Detroit's Next Step; Analysis of Rescue Proposal Here

Sunday, on Meet The Press, President-elect Barack Obama, in talking with Tom Brokaw about the auto industry, said, "(Detroit) must put an end to their head-in-the-sand attitude, which has been so prevalent for many decades ... (then about the proposed loans and bailouts) This is not the time to put additional burdens on the American people ... We don't want government to run companies, so conditions on the auto industry must include that it becomes an industry which actually functions."

Sen.Chris Dodd, chair of the committee decided Detroit's immediate fate, was a bit more succinct on another topic: When asked about GM CEO Rick Wagoner staying in his current position, Dodd said, "It's probably time for him to move on."

Well, bravo! Maybe the three CEOs can put together a tour like the Three Tenors to make some money for their imminent retirements.

Thanks to Robert Hyde of the Detroit Free Press' Washington staff, we're able to offer their following cogent explanation of the 31-page draft of the Detroit Three rescue plan, to be voted on this week by Congress, with our comments afterwards. Here's what the Freep had to say about the draft bill early Tuesday morning:

"Detroit automakers would face strict oversight from a federal official and have to drop lawsuits against California's limits on greenhouse gases from cars and trucks under a draft of the rescue obtained by the Free Press.

The final amount of the loans available under the plan was one of the issues still unresolved, with some lawmakers wanting more than the $15 billion that appeared available. General Motors and Chrysler have said they need $8 billion before the end of the year to avoid collapse, and GM has said it could need $6 billion early next year.

Under the bill, automakers would have to submit a restructuring plan by March 31 to what's being called a "financial viability advisor," who would have the power to set negotiations among the company, unions and creditors. If the advisor deems the company isn't making progress, the loans could be called back.
(General Motors decided to make this car, the Pontiac G8 GT, equipped with a Corvette engine and drivetrain, available in the US. It's built by Holden, GM's Australian division. The car, similar to the "new" Pontiac GTO, also from Oz, has, like the GTO, been a sales dud. Both cars were brought to the US because Bob Lutz, GM's VP for North American products, thought they'd be hits).

In return for the loans, automakers would be barred "from participating in, pursuing, funding, or supporting in any way, lawsuits (existing or contemplated) challenging State laws concerning greenhouse gas emission standards."

As with the first rescue plan, automakers would have to pledge stock to the government equal to 20% of the loan value in return for the money, and the loans would be senior to all of the company's other debts.

Foreign and domestic companies have fought California's global warming rules on vehicles, which have been adopted in 17 states, saying they would create an unworkable state-by-state sales limit on some vehicles and complicate manufacturing.

White House spokeswoman Dana Perino said today a deal was "very likely."

Even if the White House and congressional Democrats reach a compromise, winning approval will require significant Republican votes, especially in the Senate where 60 votes are needed to stop filibusters."

(Pontiac's cute little 2009 Vibe has been a fairly good sales success for several years. People rave about its fun, functionality and quality. Vibe is sister car to the Toyota Matrix; both are built at the NUMMI plant in Fremont, CA. NUMMI stands for New United Motor Manufacturing Inc, and GM and Toyota share the relatively-new plant, built with ideas - and money - from both companies).

Our quick take:

It's interesting that Ford is not mentioned in the story. Ford has asked Congress that it be allowed to draw on a rescue fund of from $7 billion to $9-billion. And really, if the other kids are opening their gifts, does anyone seriously expect Ford to not kick and scream for their share, too? I hope Washington brought enough candy for everyone ...

This bill is a band-aid when the patients need several amputations and vital organ transplants. Some in favor of it may point to the amount of ownership Washington will have in GM and Chrysler (and Ford, too, when they start using their asked-for several billion-buck "line of credit").

While of course it's always nice to own part of any failing automotive giant from the last century, if the companies are still not viable three, six or even twelve months from now, what will taxpayers' ownership be worth?

Sure, the companies have huge land holdings, for factories and who-knows-how many-other kinds of facilities, from vast test tracks spread around the country to testing labs, schools for dealers and dealership technicians, and much more.

