The auto is shrinking in America's rear view

[Rob]

The auto is shrinking in America's rear view

By Jim Donick • May 1, 2009
Poughkeepsie Journal

Editor's note: This is a first-person piece from car enthusiast and freelance writer Jim Donick about the noble history of the American automobile.

"The times, they are a changin' "

- Bob Dylan

It's only 50 or 60 years ago Charles Wilson of GM made his oft-misquoted comment about what's good for General Motors being good for the country or vice versa and it was one of those things that was so obvious at the time it didn't merit any serious question. We were a country that was as defined by the automotive industry as by anything else and we knew it.

Like much else these days, though, it's hardly true in 2009.

By 1960 the number of manufacturers and automotive brands in the USA was down considerably from even the late '40s.

Those of us growing up in the second half of the 20th century have no great reason to recall the name of Packard and few will recall Studebaker, AMC, Nash or Kaiser, though they were all still players early on and are remembered better by some of our parents and grandparents than by most of us today.

But what about the automotive industry we grew up with? On the performance front it was a world of GTOs, Hemi Cudas, Ramchargers, Firebirds, Mustangs and Corvettes.

Moms drove the kids to school and then on to Little League practice in a Chrysler Town & Country station wagon, complete with fake wood paneling on the outside.

How many wars, or military actions, anyway, were won with the aid of countless Jeeps?

Hemi-powered Chryslers were often the police interceptor of choice for chasing speeders. In a straight line there wasn't much that was faster on the interstate for a very long time and cops appreciated that fact.

In truth, American culture or at least some piece of it has been pretty well wrapped up in the American automobile since the dawn of the industry.

The classically British James Bond may have driven an Aston Martin, but Bo and Luke Duke drove the "General Lee," a Dodge Charger, while their cousin, Daisy, had a Jeep. In early episodes of that show, the sheriff's boys actually had an AMC Matador.

The movie "Grease" did have an Australian as the female lead, but the hot rods we were supposed to love were a '48 Ford and a '49 Mercury.

"Route 66" was traveled in a Corvette and "Smokey and the Bandit" was done, I seem to recall, in a Pontiac Firebird.

Though the Corvette looks safe for now, more of them are already gone or headed for bankruptcy. It's hard to imagine any of the archetypical American stories or lives centered around a Fiat.

Music worked the same way. Our grandparents sang "Come away with me, Lucille, in my Merry Oldsmobile." The Beach Boys, Jan and Dean, even Tracy Chapman, had all sorts of hits including specific car songs from "Little Deuce Coupe," "409" and "Shut Down" to "Fun, Fun, Fun" ("Until Daddy takes her T-Bird away") on to generic car songs such as "Fast Car."

Trust me, none of them was referring to a Nissan.

Every industry has been going through some sort of globalization. With TVs and radios and other appliances, that globalization had its disruptions but they were mostly economic. If the 'fridge was a Crosley or a Sears it didn't matter, and the TV as a Zenith or a Sony might affect jobs but didn't really affect how we saw ourselves. Most appliances are just that, appliances.

Cars, once upon a time, were a bigger piece of our identity. Uncle George could be counted upon to have a new Buick every year. John Borger's grandfather was never seen in anything but a Chrysler product, first a DeSoto and, after that I think, it was Chrysler Imperials. Dad, on the other hand, was mostly a "Ford guy." Cars, usually American cars, added to our self-image.

Now? Oldsmobile is about gone. General Motors announced the end of Pontiac in the last week or so and Chrysler's bankrupt.

We expect GM to survive and can hope for the best for Chrysler in its upcoming marriage to Fiat.

But the culture? Who's going to write a great road trip song about a Subaru?

Jim Donick is a Hudson Valley car collector and vintage racecar driver. He's a freelance writer who has published on topics from motoring to theater. He is Editor of Vintage Sports Car Magazine for the Vintage Sports Car Club of America and "only a vice-president" of the Madison Avenue Sports Car Driving and Chowder Society.

 

[Rob]

Another interesting blog on this subject:

steenface! » RIP Pontiac

 

[Patrick]

The auto is shrinking in America's rear view

The headline is, I believe, a little misleading. Trust me on this: cars are not going to disappear. There is nothing that lends itself better to personal mobility than the on-demand transportation offered by the automobile. Whether it's fueled by gas, or something else, cars will always be with us.

So with that established, Mr. Donick's thesis is actually more a lamentation of the woes being suffered by traditionally American automobile manufacturers. I have some sympathy with that viewpoint. From an early age, I have always been a fan of General Motors design and styling. I think I was about six the first time I spotted a Pontiac Firebird, and it made quite an impression on me. Movies like "Smokey & the Bandit" and "Corvette Summer" only reinforced my love for the way performance and appearance could be combined in such an appealing way.

