Another Blunder by the Detroit 3
Chances for a bailout around zero as consumers shun buying American cars due to the fact they may not be around if any warranty work is needed.
The CEOs of the big three automakers flew to the nation’s capital
yesterday in private luxurious jets to make their case to Washington
that the auto industry is running out of cash and needs $25 billion in taxpayer money to avoid bankruptcy.
Where’d you hear that?
Lets just say I have a “friend” in the industry
Would anyone buy a Ford without knowing what sort of existence they will have in the next decade? What do you do if it needs warranty service Ford has eliminated most of its dealerships?
They are zombies — dead but they do not know it yet
Another nail if the coffin today – Rep. Waxman replaces Rep. Dingell as chairman on the Committee on Energy and Commerce.
Dingell was a good friend of Detroit and his replacement is a committed environmentalist.
“I am running for the chairmanship of the Energy and Commerce Committee
because we have a once-in-a-generation opportunity to advance health
care, achieve energy independence and tackle climate change”
Translation – lock up the woman and children and prepare for the largest tax increases and corporate overhall this country has ever seen.
I had a client tell me the same thing about the Big 3 CEO’s trip to DC. Would it be too much for them to drive one of their own cars up there? Or fly coach? Stupid people.
You can see it here: http://crooksandliars.com/media/play/wmv/6821/24171
American auto makers have lost touch in so many ways. For one, who can afford a $40-50,000 for a new pickup truck? Not homebuilders or agg workers.
Something else, you're telling me we create huge stealth bombers but we still can't create effective long lasting alternative energy for our automobiles? We should have been plugging our cars in 30 years ago.Detroit got fat and lazy and now they're getting what they deserve. Also, unions. What a joke. They're a cancer. $75 an hour for working on the line at Ford? They're paying extremely high wages to people who are building junk, then over pricing it, and everybody acts suprised that there's a problem. Taxpayers are the customers of the Big 3. So let me get this straight. You (the Big 3) want us (your customers) to bail you out, so you can keep making low quality cars and overcharging us for them? Get outta here!
Dumb move by the Big Three.
On the other hand, I bet the banking honchos at Goldman, etc., also take private jets on their way to collecting their share of the TARP handout.
“Bankruptcy” doesn’t mean “out of business”, bho44. Ask Delta airlines (the world’s largest carrier).
True…but travelers are not avoiding Delta to fly on foreign carriers
20 years ago Detroit was having meetings on how to beat the Japanese…Unfortunately time has stood still for them and the same conversations are happening today.
Delta is in the midst of an industry-wide problem, while Detroit’s problems are self inflicted.
Bad example
My point is simply that filing for bankruptcy protection does not force a company out of business. In fact, it allows them to re-negotiate contract with suppliers and, more importantly, labor. The UAW is what has been the real bane of the Big 3 and busting the union will allow them to compete. Your original point was that warranties would not be honored. That is simply not a realistic assumption. Not at this point, at least. Oh, and the labor (union) issue was PRECICESLY why Delta filed. They survived by being able to negotiating realistic compensation agreements with labor.
YHWY,
The companies are on record saying that a bankruptcy would cost more than the bailout. They would be required to file for a DIP loan in order to continue during a chapter 11. You think there’s a big market out there for DIP loans in this environment?
I guess my big fear is that even with a bailout, it’ll take them too long to reorganize and have to file for chapter 11 anyway. God forbid they have to liquidate.
The private jet thing is nothing more than lawmakers showboating for the home crowd. Disingenuous considering the number of congressman and senators who fly around the country for free in private jets and using OPM to pay for it. That part of the hearing yesterday shows what a joke some of our elected officials are.
