The No-Fail Business Model Fails
Richard Shelby and Bob Corker like to squawk about how the Big Two and a Half have a failed business model as compared to the wonderful Japanese automakers.
Funny. I thought successful business models were profitable.
Toyota Motor will lose money in its core automaking business for the first time in 70 years this fiscal year, the company said Monday, in a sign of how the global economic crisis is hurting even the mightiest carmakers.
I raise this not to gloat over Toyota’s misfortune, but to point to some of the issues behind Toyota’s setbacks this year. Of course, there’s the collapse in the US auto market, which, because it’s so large, devastates everyone’s global success.
They have also suffered from the recent steep declines in United States auto sales. In November, Toyota saw its sales drop 33.9 percent and Honda Motor 31.6 percent, faring just slightly better than G.M.’s 41 percent decline.
This is a particular problem for Toyota, because the US is usually its most profitable market (by comparison, I’m guessing that China remains GM’s most profitable market).
The carmaker’s sales in the U.S., traditionally its most profitable market, plunged 34 percent in November.
[snip]
“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad.
Go here for more details about everyone’s dismal November.
Then, there’s particularly strategic decisions that exposed Toyota to a greater degree than other Japanese manufacturers–notably, its attempt to expand its market share in one of America’s traditionally most profitable segments.
Toyota has been seen as the most vulnerable of Japan’s big automakers because it had been investing heavily in new products, including a full-sized pickup truck for the United States market, just when auto sales started to fall.
But I thought only those failed business model American companies built trucks?!?! Toyota idled its Tundra plant for three months this year, and backed off its attempts to cut into the F150 and Silverado market share.
Finally, though, with the weakness of the Euro and dollar compared to the yen, Toyota’s now on the wrong side of globalized currency exchange, which cuts into Toyota profitability directly.
Compounding the drop in demand is the stronger yen, which erodes overseas profits for Japanese automakers. Every 1 yen gain against the dollar and euro trims Toyota’s annual operating profit by 40 billion yen and 6 billion yen, according to the company. The carmaker is basing its second-half earnings outlook on 93 yen to the dollar and 123 yen to the euro.
The company expects a stronger yen will cut its operating profit by 200 billion yen for this fiscal year from its November forecast.
The yen is expected to remain strong against the dollar well into 2009.
Again, I don’t mean to take pleasure from the fact that Toyota’s facing challenges–though by no means as tough as the challenges the Big Two and a Half face. But Toyota’s woes demonstrate how ill-informed the debates over the auto relief have been. The foundational assumption of the whole debate in Congress was that the Big Two and a Half were struggling while Toyota and Honda were facing no challenges. Toyota’s still in way better shape than GM (mostly because it has relatively little debt, not because of product mix). But even the "no-fail" auto business models are failing this year.
As soon as I read the stats on Toyota and the reasons for the size of their loss…I knew an EW post on this was soon to be written…
Thanks for the post. Funny thing, Toyota was one of my largest clients a few years back. I was told then, they were going to focus growth on their economy size and hybrids…Whoever made the decision to expand their full-sized pick-up production…May be out of a job.
It made sense–for the same reason that the 2.5’s continued affection for trucks made sense. Problem was, you don’t try to gain market share in a hyper-competitive segment without the ability to commit HARD to it.
Another interesting data point is that Toyota keeps trying ot bring up its share of US-assmebled vehicles (to shield it from currency fluctuations). But it keeps falling back, and has put the plans for the SUV-turned-Prius plant in MS on hold.
The Mississippi Prius plant’s on hold? That sounds like good news for GM — it gives them a better shot at getting the Volt established in the US marketplace.
Hey, they build a great truck. Actually, when I read in Automotive Weekly they were upping production on their full size trucks a few years ago, I thought they had a chance to make a bigger dent in the US truck sales. The hold on the Prius plant “could” be an opening time-wise for US manufacturers to vamp up their hybrid production. But Obama would need to aid this effort.
I must admit, every time I see the names Shelby, Corker, Quayle, Snow …or Cerberus…I feel like I need a shower.
EW – Great article!
Only the hyper-partisanship of the Neocon Goopers could quickly jump on a Disaster Situation to knife an Ideological Enemy in the confusion!
The Republicans went after the Unions while the entire Automotive Industry was failing due to weakness inside the larger Wall Street Financial Meltdown – it was a Classic Score-Settling, imvho.
Not unlike what the Neocon Goopers did in the Chaos of 911, went they Mis-Led US to attack an Innocent Nation for Ideological Reasons related to Revenge.
At a time when We all need to be coming together to solve Our common problems – Corker, Shelby, McConnell and the rest of the Plantation Caucus have Score-Settling on their minds…
What seems amazing to me isn’t that Toyota’s No-Fail Business Model is sagging under the weight of the Global Economic Slowdown, but that the Goopers are holding-on to a Guaranteed-Fail Business Model – the cut-off-your-nose-to-spite-your-face Model – in a Hateful Attempt to Benefit Themselves At the Expense of US and Our Jobs!
And, to think that the Apparent Gooper Master Plan was to first knife the Unions – and then turn-around and help the Transplant Auto Makers knife their Own Constituents/Workers to Lower Wages…
You can throw a rock into the Well of Dumb-Gooper-Hate and never hear the splash…
Toyota’s business model appears more nuanced than this. The first principle listed is: “Base your management decisions on a long-term philosophy, even at the expense of short-term goals “
The concept of “business model” has been thrown around a ton, on both sides of this argument. One thing I very much like about Toyota’s philosophy is an awareness that there is more to life, and business, than the present financial quarter. They take a longer view than seems typical for american businesses, or at least they pay lip service to that concept. There are also pretty significant contrast between toyota’s traditional production sytem and traditional american auto-production systems.
Could it be possible–is it even conceivable–that Toyota and Honda actually do have a better business model than their american counterparts? And if they do, is it possible that american companies and their defenders would be able to recognize this, and do something about it?
First, to speak of “Toyota’s traditional production system” as opposed to the Big 2.5 would be silly. First, because Toyota’s production system WAS different largely because it was NEWER (both in the sense that Toyota shifted into consumer manufacturing later than the US, and in the sense that by the time it built factories in the US, things were much more automated). Also, any differences there used to be in time-to-market are effectively gone now.
