Saturday, November 08, 2008

Detroit Big Three sinking faster than Titanic, begging for government bailout

It appears that this week's news stories has been nothing but election news (including armchair political QBing), and even more bad economic news. I've been watching the news with this silent fascination, thinking can it get even worst--even as we've elected a brilliant, first, African-American president by the name of Barack Obama? I'm sorry to say, but Barack Obama will have to closet his pretty, gray suits, get some coveralls and a shovel, and discover just how dirty it is shoveling crap. Maybe Obama will need to bring in Mike Rowe, as an adviser, regarding the etiquette of getting dirty?

So let us start with the crap taking place in the auto industry. From MSNBC News:

For mighty General Motors, the news could hardly be worse. The nation's biggest automaker said it lost $2.5 billion in the latest quarter as it was slammed by a slowing economy, global credit crisis and the effect of high energy prices.

The company is now going through cash at a rate of $2 billion a month and says that without help it will run out of money in 2009.

“This is not necessarily the end of the road for General Motors, but they can certainly see the end of the road from where they are right now,” said Aaron Bragman, an automotive analyst at consultancy Global Insight.

Without a federal bailout, GM could be looking at bankruptcy, he added.


For GM, the situation is grimmer. The automaker announced a range of moves Friday to improve liquidity by $5 billion by the end of next year by cutting capital spending, reducing sales promotions and further cutting production in the first quarter. The automaker also said it will lay off about 3,600 workers.

But those cost savings are not enough to save GM.

What happened? General Motors is going bankrupt. For the past 10-15 years, Detroit's Big Three automakers have been lured into the short-term greed of building big, gas-guzzling, SUVs, which gave them big profits when gas prices were low, and Americans were happily buying up these battleships. Short-term greed was the prime motivation for the auto management, cheered on by the short-term greed of Wall Street analysts. The Detroit auto managers never thought about investing into smaller, fuel efficient cars, or even hybrid technology--even as the Japanese auto companies were plowing money into such fuel efficient research. So President Bush goes to war with Iraq, shooting oil prices up to almost $150 per barrel. Gas prices rose to almost $5.00 per gallon in September, 2008. What I'm saying here is that as oil and gas prices rose, Americans have shed their love for the Detroit gas-guzzling SUVs for the Toyota Prius, and other Japanese hybrid cars that were coming on the market in the mid-2000. In May, 2008, worldwide Toyota Prius sales topped 1 million cars. Toyota Prius sales even surpassed the top-selling Ford Explorer in January, 2008. The Explorer was the top-selling SUV, in the U.S., for more than a decade. The corporate management in Detroit's Big Three automakers screwed up royally for more than a decade, as they pushed for short-term profits in selling gas-guzzling junk to American consumers. And now that American consumers are turning to Japanese fuel-efficient, hybrid cars, the automakers are losing big money, while asking the federal government for their own bailout. It is pure madness.

Continuing with the GM story via MSNBC:

After the recent $700 billion bailout of the financial industry, there is some opposition to using taxpayer money to rescue yet another industry that has suffered from years of mismanagement.

But industry supports counter that the failure of GM or another automaker would have a severe ripple effect on the broader economy.

About 2.5 million American jobs would be lost in the first year if the industry shrinks by 50 percent, according to one dire report issued this week by the Center for Automotive Research in Ann Arbor, Mich. About 239,000 of those job losses would be at one of the Big Three companies, with the rest coming from parts suppliers and related industries.

“I can understand the sentiment — why reward failure? Why reward an industry that has suffered from 25 years of mismanagement?” said Bragman. “The answer is the consequences of a major failure in the automotive industry far outweigh the cost of keeping the major automotive companies going."

Bankruptcy is a poor option because buyers would be unlikely to buy a new car from an automaker that might be out of business within a few years. A bankruptcy also would also lead to more company failures and layoffs at companies that supply the automakers, and the foreign automakers like Toyota and Honda that those companies supply, Bragman said.

I can understand the auto industry's arguments for a federal bailout. It would certainly be very bad for the U.S. economy if GM or Ford were to go bankrupt. But at the same time, I don't want my taxpayer dollars to be spent on more management failures, and short-term corporate greed. If the federal government is going to bail out Detroit's Big Three automakers, they should do so with some serious strings attached. The big string is to demand higher fuel-efficient cars, with hybrid technology. The government should raise the CAFE standards on cars and trucks. And more importantly, the federal government will need to take the lead in developing an improved energy and transportation infrastructure to support new fuel efficient technologies.

And finally, let us look at the problems talking place in Ford Motor Company:

DEARBORN, Mich. - Ford Motor Co. said Friday it lost $129 million in the third quarter as the struggling automaker burned through $7.7 billion in cash.

The automaker also said it will cut about 2,260 more white-collar employees in North America as it tries to weather the worst economic downturn in decades.

Ford says it lost 6 cents per share for the quarter, compared with a loss of $380 million, or 19 cents per share, a year ago.

The company posted a pretax loss of $2.7 billion from continuing operations. But it was offset partly by a $2 billion gain as the company shifted retiree health care liabilities to a trust run by the United Auto Workers.

Ford’s global automotive operations had a pretax loss of $2.9 billion for the quarter, compared with a pretax loss of $362 million a year earlier.

Sales fell 22 percent to $32.1 billion from $41.1 billion due to lower volume and the sale of Jaguar and Land Rover.

Excluding special items, Ford lost $1.31 per share, worse than Wall Street expected. Analysts surveyed by Thomson Reuters predicted a loss of 94 cents per share on sales of $28 billion.

Dearborn-based Ford reported its worst three-month performance ever in the second quarter, when it lost nearly $8.7 billion.

So Ford lost $128 million in the third quarter, burning through more than $7 billion in cash, and cutting over 2,260 white-collar jobs. It is no wonder that Detroit's Big Three automakers are going to Congress, asking for a $25 billion bailout package:

WASHINGTON - Detroit’s automakers appealed to congressional leaders Thursday for $25 billion more in federal loans, low-interest emergency borrowing and a share of the Wall Street bailout to help rescue an ailing industry battered by the economic crisis.

The talks with House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., came as General Motors Corp. and Ford Motor Co. were poised to announce billions more in losses and further job cuts Friday, and as GM’s president for North America said the next 100 days would be critical for his company and the industry.

GM, Ford and Chrysler LLC pledged to work with the leaders “to ensure immediate and necessary funding to keep the auto industry viable and its transformation on track during this critical time,” according to a GM statement.

I sort of wonder what the next ailing U.S. industry will go to Congress, hat in hand? Will it be the construction industry? Retail? Big Energy?

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