But if The General, and Chrysler, are on the ropes right now, the question that comes to my mind is why is it Japanese and German automakers, many of whom have plants in this country already, aren't suffering the same fears of bankruptcy? Manufacturing automobiles, whether it's by Cadillac or BMW, Saturn or Toyota, isn't so different between makes that the manufacturing process itself can be the lone culprit.

I keep coming back to one critical difference: the presence of unions at the Big 3. Toyota, Nissan, Honda, Hyundai, BMW, Volkswagon... all of these companies have manufacturing plants in this country, and none of them have been penetrated by the UAW.

If you think I'm simply picking on the UAW, I'd offer British Leyland as an example of what happens when a union becomes the main issue in how you manufacture a vehicle, and what happens when a government gets involved to bail out a unionized car maker.

 

[LLC5]

But if The General, and Chrysler, are on the ropes right now, the question that comes to my mind is why is it Japanese and German automakers, many of whom have plants in this country already, aren't suffering the same fears of bankruptcy? Manufacturing automobiles, whether it's by Cadillac or BMW, Saturn or Toyota, isn't so different between makes that the manufacturing process itself can be the lone culprit.

I keep coming back to one critical difference: the presence of unions at the Big 3. Toyota, Nissan, Honda, Hyundai, BMW, Volkswagon... all of these companies have manufacturing plants in this country, and none of them have been penetrated by the UAW.

If you think I'm simply picking on the UAW, I'd offer British Leyland as an example of what happens when a union becomes the main issue in how you manufacture a vehicle, and what happens when a government gets involved to bail out a unionized car maker.

All of the above is absolutely true, plus add in the arrogance of corporate greed and not suffeciently investing profits back into your product. You have to wonder how they (Big Three) ever turned a buck at all, let alone the huge dividends paid to investors and the immense bonuses paid to board members. Add in the UAW costs and it is amazing they stayed afloat this long.

 

[Patrick]

This is from yesterday's Wall Street Journal. I think Mr. Ingrassia's conclusions are spot on, and I putting his book on my 'must read' list when it's released next year. United Airlines had a similar issue of its unions effectively owning the company through the 90's. It took going through a Chapter 11 bankruptcy in 2002, to restore the company to profitability.


The UAW in the Driver's Seat
The auto workers get control of Chrysler and GM. Can they make a profit?
By PAUL INGRASSIA
April 30, 2009
[SOURCE: Wall Street Journal]

The latest developments in Washington's restructuring of the auto industry amount to this irony: Having burdened the Detroit companies for decades with restrictive work rules, enormous health-care obligations and generous retiree benefits, the United Auto Workers union will now end up controlling two of them. Specifically, the UAW will own 55% of Chrysler and 39% of General Motors, where only the government will have a larger ownership interest.

Assuming that negotiations over the next few days or weeks don't change things, it's hard to know whether this outcome is perversity or poetic justice. The UAW finally will end up having a direct stake in the survival and prosperity of General Motors and Chrysler -- even though the union's shares in the companies will be held by special trust funds instead of by the UAW itself.

Whether the union's rank and file will recognize its interest in the companies and act accordingly is another matter. Consider that one of the terms of Chrysler's pending deal with the union is that workers won't receive overtime pay until they work more than 40 hours in any given week.

One might well ask: Wasn't it always that way? Well, no. Often enough, the union negotiated production quotas in local plant contracts that workers could fill in five or six hours a day -- after which any work they did qualified for overtime pay. Now you understand one key reason why Detroit has arrived at this unhappy juncture.

It's hard to imagine the mind-set that produced this sort of thing will change just because the workers will become the owners, albeit indirectly. Years ago, at the University of Wisconsin, I wrote a master's paper on the student-union store, where the workers were the owners. Many came to work and left when they wanted, because they were the bosses, after all. (The big debate, as I recall, was whether they could come to work stoned.) There's an inherent conflict between the cost discipline required of owners and the understandable desire of employees to make more money for less work (hey, why not?). Keeping those two powerful forces in balance is critical to the success of any profit-making -- or profit-aspiring -- private enterprise. Even a clean and well-run union such as the UAW will have trouble squaring this circle in the long run.

What's occurring now is the culmination of a steady, decades-long transfer of wealth from the owners of GM and Chrysler to the employees. It began in 1970, when GM caved in to UAW contract demands after a two-month strike that scared management for the next four decades. After that, health-care and pension benefits steadily got richer and early-retirement provisions progressively got looser. Today, workers can retire after 30 years on the job, regardless of age. In GM's 1992 annual report, CEO Jack Smith reported that the company's health-care tab for employees, retirees and dependents averaged about $9,500 per active employee each year. That was up from just $3,500 a decade earlier, "a staggering 170% increase in only 10 years," as Mr. Smith wrote. After that, costs ballooned further. Not until 2005 did the UAW agree to pay modest monthly premiums and deductibles for doctor visits that almost all Americans -- including GM's white-collar employees -- had for years.