As to a long term business focus–yes. But you might think about how that relates to lifetime employment assumptions in Japan and a completely different market culture, not to mention significant government intervention. That is, yes, Japan has long-term focus (though arguably, their decision to go for not-quite-broke on Tundra was a short term profitability decision, most likely). But that’s largely because its government, unlike ours, will provide it the cushion to get things right.
Oh, and have I mentioned the way that the need to be profitable on a quarterly basis when you were at the same time providing for 100,000 retirees dramatically limits your ability to make long term decisions?
In other words, these are all due to very specific historical realities which have as much to do with our country’s large social welfare patterns and capitalist model as anything the companies themselves can affect.
From your keypad to God’s ears and eyes…
Toyota may be more able to focus on the long run because of the close coordination between business & govt in Japan.
EW,
Part of the specific historical realities include a rejection of parts of Henry Ford’s production system, I think. I’m not a biz expert, but I think there are more differences to the contrasting production systems (TM vs. GM, say) than that one is newer than the other, or that one has a better govt. environment to work in than the other. The result of these differences are shown in their products. Which is why, I suggest, you–after your typical thorough research and due dilligence–bought a Honda Fit (if I remember right).
Not only that, but that folks who were on the order-list for the Fit could sell their place in line (for a new Fit) for 500 bucks. And, once purchased, new Fit owners could sell their Fit for more than they paid for it. One would think that there is a reason these things happen.
Anyway, I hope the leadership of the Big 3 is at least entertaining the possibility that TM and Honda really are making better products than they are, and wondering why.
You mean my Fit that is working on its second recall in approximately 385 days of owning it? That Fit?
No, you’re mistaken. The reason I bought the Fit is because Ford doesn’t yet sell the Fiesta here. That’s a damn good car, every bit the match of Honda’s car. And the Yaris is a piece of shit compared to either, and the Scion is actually bad on emissions, which is how they cut costs for that model.
You see, generalized statements about product quality, in this day and age, tend not to stand up to evaluation based on objective criteria. Even Consumer Reports says so (you’d do well to look at quality and recommended models, because you’re actually supporting my case, not yours).
I would suggest you are fetishing the Japanese, and failing to account for the actual status of both product development (in which, as I suggested, everyone is pretty much using the same plan now) and manufacture (in which the Big 2.5 pretty much meet Japanese efficiency and in some cases beat it in spite of any restrictions from the unions).
It’s all well and good to admit there WERE differences historically. There were, undoubtedly. But to then fail to acknowledge that most of those differences have largely disappeared (except for the macro issues I talked about) would be largely inaccurate. The other areas where the Big 2.5 are getting more efficient (things like adopting simpler model lines to save costs down the line in service and bureaucratic ties to dealers) are being changed.
There is one more difference of note: the ad agencies the Big 2.5 use suck. They do a lot of the brand positioning BEFORE a car is designed, and I think there’s huge room for improvement there, not to mention ads that actually effectively communicate that these things have changed.
In any case, the actual state of both prodution and quality is more nuanced than you’re presenting.
Toyota being effected by failing economy. Not good news.
I think this game that was played over at Grit Tv by Amy Goodman sounds like a great holiday gift for friends who are political junkies (or not make folks think). Sure must be questions in the game about the failing auto industry
The game “Wreck the Nation”
http://lauraflanders.firedoglake.com/
Toyota has just introduced a new vehicle Venza or something like that. It gets 21-29 mpg. Brings their lineup to 30 vehicles. What was all the crap about the big 2 1/2 having to many lines.
I think that the issue was “too many brands”.
Could be true. Toyota has three (Lexus, Scion, and Toyota)
GM has Chevy, Pontiac, Buick, Caddy, GMC, and Hummer as well as many foreign brands (Saab, Opel, Vauxhall, etc.)
Ford is down to three domestically- and mercuries are just fords with different grilles. Ford still owns a shitpot full of foreign brands however.
That may be part of the dealership problem but many are also the same w/ different grills. Take Chevy trucks & SUVs; GMC and even some Caddys. Also some Pontiacs, Buicks and Saturns. I think GM would dump Hummer in a heartbeat but who wants it. I think they are dumping Isuzu.
Ford has profited significantly from its ownership of Volvo as far as safety technology and Volvo is now working on an elec. vehicle where each wheel has an individual electric motor.
The whole picture needs to be introduced to this discussion, viz., the credit situation. Most car purchases are financed and often by auto loans via dealers. The crunch in this area is the key factor in the fall in sales. Toyota is no more immune to this effect than any other manufacturer, domestic or foreign. The exchange rates will eventually affect sales from Japan, but it’s not a factor for the November numbers. Demand has fallen off as the availability of easy credit has evaporated. A marketplace built on easy credit is unsustainable in a protracted period of more difficult to obtain credit, i.e., auto financing.
EW, let me make sure I’m understanding you. Are you saying that there is no difference in quality–”quality” including the factors CR looks at–between GM/Chrysler as a whole, and Toyota/Honda, as a whole?
Forget Chrysler. As to GM and Ford, and their models that have come on line in the last say four years or so, yes I would say that. On many of the price point equal models, the Ford/GM quality is quite arguably better. Ten years ago, you win this argument. Five to six years ago, it is closer, but you probably still win. Today, not so much.
Here’s your original statement:
Which is different from how you’ve reframed the question.
That said. I would say that Honda leads in quality, Ford currently leads in safety.
Toyota’s quality this year–per Consumer Reports, which is what you’ve linked to–has returned to levels to match Honda and Ford. But that’s from last year, when CR withdrew its recommendation to Toyota bc many of their models were falling below “Above Average.” FWIW, I’ve talked to guys who run dealer service departments servicing both Toyotas and Fords, and they say Toyota is struggling with its chip-based modules (that is, mechanically they’re still great, but the computers running their mechanics are prone to error).
GM is a mixed bag on quality, with some Buick models and the new Malibu (car of the year last year) doing as well as the Japanese, and some models doing crappily (note: both Ford and GM trucks are lower quality than their cars, but then the Silverado and F-series are still the best selling models in America).
And Chrysler does not match the Japanese or Ford in terms of quality or safety. Though–on the scale you were talking, which was “production methods” they have the most efficient factories in the US. Which is, again, why your statements were overly generalized and, in many ways, inaccurate.
One more note on quality–this description uses CR, which you must accept since you’re the one who linked to it (so, at the least, you need to amend your comment to apply to just GM and Chrysler). But JD Powers finds more US brands–like Buick–better consistently, and has for a while.
