GM Filing Chapter 11, Chrysler to be Sold

According to multiple news sources, GM has filed for Chapter 11 Bankruptcy protection at 8:00 AM this morning.  It should also be noted that even before this filing, GM was negotiating with the various stakeholders for agreements for who will own how much of the “new” company after it emerges from bankruptcy.  The news that is being reported has the following highlights:

  • 11 plants are to close, with 3 to be idled.  (specific plants to be announced later)
  • 21,000 employees will be cut (34% of the workforce).
  • The US Government will own 60% after “contributing” another $30.1 Billion
  • The UAW will own 17.5%.
  • Canada will have a 12% stake after loaning $9.5 Billion to the new company.
  • GM Bondholders will have 10% with the possibility of owning up to 25%.
  • Four brands (Saturn, Saab, Hummer and Pontiac) will be discontinued.
  • Approximately 2,600 dealers will be closed.

An additional note is that the Administration has stated that the government will not interfere in day to day operations.  What the Administration has not stated is that they would stay out of the direction of the new company.  And that doesn’t bode well for the car-maker and for the taxpayer.

We have all heard of the new CAFE standards that were “agreed to” by the automakers.  I thought that Jerry Flint put it best with this:

Most amusing is the government’s estimate that it would cost $1,300 or so per car to accomplish this. It’s always wonderful how our government, which paid $7,000 for a coffee thermos and $240 million for a fighter airplane and $3 billion for a new presidential helicopter–money it doesn’t have–always figures that private industry can produce miracles for next to no cost.

Here are a few points to remember:

It’s seven years to 2016 and there will be a new president and a new Congress and a different economy by then. Many rules change over time.

There’s always a possibility that we will have no domestically owned auto industry by then, so no one will be upset about kicking foreign automakers who can’t meet our rules.

And there’s usually a fine for those who can’t meet the requirements. If you figure a $3,000 per vehicle fine for each one missing the target–and that’s a modest number–that’s $45 billion in fines in a 15 million-car year if they all miss the target. That’s enough to build four $250 million “Bridges to Nowhere” in every state. That might appeal to Congress.

And well all know how fiscally responsible our government is, so we shouldn’t worry, right?

Of course, the whole deal smells of politics to high heaven, and we have to remember – the companies will not pay the increased costs, the consumer (you) will.

That is, of course, if we still have jobs to buy these vehicles…

On a related note, the bankruptcy judge has approved the sale of Chrysler to Fiat.  How Fiat is going to buy Chrysler without putting any cash down is a mystery to me…

A Response to Mustang

I started to respond to Mustang’s comment on the previous post, and it started getting really long!!  There is a lot that I agree with Mustang on.  But there are so many things that I wanted to write about too. Thus, I thought it would be better served if it was in a post.  Besides, I’m always looking for material.

Mustang wrote:

When Fritz Henderson said today, “It’ll get worse before it gets better,” I almost fell out of my chair. How can it get worse? Today, GM stands for Government Motors; I do not trust the government to run American businesses because they can’t even run government correctly.

I do not want to see any of our auto industries “disappear.” But I do think that reorganization is over due; I would rather see smaller companies, managed inventories, fewer employees, and a higher quality product. I would like to see American auto industries create a demand for their products. I still want consumers to have choices, rather than have Obama decide the kinds of cars we can purchase to suit his “green” dysfunction. You already know how I feel about the UAW; they are part of the problem. :twisted:

I am PO’d because I don’t see any sensible solutions coming to the fore. Government motors is not the solution.

Henderson’s comments did nothing to reassure anyone that GM (and by extension, Chrysler) will pull out of the current situation with or without government loans.  Many of the pundits are stating that GM has a chance providing the Unions, bondholders, and management pull everything together.  Those same pundits are stating that any money that Chrysler receives will go toward a Chapter 11 filing if not a Chapter 7.  And none of this raises the morale of the auto-workers, stockholders, and the market.

There is a myth out there that the automotive companies are only recently beginning to reorganize themselves.  Nothing is further from the truth.  All the companies have changed over the past ten years, shedding brands, factories, and people.  GM dropped the Oldsmobile label and Chrysler dropped the Plymouth brand.  Several factories and plants from all the manufacturers have closed or have been sold off, and that trend is going to accelerate shortly.  I know that Chrysler employed over 250,000 people worldwide in 1987.  It’s now less than 50,000.  I have seen my former department reduced from over 150 engineers to the 72 today.

I know that the Obama administration is pushing for “green” technology for personal transportation, and Congress has castigated the automotive companies for not moving forward with leaner, “greener” cars instead of the big, hulking, gas-guzzling SUVs.  This direction and its associated smackdown shows the ignorance of those who think they know best.