But just to show you that those planes aren't a waste of money let's take just one exec and break it down. Alam Mulally, Ford's CEO: 2007 Salary/bonus/options: $21,000,000 Hourly wage @60 hours/week/50 weeks/yr: $7,000 In other words Ford is paying this guy $7,000 dollars an hour. That's his value to the company. Flying time from Detroit to DC is 1:24. I don't know what kind of Jet Ford is flying but let's give them a top of the line blinged out Gulfstream V. That plane, all up, peddle to the metal, costs $6500 an hour to operate. Total air travel cost for the DC trip, RT is $18,200. During that period of time Ford has paid Mr. Mulally $19.600. Total trip cost to Ford $37,800. A lot of money, but money well spent if your boy brings home a check for 5 or 6 billion. OK, as an alternative let's put Mr. Mulally on United Airlines. The best we can do is a united flight that gets him to DC at 7:34am. total flying time one way is 1:34. Not bad. But there is aproblem. Alan is expected to testify until about 2pm, needs an hour to get to Dullas, and an hour and a half to get hrough security. The plane leaves at 5:11 but doesn't pull into the gate in MOtown until 9:45PM. Mulally needed an hour and half on the morning flight to clear security, as we all do at busy airports, so he's been on the Ford clock for 17.45hours. It's how Ford values his time. That's 17.75 hours of Mulally time at $7000/hour to complete the mission. he can't be doing anything else so that time is lost to Ford for other missions. Total cost to Ford = $123950 plus $424 airfare= $124,374. Ford saved $86,000 by flying him to DC. That's the way the math works and that's the reason private jets exist. Now i'm sure you will note that I didn't include drive time or wait time in the corporate jet costs. That's because Mulally loses no time to the company in his travel by private plane. He gets limo'd to the plane - working as he travels. His Jet, like Air Force One is a working command center were he can meet, and work on company business just as easily as if he was sitting in his office. All that gets lost if he travels by other means. Private air travel also gives Ford 100% control of his schedule. It doesn't make sense to pay someone 7Gs an hour to have them sit around airports waiting for the next available flight. It's about time versus cost. To look at it another way, let's say a high tech machine breaks down at the local viagra plant. Every hour that machine doesn't run costs the company $7000. How fast do you think they will fix that machine? A top exec of any Fortune 500 company who has to wait to anything is, in the eyes of the accounting department, is no different than that broken machine. He's a company asset that is isn't producing. best to keep him up and running. And at 7k an hour Mulally's time is worth more than the 6.5k an hour it takes to run the plane.gvf, I respect your opinion, but the bailout v. bankruptcy argument is simply a union v. non-union argument. The attempt to incite panic by bandying about a “3MM-jobs-are-at-stake” slogan and “it will cost more to go through bankruptcy than to take a bailout” are simply the union lines to strong-arm their already fatally overplayed hand. No company can afford to pay more to those who no longer work for them than to those that do. It’s really that simple. Bust the union and they have a fighting chance. Don’t, and they become “wards of the state” or are, in fact, forced to liquidate which would ( I agree) be a nightmare.
[quote=YHWY]My point is simply that filing for bankruptcy protection
does not force a company out of business. In fact, it allows them to
re-negotiate contract with suppliers and, more importantly, labor. The
UAW is what has been the real bane of the Big 3 and busting the union
will allow them to compete. Your original point was that warranties
would not be honored. That is simply not a realistic assumption. Not at
this point, at least. Oh, and the labor (union) issue was PRECICESLY
why Delta filed. They survived by being able to negotiating realistic
compensation agreements with labor.
[/quote]
Which work groups at Delta were unionized?
If you’ve got a team of, say, half a dozen senior executives flying off
to Washington–at least one of whom is paid about $10,000 per hour–it
doesn’t make sense to have them show up at DTW 90 minutes before their
flight so they can clear TSA and wait for the flight to board when you
can drop them at the stairs of a corporate jet which will deliver them
to Washington right away.
The reason the CEOs of those car companies are on corporate jets is the
same reason high ranking government officials are on their version of
corporate jets.
Time is valuable, the CEO of GM’s time is far more valuable than the
POTUS’s time yet the POTUS gets to fly around on the ultimate corporate
jet.
Putsy,
I agree 100% that those execs. showed terrible judgment in flying to DC in their Gulfstreams (among MANY other, more important issues), it was bad theater. And, to answer your question, off the top of my head, the pilots were union, at least.
P.S. Doesn’t surprise me at all to see you hear stumping for unionized labor.
[quote=YHWY]Putsy,
I agree 100% that those execs. showed
terrible judgment in flying to DC in their Gulfstreams (among MANY
other, more important issues), it was bad theater. And, to answer your
question, off the top of my head, the pilots were union, at least.
P.S. Doesn’t surprise me at all to see you hear stumping for unionized labor.
[/quote]
Hear what?
I am hardly a fan of unions. You’re the one who said that Delta
was able to emerge from bankruptcy because they worked out their labor
problems.
