Strike Two for the Big Three

So, Detroit is back with their hats in their hands begging for more money. This time they at least drove down instead of flying in their private jets. They brought a plan this time, but reading through them they are filled with more statistical propaganda and woe is me pleads and lack any real “plans”. GM lists the outcomes of liquidity and market share based on upside and downside targets, but where do they get these assumptions. They are based on no facts especially since they have been losing market share forever.

Also all of GM’s earning projections are estimated on a pro forma basis. The following is the definition of pro forma according to investopedia.com. Items sometimes excluded in pro-forma earnings figures include write-downs, goodwill amortization, depreciation, restructuring and merger costs, interest, taxes, stock based employee pay and other expenses. The company excludes these items with the intent to present its figures more clearly to investors. However, whether or not this is accomplished is debatable. This has spawned such nicknames for pro-forma earnings as EEBS (earnings excluding bad stuff). So again GM has come up with assumptions that have no factual basis and has to use a reporting system that does not include all of their actual costs.

Next, GM discusses that they want the total $15 billion distributed by March 2009. Understandably they need money and they need it now, but wait there’s more. GM discusses that they are in talks with their “labor partners” (IE. UAW) to be fully competitive with foreign manufacturers operating in the US by 2012. When do these labor talks have to be completed by you may ask? The answer is March 31, 2009 after GM has received all bailout distributions. By then GM and the UAW have already received their money so what consolations do you think they’ll really make.

Then, GM starts talking about the “sacrifices” their senior staff is willing to make in the form of salary and bonus reduction. Are you kidding me? How in the world can you have the arrogance to even suggest that you are “sacrificing” a bonus when you’ve been bleeding money for that past 4 years and are so badly off that you have to beg congress to stay afloat? They claim they have to do this to retain top staff to help them with the restructuring of the company. Why would you want to retain any of these clowns when their decisions have put the company in this predicament in the first place?

GM also discusses new hire employee pay and benefits and how they have been comparable to Toyota recently and will be completely competitive by 2012. At the same time though, they state that they will be reducing their workforce from 96,500 to 75,000 by 2012. If you know anything about employee contracts a familiar phrase is last one in, first one out. In other words, seniority rules and the newer cheaper hires will be out the door while the older workers that are still under the previous contracts will remain.

Lastly, GM discusses their commitment to creating more fuel efficient and alternative fuel vehicles. They are so committed that they plan on spending $2.9 billion from 2009-2012 on research developing these types of vehicles. There is only one catch though. Earlier this year congress gave the Big 3 $25 billion to do this. So where is the other roughly $5 billion that should be allotted for this type of research.

Bye-Bye Big 3

No more bailouts! That is something to get excited about, but is it going to happen? Detroit has already flown into Washington on their private jets with their platinum cups in hand begging for money. Is it just me or has Detroit been losing money for years and now they’re blaming the financial crisis for losses. Oh no, it’s not the financial tsunami that put the automakers in this pickle it was there own ineptness.

According to the big three they built huge gas guzzlers because the American people wanted them and these gas guzzlers were supposedly hugely profitable. Well let’s look closer into that. The balance sheet of GM indicates that they have lost money since 2005 when the economy was still humming along. Ford is in a similar predicament. They have lost money since 2006. Since Chrysler is now private it is hard to look at their books to see how much they were bleeding, but we can see what they sold for as a gauge. In 1998 Daimler purchased Chrysler for $37 billion and conversely in 2007 Chrysler went private for the whopping sum of $7 billion. Not exactly what you would with a thriving profitable business model.

Everyone knows about the legacy costs and failed bargaining agreements with the UAW that have placed the big three into this situation. It was not the financial crisis, but the inevitable compounding burden that these union contracts have placed on these companies that are to blame. Foreign automakers who build in America average $48 a hour in salary and benefits, but the big 3 average $75 a hour for the same thing. Why the big difference? Foreign automakers don’t have unionized workers and their sense of entitlement.

Bankruptcy would be a blessing and not a curse for the big 3. It would allow them to tear up all non-beneficial contracts including those with the UAW. It would settle current debt issues and provide a clean slate to move forward. Contrary to popular belief filing for bankruptcy does not mean that the kitchen is closed and the big 3 would blow away and never be heard from again.

If the politicians do bailout Detroit then where does it stop? Retailers are suffering, restaurants are suffering, manufacturing is suffering it appears that everyone is suffering so where do the handouts/bailouts/bridge loans end? The only question that remains is will congress act in the best interest of the country and not the lobbyists. The funding for these bailouts comes from loans that WE have to pay interest on for years to come. Why should we pay for 10-20-30 years to come to bailout business models that were failing before the financial crisis and will continue to falter after the dust clears?