“Green” technology isn’t so green when the hazardous waste of the batteries is taken into account.  Some of the chemicals are corrosive, and cannot be recycled.  And then there is the expense of the vehicles themselves.  How many people can afford a $40,000 vehicle that would need the battery pack replaced in less than five years at considerable expense?  These are considerations that are not brought to the forefront for public discussion.  All we hear is that internal combustion system is bad for the environment because of the carbon dioxide it produces.

As far as SUVs are concerned, the automakers produced what the public demanded.  Period.  If SUVs were so bad and the foreign car companies so smart, then why has Toyota and Mercedes (among others) built plants in the United States to build SUV and pickups?  The interest in hybrids and high mileage vehicles only started when gasoline prices topped $4.00 a gallon – something that government CAFE standards didn’t do, by the way.

Quality has improved tremendously as proved by Buick’s top rating in the JD Power survey.  Cadillac, Mercury, and Lincoln were also in the top ten.  Disappointing to see that Chrysler wasn’t there even though I know that millions of dollars have been spent across the corporation to improve quality.  But that’s still not enough to undo the damage that Daimler did to the quality programs…

Consumers will still have a choice about which car they can buy.  Most likely, it will be used since the new cars will be small putt-putt cars that can be purchased in any color (except black in California).

The UAW, like many organizations, is both good and bad.  Much has been made of the jobs bank & SUB pay, the exorbitant benefits, and out of touch pay.

The jobs bank and SUB pay were proposed by (now get this) GM!!  The purpose was to retain and retrain workers when plants were shut down for up to two years to retool for new product.  What GM found was that when workers were laid off during the retool period, they tended to take other jobs and not come back.  Thus, they were losing skilled labor they needed to build their vehicles.  These provisions eventually made it into the contract with the UAW.

Benefits and pay also were proposed by the automotive companies to retain workers.  Stop and think about it for a little bit:  Would you want to work at a factory on an assembly line doing the same thing day after day, year after year?  The mind becomes numb, and people would quit their job.  Benefits and above average pay also were designed to retain skilled workers.

The UAW also performed one other valuable service which was to prevent the workers from being abused or unjustly treated.  I know this from first-hand experience.

About five years ago, a situation came up that targeted me for management to make an example of.  My wife’s business was failing, and my son came up to live with us.  Between taking personal time to help my wife close her business and court dates with my son’s situation, certain people in the company felt that what I did was taking excessive time.  It didn’t matter that my supervisor knew full well what was going on and gave me permission to take the time off.  They were on a witch-hunt.

Human resources called me in with my supervisor, the department manager, and my Union Steward, and proceeded to rip me apart and threaten suspension.  After they were done ranting, the Union steward asked my supervisor if he had given me permission to take the time off (he did), if my work had suffered (it hadn’t), and what were my last two performance ratings (both above average or excellent).  He then proceeded to state that if I were given time off for this perceived violation, then he would file several grievances on the basis of harassment, lack of evidence, and a few other things that I don’t remember.  HR backed off.

If I had gone in there alone, I would have been suspended for 30 days without pay, and the suspension noted in my work file.  As it is, nothing happened, the charges dropped, and nothing was added to my file. Unions may be demonized, but they do serve a purpose.

Unions do need to change their structure in order to serve the worker’s needs and provide competent labor to the companies for everyone to benefit.  Unfortunately, that has not happened fast enough for today’s global economy.

Sensible solutions will not be offered by the government – I think anyone with half a brain knows this.  Calling for the resignation of Wagner was a pure power play, although the head of AIG was also removed for the first installment of bailout money to AIG.

Chrysler and GM are in deep trouble, even with government help via loans.  What is scary is that there are government people telling which direction the automotive companies are to take.  That does not bode well for the industry as a whole, nor for the country.


Mustang, being the gentleman that he is, sent me the following via email because he didn’t want to take up space on the blog.  So with his permission, here is his letter, and please feel free to list your thoughts in the comments.


I am honored that so few words inspired you to write an eloquent and timely piece, and I wish to respond to your thoughts, but would rather not clutter up your blog in the process of doing that.  I don’t think we disagree on much at all, but I do think we have a different perspective.  To say that I hate what is going on in Washington is a profound understatement.  I’m very worried about our country, Tom . . . and I think that, as a percentage of population, those of us who are worried is minuscule.

