Journalists and Auto Workers

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For probably perverse reasons, this was my favorite moment in Obama’s speech to the Radio and TV Correspondants Dinner.

Of course, most of my attention has been focused here back home.  As you know, we’ve been working around the clock to repair our major financial institutions and our auto companies.  But you probably wouldn’t understand the concept of troubled industries, working as you do in the radio and television. 

AUDIENCE:  Oooh!

THE PRESIDENT:  Oh — we don’t joke about that, huh?  (Laughter.)  That’s not funny.  (Laughter.)

The similarity between the failed American auto industry and the failing American newspaper and news entertainment industries is really apt. It’s a comparison I made–without getting booed–at a couple of panels a few weeks ago. But it’s a comparison that the elite in the journalism world are not yet ready to face.

The way I see it, both the auto and journalism industries are facing radical structural changes in their industry. For autos, it’s globalization and the need to compete against newer, partly subsidized transplant auto companies. For the journalism industry, it’s the challenge of digital culture, both the rise of Internet competitors and the ability to copy content with little cost.

And both industries want to pretend that’s all that’s going on in their industry–it’s all the fault of these radical changes, the industries themselves are not to blame for their declining fortunes.

Yet, as everyone outside of a few zip codes in MI taunts, it’s actually the really stupid management decisions that have sunk the auto industry. Those taunts are correct, in large part (though the taunters usually have no clue about the structural reasons for those crappy management decisions, and so have no idea how to fix them).

Whereas Athenae–and those of us who read her religiously–seem to be the only ones who want to talk about the chronic, predictable, greedy, absolutely boneheaded decisions of the news industry’s management.

There’s a lot more to be said about the parallels between the dying US auto industry and the dying news industry, not least the arrogance of refusing to listen to your customers’ expressed desire for a quality product.

But back to the President’s flopped joke.

There’s one big difference between the auto industry and the news industry right now.

Aside from some arrogant CEO’s before Congress–only the successful one of whom still has his job–we’re pretty ready to admit that the auto industry needs to change to stay viable. 

Read more →

Dan Maffei Joins Bob Corker in Trying to Rewrite BK Law Just for Car Dealers

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Somewhat related breaking news: Ruth Bader Ginsburg has stayed the finalization of the Chrysler BK so the full court can decide whether to hear the Indiana Pension Fund’s appeal.

Dan Maffei is introducing a bill called the "Automobile Dealer Economic Rights Restoration Act," which basically restores Chrysler and GM dealer contracts even though both companies are in bankruptcy. In his bill, he makes the following claims:

(1) Automobile dealers are an asset to automobile manufacturers that make it possible to serve communities and sell automobiles nationally;

(2) Forcing the closure of automobile dealers would have an especially devastating economic impact in rural communities, where dealers play an integral role in the community, provide essential services and serve as a critical economic engine;

(3) The manufacturers obtain the benefits from having a national dealer network at no material cost to the manufacturers; and

(4) Historically, automobile dealers have had franchise agreement protections under State law.

Uh huh. "The manufacturers obtain the benefits from having a national dealer network at no material cost to the manufacturers." That’s nice.

That’s also really funny, because the BoGlo has a story up that–while it allows the manufacturers (particularly GM) to inflate the benefit they’ll get from paring their dealer network–nevertheless gives an idea of how important cutting dealers will be to any future success of these companies.

Remaining dealerships will be able to charge more for cars, analysts say, because fewer dealerships make it harder for buyers to spark bidding wars. And as auto companies scale back factory production, heavy discounts and dealer incentives will dry up.

Tom Wilkinson, a GM spokesman, said once the "current glut" of car brands disappears, prices for GM cars will increase anywhere from $2,000 to $6,000 for a new vehicle.

Chrysler expects to see a price increase on new cars in the range of $1,000 to $2,000 over the next year or two, said Kathy Graham, a company spokeswoman. She cautioned, however, that prices are ultimately "market-driven."

[snip]

Paul Bertoli, co-owner of Pride Motor Group in Lynn, which sells Chevrolets, said that after GM emerges from bankruptcy – which is expected in 60 to 90 days – customers will flock to him.

