Buffett: Automakers Need Bailout Or Bankruptcy

OMAHA, Neb. — Billionaire investor Warren Buffett says U.S. automakers need a new business model to better compete, whether it takes bankruptcy or a government bailout to achieve.

Buffett also says he would never serve as U.S. Treasury Secretary. The Berkshire Hathaway Inc. CEO is a member of President-elect Obama's Transition Economic Advisory Board.

Buffett says any automaker bailout package should include a business solution, and be negotiated by the president, not Congress. Buffett spoke to Fox Business News in an interview scheduled to air Friday afternoon.

Buffett says the government should insist top executives at Ford Motor Co., General Motors Corp. and Chrysler LLC invest a significant percentage of their own net worths in the Detroit-based companies, ensuring both executives and taxpayers would share in any profits or losses.

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On the Net:

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

Fox Business News: http://www.foxbusiness.com

Comments

[bighillaryfan]

Problem is I wouldn't buy a GM or Ford if you paid me. I might buy a Mercedes if you paid me, but not a Chrysler.

So, what would the stimulus package do? If they give me a GM, Ford or Chrysler for free, I would take it, but what sense does that make?

[RBJR]

New Business model???
they need to make electric cars...period.

the combustible engine is a relic of the past...let it die like horse drawn carriages,the dodo bird and cabbage patch dolls.

Congress should only release cash to these dinosaurs if they ...
1 agree to resign their posts as failed directors of the industry..
2. appoint progressive management that looks to the future not live in the past
3. start production now of electric/ solar cars...not 5 years from now.
4. abandon oil as the center of the car universe.

if the three car makers dont agree then they should look to the oil companies for a bailout.
they are in bed with them anyway...not the US tax payers!!!

Ray Bennett jr
11/24/08

[NotMcCain]

CEO's investing their own net worth in their company and share in profits and losses?

That's definitely needed. The heads of GM, Chrysler and Ford are an utter embarrassment.

[johnnygoodwud]

i'm not against unions, but imagine what the price of an average american car would be if everything, every little part was union made. it's a global economy, and you have people making $15.00 per hr. producing a product as good or better than the one people making $70.00 (including benefits) make. i'm all for buying american made, but when i'm dropping $40K on a car, i want the best made car i can get. it's all about perceived value/quality. i bought a new lexus in 2002, and although i don't drive much, have yet to have one problem with the car. my brother bought a new corvette, and got a recall. during manufacturing, the wrong dip stick was installed, causing the oil leveled to read incorrectly, and could burn out the engine.

[AContrario]

After the political wake the f..k up call which happened during the last POTUS elections now an economic
WTFU call is needed.
People things have changed places, what worked yesterday can't work today. Our economic leaders,experts or elite have their brains and guts designed for the old economy, they r like the republican party they can only distinguish the trees from a burning forest.

This is not a crisis, this is an opportunity to do things differently at both economic and financial levels.

[strangerinthenight]

The problem with Buffet's comment is this: the entire Big3 trading @ $3-4/share, or about $9-12 billion. If he thinks that the Big3 is worth saving, why doesn't he make an offer to buy them all, and then revitalized these dinosaur industries ? $12 billion is a pocket change for him, so let him spent another $50 billion to make them profitable.

Of course he wont - first, the total liabilities for these 3 car companies could exceed $500 billions at the present time - Union salaries, pension legacies, suppliers debt, shareholders, and lenders to name a few. Then he has to spend another $2-3 billions to revitalized it's technology to become competitive.

All in all, a bad investment. So why would anyone bail them out ? So I dare Mr. Buffett to buy the Big3.

[watchingthings]

Why dosn't Warren ask himself.......How did the big Three get to this point? Was it poor management with lack of foresight? If so....why are they still running the companies?

[Snwbnny9]

Poor management with lack of foresight says it all. I'm only sorry that it will be the little guy working at the plant that takes a fall for managements failure to lead.

[PhilipTaylor]

WALL STREET LOVES TO SHORT COMPANIES AND GAIN MONSTER PROFITS!
GM, F, LEH, and now C (City Bank) are victims!

Maybe this will be regulated when a company needs some breathing room with the Obama Team!
So many good companies or companies in some short term trouble have been "KNOCKED DOWN" in days by "Illegal Naked Shorts", Puts, and Shorting!

In 1992 George Sorros broke the Bank of England with a $10 billion short sell!
But today traders can do that with a very small fraction of that hence we see RAPID DECLINES in our companies and our ECONOMY when negative news hits! No time for the companies to compensate and so they suffer dramatic consequences!

You have to wonder is this practice good for the American Markets and Economy or just for the TRADERS taking advantage of the situation!