Also note, VW and Mercedes are both coming back from serious quality issues. FOr a while VW couldn’t get their wire harnesses to work, which becomse a real problem really quickly (and is one of the reasons for my Fit recall(s). Mercedes had more generalized quality issues. But just to point out–in those terms, even luxury Mercedes is failing. ANd VW, btw, had a better year as compared to last year than the Japanese (prob bc of exchange rates and cheaper efficient models).
Finally, you might be interested that neither Honda nor Toyota had a car even nominated for car of the year this year.
My whole point being that you made a statement that was, on its face, according to your standards, inaccurate, because it was way too generalized (and because the differences are not entirely attributed to business model). As I said, it’s a nuanced issue. And one where Toyota, frankly, is at some risk.
EW, that is not my original statement.
This is:
I have bolded the sentence-fragment that you exerpted.
And the difference is?
I’ve taken your proposition intact, unlike the way you cherry-picked brand quality versus vehicle quality (and, of course, ignored Toyota’s crap showing last year).
As I said, Ford and GM don’t score well on trucks. But in cars, FOrd is definitely competitive–and GM in some cars.
EW, I did not cherry pick. I simply went to their website, looked at their current data, and repeated it. Their format did not allow cut and paste–if it had, I would have done that. There is undoubtedly more there. I’m not going to carry their website over here and quote it to you. But if you are a member/subscriber, please feel free to check it out. Go with whatever measure you wish.
Bmaz,
I use consumer reports as a yardstick here, as they are independent, try to be unbiased, and are systematic. There may be other objective yardsticks out there, but I’ll use CR for the time being. According to them, the top ten lines in reliability are:
1. Scion
2 Acura
3. Honda
4. Toyota
5 Lexus
6 Infinity
7 Subaru
8. Hyundai
9. Mitsubishi
10. Kia
In terms of “Owner Satisfaction”, CR came up with this:
Most Satisfying:
Honda Civic Hybrid
Toyota Prius
Camry Hybrid
BMW225i
Cadillac CTS
BMW 225i
Lexus LS
Mercedes S Class V8
Porsche 911
Mini Cooper
Porsche Cayman
Mazdaspeed3
Audi S4
Corvette Z06
Corvette
Honda S2000 Mazda MX 5
Audi TT
Porsche Boxter
Nissan Murano
“Quality” can mean different things. But generally speaking, if American auto makers are on a par with other auto makers, why are so few listed by CR? Does CR hate the american auto industry?
Contrast this with CR’s “Least Satisfying” to new owners:
Chevy Cobalt
Volvo S40
Chrysler Sebring
Ford Ranger
Chevy Colorado
GMC Canyon
Dodge Dakota
Chevy Colorado 4WD
GMC Canyon 4WD
Mercury Mariner
Kia Sorento
Pontiac Torrent
Chevy Equinox
Pontiac Torrent
Dodge Nitro
Chevy Equinox AWD
Dhevy Trailblazer
GMC Envoy
Chrysler Pacifica
Mazda CX-7
Jeep Grand Cherokee
Jeep Commander
Dodge Durango
Someone owes us a definition of “Business Model” if we are to make much progress with this question…
Several things, however, are clear:
US automakers have been beaten in product quality for years and have only recently been reacting. Ford in particular is now quite good with many models (they have the second highest quality family sedan, second highest quality full sized pickup, one of the better medium sized SUVs, a very good compact, etc.) Ford now beats most of the european companies and is comparable to the japanese with it’s newer, better, models.
In Design, (which is what sells many cars), the US is probably not as good as the euros- but better than the japanese who struggle hard with that aspect.
The big three didn’t have a plan “B” readily available when the gas crunch hit- that was a SERIOUS mistake…They’ve also been slow to work on hybrid and electric designs unless forced to by the govt.- they then approach it as a child being forced to eat vegetables….Ford, however, has the ONLY small hybrid SUV available and is about to release a hybrid version of the Fusion that will kick the Camry hybrid’s ass all along the block. They are also going into the European stable and borrowing some designs that are smaller, lighter, more fuel efficient, and great looking as well.
American car makers have always known how to make small cars, they just have never been able to do it PROFITABLY.
When goopers talk about the “business model”- they probably mean “unions”.
Have to point out, however, that Toyota accomplished this while paying its CEO 1/17 of what GM’s CEO makes.
Very fair point–one I agree with…
It seems the business model with big pay to the CEO hasn’t managed to destroy the unions, but it is bankrupting the companies.
Big CEO pay is part of a failed business model!
This whole thing makes me crazy. People need SECURE jobs that pay well enough in order to buy anything,especially stuff like,oh,CARS and houses. It’s really pretty damned dumb to crush most of the people who buy things by taking jobs away. Get people working again and I’d almost bet a pony that they’d buy cars,houses and alot of other things.
Arguably the best car ever made- the Toyota Prius- is currently sitting in dealer lots unloved….
It ain’t no silver fuckin bullet.
I thought people weren’t buying the Prius because there were NONE on the lots. Toyota had people on 6-month waiting lists less than 6 months ago.
http://earthfirst.com/toyota-c…..pact-cars/
As fast as they come in they are generally off the lots. The shut down of their domestic Prius operations is because they expect a GENERAL reduction in sales…and the fact that financing for buyers has dried up. They expect demand to go down…but I don’t think that they are “just sitting on lots”.
Orders might have been canceled when the gasoline prices came down.
A few month ago I was looking at the Prius and was told “6-8 month wait”. Now I keep getting calls from dealers with plenty of inventory offering me substantial discounts.
It’s the new 2010 Prius that’s supposed to be built here- it was to come out in the spring- and now late in the year.
Cars have actually gotten pretty good in recent years. People can actually drive one for ten to fifteen years….that’s the trouble- it’s a damned easy purchase to postpone when things get tough- just drive the old one a few more years.
The fundamental problem here, and it underlies all our other economic woes, is that wages for most Americans have remained stagnant or declined over the past 30 years (thank you St. Ronny). The rise of relatively cheap and easy credit subsidized this decline by allowing people to maintain a standard of living that their incomes would no longer support. Sooner or later this house of cards had collapse and it now has. The only long term solution is substantially higher wages for the majority of American workers, in part achieved through massively higher taxes on higher incomes. In addition to raising the top marginal rate to at least 50% (as well as eliminating most exemptions and write offs which primarily benefit the wealthiest), it means lifting the cap on payroll taxes (social security and medicare), and taxing all income (including capital gains and inheritances) at the same rate. All of this demands more, stronger unions.
