Two and a Half Paths Diverged in the Woods

When Mullaly refused to even consider taking a $1 dollar salary for the next year and then admitted that Ford didn’t need cash from Congress immediately, I knew this would happen.

But this week, as the automakers take a second run at Congress, hoping to persuade lawmakers to give them $25 billion in federal aid, their agendas are diverging as they contemplate futures as drastically different car companies.

Those differences will become clear as they deliver more detailed plans for how they would use that money not just to survive, but also to turn themselves around to be competitive in the long term.

That should make for a sharp contrast to the hearings two weeks ago, when the executives presented a united front, saying in lockstep that it was the credit crisis and weak economy, not their strategies, that had put them in dire straits.

The short version of what they’re asking for is as follows:

Ford: Ford will brag about all its recent improvements (including beating out even Honda on a recent list of safest vehicles), make some symbolic changes (including, hopefully, cutting Mulally’s pay), and simply ask that it have access to $7 billion credit if things remain bad when it would need that money, next summer or so.

Chrysler: Chrysler will beg Congress to help someone else buy it. I think it will be unsuccessful.

GM: GM will have to offer a much more comprehensive plan, because unlike Chrysler, Congress will refuse to let it fail. This NYT articles talks about closing Saturn dealers and selling Saturns through Buick/Pontiac/GMC dealers and postponing the payment to the UAW for it to pick up retiree healthcare.

I suspect that GM’s proposing the Saturn closures because those dealers would presumably be easier to back out of than the older Buick/Pontiac/GMC dealers (and there are fewer of them). GM might be thinking of rebranding the Saturn when it makes the move, since Saturns are basically now Opel cars; rebranding the line and moving it to new dealers ought to revitalize those older dealers, and give GM a way to ease out of those dying brands without giving up the market presence they have. And by rebranding, it would make it easier for GM to have people like Dan Neil proclaim GM to be his favorite car company. In other words, the idea would be to shift, over time, to being Chevy, Caddy, and Saturn/Opel, and to use this crisis to get help easing out of another brand of dealership while still trying to retain the older ones.

In short, this week’s meetings just turned back into what they always were: GM and Chrysler trying to find a way out of their very different crises, which have been exacerbated by the credit crisis, with Ford joining in because it can’t survive GM going under and because it could use some easier credit lines.

Given the sketchy plans laid out here, I’ll be most interested in two things. First the prospect of Congress pretending to be able to grasp GM’s problems–when it couldn’t even understand how China plays into continued GM existence last round of hearings? Will Congress understand that they need to allow GM to continue to invest in China if they want it to continue to be an American company? Will it be able to help GM shift the healthcare burden to the UAW with people like Richard Shelby squawking about unions?

And Chrysler: I can’t think of a really feasible solution for Chrylser, particularly now that its fate will be separate from GM and Ford’s. That’s because it is already a fundamentally international company, with more of its assembly being done in Canada and Mexico (and it will have to retain that if it wants to sell itself). In addition, a lot of the technology Chrysler relies on is fundamentally international as well, developed in joint ventures with companies like Hyundai and Mitsubishi. Which means it’s harder to make a case for saving Chrysler for strategic reasons. There are companies out there that–if a deal was sweetened with a way to get out of some contracts here–would be interested in Chrysler. My question is, does that really accomplish objectives like jobs saved and supply chains salvaged here in the US? I’m not so sure.

30 replies
  1. jackie says:

    A key program in the Federal Communications Commission’s
    Everyone in my family (except me and Mr) works or is retired from GM. Everyone is watching this so closely and hoping/praying that someone steps up and frees up the money so that the changes that need to be changed can be and that they will still have a jobs and a pension..
    OT, I posted this over at the mothership. I didn’t know if you had seen it yet?