In any case . . . I simply feel that government is not the solution; it is the problem.  When presented with a wonderful opportunity to demonstrate the effectiveness of a capitalist system, Marxists decided to trump the process with the vestiges of a Stalinist era command economy.  Whether we are talking about GM or AIG (or any other troubled company), bankruptcy was the appropriate consequence to poor or inadequate management.  What might have happened through bankruptcy is that AIG and GM could have reorganized themselves into smaller, more efficient companies.  Forced to give up some market share and reduce labor and inventories, time and good management would solve both of those set backs.  Importantly, management and labor could have resolved important issues without any government interference whatsoever.  The NLRB does not require agreement; it only calls for a good faith effort to find solutions.

Notice that GM produces a limited number of Corvettes every year.  By limiting production, they create demand.  That division does not experience an accordion effect in labor because their operations are consistent.  It is an efficient operation.  The strategy helps to maintain the vehicle’s value.  Compare that to the tens of thousands of unsold inventory of all models and makes sitting idly on car lots.  Excessive production decreased demand and value.  So whether companies are horribly mismanaged or union demands cowed corporate executives into making unfortunate decisions, the bottom line is that GM is an unprofitable company.

Worse still, none of Obama’s promises appears to be taking shape.  People continue to lose their jobs, companies are scrambling around for diminished capital, and Fritz Henderson has no more clue about where to go from here than Wagoner did.  Again, corporate management is for stockholders to decide, not the White House.  Meanwhile, even now there is no guarantee that GM (or AIG) will succeed after tremendous expense to taxpayers, and of even greater concern, the cost of government tyranny.

But my only sticking point with unions is that they bear some (not all) responsibility for what has happened to American industries.  On the one hand, they bemoan the fact that foreign workers now perform jobs once performed by Americans; on the other hand, their unrestrained demand for high wages and benefits force companies to look around for cheaper resources.  Should anyone in the UAW be surprised when consumers begin purchasing cars made in Korea?  What I think is missing here is common sense leadership, by both corporate executives and labor leaders.  Let’s take good care of our people (workers), but let us also understand that 125,000 fully employed, highly motivated, well-compensated workers may be more efficient than 250,000 “entitlement generation” workers.

Alvin Toffler warned us long ago about the likely consequences of an unplanned-for post-Industrial era.  Few workers and executives even know who Toffler is, let alone what he had to say; so here we are now at an important junction.  If our response to these challenges is a command economy, then we have given up an important part of Americana, and it is unlikely that we’ll ever get it back again.  It is likely that matters will only get worse.  And herein lies my concerns; I want to see successful companies, a healthy work force, and a resulting strong American economy.  I don’t see this happening with incompetent Marxists in charge of government, an AWOL political opposition, executives who are willing to roll over and play dead, or labor unions who are incapable of looking beyond the end of their noses.

Well, anyway . . . thank you for allowing me to have this discussion with you.  My best wishes to you and yours . . .

Semper Fidelis,


Bridge (Loan) to Nowhere

Last night, Republicans in the Senate killed the bridge loan to the automotive industry.  The main reason that was given was that the UAW refused to concede on lowering wages to the same levels as the foreign transplant automakers.  Let’s just take a deep breath and look at this closely.

A couple of the sticking points that Congress has with the UAW is wages, benefits, and the jobs bank.  In the last contract, the UAW membership voted to freeze their wages for the duration of the contract, and reduced the length that a person could remain in the jobs bank from an indefinite period of time to two years.  In public statements, the UAW is pledging to dismantle the jobs bank, so now wages & benefits are left.

At, the following reported the cost differences between GM and Toyota workers:

Hourly wages for UAW workers at GM factories are about equal to those paid by Toyota Motor Corp. at its older U.S. factories, according to the companies. GM says the average UAW laborer makes $29.78 per hour, while Toyota says it pays about $30 per hour. But the unionized factories have far higher benefit costs.

GM says its total hourly labor costs are now $69, including wages, pensions and health care for active workers, plus the pension and health care costs of more than 432,000 retirees and spouses. Toyota says its total costs are around $48. The Japanese automaker has far fewer retirees and its pension and health care benefits are not as rich as those paid to UAW workers.

So the reality is that it is not the wages that are the problem, it’s the benefits and the larger number of retirees.  So what does Congress really want?  For all the retirees to drop dead immediately and no benefits for anyone?

I have a few thoughts:

First, while the politicians browbeat the CEOs into taking $1 yearly salary and no bonuses.  That’s OK in many respects, but after the multimillions they have received in the past, they can afford it.  But little or no mention has been made about the vice-presidents, senior & junior executives, managers, and other non-Union personnel taking wage and benefit cuts.  If the pain is to be shared equally throughout the companies, why haven’t we heard more about these people being forced to take the cuts?  Why is the UAW worker the target?

Second, if wages are cut across the board, how many people will be unable to pay their bills?  How many more loans will go into default?  Where is cutting anyone’s wage going to benefit the country?

