The Difference between GM and Toyota: The Health Care

China Hand’s got a great post describing the biggest difference between GM and Toyota–the health care they pay workers (or not) in their home country. The argument (click through to read it) that GM had to cede the sedan market is one that accords with discussions about business models I’ve had.

 Some excerpts:

Assume that a bridge loan to help the Big Three weather the downturn is going to happen, perhaps when the current crop of congresscritters has left Washington and the bailout can be hung around the neck of the Democrats and the Obama administration.

Maybe in February, we can have a serious discussion about fundamental problems and systemic solutions.

And the whole debate might not hinge on greedy unions, electric cars, CAFÉ standards, on brain transplants for auto executives.

It should be about national health care.

A key difference between GM and Toyota isn’t unions.

It’s national health care in their home markets.

[snip]

The interesting little secret about Toyota is that, like GM, its home base operations are not especially profitable, even with the health care subsidy.

Japan is an expensive place to have a factory. When bonuses are factored in, Toyota and GM workers both make yearly incomes in the $60,000 range.

Even with massive exports of Japan-built cars, the Japanese operations account for about 1/3 of global profits while posting 50% of worldwide sales.

In the first quarter of FY 2006, Toyota’s home operations brought in about US$1 billion of its total profits of $3.23 billion.

That’s roughly what GM was paying per quarter on retirees’ health care.

Read the whole thing.




Playing Chess with the Chinese

Last week, I suggested that Shanghai Automotive Industry Corporation might be the most likely GM buyer, if it came to that.

So if GM goes bankrupt in January, as may happen, it may well have to sell itself off (unless the government guarantees the same kind of financing that it is refusing now). And I believe one company is one of the most likely–and indeed sensible–buyers: Shanghai Automotive Industry Corporation, or SAIC, the Chinese company with which GM partners to do business in that country. 

Apparently, the Chinese thought so too.

Chinese carmakers SAIC and Dongfeng have plans to acquire GM and Chrysler, China’s 21st Century Business Herald reports today. [A National Enquirer the paper is not. It is one of China’s leading business newspapers, with a daily readership over three million.] The paper cites a senior official of China’s Ministry of Industry and Information Technology– the state regulator of China’s auto industry– who dropped the hint that “the auto manufacturing giants in China, such as Shanghai Automotive Industry Corporation (SAIC) and Dongfeng Motor Corporation, have the capability and intention to buy some assets of the two crisis-plagued American automakers.” These hints are very often followed with quick action in the Middle Kingdom. The hints were dropped just a few days after the same Chinese government gave its auto makers the go-ahead to invest abroad. And why would they do that?

A take-over of a large  overseas auto maker would fit perfectly into China’s plans. As reported before, China has realized that its export chances are slim without unfettered access to foreign technology. The brand cachet of Chinese cars abroad is, shall we say, challenged. The Chinese could easily export Made-in-China VWs, Toyotas, Buicks. If their joint venture partner would let them. The solution: Buy the joint venture partner. Especially, when he’s in deep trouble.

How’s that bridge loan looking now, Richard Shelby? You want your Japanese manufacturers to be competing against cars assembled in China?




Shorter Mitt: Let the Auto Retirees Starve!!!

Boy. Mitt Romney let loose one festival of stupid on the NYT op-ed page today. He writes an entire op-ed making prescriptions for the auto industry. But in the whole op-ed, there are just two suggestions that aren’t already being implemented: The first suggestion? Find some way to renege on the pension promises the auto companies have made to retirees:

Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

Unlike that recommendation, his second recommendation is very sound.

The need for collaboration will mean accepting sanity in salaries and perks. At American Motors, my dad cut his pay and that of his executive team, he bought stock in the company, and he went out to factories to talk to workers directly. Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat.