Toyota has done a great job of taking one platform- (the Camry) and improving it gradually over the years as well as using it successfully in an entire stable of cars…
Ford is now doing the same thing with the Mazda 6 platform- and they are capable of making better looking cars than Toyota.
Of course “Business Models” are also about certain other factors than safety and quality. Availability of service, and cost of that. The intangibilities of “style” (which is, to some degree, tied to “image”) and can be shaped by advertising. Some people love the “Mustang” shape because it carries a socio-psychological impact on them from their youth. Or if electronic gimmicks become a fad…one has to have in-seat videos and GPS mapping systems.
But then there are externals…like whether the government allows a tax credit for a vehicle that’s classified as a “farm vehicle” (as some big trucks were). Or if the cost of fuel goes to $4/gallon. Or if there is a recession. Demographics also play a role….if family sizes go up. Or more people staying single. Or if there are single-parents. Or if commute distances expand.
But I get the impression that many automakers are losing large portions of the American population who want an affordable, small mini-compact. Look at the surge of interest in the Morris-Minor…which would have done even better in sales if it had been a more affordable, less premium, vehicle.
CasObs: you’re sort of begging the question, though, no?
EW:
One problem that GM and Ford face is that they’re “your Boomer dad’s car”, “the truck makers” and trying to be “decent passenger car for younger people”. Boomer Dads like their Buicks and Crown Vics: the word “handling” gives them palpitations. That’s something that the makers don’t have to deal with in their foreign markets, which gives them a degree of nimbleness. Ford Europe and Opel are competing with the Euros as well as the Japanese makers (Peug/Ren/Cit, FIAT, and also VW’s low-end Seat and Lada marques). You can say the same about Australia, or even South America.
The question that Ford and GM face for their home market is how to get beyond Boomer Dad, because they don’t want to piss off the Boomer Dads while they’re still buying cars.
CNBC business Trolls are already blaming Toyota making the Prius at a loss (or so they claim) instead of Toyota trying to make trucks when gas prices went up.
The GOP Talking Points were all over the business channel today. They were trying to raise doubts about Obama wanting the big two and a half to make hybrids.
I guess big oil suddenly realized that their business model depends on America consuming X amount of oil.
They need the big two and a half to make cars that waste gas.
The GOP is bluffing they need the big two and a half Bush and Cheney both have a large financial interest in oil prices being high.
They need big cars to keep oil prices high. If I were head of GM I would be setting the terms and Bush would be taking Notes…as Cheney gets my coffee!
It IS a profitability issue. THe Prius is now profitable, but not all that profitable.
That’s one of hte problems with the US car market–we don’t ask people to pay for their fuel efficiency.
The Prius was sold at a loss for quite a while to get it where it is today. The same path will likely be followed by GM on the Volt (assuming there are no intelligent and needed subsidies/credits provided by the government; which should be done) when it is first released. When that time comes, before screaming bloody murder, remember that is how the Prius is still here at all and got to where it is.
Yeah, I don’t know what kool-aid they’re drinking, but I spent about 12 minutes popping around to try and spot news trends and they ARE spouting GOP Talking Points.
I suppose it’s nice in their bubble, but I can’t see how that wins them audience (especially given the way KO and Maddow have zoomed in ratings by basically acknowledging that they are going to **mock** bullshit, rather than pass it along.
Go figure…
Thanks for a great article! This was in the Free Press today and it’s a very good look at the elephant in the room – trade policies that badly effect the US automakers –
http://www.freep.com/article/2…..70/OPINION
I never understood why transplants weren’t right in there supporting a bridge loan for the domestics. How do they think they can continue to produce in the U.S. if all the parts mfgrs go under?
They were. Quietly.
Though their Senators weren’t.
Toyota is going to be unveiling its 3rd generation Prius in 3 weeks.
CNBC is going to ignore reality the Prius is selling the big trucks are not.
EW had a post up a couple of weeks ago. The best selling vehicle in america was the Ford F-150, second best Chevy Silverado. Also in the top 16 that she posted were the GMC whatever P/U and the Dodge Ram (the only Chrysler product on the list).
That list is outdated. According to U.S. News, the four top selling autos in the US as of June are Honda Civic, Toyota Camry and Corolla, and the Honda Accord. The Ford F-series P/U is 5th.
Here is EWs list
http://emptywheel.firedoglake……-they-are/
Looks like P/U sales rebounded after gas prices went back down. Japanese cars still dominate the top ten, however.
Yes, but American cars are or had been rebounding. They have several years of negative image to overcome. Many American cars are now ahead of Japanese in terms of mpg, safety and quality.
Oh, I know they have begun to come around, very slowly IMHO. It only took them 30 years to catch up. I am all in favor of bailing out the big 2-1/2, but really hate the auto execs who are useless as tits on a boar hog. We cannot afford to lose that big a segment of our dwindling manufacturing sector and all the high paying blue collar jobs that come with it.
Those were November numbers–so much more recent than yours.
Of course, they were just one month. But that’s part of the problem. The manufacturers–ALL manufacturers are trying to deal with production lines that plan 3 months out, yet gas prices and credit (and therefore the market) are changing on a week to week basis.
I keep waiting to comment on this whole ‘nobody’s buying trucks’ theme until I read all the comments, but here’s the connection that I have yet so see anyone make: who buys a huge portion of trucks?
H-o-m-e b-u-i-l-d-e-r-s.
Hmmmm… now why would truck sales be down this quarter…?
Oh, and since the homebuilders I’ve talked with all had those trucks as ‘owned’ by their companies because of the tax advantages, it may also appear that fewer ‘companies’ are buying trucks.
I will praise Toyota on their commitment to safety and decency – My son drove a Toyota Tacoma (cross country several times to Silverton CO, VT, MD) and it was recalled due to rusting in the frame. They bought back the truck BlueBook price +$3K. and this deal went to years worth of sales. I’m grateful they placed my son’s safety ahead of their bottom line.
Toyoya’s willingness and ability to do that with problem cars is one thing I heard last year when I was working with same owner Ford and Toyota dealers: Ford used to do that stuff, but no longer does.
But then, that gets to profitability, which is tied to legacy costs and brand issues. It’s a vicious circle.
Pickups are a steady item for US auto makers. Some of em are going to Urban Cowboys- but many are practical vehicles for people who need em and use em up quickly.