The reality is that there are two union groups–pilots and a dozen or
so guys who work in the private Delta control tower at ATL. No
unionized mechanics, flight attendants, bag busters, agents or others.
The employees, including the pilots, were more than willing to make the
sacrifices necessary for the leadership to steer the firm through the
rough times. The rough times continue, but with luck the company
will survive.
Wait, I apologize, what the hell was your point after asking for union clarification, putsy? Your posts were so incoherent, I had to re-re-read them. POTUS isn’t important enough to warrant Airforce 1 (although I’m sure our new POTUS will be, right?) but (failing) auto execs warrant their Gulfstreams, based on their salaries? Are you pro-capitalism, pro-bailout, anti-government, pro socialism, or what?
[quote=YHWY]Wait, I apologize, what the hell was your point after
asking for union clarification, putsy? Your posts were so incoherent, I
had to re-re-read them. POTUS isn’t important enough to warrant
Airforce 1 (although I’m sure our new POTUS will be, right?) but
(failing) auto execs warrant their Gulfstreams, based on their
salaries? Are you pro-capitalism, pro-bailout, anti-government, pro
socialism, or what?
[/quote]
I believe that a team of executives belongs in a private jet based on the value of their time.
I am pro capitalism, anti bailout, anti most government.
I’m a successful college educated white guy, how could I be anyting else?
Re: Delta,
Please enlighten us all about how and why Delta filed for Bankruptcy, emerged, restructured and grew the business to where it is today, having agreed to absorb Northwest to become the world’s largest carrier. I’m a little sketchy on how re-negotiating labor (and other supplier) terms were not crucial in that process.
YHWY, totally agree. If the automakers come back December 2nd, have a real plan, bust the unions, then I think they could do this either way.
But seriously, after all the crap the senators/congressmen/etc., got for “bailing out wallstreet” (‘and look how well that is going’, the pundits like the say), I think that, theatrically (as in, stage presence), the unions have a huge advantage here.
That is what scares me a little.
So, basically, the auto execs. “deserved” to fly to DC with, essentially, nearlt the last of the companies petty cash to beg for taxpayer bailout money that you do not think they should get based on the “value of their time”??? Hey, I agree it’s a petty bitch, but their coming to beg for my (and your) money, it was simply bad theater and they should have known better (Even politicians understand the importance of (meaningless) appearance).
gvf,
Agreed 100%. I didn’t say I wasn’t scared.
[quote=YHWY]Re: Delta,
Please enlighten us all about how and
why Delta filed for Bankruptcy, emerged, restructured and grew the
business to where it is today, having agreed to absorb Northwest to
become the world’s largest carrier. I’m a little sketchy on how
re-negotiating labor (and other supplier) terms were not crucial in
that process.
[/quote]
Delta came to the brink of bankruptcy years ago, primarily because they
assumed too much debt with the acquistion of Pan Am and a desire to
maintain all of Pan Am’s routes. Fortunately they were able to
steer clear that time.
Back in the late 1990s a guy named Leo Mullin took over–he came from
Commonwealth Edison, Chicago’s power company and knew close to nothing
about running an air line. He then surrounded himself with a
bunch of yes men and women who did not come out of the Delta
system. The lone exception was a woman who
had (rumor has it) slept her way from flight attendant to senior vice
president in charge of flight attendants. She was tapped by Mr. Mullin
to be head of all operations that interacted with the
public–ticketing, gates, flight attendants, food service. She
was despised by the rank and file.
Anyway that team decided that they could save signficant money if they
no longer hedged the price of oil when it was in the twenties.
As oil skyrocketed so did the price of jet fuel and Delta’s profits
began to shrink and roll over to quarterly losses. The rating
agencies downgraded the huge number of bonds that were
outstanding–mostly from the Pan Am purchase, although they buy planes
with bonds too—remember Equipment Trust Certificates from Series 6 or
7?
Anyway, in the light of the credit downgrades they were no longer
credit worthy enough to be allowed to engage in the huge number of oil
contracts that were necessary to successfully hedge. As it turns
out all airlines were unable to hedge EXCEPT Southwest, which gave LUV
a major advantage during the late '90s.
In 2001 the nation was attacked–it was in all the papers. People
stopped flying for more than a year at the same time jet fuel was
soaring–a receipe for disaster.