Chrysler’s Nardelli may make $1 million a year, GM’s Rick Wagoner makes $2.2 million a year, and Ford’s Mulally makes $2 million a year, plus truckloads of bonuses. I absolutely agree these guys should take a pay cut (and all but Mulally said yesterday they’d be willing to take them–Nardelli said he’d be willing to follow Lee Iacocca’s $1/year example). But it is more likely that these guys will take pay cuts in case of a bridge than in bankruptcy. (Also, some of them have put real limits on executive compensation and benefits already.)

Aside from these two suggestions, though, breaking a promise to our seniors and cutting the pay of top executives, every suggestion he makes is something that at least one of the Big Two and a Half are already doing.

Mitt predictably starts–after spending a long paragraph talking about how his Daddy turned an auto company around–by calling for new labor agreements.

new labor agreements to align pay and benefits to match those of workers at competitors

Which is, of course, what the UAW negotiated. Last year. While wages and benefits haven’t yet been entirely equalized, they will be, probably by 2010.

Mitt’s next idea is to get rid of management–recruit new guys from unrelated industries.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

I wonder whether Mitt told Mulally–recruited two years ago from the unrelated Boeing company–and Nardelli–recruited just last year from Home Depot and GE–that he considers them real auto industry insiders? That leaves Rick Wagoner as the sole auto industry insider of the three. Mitt? You want to fire Wagoner, be my guest. Though that’s going to be just as easy to do as a condition of a bridge as it would be in bankruptcy.

Though you might want to think twice about firing Wagoner, since he’s doing precisely what Mitt wants–investing in long-term products.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years.

Of course, as Jonathan Cohn persuasively argues, the Big Two and a Half are much more likely to be forced to focus on short-term profitability in bankruptcy than if they’re working through a bridge with strings attached. So if you want long-term vision, you’re better off advocating a bridge, not bankruptcy.

Finally, after advocating for renegotiating union contracts and pension guarantees, Mitt then insists you shouldn’t renegotiate contracts with dealers.

Just as important to the future of American carmakers is the sales force. When sales are down, you don’t want to lose the only people who can get them to grow. So don’t fire the best dealers, and don’t crush them with new financial or performance demands they can’t meet.

The American manufacturers have way more dealers right now than their sales can support; those excess dealers are one significant cause of price-cutting that eats at profit margins and destroys brands. Furthermore, our country will not be able to move toward electrical cars without changing the profit calculations of the dealers. There will be no automobile turnaround without renegotiating dealer contracts. Sure, renegotiating these contracts might be easier under bankruptcy (if bankruptcy were viable, which it’s not), but that’s the one thing that Mitt doesn’t want to do.

In short, Mitt offers one good idea (cuts in executive salaries), one horrible idea (renege on pension promises to retirees), and refuses to do one more thing that needs to happen to turn around the auto industry.

I don’t know whether he’s just this dumb, this unaware of what has been going on in the auto industry for the last half decade. Or whether he just wanted to get on the NYT op-ed page so he could call for cutting union wages.

But I don’t understand how this festival of stupidity is going to help him run for President in 2012.




Live Blog of Auto Hearings: Senate Banking Committee

I was a little late tuning in (CSPAN), so I missed Senator Shelby speaking about how cool his SUVs were, as compared to American SUVs.

Interesting, Jim Bunning (crazy-KY) favors some bailout–so it sounds like he’s siding with this constitutents like McConnell. 

Carper states that a GM bankruptcy wouldn’t be Chapter 11, would be Chapter 7. Also notes that the auto industry has done a lot of the reorganization they’re being called to make now–also mentions the UAW’s concessions.

Liddy Dole (forcibly retired–NC) says it’s all Fannie and Freddie’s fault. There she is! Bust the unions!!

Menendez asks for them to take a responsibility–notes that the climate crisis should not come as a surprise. Slams them for opposing the CA exception on emissions.

Corker (a mix of auto companies-TN) actually comes off as fairly moderate.

Sherrod Brown: We need to help industries that make things.