But a lot of that land may well be contaminated and cost more billions to make it suitable for any use by actual people (racing fans will be all for building new race tracks on such soiled land, but even they are worth protecting; this I know, because I am one). And these days, who is looking to invest in a Superfund site? More problematic, what bank or investment firm would loan any entity the money to buy one?
(Sportsmen racers, amateurs who do it for the challenge and enjoyment of running down dragstrips all over the country and building the most-efficient race cars they can, have traditionally bought American products every chance they get; looks like that may change. By the way, this 1972 Mustang belongs to my father-in-law, and that's the skyline of Long Beach, CA in the distance).

For any Asian or Euro carmaker "transplant" looking to buy more production capacity in the US for their cars and trucks, older Detroit Three plants would be tough sells because so many of them would have to be re-built inside and out.

Remembering that Speaker of the House Nancy Pelosi said, regarding what many of us still want to see happen to President Bush, that "impeachment is off the table," I hope the same thing is not happening during Congress' dealings with Mssrs. Wagoner, Nardelli and Mulally, CEOs all.
Madame Speaker, Rep. Barney Frank, Sen. Chris Dodd and Senate Majority Leader. Harry Reid just do not understand the depth of Detroit's problems, nor do their staffs. Who does? Well, me for one - But no one from DC has been calling, at least not yet.
(Dodge aimed this 1950's "La Femme" model at women, who were coming back into the work force in the 1950s, following their stints running factories building tanks, planes, ships and anything else our armed forces needed during WWII, and after a few well-deserved years of rest following the fighting. The car was a bomb; I've never even seen one at auctions or car shows of all kinds. Did someone mention Detroit's arrogance and chauvinism? I mean, besides me).

Does anyone think it possible for any of the Detroit Three to live-up to even the meager conditions, almost all financial, in this bill?

Can they make the called-for changes with the current management teams in-place, or should replacing management be a strict condition for any Detroit rescue?

Is three and a half months, the term of the bill, enough time for the heads of GM, Ford and Chrysler to appear publicly again, and to tell a great story of accomplishment to Congress and all Americans? I'll answer that one for you - No.

Click anywhere on this line to read the full 31-page draft of Congress' rescue bill.

Select photos by www.SteveParker.com.

Follow Steve Parker on Twitter: www.twitter.com/autojourno

Comments

[kstuff]

A rescue plan will need to be in the works for the people of Detroit if the bailout fails. The city will implode Katrina-style due to mass unemployment and lack of health care. Somehow, I just don't trust FEMA to do a heckofa job!! Give them the loan already!

[go]

I would consider lopping off the head (all management) and rehiring some early retirees from the auto companies and training a slew of young grads to take over. With salary caps for execs at less than $100,000 per year for the next five years. The new management could rehire anyone from the old school if their skills were needed at rates aligned with the value of their production. This clock doesn't need rewinding it needs to be reset.

[outstanding]

I am sick and tired of trickle down economic policies. What is good for GM , Chrysler and Ford has never been good for the Nation. It is past the moment when the money should be given to the people. I say let us start by giving the bottom 80% of the population in incomes and assets,$100,000.

[rays15]

The Republicans who are blocking the loans -- that's right, loans -- are doing so because they want to break the unions. Without unions, the gap between rich and working poor will continue to accelerate, just as it has since Reagan stoked up the anti-union movement in the 1980s.

[KillTheMessenger]

Cool. Let's give 240 million people $100,000 each. Total cost is a mere $24 trillion, which makes the bailout look kind of cheap.

:-)

[freshnotbitter]

The normal way of handling a re-organization is bankruptcy court. Mitt Romney would be available to create special conditions as Car Czar working with Congress to pass legislation that would guarantee warranties­/service/p­arts would be honored with the full faith and credit of Uncle Sam.

The result would be a thriving competitive car industry responsive to the needs of a greener planet.

The solution I have proposed will not be implemented.

Democrats love failure. The road they are on spells failure as also pointed out in the last sentence of Steve Parker's post above.

Gore met with Obama today but there was no announcement that Gore was accepting post as Energy secretary. I wonder if it had anything to do with the Clinton people like Hillary that Obama has surrounded himself with. I guess we will never know.

What a shame. A Nobel Prize winner as energy secretary. What an opportunity lost.

[outstanding]

The automobile bailout is designed to keep the USA people tied to this dinosaur technology and the Internal Combustion engine ie fossel fuels. Let the oil companies own the failing near bankrupt car companies; the oil companies can afford to spend money on the technology that uses their product; and the oil companies have more profits than God ;let the people buy a car powered by some other technology. .

