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Sunday, November 23, 2008

Looking the Wrong Way

Rhetoric from Democratic Congressional leaders and President-Elect Obama's advisors is heating up towards the automakers, and all being aimed the wrong way.

I've got little sympathy for the 3 clowns from Detroit who flew in on private jets; at a cost of $20k each; to beg for money from Congress. The $12 to $24 Million each makes is a ripe target for lawmakers, admittedly.

However, you can cut all executive pay, sell all the corporate jets, and each of the (formerly) Big 3 will still lose $1-5 BILLION per month. Ford burned through $7.7 billion last quarter. Their CEO, Alan Mulally will make $24 million this year. Take out 3 months of his pay, and Ford still lost $7.694 billion in the quarter. Sell off their $150 million worth of jets, and they still lost $7.55 billion.

It's easy to see why lawmakers want to look at those things, it's easier than going after the root cause of their losses, labor costs present and past. That's where the money is going, that's why Ford loses over $1000 per vehicle sold.

That's why lawmakers have positioned themselves to allow the Big 3 to file bankruptcy, and blame them. Senior Democrats have told them to come back in December with a plan that preserves the current labor deals, and retiree benefits, but will somehow magically make them profitable if they want government help.

The truth is they can't; it's not possible. You have a better chance of spinning straw into gold. When they come back to the Hill next month, and can't show on paper they they can turn a profit in a recession with a 3 month cash infusion, Congress can throw up their hands, blame the evil corporate management, and say they tried.

Late January or early February is when you can probably expect to see GM toss it's papers to the court. Ford will be following shortly, with Chrysler last. They still have about 7 months worth of cash.

Then it will really get interesting in Washington.

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