Allard (retired by choice-CO): says that bailing out Detroit will be unfair to other workers in the industry.

Bob Casey: What is the cost of doing nothing? Invest in American worker. 

Bob Bennett (used to be ew’s boss, sort of-UT): I’m not going to lecture, the Big Three is reducing capacity as quickly as they can. In favor of finding cash to continue. "Hourly workers are going to have to have their contracts renegotiated downward." [Though to his credit, that’s not busting the union.]

Tester: I like iron. I like iron a lot. I had a hard time finding a pickup that was built in the US. That distresses me. I traded off a 2004, I took a loss of 3-4 MPH. That’s ridiculous. [I agree, Tester!!] We’ve got to spend the money in the US–not in Canada. No matter how much money we put forth, if the business model isn’t changed, you’re going to fail.

Martinez: Failed business model. Use the energy funds.

Bayh: Michigan is greater Indiana. We’ve been taking steps, none of which appear in your Econ 101 text book (lists banks, insurance, credit cards, Fannie and Freddie). We should have invested in Lehman Brothers. If we allow 10s of thousands of ordinary Americans to lose their job, it will have unintended consequences, some of them severe. Probably not the right moment in our economic situation to allow that to take place. 

Crapo: We have to use the Committee process.

Stabenow:

I have to confess. Senator Stabenow is a pretty good Senator. But until this point of her speech, I wasn’t convinced. She sounded like a booster–which her audience isn’t going to buy. But she’s reviewing the investments our competitors make (Germany, South Korea, China, etc) into their national car industry. And talking about the suppliers who also supply the military.  [Also, she’s mis-stating the CAR study, which purports to calculate all job losses.] Her note that the PBGC is going to be on the line ought to get people thinking, as well. Notes that UAW has taken a 50% cut for wages for new workers. Labor cost gap between domestic and foreign automakers will be eliminated by end of UAW contract. Eliminated 50% of companies liabilities for health benefits. "Somebody has to make something in America. Credit Default Swaps aren’t going to do it." We need to make sure we’re not moving from foreign dependence on oil, to foreign dependence on technology, to foreign dependence on manufacturing.

Ron Gettelfinger: Starts with warning that PBGC would be responsible for pre-Medicare auto retirees. What the UAW has done. Commitment that retirees would not have to contribute to healthcare. Negotiate health care fund. Talks about safety record and quality records. "There is [sic] a lot of misconceptions out there about our unions." Have lost 47,000, and all but eliminated jobs banks.

Mulally (Ford): [I was at Dearborn the day after Mulally was hired. A lot of people complained about his payment package. But I do think he has made good decisions.] Well on our way to building a new Ford. Is there a competitive future for our auto industry. Is a bridge loan better than inaction. The answer to both of these is yes. As a newcomer to this industry, I have seen this in a different light. Boeing, transform commercial airplane business. More aggressive transformation. Aggressively restructure. Closing 17 plants and shedding 51,000 jobs. Balanced line-up. The best or among the best fuel economy with every new vehicle. Will introduce two new hybrids. Fusion hybrid beats Camry hybrid by 6 MPG. Enlarged production at truck plant and converting fuel efficient small cars.  We were profitable in the first quarter and were on our way to profitability. Eliminated all raises and bonuses. [That’s going to help.] Suggest loans be structured in revolving format, to protect taxpayers. Must prepare ourselves for deteriorating economic environment. Domestic auto industry highly interdependent. 

Nardelli (Chrysler): Consumer loans, wholesale purchase, and Chrysler obligations, $4-5 billion/month. What happens with bankruptcy: We believe that retail sales will plummet dramatically, sales fell 37%, consumers leery of buying product from manufacturers not in existence. Our factories would be idled for significant period of time while we negotiated contracts with thousands of suppliers, would turn the whole financial equation upside down, where we’d have to buy COD and then build and wait for funds. Cost would be significantly higher in a Chapter 11 process than what we’re asking from this committee. We cannot be sure we’d emerge from bankruptcy. Welcome govt as a shareholder. Cerberus would forgo any benefit from the upside that would happen with a govt loan. Taken out 30% of installed base. Reduced fix costs by $2.2 billion. Furloughed 32,000 employees (12,000 salaried employees). Through first half, exceeding targets. 