[rays15]

First of all, GM offers more hybrids than any other company. Billions are being spent on R&D on fuel cells and all-electric; if anyone could put the technology into a car today and sell it at a reasonable price, they would. Tesla's first all-electric is going to sell for $100,000, but the word is that they will lose $40,000 on every car.

[rays15]

Mitt Romney is a joke. His op-ed in the NY Times, in which he talked about AMC under his Dad bringing itself up by its bootstraps, ignored the fact that the feds gave AMC hundreds of millions of dollars in tax breaks and waiver of regulations in order to keep it going.

[Peter007]

All this car bailout talk.
Detroit is now selling about 5 million cars a year. If they stay at that level, the bailout package may cost 125 billion or so. I assume they have to get car sales up to about 14 million a year. Just to break even.
What is Washington and the congress doing to help GM and the big three get their sales up to 15 million units.?
No one is talking about that.

[rays15]

I think you've confused Detroit sales with total industry sales and you're comparing apples and oranges.. Detroit sold over 8 million vehicles in the U.S. last year, and the total market was about 15 million. The last several months the annualized sales rate (for the entire industry) has been running about 11 million units, which means the Detroit 3 are running about 5 million. They're counting on total industry sales to get back to 14 million a year over the next three years or so, not 14 million sales by GM/Ford/Chrysler.

[feo]

This article and many like it conveniently ignore the amount of subsidy capitalism that has taken place in this so-called free market economy during the last 125 years. If an article were to be written about sugar subsidies, corn subsidies, cotton subsidies, mining subsidies, oil subsidies, the public would be shocked. By comparison, the amount the car companies seek is small potatoes. Add to that the numbskulls in Congress who have spent more time hasseling car execs than they did investigating Iraq, and you see what stupidity there is abroad.

[djtyg]

Steve, you forgot this line from Obama:

"What we have to do is to provide them with assistance, but that assistance is conditioned on them making significant adjustment­s."

Funny how you left that out.

[CitizenLegislatorCC]

Yes, Steve - But Pelosi and Reid have POWER, thanks to blind and irresponsible Party followers in Congress. And in Washington, POWER is enough to qualify one as "expert" and savvy. [Ever wonder why we're in the mess we're in...?]

Just ask the Members of Congress who are letting a mere handful of inexpert, petty PARTY tyrants secretly DICTATE our future (see the names you cited, see yesterday's ongoing CLOSED DOOR DEALMAKING with the Executive Branch, hear deafening silence from the rest of the Democratic "caucus" who quietly wait, like lambs to be slaughtered, for instructions on how to vote).

Chuck Schumer clearly wanted a CZAR (wow, those authoritarian worshippers do beat all, don't they), and he's apparently gonna get one - as Congress passes the buck yet again to unelected bureaucrats.

Chris Dodd may be CHAIR of the Senate committee of jurisdiction which OUGHT to be examining and resolving this crisis, but the COMMITTEE MEMBERS themselves are NOT in those secret meetings, and NO public committee mark-up will take place of any legislation in this, as in so many other of the most important matters needing expert Congressional attention. IF such a process HAD been followed, you might have testified, facts might have been gleaned, common sense might have prevailed and a WORKABLE solution might have been found with the almighty "bipartisan" participation of ALL legislators contributing to the fix. But: the hack-worthy Party POWERBROKERS preferred to call the shots instead, and we're letting them.

[Merry Joe K]

JScott has it right.

I'm tired of people who have no clue about the auto industry. It's scary, because the consensus is overwhelmingly clueless.

Detroit's issues have nothing to do with poor quality. It has everything to do with poor business decisions, an old business model, and the tanking economy. Now is NOT the time to use your stump to talk about misguided views on SUVs, a documentary on the electric car, or how your Aunt Mabel's '74 Olds 442 was a piece of crap.

[KillTheMessenger]

Now is the time to talk about how in 2008 Americans spent $500 billion on importing oil.

