Monday, May 18, 2009

"We Can't Manage The Federal Budget, So Let's Run The Automakers!"

I don't get why Glenn Reynolds is picking on Chrysler, when the real villain/moron in the story is the Obama Administration. I understand Chrysler's attempts to stimulate sales on vehicles sitting at dealerships, including the soon-to-be-ex-dealers; Chrysler doesn't want to take the vehicles back. To be honest, the additional $1k is making me seriously consider buying a new Dodge Ram half-ton. I've owned two Dodge Dakota Quad Cabs ('00 and '04) and have found them to be well-designed and built, and trouble-free. Ford and GM also make great trucks, but I don't hesitate to recommend Dodge and to buy another one. However, if Chrysler goes under (fails to emerge from bankruptcy) then the value of any Chrysler product including a brand-new vehicle will drop significantly, and that is perhaps the main reason why I hesitate to buy. The blame for this will lie not with Chrysler, but with the Obama Administration and their botched handling of the bankruptcy. More specifically, the responsibility will be Obama's.

Although Chrysler's problems are not new, all of the automakers have suffered from the recession. People who are worried about whether or not they’ll have a job aren’t going to go out and buy a new car. What differentiates Chrysler is the FUD that has been spread by the Obama Administration and it's hardball approach to the Chrysler bankruptcy. Chrysler's sales have slumped more than the others due to concerns about the automaker's future viability. Throwing money, or Fiat, at the problem isn't going to fix it. Instead, the fix is to give Chrysler the same labor environment that successful US automakers (Toyota, Honda, BMW, VW) have, by breaking the UAW's stranglehold on the company. Of course, this one critical fundamental step is the one that Obama won't do due to his obligations to the unions.

What I don’t understand is, why is Chrysler shedding dealers? There is no ownership involved; dealers are independent businesses with a contractual agreement to buy Chrysler products and then support them. Automakers need dealers, because consumers won’t buy a car without a dealer to back the car up. Chrysler evidently thinks that their sales won't drop if they close these dealers. What they fail to understand is that the marginal cost of additional dealers is minimal. Dealers are truly the automakers' customers, so who cares if they buy 100 cars or 10,000? Each additional car sale is one that might not happen without that dealer.The economy will rebound, and it will be a lot harder to get new dealers than to keep the existing ones.

Can someone tell me how, if the desire was to kill Chrysler instead of saving it, would the Obama Administration's actions concerning Chrysler be any different?

8 comments:

Bronislaus Janulis said...

I, too wonder about the dealer shedding.

As to the union bashing, they have been bending over, but nobody notices. And all those other non-union auto makers, are, in about five years gonna be faced with health and benefits for workers who no longer work. Watch them, then. Fix health care, get the costs down, and maybe the auto-makers could survive. Blameing it all on unions just makes you sound like an idealogue.

John Clifford said...

I don't know how you define "bending over" but I don't see giving the UAW more than half of Chrysler as "bending over."

Re the other companies, if they have company-funded retirement income and health plans for their workers, then they may well be in trouble. If, instead, they've established 401ks, and provide the benefit of an insurance pool without actually being liable for health costs, then they're in the clear.

Health care costs per se aren't hurting the automakers. Labor costs, including pension and health care costs, that are too high are hurting the automakers. When you/we talk about "fixing health care" what we're really talking about is spreading health care costs around to the entire tax-paying population. I don't see how having everyone pay for everyone will be cheaper than having the majority of the population paying only for their own personal healthcare. I know, that means that some people will have to do without, and that everyone needs health care... but needs don't imply rights. I need food, but I don't have a right to it.

I and the vast majority of Americans don't mind helping people out who genuinely need help for some catastrophic accident, but I, like the vast majority of Americans, have a huge problem helping out the irresponsible... repeatedly.

Bronislaus Janulis said...

With union ownership, there will be less of the old , adversarial approach, that was counter-productive, and something Japan has less of.

