New Democrat

George Bush may as well just start calling himself a Democrat, as much as he's become in love with the idea of big government and government control of industry.

Senate Republicans, rightfully, blocked the band-aid "rescue" package for Detroit's automakers, and now Bush has decided to look for a way to use the $700 billion bank bailout package to skirt the Senate and help them anyway.

I predicited a few weeks ago that congress would come up with a package just unpalettable enough to get it filibustered so the formerly Big 3 could file bankruptcy. It looks like that is what happened, but GWB doesn't want to see it happen.

I can see his point, to an extent. At the beginning of what looks to be a long recession, having the automakers become wards of the court may deepen the economic downturn. On the other hand, spending billions to prop them up until the time is more appropriate for failure doesn't make fiscal sense when we've already increased the deficit more in 3 months than Bush 41 did in 4 years! Remember back in the 80's when we screamed about Reagan coming up with a $500 billion dollars of deficit spending in his second term. Hell, we've done better than that this quarter!

A month ago the CEO's of the Big 3 begged for $25 billion as enough to get them through. A few weeks later, they said they underestimated, and needed $34 billion. Economists who testified before Congress said that $80-120 Billion was probably a more realistic figure. So Congress of course tossed all those numbers out, and came up with $14 billion as a patch for the hole in the side of the Titanic.

It appears the final outcome will be Chapter 11 for GM and Chrysler; the question is how long do we keep them above water before it happens, and who's the next industry to get bailed out?

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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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Walk Into The Light

Hey, Big Three, see that bright light. It's not the one at the end of the tunnel, it's the one at the end of your business as usual attitude, since it looks like Congress isn't going to pass a bailout for you before the end of this session.

If, as the CEO of GM claims, his company is going to run out of money by the end of December, I see a bankruptcy judge in his future.

Mitt Romney has a great piece in today's NY Times about what should happen in Detroit, and why. Basically, file for bankruptcy, and then rebuild the business model from the ground up.

I listened to Senator Russ Feingold on the radio this morning talking about that being the "death of car making in the US". That's of course patently false; Toyota, Honda, BMW, and Hyundai employ well over 100,000 workers building cars in the US. And, the court isn't going to shut down the Big 3, as their CEO's would like you to believe.

3 Million people aren't going to immediately be out of work, unless the CEO's decide that liquidation is the route they should take.

So, how can the (formerly) Big 3 declare bankruptcy, and still have folks buy their cars, which they say is impossible? Easy, explain it to the people. Take off the advertisments for your vehicles for a few days, and instead, advertise what the company is doing, and why.

Assure consumers that Chapter 11 isn't the end of your companies, but the beginning of a new era for them. An era where instead of losing between $600 and $1200 per vehicle produced, you actually turn a profit.

Assure them that while there may be less dealers (at least 1/3 less is what GM needs), they will still get warranty work done, and be able to find parts for their cars.

Dan Hesse from Sprint has been trying for months to show you guys how to get on TV and let consumers know what you offer, talk to him for some advice.

Yes, it will cause pain, for both current employees, some who will have to lose their jobs, and retirees. But that pain is much less than what they'll feel if Congress just tosses a lifeline, that will run out in mere months.

GM's own CEO says the company is burning through $5 billion a month, and may be broke before January. Giving him the 10-12 billion of the bailout money he wants means that unless something major is done about their costs RIGHT NOW, they'll still be broke by the end of March, and going to DC with his hat in hand again, looking for money to make it to the new model year.

A quick word for Congress, too. The Volt isn't going to save GM. To be sold at a price consumers will pay it will probably lose more money per car than anything any car company has ever produced. Yes, it might get people into the show room, and thinking about a Cobalt or Malibu, but one of them barely turns a profit, the other loses money every time one is sold.

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