Third is that I’ve have heard that the politicians don’t want to micro-manage the companies.  Isn’t trying to force the UAW to concede multiple points doing just that?  It does make me wonder if the politicians are trying to break the Unions…

And if this is truly the case, the politicians, who are mostly lawyers without any business experience, have just effectively cut the throats of 3 million gainfully employed taxpayers (many non-Union) without too much of a second thought just to break the UAW.  And now they are ready to leave town to spend the holidays with their families, leaving yet another mess needing to be cleaned up by someone.

Last is the thought is why must the UAW pay for the short-sightedness of the management of the auto companies?  The reality is that management sets the goals of the company’s direction and product, and the worker builds it.  When management screws up, they are ushered out with their golden parachute, and the worker is ushered out with a pink slip & an unemployment check that won’t cover groceries for the month (which is why the SUB pay and job bank exists to begin with).

I understand that the Democrats are urging the outgoing President Bush to tap the $700 Billion Wall Street slush fund to loan to the automakers.  I hope he does, because I fear that there will not be three domestic automakers in business by March 2009 if he doesn’t

What Next?

Yesterday evening, I heard where the UAW is considering concessions including the elimination of the jobs bank.  Next, during the hearings today, a merger between GM and Chrysler was also discussed as well as bankruptcy.  Last, GM might not survive the month even with a bridge loan.

What the heck is going on?  There is so much confusion here in autoland, it is unbelievable.  Surreal, even.

Where the problems lie are where the shoes are going to drop.

With the UAW backing off on the jobs bank and talking about reopening the contract, protection for the workers is almost completely out the door.  The companies now do not have an incentive to offer UAW workers buyouts, but to lay the workers off.  It will be cheaper for them to lay off workers for 48 weeks vs a jobs bank that would support them for a maximum of 2 years.  There goes the job security that the UAW negotiated on the behalf of the workers.  So why do we need a Union if the Union doesn’t stand up for the rank and file?  I can see so many people getting hurt over this – they were counting on this security.  And yes, I’m one of those that’s going to get stung.

Merger – I can see nothing good coming from this.  Yes, there is a chance that a merged company could survive, but the fallout in the loss of jobs between the merging companies and the suppliers could be catastrophic for the economy.

GM stated during the hearing that they couldn’t survive the month without a bridge loan.  Not good at all, and puts pressure on a lame-duck Congress that is reluctant to do anything, especially after being flamed for giving billions to Wall Street with little or no conditions.

Let’s not even get started on bankruptcy – that’s for the next post.  Suffice to say, it may have worked for a service industry like the airlines, but it won’t work for the automotive sector.

December is not going to be a month that I’m going to enjoy.

Hope or Change?

First, I hope that everyone had a wonderful Thanksgiving.  My wife and I hung around the house discussing the situation with my job, her upcoming cataract surgery, and planning for what may come.  Not relaxing in the least, but we know better where we stand should everything head South.

Next, you have probably noticed by now that I’ve changed the template to the blog.  This will be temporary (probably), but I needed to have a change.  The picture reminds me of a time when things were so much simpler.  Yeah, I need to take a deep breath once in a while & step back away from the crap that appears to be raining down upon us.  And besides, with an impending winter storm headed our way, I need to have a change of scenery, even if it is a graphic on the blog.

The next couple of weeks will determine whether I stick with Chrysler or take a cash settlement.  The Big 3 with the UAW will appear before Congress this week to ask for $25 Billion in bridge loans.  The conditions that Congress lays down for the loans will determine what I do.

One of the items that I am expecting is for Congress to demand that the UAW give up the jobs bank, which was negotiated down in the last contract from an indefinite length of support to a maximum of 2 years.  While this is a change in the contract (and would most likely require a vote by the membership), I cannot see where this would help the people that are most affected by this crisis – the people that actually build the product, i.e., the workers.  If anything, this would depress the economy more than what it is now with more people having to file personal bankruptcy and defaulting on loans when they are laid off without this safety blanket that was negotiated on their behalf by the Union.

I can see the backlash coming should this come to pass.  With a Democratic controlled Congress, they would have proved that they are no friends to Labor.  The UAW would prove that they are only worried about their own survival and power, and will not stand up for the people that they represent.  And I could almost count on Michigan becoming a Red State overnight…maybe…

I’ve looked online for jobs that fit my background, and have been in contact with a few people that I know.  There are open positions that I can apply for – they’re not desirable from a long-term standpoint, but they would pay the bills.  I just don’t want to give up the time that I’ve accumulated toward a pension & better benefits that I believe that I’ve earned.  I don’t want to start over, but I may have to.