Wagoner (GM): Starts by describing his constituents, including employees, stockholders, retirees, and GM owners. GM has made a lot of progress. Since 2005, reduced fixed cost by 23%. Expect to reduce more. Between 2003-2010, reduce US hourly labor costs from 18B to 6B, President Gettelfinger has worked with us to have a competitive labor situation. Addressed pension and retiree cost in the US. Now matching or beating foreign competitors on productivity, quality, safety, and by 2010 will beat them on labor costs. Advanced propulsion technologies. More than twice nearest competitor in number of cars with 30 MPG cars. Running all out to get the Chevy Volt to market as soon as possible. We’ve addressed what we think were competitive short-comings, felt we were well on the road to turning around the American business. What exposes us to failure now is not our business plan, it’s the global failure. America’s real economy. We’ll use this bridge to pay for essentials and taxes. In the process, we’ll continue to reinvent the automobile by developing technologies like those in the Chevy Volt. The cost of bankruptcy would be catastrophic. This is about saving the US economy from a catastrophic collapse. It will produce enormous benefits later.

Morici (speaking against the bailout): It would be better to go through bankruptcy to produce cars at costs enjoyed by their competitors. Circumstances are different than 1979, when the US bailed out Chrysler. Today the Detroit 3 have achieved remarkable progress. But they still don’t have costs quite as low as their Japanese competitors. There is no such thing as competitive enough in the auto industry. Either the costs are the same or they’re not. Sooner or later one of them will walk down that path. I ask you to consider the example of AIG. Government ownership. Is $25 billion enough in the grand scale of things. Without a new labor agreement, the Detroit will lag in innovation. GM makes about the same number of cars as Toyota, it has a smaller development fund bc of the cost it bears. If you have less money to develop product, you will have less good products. If Chapter 11 is put off, the industry will continue to shrink. Chapter 11 is viable–they can’t go out of business completely and then there be adequate cars to be sold. Talks about policy issues that could make it easier–but they won’t work. Congress could give substantial support to the automakers. I would condition that on sharing patents. We could have a clunker trade-in program. There are things we can do to improve the efficiency of cars on the street. 

Dodd: There’s no question that authority to use the TARP exists. Paulson–what is the point. What are the financial implications? Is there systemic risk?

Nardelli: Over 7-8B outstanding debt–those suppliers would be helpless in recovery of those funds. Dealers, over a billion of dollars of inventory in lots. Of top 100 suppliers, 96 are common to other companies. 

[I don’t think Nardelli knows what "systemic risk" means. Maybe he should let someone else who knows what it means answer.]

Dodd: What mistakes did the industry make?

Mulally: The real run rate–the real demand rate–we’re assuming that there is a lower run rate. 

Dodd: what might that be?

Mulally: We don’t know, separating out the slowdown, we’re going through vehicle by vehicle, possibility that over the long term less than 17 million.

Nardelli: Eliminated 4 vehicle nameplates–designed for Europe and sold in US. Chief customer officer. Improve performance, reliability, fit and finish. Move to remedy. Warranty costs gone down 25%. [Wow] Having spent time in housing industry, unbelievable bubble. Mistake Chrysler made, responding to customer that wanted bigger vehicles, chased that demand up. Moving as fast as we can to make it much more balanced profile. 

Wagoner: 03-05 period, fueled by low cost credit, under looser terms than would have been appropriate, wealth taken out of houses, trade up and buy vehicles. Within the industry, we had a structural issue. We have a lot of employees, obligations on healthcare, pressure to keep revenue quite high, had to reduce structural costs. We’re all going to have to adapt to more realistic credit terms, less leasing. Energy prices have plummeted, but we don’t believe that’s going to last. A more likely trend volume probably 15.5 million,  and it could be lower. Planning business on much lower business than that.