    ‘Universal Service Fund overpaid telecommunications carriers by almost a billion dollars from July 2006 through June 2007. This disclosure, which is sure to provoke more cries for a massive overhaul of the USF, comes from a preliminary FCC audit of the USF’s High Cost fund released just before Thanksgiving. The review says that 23.3% of the payments the USF made to telcos were “erroneous”—that’s up from an earlier estimate of 16.6 percent. The latest total comes to $970.3 million in bad payouts.’…..ments.html

  2. scribe says:

    What I would have liked to have seen from the car companies would have been something like this:

    If you don’t give us the bailout, we will have to do the following:
    – put two million union member voters out of work;

    – cut advertising (whose total amount was $xxx last week alone) on local TV, putting an estimated “Y” local TV stations out of business and an estimated “Z” networks into the red to the tune of $xxx;

    – put $xxx billion of pension obligations onto the government;

    – wind up with Chevy being owned by the Chinese;

    – cut advertising in local newspapers to the tune of $xxxx, putting an estimated “w” local and regional newspapers out of business;

    – cut off “D” local dealers, putting an estimated “E” percent of them totally out of business, and thereby placing another “F” thousand people out of work, and placing another “G” percent of the dealers and their “H” thousand employees in day-to-day danger of going out of business and being out of work;

    – cut off contracts valued at “T” billion dollars with auto parts suppliers, putting an estimated “S” of them totally out of business and their “R” million employees out of work and further putting another “Q” of them and their “P” million employees in day-to-day danger of going out of business and being out of work;

    and so on.

    This can all be summarized in one page, with appropriate backup documentation.

    The final line which can be appended: “You couldn’t bend/fall over fast enough to throw $700 billion dollars at a bunch of Wall Street cheats and their foreign clients, to cover their gambling bets and you did so without demanding any – any – accountability for how they got into this mess. You had damn well better bend over for us, now, or else we expect the crowds will make the Bonus Army of 1932 look like a Sunday church social.”

      • scribe says:

        The posited efficacy of this proposal assumes, of course, that the powers that be do not want, and seeks to avoid, a repeat of Hoovervilles and the Bonus Army.

        It is my suspicion (untethered to anything save deductive reasoning proceeding from a big “cui bono?”), that The Village would like nothing more than exactly that happening, as a repeat of the Bonus Army would provide all the justification needed to put troops into the streets and keep them there, indefinitely.

  3. bmaz says:

    Domestically, Buick just isn’t doing squat; but put a couple of their lines such as their nice mid/upper size La Crosse and their upscale mid SUV (not anything big) in with Saturn, and you really have a full line company. GM toyed with bouncing Buick back when they did Oldsmobile, but they couldn’t take out that many dealers at once and had to do just one of them. Shanghai is making some stuff already as you know; selling them for good what they already have and giving them some of the no longer needed stuff here just seems like the path of least resistance for their downsizing.

    Saturn probably is easier to fold; their dealerships are indeed much newer, more importantly, however, is that they were from the outset a lot closer tied to and controlled by the manufacturer on just about every detail imaginable. Saturn was really conceived vertically. So that too makes them easier to fold as you note.

    BUT, at the same time, the newness, the cache, ability to attract younger and more hip buyers are all a hell of a lot easier to capture with Saturn than they are with Pontiac, and absolutely with Buick whose only dedicated customers all wheel around oxygen tanks on their wheelchairs and Rascal powerchairs. To me, GM would do well to consider this type of long run rather than just doing the easy thing and folding Saturn. I have long thought that GMC truck must be merged with Chevy. In my mind, the GM of the future consists of Chevy, Cadillac and, if there is a third, Saturn.

    Either way, they have to shrink brands, and will shrink brands. My hope is they just take the hit, get some help from the government in shutting what they need to shut and come out lean, mean and with a purposeful aim for the long term future.

    • BayStateLibrul says:

      Fuck the SUV’s… Outlaw ALL big cars.
      Just build Honda Accords.
      Create a cottage industry.
      Thumb to work.

      • marksb says:

        Killing all SUV and large vehicles is an interesting concept and makes sense on the surface…and most of the guys I know in the trades are drooling over the new F-150 and running spreadsheets in their heads to see if they can afford a new truck. Many of the local construction guys have their calendars already full (in just two weeks!) with rebuild jobs from the Tea fire, so I expect the local Ford dealer will see some level of increased truck sales…

  4. scribe says:

    Having armed soldiers in the streets does not necessarily preclude elections from taking place. There were plenty of them in NYC post- 9/11, for instance. It just makes the challenge to the re-election of incumbents or Village-approved successors more difficult.