We all believe that US auto makers need to offer more hybrids- the actual SALES of hybrids, though, are a pimple on the ass of the industry at this point….They need hybrids for the future- they need some other products for NOW!
Compacts that don’t suck would be a good place to start. Ford needs to bring the Fiesta home, and the other two need to figure out how to build one in the first place.
The problem is that the US auto makers hate small cars (much more so than the public does). I have long wondered why they consistently make their smaller and higher mileage cars, especially the hybrids, so goddamned butt ugly. If they spent an extra 20 cents on design elements, they could sell a lot more of them.
Actually, that is not really true. All things being equal, the average American car buyer will buy the bigger and more powerful car. It is most certainly not just a function of American manufacturers; in fact, this desire out of the buying public is exactly why even Japanese, Korean and German cars have been getting progressively bigger over the last two decades. Oh, and that would be exactly the time frame in which they gained the most sales on the American manufacturers.
You are certainly correct that Japanese cars have gotten noticeably larger over the past couple of decades, they are still more fuel efficient than American cars and until recently were much more reliable. Even so, it is worth noting that #3-7 and 9-10 are all Japanese passenger cars, so the demand is out there.
FWIW I drive a Ford Explorer (since I live in the northern Rockies and spend a lot of time in the back country).
Per Edmunds, MPH, compact:
Civic: 21/29
Focus: 24/35
Corolla: 26/35
Cobalt: 22/30 (This is the Turbo, which has a lot more horsepower and torque than the others)
You’ll actually find the same to be true in most segments (for example, F150 gets 21, while Tundra gets 20); Ford and GM are competitive on mileage, bc they have to be (since their fleet is skewed so much more towards trucks).
Profitability.
There are relatively more hours per cost in a small vehicle. Plus, customers who buy small in this country generally don’t want the kinds of bells and whistles that drive up profitability.
So what kind of car are you gonna get if you spend as little as possible on it? Butt ugly.
But that’s why bringing the European lines to the US will fix things–because Europeans like small cars with bells and whistles.
And, once again, this is partly a legacy cost/national health care prob. Note that Toyota only this year thought about bringing Prius here; Honda akes Jazz in Japan still, a lot of other people (incl GM, IIRC) make their B-platform cars in Mexico, because the profit on them is really crappy. But to be able to build at home saves some money, and then, when the volume justifies it, the Japanese build a factory here.
I don’t disagree with this, but it is symptomatic of what is wrong with the US auto industry (and much of US business period). Too much focus on short term profitability and not enough on long term survivability. We have known for 30 years that we needed to reduce gasoline consumption, but Detroit did nothing while Japan, Korea, and Europe all made the necessary adjustments.
Detroit didn’t do nothing.
They repeatedly gave up very active programs because they could not achieve their profitability goals with those cars.
That’s partly because most hybrids AREN’T profitable. But that’s also because if you take the very same car, and even spot Ford or GM a Japanese brand value, the American company will make about $1000 less in profit on a car (sometimes much more, sometimes less), particularly in cars that are relatively labor intensive and underpriced. That’s where the legacy costs are utterly devastating them.
But that shows you where this is going to go: because of our import laws, the Japanese can always assemble cheap cars somewhere cheap, whereas the Big 2 can’t (Chrysler does). That is why the Corkers of the world say we need to bring the lizard lie number down. But the real issue is that this country is penalizing US manufacturers because they’re paying their pensions.
They didn’t make adjustments, they were freaking always there. Gas has always been relatively more costly there, and roads and urban areas less developed and narrower, thus they made smaller, more efficient cars. This wasn’t “an adjustment”; it is who they were. True enough that the US makers should have started the adjustment earlier though.
GM’s Meriva in Europe (same segment as the Fiesta) is a good car, though I’m not sure when they’re bringing out a refreshed model.
I have a much better opinion ATM of Ford’s quality than GM’s. I’m also not that familiar with the Meriva, and having recently test-driven an Aveo (really just a re-badged Daewoo), I’m not inclined to give GM a whole lot of benefit of the doubt.
I really want the Volt to come out and not suck. It would, as proposed, be damn near perfect for my life right now. But I have low confidence.
And in response to dmaz: I suspect the reason US consumers flock to larger vehicles so much is that the larger vehicles are, IME, sold much harder. I recently bought a Honda Fit (base model manual). Even though I did nearly the entire deal except for the final signing and delivery over the internet, they still tried to upsell me when I got to the dealership. Gah.
I knew that segment really well as it stood in 2006. The Meriva was the top seller, Fiesta was losing sales, Fit was picking up, and Renault and Peugot were doing really well.
That segment is still really really new–such that in Europe, a new version can come in and dominate the segment in two years, then fall off (Fiesta, then Yaris, then Meriva had once been segment leaders by 2006, in a segment that was just a decade old). I haven’t seen how the new Fiesta is doing, though. Meriva is overdue for a major refreshening, I think.
Ford’s been planning to bring the Fiesta over for a few years now. Where are you?
And to anyone who thinks nationalizing the auto industry is a good idea…
Less than 3% as of this spring.
Ok, a few things:
First, Toyota is posting its first loss in 70 years; it is in no danger of going out of business. That alone puts it far ahead of GM and Chrysler. Yes, the global recession is hammering all carmakers; these are the times that separate well-managed and poorly-managed automakers most clearly. Toyota is in the former category — GM and Chrysler in the latter.
Second, only two US automakers are in really serious trouble — GM and Chrysler. Ford, according to its management, is not in danger of going out of business… but as long as government pie is being served would like some too please.
Third, Ford has lead the US pack in improving product quality and producing good small cars, particularly through its Mazda division. That, more than anything, is why it’s not in nearly as serious trouble as its siblings. They got the memo and acted on it. All the union and retiree stuff applies to Ford just as much as GM. And yet they’re not in danger of going under.
Fourth, and related — Toyota’s problems appear to relate largely to its foray into large trucks and SUVs… and the fact that its quality has slipped a bit in the past half decade or so. Smaller versions of the bad decisions and bad management that have so badly hamstrung the US automakers. Someone deserves to be demoted or fired for that clusterfuck.