"The Chevrolet competition is going to be the Ford dealer, the Toyota dealer, the Honda dealer," he said. "Not another Chevrolet dealer."Sales figures bear it out. GM dealerships across the nation sold 440 new vehicles on average in 2008, compared to Toyota’s 1,150, according to Ward’s Dealer Business. Chrysler sold 480 on average, compared to Honda, which sold 760.

This is exactly right (and the dealers all know it): Read more →

Bob Corker, After Begging for Auto BK, Wants Dealers Exempted

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Wow. Even I am surprised at Bob Corker’s rank hypocrisy this time. After begging and begging and begging that America’s auto manufacturers be forced into bankruptcy last year–a process, after all, that allows companies to renegotiate all their contracts to make them more competitive–Bob Corker is now pushing to force those same manufacturers to not only honor the existing contracts they’ve got with dealers, but hold off on terminating them for 180 days.

 Chrysler and General Motors Corp would have to fully reimburse terminated dealerships and give them 180 days to wind down their operations under a proposal introduced on Thursday in the U.S. Senate.

"We filed this amendment to apply pressure on the automakers to keep their word to rejected dealerships and fully reimburse them for their inventories of vehicles and parts," said Tennessee Republican Bob Corker.

"We hope Chrysler and GM will take these appropriate actions and make this amendment unnecessary Corker said in a statement after introducing the measure.

Corker’s amendment would not permit judges in both automaker bankruptcies to approve government-funded debtor financing unless his terms are met.

Aside from the fact that this is probably mere posturing, at least in the case of Chrysler (because by the time this passed, it’d be too late, because the judge is going to finish this up next week), consider what this means. After having made sure that tens of thousands of working men and women will be out on the street overnight (not to mention the big number of supplier workers who will lose their jobs, too), after having made sure that the health care of hundreds of thousands of retirees is at risk, Bob Corker now wants his small businessmen friends to go through this process without losing out at all.

As I’ve said: what’s happening with dealers is tragic–for many of them, generations of life work is being ended almost overnight. But that’s no more or less tragic than the thousands of middle class workers losing their livelihood (and for many of them, that livelihood is a multi-generational thing, too). And Bob Corker was personally responsible for making sure there wasn’t a more viable way to do this back in December.

Bush Punted on GM and Chrysler … But Not Cerberus

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As you’ve no doubt heard, Cheney confessed yesterday that Bush punted the auto crisis into Obama’s lap.

CHENEY: Well, I thought that, eventually, the right outcome was going to be bankruptcy. … And the president decided that he did not want to be the one who pulled the plug just before he left office.

VAN SUSTEREN: Why?

CHENEY: Well, I think he felt, you know, these are big issues and he wouldn’t be there through the process of managing it, but in effect, would have sort of pulled the plug on GM and that was one of the first crises the new administration would have to deal with. So he put together a package that tided GM over until the new administration had a chance to look at it, decide what they wanted to do.

VAN SUSTEREN: But it’s cost us billions to get — I mean, you know —

CHENEY: It has. … And now the government owns a big chunk of General Motors. That bothers me. I don’t like having government own those kinds of major financial enterprises. I think it’s — it does damage to our long-term economic prospects when we get government involved in making those kinds of decisions.

Now, that was pretty clear at the time. That was sort of the subtext of what Bush said at the time:

… there’s too great a risk that bankruptcy now would lead to a disorderly liquidation of American auto companies. My economic advisors believe that such a collapse would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry. It would worsen a weak job market and exacerbate the financial crisis. It could send our suffering economy into a deeper and longer recession. And it would leave the next President to confront the demise of a major American industry in his first days of office.

Bush gave the car companies three months of funding (he claimed), so they would go bankrupt on the 100th day of Obama’s Administration, rather than the first.

But that doesn’t mean Bush was willing to leave all of this mess for his successor. He made damn sure, you see, that he took care of Cerberus before he left office.

He did so in two ways. First, in Christmas week negotiations that no one followed, Bush allowed Cerberus–and not Chrysler–to negotiate the terms of the December loan to Chrysler. And then Bush gave Chrysler just $4 Read more →

Is Obama Fixing to Own Some Banks?