Dodd: Let me respectfully suggest–you were providing the sources of credit. Some acknowledgment that that was going on in the auto industry. GMAC was provding that cerdit. Any acknowledgment that it was going to end up in this situation.

Gettelfinger: We have been tracking loans (about to say they managed it okay). Consumer payment on auto bills has been pretty good. 

Nardelli: Our credit company at the time didn’t tell people you shouldn’t buy a bigger vehicle. As Rick indicated if you look at delinquency, they’re up, but not like housing industry. 

Mulally: we didn’t offer easy credit, combine low interest prices, with low fuel prices, did incentivize big buying. 

Shelby: Why should we believe you can restructure now when you couldn’t under more benign conditions. A lot of people think the model has failed. What would you do with the money if you were able to get $10 billion? What would you do with it specifically?

Wagoner: What’s different? Our capacity in 2005 was 5 million, now that number will be 3.3 million–we’ve taken a huge chunk of capacity out. 

Shelby: Well why aren’t you making money?

Wagoner: Costs to restructure. Hopefully we won’t have to decrease another 30-40%. Market has plunged bc people can’t get credit. 

Shelby: You weren’t making money when you had cheap money a year ago.

Wagoner: When you take away charges for restructuring.

Shelby: What have you spent on restructuring. 

Wagoner: If we look at business going forward: 12 million next year, 13 the following, level out at 14.5 – 15. We can be profitable. 

Shelby: What would you say to people who’ve said "we’ve heard that before"?

Wagoner: I would take as evidence coming out of the labor agreement last year. Got good products. 

Shelby: Ford? And how are you going to pay this money back?

Mulally: We set out to build a sustainable business. The most important thing was make products that people valued. Best in quality, best in fuel efficiency, best value. Leverage all global assets, best in class small vehicles around the world. Bring online smaller more efficient vehicles. Improve quality–statistically equal or better than our Japanese competitors. On fuel efficiency, participate in energy indpendence act. We would be world class at fuel efficiency. Safety, Ford has more 5 star ratings than any other brands. 

Nardelli: Harbor report. 

Shelby: Familiar with that.

Nardelli: Spot on Toyota. As Ron said, our hours our pay per hour will be competitive, on vehicle production standpoint, we will be globally competitive. Consolidate dealers. Put brands under one roof. Taken structure down, assuming more conservatively than the other fellows. 11 million next year. Delayer organization expand employee control. Adding $400 on fit and finish. 

Shelby: What if you don’t pay it back?

Morici: If you go to China where they’ve got a clean slate, they can compete with the Japanese. So long as you’re downsizing, you’ll have special charges forever. Chrysler is on par with Toyota. Ford is not by large margin, GM is not by 2/3 of that. It’s not that they are not capable managers, but burdened by history. Must be on par with Honda in IN and work rules that puts them on par with Honda in IN. It is possible to accomplish drastic change. 

Shelby: How many model lines? How many are profitable?

Wagoner: 60.  About half are profitable. For lower cost vehicles it’s harder to make money. That’s changing.

Mulally: On brands, we have divested all other brands. We’re losing money now, larger vehicles make more money. We’ll be able to make money on all.

[Shelby doesn’t know what he’s asking here]

Nardelli: Three brands, 20 lines, eliminated several already. Newest products, new minivan, journey, truck, liberty, making money on variable cost basis. 

Carper: Notes that the Durango plant is operating way below capacity. Lay out confluence of events, to 2010, when labor savings really kick in. Carper has a Town and Country Minivan with 210,000 miles on it. Morici, what is unrealistic about what I just suggested?

