Was the Automotive Industry Saved?
"I would like to suggest that the automobile industry has not been saved, it has been transformed, at a cross road and if it returns to the old ways it will be unsustainable again."
Let us get the history straight before the talking points and spin enter the conversation. I ask you to read this comment to understand the whole story, then assess your own interpretation and let’s have an intelligent respectful fact based conversation on the big question of the day. What saved the auto industry?
The auto industry was in position to fail over many years, when they got into a cash strapped situation the house of cards fell. Ford made the hard decisions early on and was able to take the correct steps to avoid this dramatic failure. The auto industry has an unsustainable model of legacy costs they could not carry; the foreign auto company transplants established plants without legacy costs and ate the big 3’s lunch with major cost advantages which continue to this day.
GM and Chrysler were not able to get themselves in position fast enough when they finally accepted the fact that the storm was coming. They were facing the "cliff" and immediately needed more cash to survive; the cash was only going to keep the unsustainable monster going for months. That is when the government stepped in and gave GM and Chrysler some cash, the “bailout”. This was a temporary fix that did not address the long term problem.
Then a new president entered the picture and he decided to not let GM and Chrysler go under "court bankruptcy" because he said he was going to save the auto industry. His actions after that were to take it under "political bankruptcy" which means he protected a certain group from the normal effects of bankruptcy. GM and Chrysler did go bankrupt and many suppliers also went under and tens of thousands of people lost their jobs. To say they did not go bankrupt is disingenuous. The debate is; was “political bankruptcy” a better path than “court bankruptcy”.
The government then broke contract law, this is the contract that Secured Bondholders had that protect their investment, they paid extra for this status and the president took it away in one swipe. He said he was taking money away from the "Fat Cats" and giving it to the hard working middle class the union, these are the president’s words, not mine. Now these "Fat Cats" turned out to be police, fire and school teacher pensions and normal middle class people who lost everything. I know many of these people;
they are not what was portrayed.
Here is what happened under “political bankruptcy”. GM and Chrysler closed many plants and tens and thousands of people lost their jobs. They moved all of the bad operations into a holding company for liquidation and many auto suppliers went out of business with many more job losses. This is the same as normal bankruptcy, except for the group getting special treatment.
Let's look at Ford, they are the shining example of how a company can avoid disaster and thrive with hard work and tough choices with no government help. They did not get the same union contracts negotiated as GM and Chrysler because they were in better financial position. To this day they have a disadvantage to GM and Chrysler, but they still thrive. This example shows that free enterprise without government help works, this fact cannot be denied.
GM went through an IPO with much fanfare and priced to ensure the government was to get their full investment back. Well that has not developed yet and even in these boom times the stock is not rising anywhere near the levels to get our taxpayers investment back. GM is now liquidating assets in the holding company and you can see evidence in the many dealers that now sit empty and the assembly plant in Pontiac now being taken down. These same events happen in both “court” and “political
Chrysler is now in position to be owned by Fiat, a foreign automobile company. When Fiat makes the final payment they will own over 50% control of the company then becoming a foreign car company. When that event happens we will no longer have the Big 3 we have been so proud of over the years, we will be the Big 2. Is this saving the auto industry, or giving it away?
I understand this is a very touchy subject here in our area; I personally have been effected by it due to my long automotive roots. I have had to make personal dramatic changes to survive just like many in our area. I would like to suggest that the automobile industry has not been saved, it has been transformed, at a cross road and if it returns to the old ways it will be unsustainable again.
I do not like “political bankruptcy”; it changed the rules to help one particular group. With this change the investors are sitting on the sidelines since they now understand that the investments they make under certain contracts can be changed with the political wind. I believe this is one of the major reasons why investment and job hiring is low throughout our country, it is called uncertainty. Investors sit on their money if things look uncertain.
Chief Executive Officer
The Center for Professional Studies
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