[rosal]

For all those critics of union members packages, why don't they ask why is Health Care so expensive? And what can be done to bring cost down? Its always workers that need to sacrifice, never the corporations.

[Snwbnny9]

Health Care is so expensive because Health insurance companies are for profit businesses. I don't think they should be. They are squeezing doctors, squeezing patients and making billions.

[Baltotoast]

Why is it that all the industries that require bailouts are unionized? Ever seen a bailout in the technology industry? Biotechnology?

[timbonotes]

wall street is unionized? get a life and brain!

[rosal]

So Unions are the problem? What happened with the home loans meltdown? If you are one of those "Government and Unions are the problem" advice your corporate world NOT to ask the Government for bailouts, and as for every government critic: Build your own roads and bridges, provide your own police and fire departments for your exclusive use, and build your own schools.

[planetjeffy]

It is not the unions in Detroit that are the problem, but management. Management that continues to build cars that nobody wants. Management that refused to invest in a small car and efficient car program. Management that bets it future on a 40K plug in hybrid and so on.

[AContrario]

Nice try but correlating unrelated facts from industries that operate in different economics sectors and contexts is a lazy or poor use of stat tools,if your comment is based on hard data.

i.e. I don't recall the financial industry being heavily unionized, at least at the level seen in the car industry...

By the way I don't subscribe to the idea of bailing out unconditionally waning industriesbusiness or poor business talentskills. In the case of Detroit's 3 we have a failing industry lead by managers with poor business talent or skills and asking for more more money to carry on the same old way to run a business. Intrinsically business is business, its fundamentals don't change over night but
Detroit's 3, their predecessors and all the current US car industry stakeholders have failed and still
fail to acknowledge the obvious: business environment(s) change all the time and if they haven't been able to deal with this in the past I don't believe they are up to the new challenges.

A bailout for Detroit,if any, should be tied to an ambitious and bold Energy project and with real business leaders not arrogant and scared managers rationalizing their incompetence and using
a large workforce's real concerns as collateral to get more money and carry on doing what they have been good at the last decades:status quo.

[darthdarcy]

Warren isn't that the same as Yogi Berra saying:

"If you come to a fork in the road....take it..!"

[ufopp]

Whatever the solution, it must not be viewed as a way to bust the unions, curtail health care costs, CEO salaries, or any other past perceived injustice. That would avoid facing the real challenges of turning around an entire industry. At a minimum, each CEO and the board must resign before accepting a government bailout. Then assemble the best minds in the business to run the companies, periodically voted by shareholders and employees alike. Expand the definition of "car manufacturing" to include manufacturing of all forms of transportation. Revoke any tax breaks for lobbying Washington, increase tax breaks for creating jobs in US, and finally mandate a green future where national security goals don't undermine economic development goals.

[Erdgeist]

What most people forget is that the major problem with the big three is sales. In other words the overall demand for automobiles has fallen off. As noted from last month, GM's car sales fell 45% while Chrysler's fell 35% with Ford's sales falling 30%. Japanese automakers also showed declining sales. Honda and Toyota sales fell 23%. Probably where the problem lies for the American automakers is with their commitment to SUVs where sales have declined 66%. If the U.S. had a serious economic policy, then a long time ago, SUVs would have been essentially banned from being produced insofar as they guzzle gasoline and are unsafe at any speed.

[Paul]

Exactly.

The only way the Big 3 can make money is if they build cars too big for Americans to afford.

They can't compete in low-cost cars and this is where the market is headed.

Besides, the automobile as a transportation paradigm is obsolete. Why should Americans have to go into debt just to get around? The freeways here in LA are dysfunctional - the average speed is something like 30 mph.

We need mass transit. We don't need to be keeping an obsolete industry on life support.

[Scudrunner]

Mass transit in rural America? What are you smoking? No big trucks for farmers, construction workers? Get real.

The big 3 can be profitable making small cars if our country implements an intelligent industrial/trade policy. What the last 8 years have proven is that the supposed free market can NOT successfully induce big companies to do the LONG term right thing. With incentives to offshore and outsource, corporate America has bankrupted America while the middle class has slowly boiled. Now we have no choice but to bail them out.

But, we damn well better have learned some lessons. Exorbitant incomes for the management staff has to go and decent wages/healthcare for the workers has to come back. Don't tell me we can't afford it. If our economy can afford guys like Buffett and Gates, we can afford decent quality of life for hard working Americans!

[RobinSeattle]

"Buffett says any automaker bailout package should include a business solution, and be negotiated by the president"

Well, you will have to wait until Obama gets into office Warren since parleying with Bush is like engaging in a dialogue with a ten year old (no insults to kids intended, but you get my point).