Morici: Unrealistic that on sustainable basis that we’ll sell 16 million any more. As a consequence they will be selling minivans. With the kind of buyouts the contract requires, an expanding group of manufacturers in the southeast–that’s what’s wrong with the margins.

Gettelfinger: Labor cost savings incremental, 50% pay cut, put them in 401K healthcare. For all employees. COLA and wage concessions in billion dollar range.

Carper: How do we tell taxpayers it’s a good deal for them? 

Wagoner: between dealers and suppliers, affects every state. Take our commitments to ensure it’s paid back and with interest. Expectations something addition, whether it’s warrants or whatever. 

Carper: New administration in 63 days, 7 hours, and 4 minutes. Infrastructure development. Focus on hydrogen infrastructure? 

Bennett: Public capital would be patient in finance. I see the parallel here. We’re being asked to put public capital into the auto industry, in the belief that as patient capital, it can be paid back over time. We have a contrarian here who says it’s not going to happen.

Morici: Cost structure not aligned. I was working out. If labor cost differential was zero, your hypothesis would be correct.

Bennett: We’re being asked to put public capital in, is it going to work. Even if wage is spot on, and all the other elements are the same as Honda of IN. 

Dodd: I want to know the total amount.

Menendez: Really hammering them on total numbers they’ll need. 

Menendez: I hope you won’t oppose CA’s request for a waver.

Corker: We’ve got one of most important businessmen here, a dealer with about 300 employees. (I bet money I’ve been there…) I don’t think you’d all be considered viable. Chrysler barely has a heartbeat. You’ve all created a pact, but you won’t tell us what you’ve each asked for, though I think you did tell Mr. Levin. I’d like Gettelfinger to tell us which of the three should survive. I just want the numbers.

Gettelfinger: From best to worst? Ford, Chrysler, GM.

Corker: I’ve been a card-carrying union member, I don’t have a problem with unions, well I do of course with card check. 

Wagoner: 80% of consumers would not consider buying a GM car if it were in bankruptcy. (Sounds like Chrysler was 95%, just guessing.)

Dodd defends union for paying people in layoffs. 

Casey: How would you spend the money, and on environmental question, fuel efficiency. How far advanced are you–a status report?

Mulally: We can make it a year, but we want the bridge in place so we can get it if we need it. As to environmental, we’re making the combustion as efficient as possible while putting research in plug-in, electric, and then hydrogen. 

Tester: I’ve got to pee! And will this money be spent in the US?

Yesses all around.

Tester: Wagoner, you’re in business in Russia, how can we be sure we’re not sending this to Russia.

Wagoner: We’re profitable overseas, they send money back here.

Mulally: We do bring profits from overseas back to the US.

Tester: Do you really need the money? If you can take money from other areas? Can’t you do that in the short term?

Mulally: The reason we’re here, with all the markets slowing down worldwide, we’re giving you a status of the companies.

Wagoner: We have tried to repatriate the money from different countries. That played out over the last 60-90 days in W Europe, playing out now in Brazil, we have been very profitable in Brazil this year, but that’s slowing down. 

Tester: Strings attached. CAFE standards. Any problem with that?

Mulally: We’re going to meet CAFE.

Tester: mileage increase in trucks is minimal. I’m talking half tons. If you get those up your CAFE would go up significantly.

I agree, Tester, knew I liked you!!

Tester: you’d be opposed to string attached for bailout.

Tester: Lee Iaccoca took one dollar compensation. Would you be willing to do that?

Nardelli said yes. Wagoner said he already cut his salary 50%. Mulally hedged. 

Good question–seems we need to come back to that. 

Morici: Strings–the best would be to the nine largest banks.

Tester: has the $300 billion helped you?

Wagoner: We have been able to use the fed window, but not beyond that.

Nardelli and Mulally: No, none.

Dodd for Mikulski: Tax deduction for buying a new car?