As this burden grew, and as GM downsized further because its plethora of unneeded brands resulted in too many mediocre cars, the cost became more than the company could bear. So in late 2007, with disaster at the door, the union finally agreed to the creation of trust funds -- financed by a one-time payment by the car companies -- to handle all medical benefits for retirees.

But now, because car sales have fallen off a cliff, GM and Chrysler can't afford to make that payment in cash, so they'll have to pay a big portion of it with their stock. (Ford has cut a similar deal with the union, without government intervention, but it has more flexibility in how to make its payment.) Voila! Existing owners will be diluted and the transfer of wealth will occur.

Actually, the existing shareholders in General Motors (and Chrysler too, but it's privately owned) won't merely be diluted; they'll be wiped out. The restructuring plan that GM unveiled this week, which is the company's third such plan in the last four months, has many numbers, but the one that stands out is 90. That's the percentage of approval for the plan that's required from the company's bondholders, who are being offered just 10% of GM's stock in return for wiping out their $27 billion in unsecured debt, if GM is to avoid a formal bankruptcy filing.

There's little chance the company will get it. When was the last time that 90% of voters approved anything, at least outside North Korea?

Make no mistake. GM's latest-latest restructuring plan is tantamount to declaring Chapter 11 bankruptcy. Yet this shouldn't be viewed as a bad thing. Chapter 11 is all about letting companies shed obligations they can't meet, and the more obligations that GM and Chrysler shed, the better they'll be able to build cars and preserve jobs.

Considering the mess it walked into, it's hard to see how President Barack Obama's automotive task force could have avoided ending up with the federal government and union trust funds owning most of GM and Chrysler. Unfortunately, the money the companies owe to the UAW health-care trust constitutes a legal claim on their assets. As mentioned earlier, if the companies can't make the payments in cash, they'll have to make them partially in stock.

As for the government, it is providing what lawyers call the "debtor-in-possession" financing that is keeping GM and Chrysler going just now. If these "loans" remain as debt, the two companies will be crushed under the burden. So the only other choice is the government taking equity, aka stock. The good news here, government sources say, is that the union trust funds will get just one seat on each company's board, and the government will get none.

Nonetheless, there are steps that would further minimize the complications of the UAW and the federal government owning most of GM and Chrysler. First, cut the bondholders in for a greater ownership share, at least in GM's case. (Chrysler's debt is owned by banks, which basically want out of the company.) If GM bondholders were to get 25% or 30% of the stock in return for their debt, instead of the 10% that GM proposed Monday, they might find the deal more palatable, and more stock might remain in private hands.

Second, let's have a clear exit timetable for the government to sell its shares in both Chrysler and GM, and get the companies back in the hands of private investors. Mr. Obama has an exit strategy for Iraq; he needs one for Detroit, too.

In the same vein, the UAW should seek to sell its trust-fund stakes in GM and Chrysler as early as possible. Instead of owning these companies, the UAW's leadership surely would rather milk them -- one hopes less successfully than in the past.

Mr. Ingrassia, a former Dow Jones executive and Detroit bureau chief for this newspaper, is writing "Crash Course," a book about Detroit's crisis out next year by Random House.

 

[BigJimZ16]

For a hint of the possible results, take a look at what happened to Weirton Steel after the Union took it over as an ESOP... Not Good. National Steel smiled and waved good-bye in the rearview mirror. :cry

 

[Kid_Again]

It couldn't have been said any better than in the long post above ->

We are witnessing the transfer of wealth from the Company to the employees.

Everybody in that equation gets what they deserve, IMHO.

Most of my father's family made their living in the coal mines and Wheeling Steel in West Virginia and Ohio. Just drive down Ohio Route 7 today, Rayland, Tiltonsville, Yorkville, Martins Ferry, Bridgeport, Wheeling, Bellaire, etc and see what the interaction between the companies and the unions have done. They left the economy, the environment and the people wasted.

Time to move on and make those that profited from greed pay the price. I'm not talking about nationalization, I'm taking about having the employees take clear responsibility for their actions in the open market.

BTW, I wouldn't bet on any of the Japanese or European makes as being survivors in their present form. I forget what the actual numbers are but Toyota went from making $15BB last year to losing $5BB this year. They sound just like GM. They are not invinceable and just as susceptible to consumer whims as GM is. Porsche, if I'm not mistaken is a BIG winner because they squeezed the short sellers on VW and made a phenomenal profit. It's not about cars, it's about being a successful business.

I know that I'm preaching but we have just opened the doors to have the chicoms take over the global high volume auto business. They can, if they wish, buy an in-place distribution channel with encumbered manufaturing by buying Saturn. They then ratchet down costs everywhere and before you know it, Saturn is a known brand back on it's feet. They will kick the living shit out of the Koreans at that end of marketplace. The Koreans foresaw this and having been making big moves to go upscale, which will shrink Toyota, Honda and Nissan sales.

If the chicoms really DO buy Saturn, the future will be won by those who adapt the fastest.