[dogstar1125]

I think it would be a great idea if Congress would mandate that in order to receive any federal bailout funds the Big 3 would have to retrofit existing autos for either full electric or hybrid technology. This makes sense because the current batch of gas guzzling cars are relatively new, and consumers shouldn't be required to foot the bill for the bailout and buy new cars too. Most of these autos would serve their owners quite well if retrofitted: They're roomy enough for Americans; We could still have our big cars/trucks, and; This would guarantee there would be work for the Big 3 (one of the major ills of the industry is declining market share). Current bailout plans can't guarantee we won't be in exactly the same position only months down the road, so having a steady supply of work is no small deal. And how about getting an electric '69 Camaro (re-issue)?, or favorite of your choice from the past?, that you could actually afford to drive? One of the big attractions of electric vehicles is their reduced maintenance and mechanical parts (see "Who Killed The Electric Car?") and the ability to recycle most of the parts used, such as batteries, wiring, etc... At least it would be a step in the right direction that wouldn't cause further harm to implement.

[MattInVA]

While this idea might make sense from an environmental point of view, it makes absolutely no logistical sense.

Let's look at just hybrids, since no company has yet been able to produce and profitably sell a reliable, warranty-backed electric car:
There were 276,000 hybrid cars sold in the US up to and including October of 2008. That is less than in 2007. Part of the reason for the lowered numbers can be traced to a limit in the production and cost of batteries. GM sold 3.87 million cars in the US last year. There isn't anywhere near the capacity in the global market to produce battery systems to cover all GM cars. Added Note: Toyota does not produce the Prius battery, Panasonic does. Sanyo produces the batteries for the Civic hybrid and Ford Escape hybrid.

[JScott]

Please, the Pontiac G8 is a dud because of the economy, NOT because it's a crappy product they do sell a non Corvette engined model with a 3.6 L engine that's pretty good--this car could be a winner and they should NOT discontinue it. There were reports (until recently) that this same platform would be used for the next Chevrolet Impala, but now that seems uncertain, but this is typical of GM (and most of the other automakers), they don't wanna hang in there and keep a winnable product, that would turn GM into a profitable company. I mean really this car has all the same stuff that an MBZ or BMW has (not to mention it's derivitave styling like a BMW's), they come THIS close (they are 99.99% there) and then they f**k up, sad to say it seems like this is the story for the US automakers.

[Steve Parker - Huffpost Blogger]

Thanks for the comment.
Oh, the G8 is a great car, but the "price of admission" to the US market has become high mileage numbers, and even the V6 version of the G8 is a pretty good guzzler. The 'new' GTO died on the vine after -what? - three or four years?
Lutz' decisions to bring these Holden cars to the US was ill-conceived and badly-timed. It's hard to imagine that he didn't learn anything from the GTO sales disaster, but apparently not.
Now Pontiac might become a "niche" company, says GM. I don't really see any reason for the division to continue on at any size.

[MattInVA]

"It's interesting that Ford is not mentioned in the story. Ford has asked Congress that it be allowed to draw on a rescue fund of from $7 billion to $9-billion. And really, if the other kids are opening their gifts, does anyone seriously expect Ford to not kick and scream for their share, too?"

That's your best argument as to why Ford would tap the government loan? Because everyone else is? What about the argument against? That by not tapping the government loan and just using the 30 billion they already have access to, they won't be subject to the whims of a Car Czar who has no experience with a successful business let a lone a successful manufacturing business.

"But a lot of that land may well be contaminated and cost more billions to make it suitable for any use by actual people"

Your argument seems to be: "It could be." How about some evidence. I don't doubt there is some, but conjecture like this is just lazy.

By the way, what are the conditions you say the Big-Three won't be able to live up to? You never mention them. I have not read the entire bill and am curious as to the conditions.

[Steve Parker - Huffpost Blogger]

Thanks for the comment!
I know it might sound "lazy" to say Ford will want and use the money because GM and Chrysler are getting theirs --- Trust me, these Detroit managers are nothing special, except for maybe having some advanced degree in bean counting.
When I first got into this business, I thought the people at the top must be incredibly smart, experienced, brave, innovative and concerned for the country. Turns out they are shallow and generally lazy, with vast experience in head-in-the-sand and go-along-t­o-get-alon­g styles which they thought served them - and our country - well. They also take no responsibility for any problems with their vehicles or their industry, and refuse to take a serious look at the future needs of us all.
They also have no experience with Washington other than being adversarial and, generally, vehemently against any and every mpg, emissions and safety regulation, all of which have to become mandates before Detroit will even look at them.
The conditions in the draft bill are generally financial in nature, and mention nothing about, well, mpg, emissions and safety. They do have to end any lawsuits challenging state laws on emissions.
There's a link at the bottom of the post which will take you to the full 31-page draft, if you're interested.