Nardelli: We wouldn’t turn down the help, but before you get the crisis, you have to buy a vehicle, the FICA scores are too high to qualify. Our biggest immediate challenge is to get, we must get the financial companies healthy. And certainly then the tax credit would be beneficial. 

Dodd: Executive compensation are pretty rich. [starts describing them] If we’re going to be talking about an assistance here, it’s very important that you understand teh public’s reaction to this, it is the concern that people have that some people are subsidizing this. I can’t tell you what sort of reaction we’d get from the public if they could be sure they’re not going to pay to subsidize exorbitant salaries. 




Mitch McConnell’s Undisclosed Location

I’m utterly fascinated by two aspects of the debate over the bailout. First, why it is that reporters repeatedly cite Richard Shelby–the biggest opponent of the bailout–without noting that if GM goes under, the foreign manufacturers making big inefficient SUVs and trucks in his state will get a huge competitive advantage? Carl Levin is presented as representing Detroit, why isn’t Shelby described as representing Detroit’s foreign-owned competition?

I’m also fascinated by the role of Mitch McConnell–with McCain’s electoral embarrassment and John Boehner’s imminent ouster, the leader of the Republican party. McConnell, of course, represents an auto state–a pretty fascinating auto state, in fact, one that has a bunch of union manufacture of American products, as well as non-union manufacture of efficient Japanese cars. So does Mitch lead the opposition to the bailout–and oppose the interests of thousands of his constituents? Or does he support it, presenting an awkward defection for the Republican campaign to break the unions?

Apparently, if you’re Mitch McConnell, you chose option "C," none of the above. Instead, if this article from McConnell’s state is any indication, you hide.

The article cites,

  • William Parsons Jr., who organizes the annual Global Automotive Conference in Kentucky
  • Ken Troske, director of the University of Kentucky’s Center for Business and Economic Research
  • Toyota spokesman Mike Goss
  • Laurie Harbour-Felax, an industry observer and president of the Harbour-Felax Group
  • Kristin Dziczek, a researcher at the Center for Automotive Research in Ann Arbor, Mich

And of course,

  • Sen. Richard Shelby, R-Ala

But no mention of the hometown Senator and the most powerful Republican in the country, Mitch McConnell.

I’ve got unconfirmed sightings of Mitch in a spider-hole in Iraq, but I’m still working to confirm that report.




The Auto Bridge Plan

Here’s what Barney Frank’s Financial Services Committee is proposing to bail out the US auto manufacturers, using money from TARP.

  • Short-term Operating Plan – The automaker must submit a short-term operating plan that describes the intended use of the loans, including the commitment of resources to develop a long-term restructuring plan and repayment of the loan to taxpayers with interest.
  • Long-Term Restructuring Plan – By March 31, 2009, loan recipients must submit to Treasury an acceptable restructuring plan for long-term viability and international competitiveness, including meeting enhanced fuel efficiency standards and for advanced technology vehicle manufacturing,and restructuring of existing debt. 
  • Executive Compensation and Corporate Governance – All executive compensation restrictions from TARP apply to loan recipients for the duration of the loan plus the following additional restrictions:
    • No bonuses to employees making more than $200,000 (which Treasury will adjust for inflation).
    • No golden parachutes under any circumstances.
    • No compensation plan that could encourage manipulation of reported earnings to enhance compensation.
  • Warrants – Treasury must obtain warrants from each loan recipient (or economic equivalent in the case of a privately held firm) equal to 20 percent of the loan or such greater percentage as may be determined by Treasury in consultation with the Oversight Board. 
  • Dividends – Recipients may not pay any dividends for duration of the loan.
  • Acceleration of Repayment for Failure to Comply – If a company receiving a loan fails to prepare an acceptable restructuring plan, the Treasury can demand accelerated repayment of the loan.
  • Terms of Loans:  
    • Term:  7 years (or longer as may be determined by the Oversight Board). 
    • Interest Rate: 5% for first 5 years and 9% thereafter.
    • Super Seniority: All other obligations and liabilities of a recipient will be subordinate to the loan—putting the taxpayer in the first position for repayment.
    • No prepayment penalty.