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The other day, I suggested that Obama’s principles of government ownership sounded like they were designed for more than just GM.

There’s evidence to support that suggestion in this reasonably good David Sanger article on the GM bankruptcy.

In interviews in recent days, Mr. Obama’s economic team said it anticipated [political pressues regarding business decisions related to companies the government owns], and had moved to cut them off early.

“It started right around the time of the bank stress tests,” said Rahm Emanuel, Mr. Obama’s chief of staff, in an interview on Monday. During one of the president’s daily economic briefings, Mr. Emanuel added, “he said that taking over companies like this is a big deal, and that no president has ever faced anything like this before. And he said he wanted to see some rules of the road about how the government should act” when it suddenly becomes the biggest shareholder in the market.

Mr. Obama clearly wanted protection: a set of principles he could hand to angry members of Congress, campaign contributors or executives to explain why he would not call Fritz Henderson, G.M.’s chief executive, to discuss whether an engine should be made in Saginaw or Shanghai.

The result was an interagency task force informally called “The Government as Shareholder,” headed by Diana Farrell, the deputy director of the National Economic Council and formerly the head of the McKinsey Global Institute, the research arm of McKinsey & Company.

It was Ms. Farrell’s report, delivered to the Oval Office fewer than 10 days ago, that laid out the principles that Mr. Obama described on Monday.

The White House insists the principles will apply equally to the government’s investment in the American International Group, the fallen insurer, or in Citigroup and other banks that the government has rescued. [my emphasis]

Sanger doesn’t seem to get the implication of Rahm’s comment. Rahm tells us these principles–principles the government will use with companies it owns–came up not during auto task force discussions, but during the bank stress tests.  That means the conversation about socialism how big a deal it is for the government to own companies came up in the context of owning banks, not owning car companies.

Sure, we already own an insurance company and Freddie and Fannie. Sure, maybe the reference to Citi is a very pointed reference. 

But it sure seems like these principles suggest we’re going to be owning a bank in the near future, to go along with GM and AIG.  Read more →

Bye Bye American Pie

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As most of you know by now, automobiles are personal to me. I grew up around cars, car people and car racing. And I grew up in America of the 60s and 70s. Whence I came from Baseball, Hot Dogs, Apple Pie & Chevrolet wasn’t just a slogan, it was a root truth and way of life.

My parents moved west for a good climate for my father’s asthma and so that he could open up a new car dealership. Years before I was born, that’s what he did. The gleaming edifice at right is it after being constructed but before the stock arrived for the grand opening. The photo on the left is at the ribbon cutting. The man on the left is my father; the man on the right his partner and the little girl in the middle his partner’s daughter. I was still a few years from being born, ergo I am not pictured. It started out as a Studebaker/Chrysler/Imperial dealership, but was converted somehow (not quite sure on this) to a Chevrolet dealership after my father died when I was age two. So I have roots in both of the big news items of today in autoland, the bankruptcy of General Motors and the emergence of Chrysler. The third leg, Studebaker, died long ago and was the catalyst for our move to Chevrolet. As went the sturdy Studebaker, so almost went the mighty GM.

All of the foregoing has made this a very bittersweet day for me. There is something at once both greasy and wonderful about the greater automotive business. But ask Rayne or Marcy or anyone from Michigan or anywhere teh biz iz, anyone around it for any substantive amount of time; it gets under your skin and in your blood. In a profound way. It was Americana; it was us. General Motors was bigger than The Phone Company and it was bigger than Big Brother.

Today, the General, at least as we knew it, is gone. It has been bankrupted, placed into Chapter 11 and replaced by talk of "The New GM" which will emerge. Don’t be distracted by the shouting points of the minute; this is an important and transcendent day. I have had so many thoughts, on so many tangents and planes; but I cannot relate all of them in coherent and linear thought. So, I want to adopt and incorporate some thoughts by Dan Neil of the Los Angeles Times. Please, when you are done reading this post, go read Dan’s full article, it deserves it.