    After all, they had elections in the old Soviet Union, too….

  5. sojourner says:

    “This NYT articles talks about closing Saturn dealers and selling Saturns through Buick/Pontiac/GMC dealers and…” has no link. I tried searching but could not find the referenced article. I would love to read it, though.

  6. klynn says:

    Why not have Ford and GM subcontract Chrysler to build transition technology to adapt current models from all three to run on less gas to create some gap closing efforts?

    Additionally, Chrsyler needs to look at teaming with one of the smaller design firms making successful hybrid cars

  7. Leen says:

    Just keep remembering these figures that one of the many “experts” who have shared their wisdom or agendas on Washington Journal threw out recently. Head Honcho at Ford making 15 million, GM 27 million, Toyota 1 million. (may have those numbers for the head honcho at Ford and GM mixed up)

    Cut these outrageous salaries off at the head

    • hackworth says:

      There was a report around here last week that posted the salaries of the big 2.5 auto executives in the 3 to 4 million a year range per honcho.

      Somebody’s numbers are not right. Ain’t saying its you, but there is a lot of misinformation going around re: auto industry. The auto execs salaries are not in the same league with the investment bankers. Those guys are the ones with the eight figure salaries.

  8. MadDog says:

    The Big 2.5 Roadshow will be back for an encore kabuki-like performance with much wailing, weeping and grinding of ignitions.

    Perhaps Congress will get to chew on another pound of flesh. Perhaps not.

    Regardless, in the end, Tarmac the Insignificant predicts they’ll get the money.

  9. MadDog says:

    Totally OT – If you’re hankering for a good chuckle, take the time to read Matt Taibbi’s piece in Rolling Stone:

    Requiem for a Maverick

    John McCain ran one of the most incompetent, schizo campaigns in history — and for that we owe him big-time

    Election night at the Biltmore in Arizona is a hilariously dismal scene, like a funeral for a family member nobody liked, who died owing everyone money…

  10. msobel says:

    Please explain why Ford cannot survive GM going down ? I am not doubting it I just don’t understand why.

    • emptywheel says:

      Because they have enough mutual suppliers, that if GM went under, it would pull enough suppliers under that that would disrupt Ford’s supply chain. All it would take is one or two suppliers who do 55% of their business with GM to go under, and therefore fold because the 45% they do with Ford isn’t enough to remain profitable, to bugger up the entire supply chain.

      That would affect the Japanese manufacturers, too, though probably not as badly.

      Chrysler’s less of an immediate concern bc there are fewer suppliers who couldn’t survive a Chrysler bankruptcy. Or maybe I’m just being optimistic. These supply chains are so damned complicated that you never know what widget can bollox up the whole chain.

    • klynn says:

      Because they will loose a great deal of manufacturing time because the 2.5 use the same parts manufacturers. Those parts manufacturers are struggling now. If they loose their GM contracts most will close, leaving Ford to scramble to find replacements for their parts manufacturers. Loosing just one supplier shuts shop down for a while. Plants sit idle. That’s a scenario which would deplete Ford’s resources quickly if multiple suppliers went belly-up.

      Go here to get an idea of the impact suppliers have on overall plant productivity.

  11. wavpeac says:

    I still think that the biggest mistake we are making is listening to the industry tell us what is wrong. I believe that all of these big banks engaged in and encouraged illegal behavior. We have to go through their books one by one and seek the answers to these questions about what went wrong. In my business we evaluate whether or not a person can be a credible historian as we interview them. In my opinion these banks have lost their credibility and should be treated as such. Why should we believe what they tell us without seeing the books with our own eyes? I think that we will not come up with viable solutions until we are sure that we understand fully the nature of the problem.

  12. PJEvans says:

    The CEOs at Chrysler and GM have agreed to $1 a year salaries, according to, which also reports that Ford is saying that Mullaly will take $1 a year, if they get money from the government as a backup to their current funding.

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