Fifth, Chrysler is a fucking crapvendor. I wouldn’t own one of their shitwagons if you gave it to me. My parents owned a Plymouth Reliant (the most mis-named car in history) back in the 80s. I could write a book the size of War and Peace on the many faults and foibles of that car. Suffice it to say that it competed with our neighbor’s Le Car for epic failure. It tied my uncle’s British Leyland era Range Rover for shittiness. I have seen some of their recent products up close… and while they aren’t quite as bad now, the market has not stood still. They’re still crap compared to the worst car that Toyota, Honda, or (now) Ford make. Personally, I think that any car worth its purchase price should be able to make it, absent malice or misadventure, to 200k miles with nothing more than scheduled maintenance. At least.
Everything I know about the internal culture of Toyota vs. the Big 2 1/2 says that they have a much healthier overall engineering culture and a deeply ingrained ethos of efficiency. They’re certainly not perfect, no one is, but this is their first loss in 70 years. It’s sure as heck non of the big 2 1/2s first loss.
Toyota has, historically, on average, been better run. I really think this is undeniable. That’s not to say that Ford or GM may not be doing better in some things right now, or at various points in the past, or that they can’t do well in the future. But for various reasons, Toyota has just done a better job at being a succesful profitable company for a very long time. Because of that, even if they’re taking a loss this year, it’s not a crisis for them.
None of that means GM and Ford can’t turn themselves around, don’t make good vehicles, etc… None of that means that they weren’t operating under bad legacy costs in a culture which doesn’t value long term thinking even if they didn’t have legacy costs. But at the end of the day, while there may be reasons for why Toyota has been a better company, Toyota has been a better company.
I know people who work on the engineering side at the Toyota plant in Fremont, CA. What I’ve heard from them is that the culture strongly encourages continous small improvements to products and processes. Integrate that over decades, and it’s not surprising they are in a good position overall — they can survive some dumb decisions and some bad sales periods without getting into a serious crisis.
Toyota is a better run company. But the kinds of stuff people like to call “business model” (such as their quality processes) are standard throughout the industry.
There are some ways I think we could get the Big 2.5 thinking better (this is why I’m a big fan of firing the ad firms, because they’re stuck in their ways, are still selling the brands of the mid-90s, and do most of the manufacturers’ projections (meaning, if they misread customer needs and wants, so does the manufacturer). One of the saddest things I ever saw in Detroit was the brand mock-up room for one of the unique cars that manufacturer made. The marketing team HAD NO CLUE who was going to buy the car. And, voila! They sold an order of magnitude fewer cars then they should have.
Ian, to some extent that is very true; but, remember, the Japanese have done that on the backs of American car manufacturing. They took the best we had to offer, refined it, and basically restarted their car industry (with their govt’s assistance) from scratch. That is a hell of a leg up from the American manufacturers that have been holding up American labor and wages, healthcare and trying to deal with the fact that they have had all these huge plants, production lines and a nation that has consistently kept gas prices artificially low.
None of this is to excuse the lameness of Detroit, there is plenty of that, but if the roles were reversed, the US would look a lot more brilliant than they do. Of all the factories and production runs that have come on line the last four or five years, my understanding is that they are substantially the equal of the Japanese and Koreans.
As to what a lot of the rest of the folks here are griping about, as both EW and I have been trying to get across for a long time, the US cars are really a lot better and more pervasive than you think. Ford is a little ahead of GM; part of that is because GM has so many different models still, that their percentage of new/good/green is lower. Ford has really gotten to the point to where most of their passenger line are pretty damn good cars (ironically, the Mustang may be the exception). GM has a fantastic car in the Malibu and the Cruze which will be out soon will also be superb. They have others too; however they still have some relative dead weight models that need to go bye bye.
Lastly, as Marcy has harped on, the advertising, both as to quality and timing of rollout, has been lacking for both GM and Ford. Frankly I think GM is a little better, but both have been lame. I think that the new generations of Fords and Chevys, along with the always strong Caddy, are going to be the “it” cars much more than any of the Japanese or Koreans very soon; maybe within the next 2-3 years. And the Volt is going to be a huge factor in really turning this corner.
“Buy American Wheels” is about to be the in thing. If we can keep idiots from killing American Auto while it is birthing this baby.
Erin Burnett reported this morning on a Credit Suisse dispatch that the auto deal will strip all value from GM common stock. (starts at 2:06)
http://www.youtube.com/watch?v=kTXj2MoXCfw
US-Credit Suisse: GM equity could be wiped out
http://uk.reuters.com/article/…..6020081222
Some get a haircut, some get scalped. It seems the wealthy private equity investors interests are dutifully protected while anyone with GM in their retirement portfolio gets the short stick.
Neil, here’s a fairly amazing clip just up in which David Shuster’s GOP Mensa Inhofe, who argues that labor is a key problem for the US auto industry.
http://www.msnbc.msn.com/id/21…..8#28357008
Guess Inhofe missed Erin Burnett’s analysis, (as well as EW’s, the NYT’s, etc) regarding the kind of hit the UAW members are taking by having Cerberus unload the GM stock on them.
I do not know how Shuster kept a straight face.
You think UAW is taking this condition back to the White House or calling the transition team in Chicago?
Jesus, why would they waste their time with BushCo? Why would they even deal with Paulson (former CEO of Goldman Sachs, sellers of the very CDOs and CDSs that probably lie hidden behind this mess)?
I’m completely with randiego: the fix is in.
Snow (former Treasury Sec under Bush II) calls Paulson (current Treasury Sec under Bush II) to get a bailout that includes separating GMAC from GM, while offloading the toxic loans of GMAC’s mortgage arm onto….? probably the UAW.
Other than smiling politely and trying really hard to refrain from telling anyone associated with BushCo to go ‘cheney’ themselves, I think the UAW and also Nardelli and his Board are out of their minds to even return phone calls from the WH.
—————
Man, for starters if I were the UAW, I would start by making some graphs to compare Paulson’s annual ’salary’ (+ options, + bonus) at Goldman with the entire payroll of GM + Ford + Chrysler for 2003, 2004, 2005.
Personally, it would not surprise me if Paulson made at least as much as the 250,000 UAW workers combined in one or more of those years.
Next thing that I’d do is create a comparison chart/graph showing the estimated $1.6 b-b-billion reported today as the ‘compensation’ being used by the bankers who took bailout money in Sept/Oct. And then I’d compare THAT amount to the combined wages and earnings of the 250,000 UAW employees – and my rough guess is that their combined income in any one of those years is less than the $1.6 b-b-billion the execs paid themselves with bailout money.