For those that think GM has lost its importance, Read more →

Obama: They Said We Couldn’t Fast-Track Chrysler, Now I’m Doubling Down

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Since I’m in town anyway, I decided to go hear the President announce the government taking a 60% stake in GM at the White House today (and they let me in!).

Given the finalization of the Chrysler sale today, the announcement had the distinct tone of an "I told you so:"

And keep in mind — many experts said that a quick, surgical bankruptcy was impossible. They were wrong. Others predicted that Chrysler’s decision to enter bankruptcy would lead to an immediate collapse in consumer confidence that would send car sales over a cliff. They were wrong, as well. In fact, Chrysler sold more cars in May than it did in April, in part because consumers were comforted by our extraordinary commitment to stand behind a quick bankruptcy process. All in all, it’s a dramatic — an outcome dramatically better than what appeared likely when this process began.

And I will confess, I was one of those who–in January–doubted that the Chrysler bailout could have ended as well as it did (though I regard it more as a "least worst solution"). So kudos to Obama’s auto task force team, thus far, they’ve pulled this off.

Of course, with GM’s additional size and complexity, Obama’s announcement of the GM restructuring was basically a bold doubling down. They admit that BK will take three times as long, and I’m sure it’ll be every bit three times as difficult.

In all likelihood, this process will take more time for GM than it did for Chrysler because GM is a bigger, more complex company. But Chrysler’s extraordinary success reaffirms my confidence that GM will emerge from its bankruptcy process quickly, and as a stronger and more competitive company.

There was one piece of news–or news to me–that I hope to check the math on. Obama claimed that this BK process will result in GM "building a larger share of its cars here at home."

As this plan takes effect, GM will start building a larger share of its cars here at home, including fuel-efficient cars. In fact, if all goes according to plan, the share of GM cars sold in the United States that are made here will actually grow for the first time in three decades.

Given the sharp decline in production they’re forecasting, this may just be a matter of math. But it does suggest they’re going to close down some Mexican production (or something) in an effort to keep factories open here. Read more →

Obama Announces Socialism!

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No, not really. Rather, the Obama Administration held a background briefing to explain what will happen as GM enters bankruptcy tomorrow, a big part of which was designed to calm worries that by owning a huge chunk of GM, we will become a socialist country.

The briefing reviewed the terms of the agreement. And, perhaps most interestingly, they announced "principles of government investment"–rules the government will follow when it takes a significant stake in a company. They did note they’d use it with companies in which they already have huge stakes (AIG). But I got the feeling they thought they might be using these principles in the future. So maybe we really will start nationalizing some companies.

The principles of government investment were basically:

  • Install the right kind of management
  • End the need for government support as quickly as possible
  • Protect taxpayer investment
  • Do not interfere with day-to-day operations
  • No government employees will serve on the board
  • Only participate on core board issues, such as selection of board members, major events, and transactions

It’s a bunch of pablum designed to calm the fears of those worried about socialism, but it doesn’t really add up to protecting the interests of Americans. For example, when asked whether the government would limit executive compensation, they said only that the company had to comply with all laws (they mentioned the Dodd amendment specifically), and otherwise, that the compensation committee would decide executive compensation.

And when asked whether the government would prevent GM from importing cars from China, they said that GM had made a commitment in its renegotiated labor contract for production in North America (note: North America includes Mexico, of course). The press release says, 

The new GM will also pursue a commitment to build a new small car in an idled UAW factory, which when in place will increase the share of U.S. production for U.S. sale from its current level of about 66% to over 70%.

Committing one factory to a new small car (which may be the Spark they talked about importing from China) does not rule out also producing them somewhere else–like Mexico.

So the takeaway, I think, is that as of tomorrow we will, indeed, own a big chunk of GM (incidentally, Canada will get a 12% stake). But the only way we’ll get to really influence the policy at GM will be to infiltrate the GM board with socialists.

Socialism, the American way.