The other thing that bothers me about that is that it effectively makes the president treat the chiefs of the Big Three, who have failed their companies, their workers and the country, equivalent to heads of state, which is also absurd.

[Realization]

The idea that Congress isn't the place to do this is quite correct. Matter of fact, there is far too much talk of Treasury. The "dog that didn't bark" in all this is the Department of Commerce.

Commerce (in almost any other developed country it would be Industry and Commerce of something) should be able to provide full information on the auto industry - employment, competitiveness, costs, etc. - that is needed for a decision. It would be good to know how many engineering jobs each company has in the U.S., etc.

Maybe I am missing something given the poor coverage of this issue but just telling the auto companies to "come up with a plan" doesn't sound very useful. There have to be parameters and a format so that you know what you will get. I.e. someone has to work with them on it. Maybe that is happening but I tend to doubt it.

[Viper]

Detroit's products today are very good.Most hybrid models. Highest avg fleet mile per gallon.

Union wages start at 12 bucks and average between $14&$17. Less than in Germany or Europe or even Japan today. How much faster do you want to race to the bottom?

Every country in the world Protects its MFG base except one. US.

In Japan there are virtually no imports. A Toyota sells there for twice as much as here. They make guranteed profits there, while virtually never showing a profit here. Thats called predatory pricing to gain market share.. Is a Celica at 40K+ as it is in Japan as good a deal as a 22K Chevy here? Value can be somewhat of an illusion.

Europe in the 1980s put quotas on Asian imports because of this dumping from their protected home markets to protect their industry..

You can only sell cars made in China in China. Same for Korea and now Brazil. Japan does not build cars here. They assemble cars here. The high dollar components and engineering are imported. Very little dollar add to our economy as compared to cars where the parts are made here such as the engines.

The auto industry is by far our largest MFG sector left. Each industry that we created has been targeted and killed here not just the Auto industry. Electronics, computers, appliances, textile, now even high tech engineering and software development...


The world is not free trade for anyone but us.


Regards

[Scudrunner]

Excellent comment. Why don't we stand up with the Union people that have fought and sacrificed for health care, better wages, improved working conditions - a decent standard of living for EVERYONE. Instead most folks are petty and wish to demonize them. A reminder post 9-11:

1. Ford- $1 million to American Red Cross matching employee contributions of the same number plus 10 Excursions to NY Fire Dept. The company also offered ER response team services and office space to displaced government employees.

2. GM- $1 million to American Red Cross matching employee contributions of the same number and a fleet of vans, suv's, and trucks.

3. Daimler Chrysler- $10 million to support of the children and victims of the Sept.. 11 attack.

4. Harley Davidson motor cycles- $1 million and 30 new motorcycles to the New York Police Dept.

5. Volkswagen-Employees and management created a Sept 11 Foundation, funded initial with $2 million, for the assistance of the children and victims of the WTC.

6. Hyundai- $300,000 to the American Red Cross.

7. Audi-Nothing.

8. BMW-Nothing.

9. Daewoo- Nothing.

10. Fiat-Nothing.

11. Honda- Nothing despite boasting of second best sales month ever in August 2001

12. Isuzu- Nothing.

13. Mitsubishi-Nothing.

14. Nissan-Nothing.

15. Porsche-Nothing. Press release with condolences via the Porsche website.

16. Subaru- Nothing.

17. Suzuki- Nothing.

18. Toyota- Nothing despite claims of high sales in July and August 2001. Condolences posted on the website.

[Realization]

This comment is right on target. Adam Smith is rolling over in his grave at the extent to which the U.S. is messing things up by failing to understand and act in its own interests.

By the way, when Europe put quotas on Japanese imports the U.S. instituted Voluntary Export Restraints with Japan on autos. This was out of a freemarketeer aversion to intervening in the market (which given Japanese protectionism and industry targeting was not at all free). The result was to hand Japan's Ministry of Trade and Industry a tool to run a cartel which increased the profits of Japanese firms (and costs to U.S. consumers). This hastened the Japanese move to more upscale cars. Paulson's reluctance to set standards for the Wall Street bailout is unfortunately reminiscent of the dumb VRA.

Paulson's

[isthatso]

Right on Viper, free trade is not free trade for the U.S. it is our death warrent! I have watched through the years as one after another of our jobs left here and went to other countries. I kept wondering how in the end we were even going to afford imports without having good paying jobs here, we have become a nation of service jobs and that is not right. I hope Obama will look at the free trade agreement and change it so we can once again start to rebuild our manufacturing base.