And not that I’m one bit happy about bonuses in Detroit, but damn — the auto folks look almost like Boy Scouts next to Wall Street’s gamblers. I’d make another chart showing the comparisons between the Big 2.5 execs, against that $1.6 b-b-billion. I’m guessing that even the combined auto exec bonuses + UAW payroll is still less than $1.6 b-b-billion in any year since Bush II has been in office.
And then I’d start moving those items around the web, and on the news shows, and let people decide for themselves what they think.
If I were in the UAW, I’d blow off the WH and the GOP.
But I’d also keep hammering for national medical, and I’d also start lobbying Congress for more financial law enforcement resources and insist that Congress and Obama declare CDS’s illegal and unenforceable.
So you see, I’ve made a complete pariah of myself ;-))
The only thing the UAW ought to say to the WH is that great old line from Monty Python: “We fart in your general direction…” Here’s hoping those autoworkers add a few inventive sound effects, eh ;-))
There are many sides of the discussion about Toyota. For example, they have been losing money on the Prius which had been predicted by GM and Ford. But that was a long range strategic decision. Further we can get into the strategy of the big truck business but we are wasting time on on really inconsequential details concerning the future prospects for Toyota.
The important thing to realize is that this is the first time in 70 years that Toyota has been in the Red.
How many years has GM and it’s Detroit fellows been in the Red and have had to eat their young? GM has sold off, and spun off, and tried to shed it’s scales for years. The largess that it produced in the old days when it was the ”Big Guy” has been spent, unfortunately several times over. Lately it has only piled up obligations that probably only the US Government can satisfy.
GM’s debts and obligations will continue to boggle the collective minds of Congress and the new Administration in 2009, and at least several years to follow.
To put it simply: Toyota will be ok next year. Will GM? Will Chrysler?
To the best of my knowledge, the most recent year would be the first ever that GM is not profitable. Not sure where you get the idea that they have been operating in the red for years; that is just false.
bmaz,
I don’t think you follow these things.
I do. I have friends in industry. I have investments, though not in individual stocks.
The Detroit 3 like the old Steel Mills were whip-sawed into making promises that weren’t funded.
Here is a recent article 3 years ago. Note is refers to 2 years before that.
http://www.businessweek.com/ma….._mz017.htm
BusinessWeek.com
FEBRUARY 7, 2005
”Related Items Chart: GM’s Earnings Crunch
”THE CORPORATION
”GM Is Losing Traction
Its turnaround is threatened by sliding market share, high retiree costs, and the specter of a ”junk” credit rating
”A couple of years ago, General Motors Corp. (GM ) finally seemed to be getting its act together. Profits were strong and the company had recorded back-to-back annual gains in auto market share — something that had not happened since the 1970s. Cadillac and Hummer were genuine hits — and, more important, big moneymakers. Former Chrysler Group (DCX ) star Robert A. Lutz was leading a renaissance in styling, stealing the spotlight at auto shows.
”But today, despite billions invested in new cars, GM is once again losing ground. And suddenly its slide seems to be picking up speed. That point was driven home on Jan. 13, when Chairman and Chief Executive G. Richard Wagoner Jr. announced that he was moving to wall off his most reliable profit machine — the mortgage-lending portion of General Motors Acceptance Co. (GM ) — bowing to the real possibility that his flailing auto business will be downgraded to junk status. Carving out the mortgage lending unit, which contributed a cool $1.1 billion to GM’s bottom line last year, as a separate entity should preserve its credit rating. But finance profits are already shrinking, and could fall further in years ahead. And GM’s scramble shows just how dramatically its options are shrinking. With fewer dollars to squeeze out of finance, the pressure is on to begin delivering significant profits from new cars and trucks.
”HEALTH-COST SPIKE
The gathering fears about GM’s tenuous turnaround were crystallized when Vice-Chairman and Chief Financial Officer John M. Devine told analysts, also on Jan. 13, that auto profits in GM’s vital home market will fall by more than half this year, to $500 million, from $1.2 billion in 2004. The news knocked more than 3%, or $1, off GM’s stock price. The biggest culprit: GM’s retiree health-care costs are expected to spike by $1 billion this year, to $5.3 billion. Total 2005 earnings should tumble at least 20%, from $3.6 billion to between $2.3 billion and $2.9 billion.
”GM has struggled for years with its legacy of costly worker and retiree benefits. Indeed, it’s easy to view the company as a huge medical and pension provider with a side business in manufacturing. Each vehicle GM sells carries a crippling penalty of nearly $2,000 for benefits paid to retirees. Its Japanese rivals, which began manufacturing here within the past 20 years, have far fewer U.S. retirees to worry about. A national pension system in Japan leaves them with much lower fixed costs in their home market. Not so GM. The company made only $213 on average on each of the 5.4 million cars and trucks it sold in North America last year. That compares with $1,472 for Toyota a year earlier. With lackluster models, its U.S. car and truck market share fell from 28% in 2003 to 27.2% in 2004. It could hit 25% by the end of the decade, says CSM Forecasting. Soon after, Toyota Motor Co. (TM ) could supplant GM in worldwide sales leadership. GM says its ranks of retirees will begin to thin in five years, gradually easing at least that burden.
”For now, though, GM heavily relies on its finance arm, which kicked in 80% of total profits last year. And that explains why a reassessment of GM’s creditworthiness is such a threat. After Devine’s heads-up about profits, the Standard & Poor’s rating agency (which, like BusinessWeek, is owned by The McGraw-Hill Companies (MHP )) issued a warning about GM’s outlook, which it said was ”stable” after a downgrade to BBB- in October. Investors took that as a hint that a downgrade to junk status may be in the offing. A junk rating would limit GM’s access to capital, since many fund managers cannot buy junk bonds, and would raise the cost of any unsecured debt GM or GMAC tried to issue.
”Any downgrade could raise GM’s borrowing costs, cutting into profits on its lending business. To get around that, GM is already selling more loans to investors. But that will cut into long-term profits. Without a boost in auto earnings, that jeopardizes the parent company’s goal of earning $10 a share, or $5.7 billion, in the next few years.
”How bad could things get? GM’s big retiree handicap and lower-cost competition has prompted some speculation that its only solution would be to follow steelmakers and airlines into bankruptcy. No one who seriously follows GM’s finances sees that as an option, though. GM is solidly profitable, has too much cash — $24 billion — and has more liquid assets that could be sold in a crunch than do, say, airlines.