I’m most interested in requirement for the March 31, 2009 long-term restructuring plan. The demands on fuel efficiency should be more precise. And the emphasis on "international" profitability–rather than "domestic" profitability is a bit of a gimmick, IMO. GM will be able to show international profitability a lot quicker than it will be able to show domestic profitability because of its ongoing legacy costs and the health care costs that it bears but some of its competitors don’t. 

I’m going to go read the draft bill now–what are your thoughts on this?




T. Boone or not T. Boone

h/t www.thewindturbines.com/

h/t www.thewindturbines.com/

We have had quite the go lately here at the FDL Borg Hive over the automaker bailout and, more specifically, the most pressing of which is GM. For the moment though, I want to touch on a corollary to the future of the American auto industry, and that is the transition to clean and green that needs to occur for long term sustainability of Deetroit wheels.

If we could flip the switch on a perpetual motion device, heck even the Chevy Volt, tomorrow, that would be wonderful. But we cannot. The path back to health and profit prosperity for American auto will be a process that takes time, and it is going to take intermediate steps while the new technology comes on line, gets refined and evolves into maturity.

The guy, for better or worse, that has been out front making noise about the transition from oil to clean and green is none other than the infamous, and legendary, Texas oil man T. Boone Pickens. Transition is the key word regarding the Pickens Plan as it relates to our topic de jour, automobiles. Because the Volt is not scheduled for release until 2010, and even assuming GM and its Volt makes it that far (which is no given), it will take a while for plug in technology to become deeply rooted. And, of course, a massive shift all at once to electric autos would crash our strapped and deteriorating power grid.

Pickens’ main point on internal combustion transition is that natural gas should be a, it not the, transition fuel for cars, and, more significantly, fleet vehicles.

Pickens’ Plan proposes that the natural gas that is currently used to fuel power plants could be used instead as a fuel for thousands of vehicles. Ken Medlock says that the US will continue to use natural gas for electric power generation. Natural gas burns cleaner than coal, making it an increasingly popular fuel for power plants. Gas plants also produce fewer greenhouse gas emissions.

The technology needed for Compressed Natural Gas (CNG) vehicles such as City buses, fork lifts and passenger cars with CNG drivetrains is available now. Honda sells the Civic GX, with a 170-mile range. In addition, it is possible to convert vehicles to run on CNG in addition to leaving the conventional fuel injection intact, allowing the driver to switch back and forth at will. Kits are available for the do-it-yourselfer. One can buy a CNG compressor called Phill that hooks up to the city natural gas line making it possible to refuel a CNG car at home.

There are a lot of issues to be taken with T. Boone Pickens however, there is some merit to the compressed natural gas (CNG) idea as an interim fuel to power the transition to the clean and green engine/power modalities of the future. Especially for municipal and other fleet vehicles; however, the Honda Civic GX and conversion kits are viable ideas for daily driving by individuals as well.

Now, as to whether T. Boone or not T. Boone, well that is a much more difficult proposition. It is pretty hard to listen to the Boonester preach about all this after being one of the leading right wing asshole oil men of all time. Very hard. Is he genuine? Probably not entirely, no; he stands to profit from the build out, production and sale of facilities and the product, and, make no mistake, at some point there is a domestic and global natural gas peak limit just like that of oil.

As a short term, interim part of the transition, however, there are some real merits to consideration of CNG, especially on fleets. And as to T. Boone, well I am not buying in very far to his schticht, but his relentless hawking of his plan on TV, radio, and every other forum he can get his mug in front of has some incredible side benefits of getting the public inured to alt fuels and new ways of thinking on energy. That is a very good thing. We don’t want to throw in with the man and his plan, but the publicity for wind and solar, and alt fuels is priceless.