Mullin was fired, replaced by a guy in his 70s named Gerald
Grinstein. He was the retired CEO of Burlington Northern, who was
also a member of the Delta Board. In fact he was the chairman of
the committee that recruited Mullin and he seems to have been
embarassed by that screw up so he took on getting the ship righted with
a missionary zeal.
It was not possible in spite of all that he did and in (I think) 2005
the company entered Chapter 11–shedding hundreds of millions of
dollars in obligations to the companies that had financed the aircraft
as well as other debts.
The workforce voluntarily took a 25% pay cut in return for promises of
good raises later–this had happened at least once before. In the
late 1960s employees took a large paycut in return for promises.
My wife is a retired Delta Flight Attendant. One day, back around
1973 she called me from the airport. She had just heard that they
gave the flight attendants a raise. I asked “How much?” She
said $3,000. I said, well that’s $250 per month that we can
use. She said, "No, it’s not $3,000 per year it’s $3,000 per
month."
Delta has been very good to their employees which is why the unions are
as popular out there as a case of crab lice. When the first
L-1011 Tri Stars came out the employees contributed enough to buy an
entire plane to express their gratitude to the company and its
leadership. It flew for years with “The Spirit Of Delta” painted
on the side. Now it’s in their museum at ATL.
Anyway, back to Grinstein. He shephered the company into
bankruptcy and then brought it out about six months sooner than he had
promised. They did NOT hand their pensions over to the Pension
Benefit Guaranty Corporation nor did they attempt to bust the pilot’s
union.
When the company emerged Mr. Grinstein retired from Delta. He had
earned $1 per year for the three years that he was the CEO.
His replacement was hired from Northwest Airlines. Now that the
two have merged it is pretty clear that Mr. Anderson was brought in
from NWA to orchestrate the marriage.
I am not sure what was done about the unions at NWA–I should look into
that. I suspect that what might have happened is the combined
firm agreed to allow mechanics in Minneapolis to be unionized while
those in Atlanta are not, and so forth.
Over time the company will move lock, stock and barrell to Atlanta and the unions will disappear.
Those execs showed excellent judgement in flying their jets to DC. Maximizes the use of their time and allows them to multi-task. They could have driven to DC, but then the ass wipe senator who was making an issue of the private Jets would have made the same issue over what type of vehicle they showed up in. Unless they showed up in a Chevy Colbalt their asses were cooked.
As some here know prior to being in this biz I owned a helicopter company. The math to operating machines that at the time cost as much as a $1000 dollars an hour to fly was that time had to be more valuable than money. Whether it was flying time critical computer parts, cancelled checks, or ferrying PSE&G engineers between their head quarters and their nuclear power plant the equation was always the same-time was more valuable than money. Well, except for delivering Santa Claus to the local malls. On another note contractors can buy a F150 for 15k Fumo is finally getting what's coming to him. His butt is so cooked its charred. OPM, by the way, is an old term co-opted by Fumo. He did have it down to a corupt science.Spiff, are you kiddin'? This was a very important meeting, they thought this thing out and wanted "reliable" transportation.I had a client tell me the same thing about the Big 3 CEO’s trip to DC. Would it be too much for them to drive one of their own cars up there? Or fly coach? Stupid people.
delta sucks and they couldn’t run an airline if their life depended on it.
They don't deserve anything. But then again neither does Citi. These execs are contractually obligated to use their corporate aircraft. They have no choice. Security, safety ,and corporate conituity dictate this need. As for the math, if any one doesn't get that it is far less expensive for a company to fly a plane than pay the exec for time lost, OK, but that's the reality. While the corporate jets may seem extravagant, they are not. They are an effective tool to maximize management's time in dealing with far flung global enterprises. And the senate knows that. Making an issue of it was bad theater. The senators made it out to be something it's not, waste. As for congress or the senate pointing the finger and exclaiming "waste!" isn't that an irony?So, basically, the auto execs. “deserved” to fly to DC with, essentially, nearlt the last of the companies petty cash to beg for taxpayer bailout money that you do not think they should get based on the “value of their time”??? Hey, I agree it’s a petty bitch, but their coming to beg for my (and your) money, it was simply bad theater and they should have known better (Even politicians understand the importance of (meaningless) appearance).
I agree Citi doesn’t deserve the buyout, but then I feel guilty. Have you ever sold a Citibank corporate bond and told your clients how good that 6% would be when they got their check?
Citi, no. GMAC, CIT Group, Bear Stearns…unfortunately, yes.
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