When large amounts of the population use the most expensive health care, emergency, as their only health care, your costs go up. That you can afford health care doesn't mean you aren't already "paying" for those who can't.

Let me see if I have this right; noble, self-sacrificing Wall street brokers and bankers, have tried to save us from economic disaster. Meanwhile, the greedy unions have brought the hard working, poorly compensated management to their knees. An upper management that is efficient, capable, and concerned only with helping the country. Yes, unions, the "welfare queens" of American workers.

Right?

Bron

John Clifford said...

Nope, that's not what I'm saying. I recognize that everyone in the picture is trying to look out for their own interests... unions, management, investors. What I also realize is that too often everyone looks at the short-term and ends up killing the goose that lays the golden egg. That includes the unions, management, and investors.

A lot of the conflict here is due to class envy/disdain (unions, management), an us-versus-them mentality (unions and management), and the elevation of short-term gain over long-term viability (unions, management, investors).

The unions have to understand that they must be a part of the solution instead of a part of the problem. That means they can't squeeze the company to the point where labor costs are unsustainable, because the company will move offshore, or shut down. Unions can't be about protecting every worker's job. They have to be about providing a quality service.

Maybe the solution here is to have the automakers pay the union a lump sum for labor, and then let the union parcel out the money. At the same time, let the automakers contact with any labor provider (not just the UAW) so that if another group wants to pool together to provide labor to the company, then it can do so.

Regarding management, too often labor pays the price for stupid management decisions. You see this a lot with layoffs, where the boss has made a dumb decision but the workers are the ones who pay. A smart company would get rid of the management responsible for the mess. I think that in tough times like these, companies will be a lot less willing to keep abysmal management.

Regarding investors, a contract is a contract. If I loan money to a company and have a contract securing me as the first party to get repaid if things go south, then I fully expect that contract to be honored. If I invest in a company only to push for short-term profitability over long-term growth and stability, well then, when the stock tanks I'll get what I deserve.

Bronislaus Janulis said...

John,

Again, you blame it all on the unions, which is akin to the view that the government is the enemy. I like clean water, good roads, and knowing that if I'm in lower Chicken Scratch, I've got some federal protection, and only with a federal government, can it cross state lines.

Bashing GM right now is so popular, that every one does it, though they built what every body would buy; pickups and SUVs. GM has tried to build small cars, but they won't sell.

I still think, in spite of "globalization", as I did as a youngster in a GM plant, that you need to buy domestic. Surprise, and coming from a family of long time coal miners, I think unions are OK.

I don't know what you do, but if you work an eight hour day, get a paid vacation, have some benefits, don't thank the Fords, Rockerfellers, Peabodys, or Carnegies; thank the unions. They fought and bled to bring it to you.

The irony is, the unions are at their weakest right now, yet they are still a huge threat. To what?

John Clifford said...

I don't blame it all on the unions... but the unions deserve some of the blame.

It has taken the bankruptcy of GM and the destruction of Chrysler to get the unions to compromise. Hundreds of thousands of non-union workers are losing their jobs at the Chrysler dealerships that are closing... and hundreds of thousands more will join them from defunct Pontiac dealerships. And how many GM dealerships will go away?

And this isn't the end of it, either. Due to the new, higher CAFE requirements imposed by the Obama Administration, GM and Chrysler will have a hard time building the cars that made them money.

So, a new Chrysler and a new GM will emerge from bankruptcy... but how long with they last?

Bronislaus Janulis said...

John,

Pretty good article on GM

http://www.latimes.com/business/la-fi-gm-history1-2009jun01,0,3345987,full.column

John Clifford said...

Interesting article, but I don't buy the main premise ('GM would have been better off if they had backed Al Gore').

Has Obama been better for Chrysler and GM than McCain would have been? I don't think so.

Obama is trying a grand experiment: he's actually socializing Chrysler and GM. That's right... he's giving both companies to their union employees. It will be interesting to see what happens.