The Politics of Car Dealers

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Thanks to Nate Silver and KO for debunking the claims about political favoritism in which car dealers get closed under the Chrysler and GM bankruptcies. Here’s Nate:

A meme that is currently picking up traction in the conservative blogosphere is that the list of dealerships to be shuttered as a result of Chrysler’s bankruptcy contains a disproportionate number donors to Republican candidates. There have been furious efforts to prove this contention by looking up campaign contributor lists at the Huffington Post, Open Secrets, and other places.

There is just one problem with this theory. Nobody has bothered to look up data for the control group: the list of dealerships which aren’t being closed. It turns out that all car dealers are, in fact, overwhelmingly more likely to donate to Republicans than to Democrats — not just those who are having their doors closed.

[snip]

Overall, 88 percent of the contributions from car dealers went to Republican candidates and just 12 percent to Democratic candidates. By comparison, the list of dealers on Doug Ross’s list (which I haven’t vetted, but I assume is fine) gave 92 percent of their money to Republicans — not really a significant difference.

There’s no conspiracy here, folks — just some bad math.

There’s one more thing that needs to be added to this story. Not only are car dealers disproportionately Republican. But political donations from the auto industry disproportionately come from car dealers. OpenSecrets explains:

The Big Three automakers may be the public face of the American automotive industry, but they are far from its biggest campaign givers. Auto dealers – not manufacturers – are the biggest source of campaign funds from this industry, which also includes truck and auto parts makers, auto repair services and car rental agencies.

It shows that in the 2008 cycle, the National Auto Dealers Association gave $2,990,500 to federal candidates and parties, whereas Ford, the biggest donor among manufacturers, gave $892,533. And note how prominently some individual car dealers show on that list. In this cycle, OpenSecrets show, donations to Democrats are approaching parity, whereas they have preferred Republicans by wide margins in the past, but that’s largely because of a shift in the giving patters of the trade group, the NADA. Also note that the CEO of the largest dealer in the country, Auto Nation, Mike Jackson, has consistently spoken favorably of the bailout, but that’s because their dealers are barely affected by the closings.

And the prominence of car dealers explains a lot about how the bailout ended up like this. Back in November when Bob Corker was getting a lot of props for putting a pretty face on his attempts to bust the UAW, I noted that Corker had left concessions from dealers entirely off the table.

Best as I can tell from the speeches, the takeaway from Bob Corker’s cynical "compromise" bill is this. Read more →

As Goes the Chevy Volt, So Goes America?

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Me driving a Chevy Volt mule

Yes, I’m being a bit cruel, posting this the week that GM will probably declare bankruptcy. But that may make the question more apt, particularly given rising concerns about the US’ own credit rating.

As I told you all a million weeks ago, I had the opportunity to drive a mule version of the Chevy Volt around GM’s Tech Center about a month ago (it’s in a Cruze body). Perhaps it’s because I did the test drive and not our true car wonk, bmaz, but I found the drive as interesting for the big picture issues underlying the Volt as for the test drive itself.

 The Car

My thoughts about the car come largely from the biggest reason I didn’t seriously consider a Prius when I bought a new car last year. I prefer small, efficient cars–with manual transmissions, so I can get what power they have when I need it. It would take a lot to convince me to give up my stick shift and the Prius, with its underpowered engine, wasn’t able to do that (particularly not after a friend drove me around the hills of SF in it). 

The Volt I drove–which has 80% of the functionality the production car will have–had enough power to convince me to give up a stick shift. It was immediately responsive and the pickup was good. The Volt, like the Prius, also has regenerative braking that uses the engine to brake (making it akin to downshifting), which is another feature that might get me out of my stick shift.

Otherwise, the car drove like a car. bmaz isn’t going to set any speed records with it, but it is responsive and feels like a substantial car.

I say it "feels like a car" and that’s largely deliberate. Though it runs silently, as you’d expect an electric car to, the GM engineers have tweaked the engine so it mimics what people now expect out of combustion engine, such as a pause where the car would normally shift out of first. There’s an interesting balance, it seems to me, in the engineering decisions they’ve made, between playing to the futuristic side of the Volt, and to the expectations of your typical driver.

Custom car

One of the more futuristic things they will have on the car are custom themes–background color for the dash screens and custom sounds, just like your cell phone has. Read more →