mistakenly thought that these profits were partly due to their labor. Just like management mistakenly thought customer demand was due to their great wisdom, labor thought it was also due to their efforts......they were both wrong. However, labor wanted its piece of the profits too, so they asked for more....and management, not wanting to upset the follow of product to the market gave in rather than risk a strike. Now, I use 1998 as a starting point but this all played out over a period of 3 years if memory serves me correctly.

    The problem with all of this, of course, is what do you do once the money tree stops blooming and you didn't use enough of your profits to retool your factories and properly forecast through engineering the next round of consumer demand? Well, that is what we are seeing. "Poor Big 3, poor UAW".....Well, don't buy this load of crap for a second.

    They had the money in the late 90's to do everything they want to do today and then some....and they didn't do. Instead, management and labor both decided to share the profits and spend the profits then rather than invest enough of them for today....2008. It was mismanagement on a very grand scale, that they don't have enough money to keep their companies going while they change their products to meet today's consumer demand is their own damn fault. It's management's fault and it's labor's fault, period.

    So let's stop politicizing this thing. It's not George Bush's fault, he's not responsible for a mess that started in 1998, and long before gas prices went through the roof. It's not Bill Clinton's fault. So what if he signed NAFTA, it's the dumb a$$ automtive makers who took advantage of it without realizing their cost savings on labor would be offset by higher industrial costs in Mexico around things like technology and declining quality. And it sure as hell wasn't his job to tell them in 1998 they better be investing in the future and not throwing a big party and patting themselves on the back for record sales. It's not the fault of Congress either....

    ....but it will be the fault of this Democratic Congress if they try and save the UAW by approving this package. Just like the UAW helped seal their own fate in 1998, they are foolishly jumping in bed with management today with this deal. For all the reasons I stated last week this proposal only delays the inevitable.....that one or more of the Big 3 will die a painful death and never return as we know it....and ALL three may very well have to file bankruptcy in the near future. Look, GM is being totally dishonest when they say they need this $25 Billion or they may collapse in a few weeks.

    Here's why, their own operating costs are $5 Billion a month. If this $25 Billion plus the other $25 Billion are supposed to be for all three companies, they'll burn through that in less than a year, and let me tell you, it will take GM a hell of a lot longer than that to retool their plants and become profitable again under their current structure. Meaning, they'll be back next year this time wanting more or they'll do what I think is more likely, they'll take the handout and still initiate a restructuring that will mean huge job reductions anyway....the same reductions they now claim they will avoid if you just give them the money.

    Labor will be pissed, white collar moderates who just elected President Obama and more Democrats to Congress will be pissed, and Democrat claims it's Bush's fault will ring hollow. In short, it will become the Clinton Health Care debacle all over again for the Democrats. The best thing the President, the Pressident Elect, and the Congress can do right now is let these companies survive on their own. Give them access to the original $25 billion and the promises they made to use it to switch to more fuel efficient vehicles, force them to borrow the rest from investers, and if one or all of them file for bankruptcy, let it happen. It will mean some initial job loss, maybe even mine, but it's the right thing to do for the future of this country. Job loss is coming anyway, with or without this bailout, EVERY automotive supplier to the Big 3 is reducing their force over the next 6 months by 10-20%, and no amount of money today will stop that fact.

    In fact, if Congress does lend this money and 6 months later 10-20% more of the automotive work force are still losing their jobs, the people getting cut are going to be pissed because they foolishly thought this loan would save their jobs. And that's the backlash Washington will face by this time next year if they go down this road and begin the practice of bailing out private sector companies. It will start a chain of events that will bankrupt the entire country, not just the automotive industry.

    Look, we are at the end of a 20+ year business cycle, it happens in every sector to one degree or another, especially manufacturing, we just need to deal with it and let it run its course. US manufacturers will emerge one way or the other when demand picks up, foreign manufacturers will step in and manufacture even more cars on US soil as they do today. "....the strong will survive", they always do.

    http://usc.rivals.com/showmsg.asp?fi...832762&style=1

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    Darn it Cawacko you are get on the ignore list too.

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