”But it’s also clear that Wagoner’s strategy of buying market share with steep discount pricing — while making up the difference on the finance side — has GM treading water. ”GMAC will make money, but not as much,” says Morgan Stanley (MWD ) analyst Stephen Girsky. ”In the long run, the auto company has to make money.”
”GM is counting on new models of its big sport-utility vehicles and trucks to pick up the slack. They’re going on their seventh year without a total redesign, which is why some models needed $5,000 rebates at the end of last year. New Chevrolet Tahoe and GMC Yukon SUVs won’t arrive until early 2006. New pickups come later. If the trucks sell well enough to cut $1,000 in rebates, it is worth $1.4 billion in pretax income.
”But in the meantime GM still has too much factory capacity. It faces sharp new truck competition from Toyota, Nissan (NSANY ), and Hyundai. Costs of raw materials are soaring — its steel bill could rise by $500 million this year, says UBS (UBS ) analyst Robert Hinchliffe. And GM may have to cough up more than $1 billion to wriggle free of its ill-fated investment in Italian carmaker Fiat (FIA ). GM’s auto business still generates cash, but it has slowed dramatically, from $10.2 billion in 2003 to $4.2 billion in 2004. This year, Devine says, cash flow will be just $2 billion.
”What worries investors is that any improvement on the auto side may not arrive in time to head off a credit downgrade. That’s why GM executives are working feverishly to safeguard finance. A separate mortgage subsidiary would likely get its own credit rating, since its business is not related to autos. And it would feed profits back to GM in the form of dividends, just like GMAC does now. Separating the mortgage business from GM should give it a higher credit rating. But GMAC Chairman Eric Feldstein argues that even if it kept GM’s current BBB- rating, the mortgage unit would probably get lower borrowing rates. That’s because GMAC already carries a sort of GM penalty — its borrowing costs are actually one percentage point higher than those paid by companies with similarly rated debt.”
.. and on and on.
Yeah, well, I grew up around the car business and tend to pay enough attention to it. You said GM has not been profitable for years. To my knowledge, GM as a whole, up until the latest business year, has been profitable (which is not to say that their profits haven’t been declining). Your article here does not support your point.
2011 is still quite a ways into the future and therefore a) way behind the curve and b) plenty of time to add extra suck for the American market. And I see a bailed-out GM and Chrysler starting to look a whole lot like British Leyland.
And bmaz, the only profitable part of GM for years has been GMAC.
My current automotive objet de lust is the Lotus Exige. 26 mpg highway, romper stomps Ferraris and Porsches.
And that is not true either. Many, if not most, of their foreign operations have been profitable up until just recently.
I want to check out an Exige just for grins. I hear it is very good, but the last time I checked they didn’t have one available at the local Lotus shop. Had hold of an Esprit some time back (mid 80s) for a week or so; part of it was incredible, the other part just seemed like colin Chapman just kind of quit on.
bmaz,
ok, maybe that article wasn’t as clear as it could have been.
Here I excerpt one that is complete with graphs, and 4 pages of detail about GM losing 72 Billion dollars the last 4 years.
http://money.cnn.com/2008/11/2…..2008112508
CNNMoney.com
Fortune
Special Report Detroit’s Downfall
”GM: Death of an American Dream”
by Alex Taylor III
Last updated: November 25, 2008. 4:32PM ET
”…
Wagoner’s biggest flaw may be that he has been too forgiving. Here is a company that has lost more than $72 billion in the past four years, and yet you can count on one hand the number of executives who have been reassigned or lost their job. After spending $1 billion to shut down Oldsmobile, Wagoner has allowed GM’s other weak divisions to live on despite their fading resonance in the marketplace. (A competitor says Wagoner is ”too fundamentally decent” to cut off dealerships and put their employees on the street. GM says closing divisions isn’t cost-effective.)”
”Nonetheless, the dedication and thoughtfulness that Wagoner communicated, aMoneylong with measurable signs of progress (growth in foreign markets, successful new products, continued payroll reductions) prompted me to produce a skein of optimistic, if hedged, stories about the company. I should have taken to heart the analysis of Fortune’s Carol Loomis, who saw bankruptcy looming for GM some three years ago. But after my most recent piece suggesting that a real turnaround was at hand, I finally ran out of patience. The company had been caught totally off guard by the spike in oil prices and possessed no backup plan when truck sales cratered and destroyed GM’s business model for North America. Despite hopeful pronouncements, Delphi, its former parts division and now an independent company, took another turn for the worse and sank deeper into bankruptcy.”
”Meanwhile, the credit crunch was squeezing GMAC, GM’s, 49%-owned finance arm, leaving it unable to deliver loans or leases to armies of potential customers. In a high-fixed-cost business like autos, with all those plants, machines, and people, the cash runs off very quickly when times are bad. The macroeconomic forces at work were no fault of GM’s, but, already heavily leveraged, the company had left itself no room to maneuver.”
”If Washington wants to bail out GM, it’s fine with me. A lot of short-term angst will be avoided, and taxpayer money has been spent for worse purposes. But you have to wonder whether the insular, self-absorbed culture that still dominates GM is up to the job of restructuring the company quickly enough to make it profitable and competitive again. GM has been on a downward path ever since I began covering it. What is going to make it different this time? As painful as bankruptcy may be, it would give GM the leverage it needs to redo its labor contracts and dealer franchise agreements, downsize the company, recruit new management, and position itself for an economic upturn in 2010 that would enable it to regain some fraction of its former glory.”
”Once again, boys might even dream of becoming chairman of General Motors.”
I understand the overall point you are making. And as to North American operations, which I think is the basis of the figures you keep seeing, I think you are right. I believe that with all global operations combined, however, GM has been profitable up until very very recently.
I remember the GM Roadshow exhibit you refer too. It came to our dealership. It was pretty cool.
And one more thing bmaz.
I have long been a fan of GM. When I was a really little kid, GM had a science/engineering demonstration like a fair that went around and and showed all sorts of technological marvels. For years I kept some little pamphlets they had handed out. Eventually I went to engineering school on the same university campus that the fair had been.
My dad drove GM cars. I did early on, and then switched to Chrysler and later to the Japanese. It is a shame but it is a fact that the Detroit 3 and the UAW seem to have made a mutual suicide pact.
I hope that they survive, and am willing to consider a 1 year bridge loan, and maybe even a 2 year one but after that, it would be best to go ahead and have the bankruptcy and try to rebuild from the ashes.